Second Circuit Finds that Whistleblower Making Internal Report is Still Covered by Dodd-Frank Whistleblower Protections

In a significant split decision regarding the scope of Dodd-Frank’s whistleblower protections, the Second Circuit Court of Appeals has reversed a lower court’s dismissal of a retaliation claim brought by a whistleblower who made an internal report of alleged improprieties. According to the majority, Dodd-Frank is ambiguous regarding whether a whistleblower has to make a report of suspected improprieties directly to the Securities and Exchange Commission (SEC) in order to be covered by its anti-retaliation provision. Berman v. Neo@Ogilvy, No. 14-4626 (2nd Cir. 9/10/15).

In ruling for the whistleblower, the majority found that those ambiguities in the statute required it to defer to the SEC’s interpretive guidance, which concluded that external reporting to the SEC was not required in order to gain Dodd-Frank’s protections. Significantly, both the majority and dissenting opinions noted that the Second Circuit’s opinion creates a circuit court split with the Fifth Circuit.

The Second Circuit’s decision, in Neo@Ogilvy, revives and remands a lawsuit brought by Neo@Oglivy LLC’s former finance director, who was fired after internally reporting suspected violations, but before he made reports to the SEC. The director sued, alleging that his firing violated Dodd-Frank whistleblower protections. However, the district court dismissed the suit, finding that the director was not covered by Dodd-Frank protections because, while he made internal reports of improprieties, he only went to the SEC six months after he was fired.

In its opinion, the majority discussed the relationship between Dodd Frank’s definition of “whistleblower” and its provision prohibiting retaliation. “Whistleblower” is defined to mean an individual who reports violations to the SEC, while the retaliation provision does not expressly limit its protection to those who report wrongdoing to the SEC. Thus, the provision arguably expands Dodd-Frank’s protections to include the Sarbanes-Oxley whistleblower protections, which cover internal and external whistleblowing. Analyzing both the legislation and legislative history, the majority found the scope of Dodd-Frank’s express protections ambiguous. The majority therefore concluded it must “give Chevron deference to the reasonable interpretation of the agency charged with administering the statute.” Following the SEC’s interpretation, the majority held that an employee who suffers retaliation because he reports wrongdoing internally, but not to the SEC, was still protected by Dodd-Frank.

In dissent, Judge Dennis Jacobs argued that the majority and the SEC had taken the liberty of altering the statue and, thereby, changing Dodd-Frank’s definition of a whistleblower. Further noting in dissent, that the decision “creates a circuit split, and places [the Second Circuit] firmly on the wrong side of it.” This issue therefore appears ripe for Supreme Court review and treatment.