Whistle-Blower Defendants Won't Seek High Court Review

Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...

By Phyllis Diamond

Nov. 13 — Neo@Ogilvy LLC won't seek U.S. Supreme Court review of a federal appeals court decision reviving allegations it fired its finance director for complaining about an accounting fraud at the digital media concern.

The move ends speculation that high court resolution of the so-called reporting out issue is near at hand.

In the ruling, a divided U.S. Court of Appeals for the Second Circuit concluded in September that a plaintiff needn't bring his or her concerns to the Securities and Exchange Commission to be considered a whistle-blower for Dodd-Frank Act anti-retaliation protection purposes. 

Shortly after, the appeals court stayed its mandate until the high court reached a decision on the issue. Although no certiorari petition had been filed at the time, the Second Circuit's ruling created a circuit split on the reporting-out question, making the case a prime candidate for Supreme Court review.

However, on Nov. 10, Neo@Ogilvy's lawyer Jennifer Tafet Klausner, Davis & Gilbert LLP, New York, told the appeals court that her clients won't pursue a cert petition. She asked the court to issue its mandate, allowing the case to proceed before the district court.

Courts Divided

The scope of Dodd-Frank's anti-retaliation protections has divided the federal district courts and even judges within the Southern District of New York.

While most district courts have deferred to the SEC's interpretation that reporting out isn't required, the U.S. Court of Appeals for the Fifth Circuit—the only other federal appeals court to rule on the issue—went in the opposite direction.

In Asadi v. G.E. Energy (USA) LLC, it held in 2013 that a former G.E. Energy (USA) LLC employee couldn't claim he was fired for reporting possible Foreign Corrupt Practices Act violations because he didn't first approach the commission.

Second Circuit

In the Neo@Ogilvy case, plaintiff Daniel Berman claimed that he was fired after telling his supervisors about a number of transactions he believed were intended to make the company look more profitable than it actually was.

Although he later notified the SEC and cooperated with investigators, Berman didn't report his concerns to the agency before the defendants took the allegedly retaliatory action.

The defendants moved to dismiss the complaint, arguing among other matters that because Berman hadn't reported his concerns to the commission, he wasn't a whistle-blower entitled to Dodd-Frank anti-retaliation protections. The district court agreed and dismissed the allegations.

The Second Circuit reversed. Saying the SEC has interpreted its own whistle-blower rules not to require reporting out, it concluded that the relevant Dodd-Frank provisions were sufficiently ambiguous to warrant deference to the commission's views.

Influential Circuit

Neo@Ogilvy's move doesn't spell bad news for whistle-blowers, New York lawyer Jordan Thomas, Labaton Sucharow LLP, told Bloomberg BNA in a Nov. 13 telephone interview. He said whistle-blowers will continue to report internally, and corporations will continue to defend anti-retaliation suits on reporting-out grounds. As such, the question “will eventually reach the Supreme Court,” Thomas said.

Meanwhile, Thomas noted, the Second Circuit's decision stands, and the court is “very influential on securities issues.”

Whistle-blower lawyer Daniel Hurson, Law Offices of Daniel J. Hurson, Washington, agreed that the justices eventually will address the reporting-out issue. However, he told Bloomberg BNA in an e-mail, “there are not too many of these cases around, if any, I would imagine, so it may be awhile.”

In the meantime, Hurson suggested, assuming jurisdiction exists, a whistle-blower who didn't first report to the SEC would be well-advised to bring suit within the Second Circuit.

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bna.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bna.com

To see the letter, go to http://www.bloomberglaw.com/public/document/Berman_v_NeoOgilvy_LLC_Docket_No_1404626_2d_Cir_Dec_16_2014_Court/7/