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Does Dodd-Frank Protect Whistleblowers Who Don’t Report to SEC? Another Court Chooses Sides in the Debate

A book opened with a magnifying glassIn 2010, Congress passed the Dodd-Frank Act, strengthening legal protections for employees who report violations of the securities laws.  However, as we’ve covered here, here, and here, the courts have diverged widely as to whether an employee must report directly to the SEC in order to be shielded from retaliation.

In Asadi v. GE Energy (USA), LLC, which we addressed in this post, the Fifth Circuit decided that to meet Dodd-Frank’s definition of a “whistleblower” – and to be protected by its anti-retaliation provision – an employee must in fact provide information to the SEC.    However, most of the district courts that have addressed the issue have decided that an employee need not report to the SEC in order to be protected from adverse actions by his or her employer.

On May 21, 2014, Judge John Gerrard of the U.S. District Court for the District of Nebraska sided with the other district courts, although he applied somewhat different reasoning to reach his decision.  Bussing v. COR Clearing, LLC, No. 8:12-CV-238 (D. Neb. May 21, 2014).  He decided not that the law was ambiguous, as other courts had before him, but found instead that the statute clearlymeant to protect internal reporting.

The plaintiff in the case, Julie Bussing, was a CPA who allegedly issued an internal report detailing several violations of anti-money laundering provisions and deficits in internal record-keeping by her employer, Legent.  Bussing alleged that she cooperated with an investigation by FINRA (the Financial Industry Regulatory Authority).  However, she did not allege that she provided any information to the SEC, which is why the court had to decide the Dodd-Frank whistleblower question.

Reading the statute, Judge Gerrard recognized that Dodd-Frank’s definition of “whistleblower” ‎(18 U.S.C. § 78u-6(h)(1)(A))‎, which says that a whistleblower is one who provides information “to the SEC,” conflicts with the law’s anti-retaliation provision (18 U.S.C. 78u-6(a)(6))‎, which protects whistleblowers from retaliation based on disclosures protected by law (even if they are not made to the SEC).  However, he found this to be an “unusual case” in which the anti-retaliation provision could be read “using the word ‘whistleblower’ in its everyday sense,” while still “maintaining the statutory definition for the other subsections.”  With this reading, “all parts of the statute fit together into a harmonious and coherent whole.”  Thus, by refusing to apply the statutory definition of “whistleblower” found in Section (a), Judge Gerrard could decide that the word “whistleblower” in Section (h) clearly included people who did not report to the SEC, because ordinarily the word has that meaning.

In reaching this conclusion, Judge Gerrard emphasized the “general practice of first making an internal report,” which “serves a number of important interests,” including “prevent[ing] simple misunderstandings.”  He did not believe that Congress meant to discourage internal reporting when it passed Dodd-Frank, which would be the likely effect of the Fifth Circuit’s interpretation of the law.

There is precedent for Judge Gerrard’s decision not to apply the statutory definition from one part of a statute to another portion of the same law.  In Northwest Austin Municipal Utility District v. Holder, 129 S. Ct. 2504 (2009), Chief Justice Roberts wrote that “the statutory definition of ‘political subdivision’ in § 14(c)(2) [of the Voting Rights Act] does not apply to every use of the term ‘political subdivision’ in the Act.”   By this reasoning, the Court decided that “political subdivisions” who did not register their own voters (and therefore did not qualify under the Section 14(c)(2) definition) could still “seek bailout” from the Act’s requirement that they seek federal preclearance before changing their elections.  However, it remains to be seen whether other federal courts of appeals (and perhaps the Supreme Court itself, if the issue reaches that level) will be so willing to disregard statutory definitions in order to allow employees to bring more retaliation claims.

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