California Court Holds Dodd-Frank Only Protects SEC Whistleblowers

September 30, 2015

On September 8, 2015, the United States District Court for the Central District of California dismissed plaintiff Jennifer Davies’ whistleblower retaliation suit against her employer Broadcom Corp., holding that the 2010 Dodd-Frank Act (“the Act”) does not protect whistleblowers who report internally rather than to the U.S. Securities and Exchange Commission (“SEC”). Davies asserted that she had discovered securities violations and reported them internally and was subsequently terminated because of her report in March 2014.

In Davies v. Broadcom Corp., the district court found that, because Davies did not report her allegations directly to the SEC, she was not entitled to the “whistleblower” protection under the Act’s anti-retaliation provision. The court’s ruling adopted the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), LLC.—the only published circuit decision on this issue at that time—which held that whistleblower status applies only to those who report directly to the SEC. In so ruling, the court suggested that Congress’ possible intention was to limit the frivolous claims of whistleblowers who chose not to bring concerns directly to the SEC.

On September 10, 2015, two days after the Davies opinion was issued, the Second Circuit Court of Appeals issued a contradictory opinion in Berman v. Neo@Ogilvy, holding that the Act’s anti-retaliation provision protected the plaintiff for internally reporting suspected accounting fraud to his superiors. In reaching this decision, the Second Circuit reasoned that a limited reading of the Act would render it virtually impossible for most employees to pursue an unlawful retaliation claim under Dodd-Frank.

The dismissal of Ms. Davies’ whistleblower retaliation claim continues the lack of clarity over whether individuals must report securities violations externally to access the Act’s whistleblower protections. It does not, however, necessarily serve as a harbinger of future outcomes, particularly in light of the subsequent Berman decision and the fact that the majority of courts to consider the issue have found that the Act protects internal whistleblowers. To the contrary, the new conflict in circuit courts regarding the scope of the Act’s whistleblower provision makes the issue ripe for review by the U.S. Supreme Court. Putting an end to this ambiguity is essential for both those interpreting the law and those who might wish to come forward with suspicions of securities law violations.

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