On May 5, 2015, in Somers v. Digital Realty Trust Inc., No. C-14-5180, the U.S. District Court for the Northern District of California held that an internal complaint of an alleged securities law violation is sufficient to invoke the Dodd-Frank Act’s anti-retaliation protection.  

Background

Plaintiff, a former employee of the Defendant, complained to senior management about a Senior Vice President who he believed had committed a number of acts of “serious misconduct,” including “hiding seven million dollars in cost overruns on a development in Hong Kong.” Plaintiff’s employment was subsequently terminated, and he filed a lawsuit, claiming, inter alia, that his termination was retaliatory in violation of Dodd-Frank.

Ruling

The Company moved to dismiss the retaliation claim pursuant to Rule 12(b)(6) on the grounds that Plaintiff does not qualify as a “whistleblower” under the statute because he did not disclose potential wrongdoing to the SEC, relying heavily on the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013).   The court, however, rejected the holding in Asadi and found that there was “sufficient ambiguity” over whether Dodd-Frank protects whistleblowers who report alleged misconduct internally only (and not to the SEC). After concluding that the statutory text was ambiguous, the court deferred to the SEC’s rule that extends whistleblower protection to individuals, like Plaintiff, who report suspected violation not to the SEC, but to internal management. Accordingly, the court allowed Plaintiff’s Dodd-Frank claim to proceed and denied the Company’s motion to dismiss.

Implications

The parameters of the Dodd-Frank anti-retaliation provision continue to be a divisive issue amongst district courts.   While Asadi is the only appellate decision to address whether an internal complaint is sufficient to qualify an individual as a Dodd-Frank “whistleblower,” it seems like it is only a matter of time until another circuit court has the opportunity to weigh in on the issue.