The Fifth Circuit issued a decision on July 17, 2013, that limits Dodd-Frank’s anti-retalition provision’s coverage to employees who provide information to the SEC. In doing so, it rejected numerous other court decisions that held to the contrary.
By way of background, the anti-retaliation provision of the Dodd-Frank Act is intended to protect whistleblowers from employer retaliation for providing information to the Securities and Exchange Commission (“SEC”), so long as they reasonably believe that the information provided relates to a possible securities law violation. 15 U.S.C. § 78u–6(h)(1)(A)(i). This part of Dodd-Frank’s anti-retaliation provision received the most attention after Dodd-Frank became law in July 2010.
However, in a lesser known aspect of Dodd-Frank’s anti-retaliation provision, there is also protection provided against retaliation for whistleblowers who make “disclosures that are required or protected under the Sarbanes–Oxley Act of 2002 (15 U.S.C. § 7201 et seq.) . . . .” 15 U.S.C. § 78u–6(h)(1)(A)(iii). In Kramer v. Trans-Lux Corp., No. 3:11cv1424(SRU), 2012 WL 4444820 (D. Conn., Sept. 25, 2012), the district court relied on this part of Dodd-Frank’s anti-retaliation provision to hold that SOX retaliation claimants may also seek relief through Dodd-Frank. This is significant because it allows a claimant: (1) to avoid the OSHA exhaustion requirement imposed under SOX; (2) the benefit of a longer statute of limitations than is available under SOX; and (3) to receive potentially higher damages, as Dodd-Frank allows for liquidated damages while SOX does not. In rejecting the employer’s argument that this holding was problematic because it allowed for an “end around” SOX, the court stated:
Trans–Lux argues that the SEC’s rule is an impermissible construction of the statute because it would allow potential plaintiffs to pursue under the Dodd–Frank Act retaliation claims they would have otherwise pursued under Sarbanes–Oxley. This is problematic, Trans–Lux asserts, because the Dodd–Frank Act has a longer statute of limitations than Sarbanes–Oxley, and no exhaustion requirement. Yet the Dodd–Frank Act appears to have been intended to expand upon the protections of Sarbanes–Oxley, and thus the claimed problem is no problem at all.
Id. at *5.
So far, other district courts have followed Kramer’s holding to permit a “SOX claim through Dodd-Frank” even where the plaintiff made no report of any kind to the SEC. See Murray v. UBS Securities, LLC, No. 12 Civ. 5914(JMF), 2013 WL 2190084, at *3-4 (S.D.N.Y. 2013), and cases cited therein.
But on July 17, 2013, the Fifth Circuit U.S. Court of Appeals agreed with the defendant’s arguments in Kramer, and held that, to have a Dodd-Frank retaliation claim, one must have provided information relating to a violation of the securities laws to the SEC – meaning that a claimant who has made a report to the SEC that is covered by SOX may have a Dodd-Frank retaliation claim (in addition to a SOX retaliation claim), but one who never made any such report to the SEC would not have a Dodd-Frank retaliation claim. Asadi v. G.E. Energy (USA), L.L.C., __ F.3d __, 2013 WL 3742492, at *8 (5th Cir. July 17, 2013). A conflict appears to be brewing, and it would not be surprising to see this issue in front of the U.S. Supreme Court one day.