Dodd-Frank bars expressly mandatory arbitration of Sarbanes-Oxley (“SOX”) whistleblower retaliation claims, but not such claims asserted under the Act itself the second Circuit holds. But a legislative fix may be coming. Specifically, section 922 of Dodd-Frank amends the Securities Exchange Act of 1934 to prohibit use of predispute arbitration agreements (“PDAA”) in Sarbanes-Oxley whistleblower disputes. But, what about whistleblower claims brought under Dodd-Frank? “Not so fast,” says the Second Circuit in a unanimous ruling in Daly v. Citigroup, No. 18‐665 (2d Cir. Sep. 19, 2019), joining the Third Circuit as the only ones to decide this issue.
Intertwining Leads to Bifurcation
The Court holds that, where whistleblower claims are asserted under both SOX and Dodd-Frank, the claims are bifurcated, with the SOX claims going to court and the Dodd-Frank claims proceeding in arbitration. The Court recognizes that Dodd-Frank bars arbitration of SOX whistleblower claims, but holds that the statute does not bar arbitration of whistleblower claims arising out of Dodd-Frank: “[N]othing in Dodd‐Frank’s text suggests that claims arising thereunder are nonarbitrable. Dodd‐Frank amended several statutory provisions to include anti‐arbitration provisions but did not do so with respect to its own whistleblower provision…. Congress’s failure to attach an anti‐arbitration provision to the Dodd‐Frank whistleblower provision, while simultaneously amending similar statutory regimes to include the same, is a strong indication of its intent not to preclude Dodd‐Frank whistleblower claims from arbitration” (citations omitted). The bottom line? The claims are bifurcated, with only the SOX whistleblower claims destined for litigation: “[W]e conclude that Congress did not intend for claims arising under Dodd‐Frank’s whistleblower provision to be precluded from arbitration. The plaintiff’s SOX whistleblower claim cannot save her otherwise arbitrable claims from their fate. The district court therefore correctly compelled arbitration of all of the plaintiff’s claims, with the exception of her SOX claim, which it properly determined to be nonarbitrable.”
A Legislative Fix?
Query whether Congress intended this result? We will perhaps eventually find out. The Whistleblower Programs Improvement Act (“WPIA”) (S. 2529) was introduced September 23 by Senate Finance Committee Chairman Charles Grassley (R-IA), and Senators Tammy Baldwin (D-WI), Richard Durbin (D-IL), and Joni Ernst (R-IA). The bipartisan legislation aims to expand Dodd-Frank’s whistleblower protections – including the anti-mandatory predispute arbitration agreement (“PDAA”) feature – to employees of “an entity registered with, or required to be registered with, the Commission, a self-regulatory organization, or a State securities commission or office performing like functions…” The WPIA would extend Dodd-Frank’s anti-arbitration protection to cover expressly Dodd-Frank whistleblowers. The text provides: (1) WAIVER OF RIGHTS AND REMEDIES. The rights and remedies provided in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. (2) PREDISPUTE ARBITRATION AGREEMENT. No predispute arbitration agreement shall be valid or enforceable if the agreement requires the arbitration of a dispute arising under this section.’’ There is currently no stated effective date.
(ed: *The Court cited favorably Khazin v. TD Ameritrade Holding Corp., 773 F.3d 488 (3d Cir. 2014), which also held that Dodd-Frank does not bar arbitration of whistleblower claims asserted under that statute. It noted in a footnote that this “also appears to be the consensus position of district courts outside this Circuit.” Among the other cases cited was Wussow v. Bruker Corp., No. 16-cv-444-wmc (W.D. Wis. 2017), a case we covered in SAA 2017-26 (Jul. 12). See also, Rollins v. Goldman Sachs & Co. LLC, No. 18-cv-7162 (S.D.N.Y. July 2, 2019), where the Court compelled FINRA arbitration of a Dodd-Frank whistleblower’s claims against Goldman Sachs. (SAC Ref. No. 2019-37-11)
