Whistle-Blower Issue Could Be Next for High Court Review

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By Phyllis Diamond

Oct. 16 — A federal appeals court has decided to hold off on entering a judgment in favor of a corporate whistle-blower until the U.S. Supreme Court decides whether to take up a key question about the Dodd-Frank Act's anti-retaliation protections for whistle-blowers.

Although no certiorari petition has been filed, the ruling by a divided U.S. Court of Appeals for the Second Circuit, gave rise to a split among the federal appeals courts, making it a prime candidate for high court review.

Internal Reports

The whistle-blower in this case, Daniel Berman, claimed he was fired from Neo@Ogilvy LLC after internally reporting conduct he believed violated generally accepted accounting principles, the Sarbanes-Oxley Act and the Dodd-Frank Act. His anti-retaliation suit against the company was dismissed by the U.S. District Court for the Southern District of New York, which concluded that Dodd-Frank protections applied only to whistle-blowers who report to the SEC.

A divided Second Circuit reversed. It noted that the SEC has concluded that its own whistle-blower rules don't require reporting to the agency, and said “the pertinent provisions of Dodd-Frank create a sufficient ambiguity to warrant our deference to the SEC’s interpretive rule.”

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 commission's interpretation, 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 July 13, in Asadi v. G.E. Energy (USA), LLC, it held that a former G.E. Energy (USA) LLC employee couldn't sue his employer for firing him for reporting possible Foreign Corrupt Practices Act violations because he didn't first approach the commission. As such, the Second Circuit's decision creates a split among the circuits, which could pave the way for high court review.

Important Issues

Washington whistle-blower lawyer Daniel Hurson thinks the justices are likely to take up the controversy. In an e-mail, he told Bloomberg BNA that the case “raises important issues regarding court deference to agency interpretations of the law.”

“As a practical matter,” he said, “it could impact many future cases of internal reporting.”

“I think most corporations would quietly agree with the SEC position, as it avoids the possibility that potential whistleblower employees will in every case feel they have to go directly to the SEC and avoid internal reporting first,” Hurson added. On the other hand, he noted, the Fifth Circuit, the dissenting judge in the Second Circuit and some other district courts have concluded that fairly read, Dodd Frank doesn't afford retaliation protection to someone who hadn't reported to the SEC at the time of the alleged retaliation.

“I don’t see how the Supreme Court can let these two circuit cases both stand.”

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

To contact the editor responsible for this story: Susan Jenkins sjenkins@bna.com