The whistleblower provisions of Dodd-Frank have been beset with interpretive difficulties, in part because of uncertainty regarding Dodd-Frank’s relationship to the whistleblower protections of the earlier Sarbanes-Oxley Act.
These difficulties have raised questions about which categories of whistleblowers are entitled to protection and what protections they are entitled to receive.
In June, a federal district court in Wisconsin ruled in Wussow v. Bruker Corp. that whistleblower retaliation claims brought under Dodd-Frank, unlike those brought under Sarbanes-Oxley, can be subject to mandatory arbitration agreements.
Notably, the Wussow decision (pdf) turns on the interpretation of the same provision of Dodd-Frank that the Supreme Court will examine later this term in Digital Realty Trust v. Somers. The Supreme Court will consider whether Dodd-Frank authorizes retaliation claims by employees who report misconduct only internally, and do not report directly to the SEC.
The plaintiff in Wussow alleged that he had been terminated after reporting to his superiors that his firm was engaged in improper accounting practices. He brought two anti-retaliation claims against the company — one under the SOX anti-retaliation provision in 18 U.S.C. § 1514A, and one under the more plaintiff-friendly Dodd-Frank anti-retaliation provision in 15 U.S.C. § 78u-6(h).
Wussow argued that his Dodd-Frank claim was based on Section 78u-6(h)(1)(A)(iii), which protects whistleblowers in “making disclosures that are required or protected under” SOX. By Wussow’s reasoning, that meant the Dodd-Frank claim “arose under” SOX, and was therefore entitled to rest on the SOX anti-arbitration provision.
The court disagreed, holding that Congress would not have used such a convoluted cross-reference to preclude mandatory arbitration of Dodd-Frank anti-retaliation claims, when it quite straightforwardly did so for SOX anti-retaliation claims in the same statute. The court therefore stayed the Dodd-Frank claim pending arbitration.
But what the court took away from Wussow with one hand, it gave back with the other. Holding that Congress had clearly intended SOX claims to be litigated in district court, it declined to stay the SOX claim pending arbitration of the Dodd-Frank claim and even invited a motion to expedite the SOX trial to avoid the risk that the Dodd-Frank arbitration proceeding might wind up resolving the key disputed issues, and effectively deprive Wussow of his right to litigate the SOX claim in federal court.
Thus, although the decision confirmed that Dodd-Frank claims can be subject to arbitration clauses, its ultimate disposition appears to give plaintiffs a clear strategic benefit; that is, plaintiffs may be able to similarly convince other courts that, even if they are required to arbitrate their Dodd-Frank claims, they are entitled to proceed in court under SOX first, thereby potentially mooting the arbitration. Accordingly, companies should be mindful of this dynamic in drafting mandatory arbitration agreements with their employees.
Notably, the cross-reference provision in Dodd-Frank is the same provision the Supreme Court will need to interpret in its upcoming take on whether Dodd-Frank protects internal whistleblowers. This is because Dodd-Frank defines a “whistleblower” at Section 78u-6(a)(6) as someone who reports to the SEC; but Dodd-Frank’s anti-retaliation provision at Section 78u-6(h)(1)(A)(iii) provides protection for “whistleblowers” who “mak[e] disclosures that are required or protected under” SOX — and SOX explicitly protects internal as well as external reports.
The circuits have split on whether the narrower definition of “whistleblower” controls or whether (as the SEC itself has determined) the definitional section is intended to apply primarily for whistleblower awards, and does not limit the broader scope of protected activity for purposes of the anti-retaliation provision. The Supreme Court’s decision in Digital Realty Trust may thus shed some light on the proper interpretation of the cross-reference clause, or more generally on the relationship between SOX and Dodd-Frank, in a way that offers guidance on the Wussow anti-arbitration question as well.
Beyond the Supreme Court’s take on the cross-reference clause, several other issues remain worth watching here. First, it remains unclear whether Congress’s efforts in both SOX and Dodd-Frank have had a significant impact on FCPA enforcement. The SEC reports (pdf) that it has received over 700 whistleblower complaints related to FCPA violations (out of more than 18,000 total complaints) since Dodd-Frank went into effect, but only one FCPA enforcement action has been linked to a subsequent SEC whistleblower award.
Second, the cases examining whether SOX protects whistleblowers who allege FCPA violations may take on a new importance. Courts have thus far divided over that question, but if the Supreme Court ultimately rules in Digital Realty Trust that Dodd-Frank does not protect internal whistleblowers, then internal whistleblowers with FCPA-related complaints will likely turn to SOX to litigate any retaliation claims.
And finally, in cases where plaintiffs bring double-barreled actions based on both SOX and Dodd-Frank, it will be important to watch how courts address the question whether to stay the district court SOX litigation while the Dodd-Frank arbitration proceeds — will courts follow the Wussow approach, or permit the arbitration to resolve the key issues?
David Bitkower is a partner in Jenner & Block’s Investigations, Compliance and Defense Practice. He’s a former federal prosecutor who most recently served as principal deputy assistant attorney general for the DOJ’s Criminal Division.
Christian R. Bartholomew is a partner in Jenner & Block’s Securities Litigation and Enforcement Practice. He previously served as a trial lawyer for the SEC.