On January 13, 2017, the Sixth Circuit in Verble v. Morgan Stanley Smith Barney, LLC, declined an opportunity to be the third federal appellate court to address the definition of “whistleblower” under Dodd Frank’s anti-retaliation provision.
In 2013, the Fifth Circuit in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013) held that the text of Dodd-Frank’s anti-retaliation provision (Section 922) requires that a “whistleblower” report an alleged violation to the SEC to be covered. Some district courts have followed Asadi while others have rejected Asadi and held that an internal complaint of an alleged securities law violation is sufficient to invoke Dodd-Frank’s anti-retaliation protection.
In response to the growing disagreement amongst courts, the SEC issued an interpretive rule on August 4, 2015, clarifying that for purposes of Dodd-Frank’s employment retaliation protections, individuals who have not reported alleged misconduct to the SEC may nevertheless qualify as “whistleblowers.”
Over one month after the SEC issued this guidance, the Second Circuit in Berman v. Neo@Ogilvy held that Dodd-Frank’s whistleblower protection provision applies to individuals who did not bring the complaint to the SEC, but instead reported internally within the company. Within that decision, the Second Circuit recognized the contrary holding in Asadi and reasoned that the Fifth Circuit’s opinion too narrowly limits the scope of whistleblower protections under Dodd-Frank.
The Sixth Circuit’s Opinion
Plaintiff-Appellant John Verble was a financial advisor for Defendant-Appellee Morgan Stanley Smith Barney, LLC (the Company) and alleged that he was terminated from his position in retaliation for his being a confidential informant to the FBI regarding its fraud investigation into Pilot Flying J. The District Court dismissed the Plaintiff’s Dodd-Frank retaliation claim, holding that “[b]ecause plaintiff did not provide information to the SEC before his termination, he does not qualify as a whistleblower as defined in Dodd-Frank” for protection under the anti-retaliation provision.
In a unanimous decision, the Sixth Circuit affirmed the district court’s dismissal of Plaintiff’s Dodd-Frank retaliation claim, but on “grounds . . . not relied on by the district court.” Specifically, the court held that the complaint failed “to allege sufficient facts” as to Plaintiff’s Dodd-Frank retaliation claim because it lacked specificity about Plaintiff’s alleged cooperation with the FBI. The court noted that Plaintiff’s complaint was “entirely devoid of any factual material describing his work with any law-enforcement agency, including the FBI or SEC,” and thus the complaint did not allege “enough facts to state a claim to relief that is plausible on its face.”
The Sixth Circuit acknowledged that courts (including the Fifth and Second Circuits) are divided regarding the definition of “whistleblower” under Dodd-Frank’s anti-retaliation provision; however, the court explained that it did not need to reach this question due to the insufficiency of the factual allegations contained within the complaint.
Although the Sixth Circuit declined this opportunity to address the definition of “whistleblower” under Dodd-Frank’s anti-retaliation provision, this is a key question that may again arise before the court. Ultimately, until the U.S. Supreme Court resolves the question it will remain the subject of uncertainty amongst courts outside of the Second and Fifth Circuits.