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Media Alerts - Berman v. Neo@Ogilvy LLC - Second Circuit
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September 10, 2015
  Berman v. Neo@Ogilvy LLC - Second Circuit
Headline: Creating Circuit Split, the Second Circuit Holds An Employee Fired After He Reported Securities Law Violations Internally to His Employer Can Seek Remedies Under the Dodd-Frank "Whistleblower" Retaliation Protection Provision.

Areas of Law: Securities Regulation; Labor and Employment

Issue(s) Presented: Whether an employee who suffers retaliation for reporting securities law violations internally can sue for the "whistleblower" retaliation remedies provided in Dodd-Frank.

Brief Summary: Daniel Berman worked as finance director at Neo@Oglivy, a media agency, where he reviewed the company's financial reporting and compliance and was responsible for internal accounting procedures affecting his employer and its parent company, WPP Group USA. During the course of his employment, Berman discovered practices that he alleged amounted to accounting fraud, and reported them internally. A senior officer at Neo@Oglivy allegedly became angry with Berman for this internal report, and Berman was terminated in April of 2013. In October of 2013, about six months after his termination, Berman reported the suspected fraudulent practices to the Securities and Exchange Commission ("SEC").

Berman sued his former employer alleging that he was fired in retaliation for reporting violations internally in violation of Section 21F, the "whistleblower" protection provision added to the Securities Exchange Act of 1934 ("Exchange Act"), by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). The United States District Court for the Southern District of New York granted summary judgment dismissing Berman's claims, holding that, in light of the "whistleblower" definition in that section, it provides protection only to those discharged from employment for reporting alleged violations to the SEC. In a split decision, the United States Court of Appeals for the Second Circuit majority reversed and remanded the case, holding that Berman may pursue retaliation remedies under Dodd Frank Section 21F, despite having reported the wrongdoing only internally, but not to the SEC, before his termination.

To read the full opinion, visit:

Extended Summary: Section 21F, the "Securities Whistleblower Incentives and Protection" provision - added to the Exchange Act by the Dodd-Frank - defines a "whistleblower" as "any individual who provides . . . information relating to a violation of the securities laws to the [Securities Exchange] Commission." Subdivision 21F(h) of that provision, protects employees from retaliation by enjoining employers from firing, demoting, suspending, or otherwise harassing a "whistleblower" who provides information to the Commission under Section 21F, assists the Commission in judicial or other proceedings related to the information, or otherwise makes disclosures required or protected under the Exchange Act, the Sarbanes-Oxley Act of 2002, and other laws enforced by the SEC. The Sarbanes-Oxley Act of 2002 includes several provisions relating to internal disclosure of securities law violations or improper practices.

The United States District Court for the Southern District of New York granted summary judgment dismissing Berman's claims for retaliation remedies under Section 21F(h) based upon his firing following his internal reporting. Specifically, the district court held that, in light of the "whistleblower" definition in Section 21F, the subsection, 21F(h) retaliation protections apply only to those discharged from employment for reporting alleged violations to the SEC, and not to Berman, who was fired long before he reported any alleged wrongdoing to the SEC.

The Second Circuit majority disagreed, reversing the district court and remanding for further proceedings. Finding "arguable tension" between the express definition of a "whistleblower" in Section 21F - one who reports violations to the SEC - and the language in subsection 21F(h)(iii) - enjoining employers for retaliating against whistleblowers who make disclosures protected or mandated by the Sarbanes-Oxley Act - the majority deferred to the SEC's 2011 rule implementing section 21F to resolve the ambiguity. The SEC rule provides a broader "whistleblower" definition for purposes of the anti-retaliation protections afforded by Section 21F, that would include those making required and protected internal disclosures.

The Second Circuit majority also reasoned that, while select employees might report wrongdoing simultaneously to their employer and to the SEC, others who reported to their employer first hoping to correct the violation, and auditors and attorneys who might be required by law to report wrongdoing to their employer first, would not be protected from retaliation under a narrower reading of the statute. The majority further noted the SEC's extensive experience with whistleblowers, stating the SEC was "clearly the agency to resolve the ambiguity we face."

Finally, the majority opinion noted "the realities of the legislative process" at play in the last-minute drafting of the Dodd-Frank provision at issue. "When conferees are hastily trying to reconcile House and Senate bills, each of which number hundreds of pages, and someone succeeds in inserting a new provision . . . it is not at all surprising that no one noticed that the new subdivision and the definition of 'whistleblower' do not fit together neatly."

In his dissent, Judge Jacobs admonished his colleagues for effectively altering Dodd-Frank "by deleting three words ('to the Commission')" from the statute's "whistleblower" definition. He noted that this statutory change would create a split between the circuits in interpreting Dodd-Frank, with the Second Circuit "firmly on the wrong side of it." Judge Jacobs was wary to tread on Congress' intent, noting that it may well have had good reasons for writing the law as it did. In contrast to the majority, he argued the plain language of Dodd-Frank would be limited, but not wholly made moot, by adhering to the "plain language" definition set out in the statute.

To read the full opinion, visit: ">http://www.ca2.uscourt.../de.....9/3/hilite/

Panel: Circuit Judges Newman, Jacobs, and Calabresi

Argument Date: 6/17/2015

Argument Location: New York, NY

Date of Issued Opinion: 9/10/2015

Docket Number: 14-4626

Decided: Reversed and remanded.

Case Alert Author: Jake B. Sher

Counsel: Alissa Pyrich, Jardim, Meisner & Susser, P.C., Florham Park, NJ, for Appellant, Daniel Berman; Howard J. Rubin, Davis & Gilbert LLP, New York, NY, for Appellees, Neo@Oglivy LLC and WPP Group USA, Inc.; William K. Shirey, Asst. Gen. Counsel, Washington, D.C., for amicus curiae Securities and Exchange Commission, in support of Appellant; Kate Comerford Todd, U.S. Chamber Litigation Center, Inc., Washington, D.C., of Eugene Scalia, Gibson, Dunn & Crutcher LLP, Washington, D.C., for amicus curiae The Chamber of Commerce of the United States of America, in support of the Appellees.

Author of Opinion: Judge Newman (majority); Judge Jacobs (dissent)

Circuit: 2nd Circuit

Case Alert Circuit Supervisor: Elyse Diamond Moskowitz

Edited: 09/10/2015 at 09:12 PM by Elyse Diamond

    Posted By: Elyse Diamond @ 09/10/2015 09:02 PM     2nd Circuit  

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