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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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TREVOR MURRAY,
Plaintiff, 12 Civ. 5914 (JMF)
- against -
UBS SECURITIES, LLC and UBS AG,
Defendants.
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MEMORANDUM OF LAW IN OPPOSITION
TO DEFENDANTS’ MOTION TO DISMISS
BROACH & STULBERG, LLP
Attorneys for Plaintiff
One Penn Plaza, Suite 2016
New York, New York 10119
(212) 268-1000
Of Counsel:
Robert B. Stulberg (RS2734)
Michael H. Isaac (MI2123)
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TABLE OF CONTENTS
I. PRELIMINARY STATEMENT ................................................................................................ 1
II. STATEMENT OF FACTS........................................................................................................ 2
III. ARGUMENT ........................................................................................................................... 7
A. The Complaint States a Claim that UBS Retaliated against Plaintiff, in Violation of
the Dodd-Frank Act. .......................................................................................................... 7
B. Defendants’ Motion To Dismiss Should Be Denied Because the Dodd-Frank Act
Prohibits Employers from Retaliating against Employees who Make Disclosures to their
Supervisors that Are Protected under the Sarbanes-Oxley Act. ........................................10
1. UBS’s Interpretation of the Dodd-Frank Act Should Be Rejected Because It Is
Inconsistent with, and Would Effectively Eliminate, Substantive Provisions of
that Law. ............................................................................................................... 11
2. UBS’s Interpretation of the Dodd-Frank Act Should Be Rejected because it Is
Inconsistent with SEC Rules, which are Entitled to Deference. ........................... 16
IV. CONCLUSION.......................................................................................................................19
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TABLE OF AUTHORITIES
Cases
Asadi v. G.E. Energy, LLC, 2012 WL 2522599 (S.D. Tex. June 28, 2012) .......................... 12, 15
Ashcroft v. Iqbal, 556 U.S. 662 (2009)...........................................................................................7
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .........................................................................7
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) .................... 17, 18
Corley v. United States, 556 U.S. 303 (2009) ............................................................................. 11
Egan v. TradingScreen, Inc., 2011 WL 1672066 (S.D.N.Y. May 4, 2011) ...........................passim
Garcia-Villeda v. Mukasey, 531 F.3d 141(2d Cir. 2008) ............................................................. 11
Hibbs v. Winn, 542 U.S. 88 (2004) .............................................................................................. 11
Hishon v. King & Spalding, 467 U.S. 69 (1984) ............................................................................7
Hormel Foods Corp. v. Jim Henson Productions, Inc., 73 F.3d 497 (2d Cir. 1996) .............. 12, 13
Kramer v. Trans-Lux, 2012 WL 4444820 (D. Conn. Sept. 25, 2012) ...................................passim
Lawson v. Suwannee Fruit & S.S. Co., 336 U.S. 198 (1949) ....................................................... 14
Leeds v. Meltz, 85 F.3d 51(2d Cir. 1996) .......................................................................................7
Nollner v. Southern Baptist Convention, Inc., 852 F.Supp.2d 986
(M.D. Tenn. 2012) .......................................................................................... 12, 13, 17, 18
Philko Aviation, Inc. v. Shacket, 462 U.S. 406 (1983)................................................................. 14
Swierkiewicz v. Sorema N. A., 534 U.S. 506 (2002) .....................................................................7
U.S. Customs Serv., Region II v. Fed. Labor Relations Auth., 739 F.2d 829 (2d Cir. 1984) ...... 15
United States v. Blasius, 397 F.2d 203 (2d Cir. 1968) ................................................................. 11
Wong v. CKX, Inc., 2012 WL 3893609 (S.D.N.Y. Sept. 10, 2012) ..............................................7
Statutes
15 U.S.C. § 78u-6(a)(6) ................................................................................................2, 10, 11, 14
15 U.S.C. § 78u-6(h) ..............................................................................................................passim
15 U.S.C. § 78u-6(h)(1)(A)(iii) ..............................................................................................passim
18 U.S.C. § 1514A .................................................................................................................6, 7, 9
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18 U.S.C. § 1514A(a)(1)(C) ................................................................................................... 1, 8, 9
Federal Regulations
17 C.F.R. § 240.10b-5 .....................................................................................................................9
17 C.F.R. § 240.21F–2(b) ............................................................................................................. 16
Court Rules
Fed. R. Civ. P. 12(b)(6)........................................................................................................... 1, 6, 7
Other Authority
Securities and Exchange Commission, Securities Whistleblower Incentives and Protections, 76
Fed.Reg. 34300-01, 2011 WL 2293084 (F.R.) (June 13, 2011) (codified at 17 C.F.R. pts.
240-249) ...................................................................................................................... 17, 19
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I. PRELIMINARY STATEMENT
Plaintiff Trevor Murray (“plaintiff”) submits this Memorandum of Law in opposition to a
September 21, 2012 motion to dismiss submitted by defendants UBS Securities, LLC and UBS
AG (collectively “defendants”) pursuant to Fed. R. Civ. P. 12(b)(6).
Plaintiff’s Complaint alleges that defendants illegally retaliated against him in violation
of the Dodd-Frank Act of 2010 (15 U.S.C. § 78u-6(h)) (“Dodd-Frank”) when they discharged
him for exercising his legally-protected rights to inform his supervisors about, and refuse to
participate in, conduct that he reasonably believed violated laws and rules designed to protect
consumers from fraudulent practices in connection with the sale of securities. Defendants move
to dismiss the Complaint based on the erroneous argument that the anti-retaliation provisions of
Dodd-Frank only cover individuals who make disclosures to the United States Securities and
Exchange Commission (“SEC”). This interpretation of the statute is contrary to (a) the text of
the statute, as determined by every federal district court that has addressed the issue, and (b) the
SEC’s own interpretation of Dodd-Frank, which is entitled to deference. The motion to dismiss
therefore should be denied.
The text of Dodd-Frank, at 15 U.S.C. § 78u-6(h)(1)(A)(iii), expressly creates a cause of
action for individuals who are retaliated against for making disclosures that are “required or
protected” under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), which includes
disclosures made by an employee to his or her supervisors (18 U.S.C. § 1514A(a)(1)(C)).
Plaintiff has stated a claim under 15 U.S.C. § 78u-6(h)(1)(A)(iii) because he has alleged that
defendants discharged him in retaliation for making disclosures protected by Sarbanes-Oxley to
his supervisors.
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Defendants urge the Court to disregard 15 U.S.C. § 78u-6(h)(1)(A)(iii) entirely and
instead apply the definition of “whistleblower” in 15 U.S.C. § 78u-6(a)(6), which refers only to
individuals who make disclosures to the SEC. As three federal district courts have held,
however, this argument fails because it would render a substantive provision in Dodd-Frank
meaningless, and is inconsistent with the purpose of the law, which is to improve accountability
and transparency in the financial system and encourage internal, as well as external, disclosures.
Moreover, defendant’s motion should be denied because it is contrary to the SEC’s rules
and interpretive guidance, which state that “whistleblowers” protected from retaliation under
Dodd-Frank include individuals who make disclosures protected under Sarbanes-Oxley,
including disclosures not made to the SEC. The SEC’s interpretation of Dodd-Frank is entitled
to deference, since it is not unambiguously clear that the law protects only individuals who report
to the SEC, and the SEC’s interpretation of Dodd-Frank is a permissible construction of the law.
II. STATEMENT OF FACTS
Plaintiff was originally employed by defendant UBS Securities as a Director from
approximately May 2007 to approximately September 2009 in the Mortgage Strategy Group and
then, beginning in late 2008, in the Special Assets Group (“StabFund” ). Complaint at ¶ 8. In or
around September 2009, Plaintiff was laid-off from UBS Securities. Id.
In or around October 2009, plaintiff joined CapRok Capital LLC (“CapRok”) as a
Managing Director and Commercial Mortgage-Backed Security (“CMBS”) strategist and trader.
Id. at ¶ 9.
In or around early 2011, UBS Securities solicited plaintiff to return. Id. at ¶ 10. Senior
employees of UBS Securities assured plaintiff that the company was fully committed to the
CMBS business, and that plaintiff would be an integral member of that business as it grew in the
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coming years. Id. In particular, persons recruiting plaintiff to return to UBS Securities pointed
to the concurrent hiring of Ken Cohen, formerly of Lehman Brothers, and most of his former
team to run UBS Securities’ CMBS trading and commercial mortgage originations. Id.
On or about April 26, 2011, plaintiff received a formal offer letter from UBS Securities.
Id. at ¶ 11. In or around May, 2011, plaintiff resigned his position at CapRok and re-joined UBS
Securities as a Senior CMBS Strategist and Executive Director (a position more senior than his
previous position with UBS). Id. Plaintiff’s starting base salary was $250,000. He was
repeatedly advised in advance by agents of UBS Securities that his incentive compensation
would very likely range from approximately three-quarters of his base salary in difficult years to
twice his base salary in strong, profitable years. Id. Plaintiff was to receive benefits
commensurate with those normally provided to an employee of his senior status.
In his new position at UBS Securities, plaintiff was responsible for performing research
and creating reports about UBS Securities’ CMBS products that were distributed to UBS’s
current and potential clients. Id. at ¶ 12. After re-joining UBS Securities, plaintiff received
nothing but positive reviews, and was never reprimanded, officially or unofficially, for any
disciplinary or job-related issue whatsoever. Id.
Plaintiff was, however, the target of a concerted, extended effort by UBS Securities,
through Mr. Cohen, as well as others reporting to Mr. Cohen, to influence plaintiff to skew his
published research in ways designed to support UBS Securities’ ongoing CMBS trading and loan
origination activities. Id. at ¶ 13.
In June 2011 Mr. Cohen implored plaintiff, in words or effect, to help “improve
conditions in the CMBS market” because this was to be a “significant revenue generator” for the
investment bank at UBS Securities. Id. at ¶ 14. In or around September 2011, Mr. Cohen, along
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with the head CMBS trader, sat directly next to plaintiff and told him that a person from the
market had approached Mr. Cohen about plaintiff’s research. Id. Mr. Cohen stated that he
disagreed with plaintiff’s research, and asked plaintiff, so as not to “confuse” the market, to
inform the head CMBS trader about his research ideas prior to publication in order to maintain
“consistency” between what he and they were saying about UBS Securities’ CMBS products and
trading positions. Id.
On one occasion after the meeting in or around September 2011, plaintiff spoke with
David McNamara, the head CMBS trader, and Jamarr Delaney, another CMBS trader, about his
view that certain CMBS bonds were overvalued. Id. at ¶ 15. Mr. Delaney and Mr. McNamara
told plaintiff not to publish anything negative about those bonds because the trading desk had
just purchased them. Id. In or around December 2011, after plaintiff published his 2012 CMBS
outlook article, Mr. Cohen stopped plaintiff in the hallway and admonished him for publishing
an article that Mr. Cohen found “too bearish.” Id.
In or around January 2012, Mr. Cohen told plaintiff that UBS Securities would be coming
to market likely sometime in the first half of 2012 with an asset securitization for a loan on a
Miami hotel. Id. at ¶ 16. Plaintiff expressed concern about the outlook in the hotel sector, but
Mr. Cohen directed him not to publish anything negative about the hotel sector because of UBS
Securities’ exposure. Id. Despite the pressure placed on plaintiff to skew his research to be
more favorable to UBS Securities, he did not publish any report that was inconsistent with his
own research. Id.
In or around January 2012, plaintiff learned from junior members of the CMBS trading
desk that Mr. Cohen and his team had arranged a long series of important client meetings in
connection with a high-profile commercial mortgage conference in Miami. Id. at ¶ 17. Even
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though plaintiff was the lead CMBS strategist for UBS Securities and the author of UBS
Securities’ research for precisely such clients, he was neither invited to these meetings nor
informed about them in advance. Instead, plaintiff attended unannounced. Id. At those
meetings, plaintiff heard Mr. Cohen relate to those current and prospective clients assessments
about the commercial mortgage and CMBS markets that Mr. Cohen knew to be inconsistent with
plaintiff’s assessments, and in a manner that portrayed Mr. Cohen’s assessments as if they were
those of the firm as a whole. Id.
Plaintiff repeatedly told his superiors at UBS Securities about these egregiously improper
attempts to influence his published research. Id. at ¶ 18. In or around December 2011 and in or
around January 2012, plaintiff told his manager, Mike Schumacher, about Mr. Cohen’s and his
team’s negative response to his research, including Mr. Cohen’s comment that plaintiff’s
published articles were “too bearish” and “off message” with the strategy of the trading desk and
overall commercial mortgage group. Id. In or around January 2012, plaintiff told Jeff Ho, a
Managing Director at UBS Securities, that Mr. Cohen only interacted with plaintiff to criticize
his research and attempt to manipulate his reports. Id. In his meetings with Mr. Schumacher and
Mr. Ho, plaintiff gave examples about how Mr. Cohen and members of his team had excluded
him from meetings, and pressured him to skew his research, but Mr. Schumacher and Mr. Ho did
not respond. Id. At no point did anyone at UBS Securities take any action to stop the
interference with plaintiff’s research. Id. When plaintiff made each of these complaints, he
reasonably believed that he was being pressured to produce ostensibly objective research reports
about its securities products that were, by commission or omission, false or misleading, and
intended to favor UBS Securities’ products and trading positions, in violation of federal laws
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relating to fraud against shareholders, including, but not limited to, SEC Rule 10b-5 (17 C.F.R. §
240.10b-5). Id. at ¶ 19.
In or around January 2012, plaintiff received yet another spotless review. At that review,
plaintiff expressed concern that he had been given limited technical and staff resources to
perform his research. Id. at ¶ 20. Mr. Schumacher responded that he was aware of those
limitations, and stated, in words or effect, that plaintiff should write “what the business line
wanted” irrespective of the resources available. Id.
Shortly after his review, plaintiff asked Mr. Cohen to share the cost of a new data feed
from Mr. Cohen’s departmental budget. Id. at ¶ 21. Mr. Cohen responded that he would agree to
share that cost, so long as various members of the trading desk and loan originations also had
access to the new service so as to “stay on message.” Id.
On February 6, 2012, plaintiff was advised by Mike Schumacher and UBS Securities
human resources staff that, despite his impeccable record, his employment was being terminated.
Id. at ¶ 22. Plaintiff learned shortly thereafter that his immediate superiors had appealed to Mr.
Cohen personally and to members of his team to retain plaintiff, given his importance to the
business and his stellar record. Id. According to Mr. Schumacher, Mr. Cohen refused that
appeal. Id.
On August 3, 2012, plaintiff served defendants with a Complaint alleging that
“Defendants have violated 15 U.S.C. § 78u-6(h)(1) because their decision to terminate plaintiff’s
employment was motivated, in part, by his making disclosures that are protected by Section 806
of the Sarbanes Oxley Act (18 U.S.C. § 1514A).” Id. at ¶ 24.
On September 21, 2012, defendants moved to dismiss the Complaint pursuant to Fed. R.
Civ. P. 12(b)(6).
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III. ARGUMENT
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) must be denied when a
complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). “Given the Federal Rules’ simplified standard for
pleading, ‘[a] court may dismiss a complaint only if it is clear that no relief could be granted
under any set of facts that could be proved consistent with the allegations.’” Swierkiewicz v.
Sorema N. A., 534 U.S. 506, 514 (2002) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73
(1984)). Moreover, “[i]n deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations
in the complaint are accepted as true and all reasonable inferences must be drawn in the
plaintiff's favor.” Wong v. CKX, Inc., 2012 WL 3893609 at *1 (S.D.N.Y. Sept. 10, 2012); see
Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996) (“We take all well-plead factual allegations as true,
and all reasonable inferences are drawn and viewed in a light most favorable to the plaintiffs.”).
For the reasons set forth below, the Complaint states a claim against UBS for unlawfully
retaliating against plaintiff, and defendants’ motion to dismiss should be denied.
A. The Complaint States a Claim that UBS Retaliated against Plaintiff, in
Violation of the Dodd-Frank Act.
The Complaint alleges that UBS violated Dodd-Frank because its decision to terminate
plaintiff’s employment was motivated, in part, by his making disclosures that are protected by
Section 806 of Sarbanes-Oxley (18 U.S.C. § 1514A). Complaint at ¶ 24. Dodd-Frank explicitly
prohibits employers from retaliating against employees for making disclosures that are “required
or protected” under Sarbanes-Oxley. 15 U.S.C. § 78u-6(h)(1)(A)(iii). It states:
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(1) Prohibition against retaliation
(A) In general
No employer may discharge, demote, suspend, threaten, harass, directly or
indirectly, or in any other manner discriminate against, a whistleblower in
the terms and conditions of employment because of any lawful act done by
the whistleblower—
(i) in providing information to the Commission in accordance with
this section;
(ii) in initiating, testifying in, or assisting in any investigation or
judicial or administrative action of the Commission based upon or
related to such information; or
(iii) in making disclosures that are required or protected under the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including
section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of
Title 18, and any other law, rule, or regulation subject to the
jurisdiction of the Commission.
15 U.S.C. § 78u-6(h)(1)(emphasis added).
Disclosures that are protected under Sarbanes-Oxley include information that an
employee provides to his or her supervisor about conduct that he or she reasonably believes
constitutes a violation of SEC rules or regulations, or any federal law relating to fraud against
shareholders. 18 U.S.C. § 1514A(a)(1)(C). Section 806 (a) of Sarbanes-Oxley provides:
(a) Whistleblower protection for employees of publicly traded companies.--No company
with a class of securities registered under section 12 of the Securities Exchange Act of
1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(d)) including any subsidiary or affiliate
whose financial information is included in the consolidated financial statements of such
company, or nationally recognized statistical rating organization (as defined in section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c), or any officer, employee,
contractor, subcontractor, or agent of such company or nationally recognized statistical
rating organization, may discharge, demote, suspend, threaten, harass, or in any other
manner discriminate against an employee in the terms and conditions of employment
because of any lawful act done by the employee—
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(1) to provide information, cause information to be provided, or otherwise assist
in an investigation regarding any conduct which the employee reasonably believes
constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation
of the Securities and Exchange Commission, or any provision of Federal law
relating to fraud against shareholders, when the information or assistance is
provided to or the investigation is conducted by—
(A) a Federal regulatory or law enforcement agency;
(B) any Member of Congress or any committee of Congress; or
(C) a person with supervisory authority over the employee (or such other
person working for the employer who has the authority to investigate,
discover, or terminate misconduct); or
(2) to file, cause to be filed, testify, participate in, or otherwise assist in a
proceeding filed or about to be filed (with any knowledge of the employer)
relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any provision of
Federal law relating to fraud against shareholders.
18 U.S.C.A. § 1514A(a) (emphasis added).
The Complaint alleges that defendants UBS Securities, LLC and UBS AG are companies
that are covered by Sarbanes-Oxley, and that plaintiff made disclosures that were “required or
protected” by Sarbanes-Oxley. Complaint at ¶¶ 25-27; 18 U.S.C. § 1514A(a). More
specifically, the Complaint alleges that plaintiff complained to his supervisors that he was the
target of a concerted effort by members of UBS Securities involved in CMBS trading and
commercial mortgage origination to skew his research to appear more favorable to UBS
Securities CMBS products and trading positions. Complaint at ¶ 18. The Complaint also alleges
that, in making these disclosures, plaintiff reasonably believed that the conduct he reported
violated “‘provision[s] of Federal law relating to fraud against shareholders,’ including, but not
limited to, SEC Rule 10b-5 (17 C.F.R. § 240.10b-5), which prohibits UBS Securities from
making false statements or engaging in deceptive practices in connection with the sale of
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securities.” Complaint at ¶ 27. The Complaint alleges further that UBS terminated plaintiff’s
employment in retaliation for his making those protected disclosures. Id. at ¶ 28. Thus, the
Complaint states a cause of action against UBS for violating Dodd-Frank.
B. Defendants’ Motion To Dismiss Should Be Denied because the Dodd-Frank
Act Prohibits Employers from Retaliating against Employees who Make
Disclosures to their Supervisors that Are Protected under the Sarbanes-
Oxley Act.
Defendants move to dismiss the Complaint on the sole ground that plaintiff is not
protected under Dodd-Frank from retaliation for making disclosures to his supervisor that are
protected under Sarbanes-Oxley, because Dodd-Frank’s definition of the term “whistleblower” at
15 U.S.C. § 78u-6(a)(6)1 limits the anti-retaliation provisions of Dodd-Frank to individuals who
make protected disclosures to the SEC. Memorandum of Law in Support of Defendants’ Motion
to Dismiss the Complaint (“Defendants’ Memorandum”) at p. 3. This argument should be
rejected because: (a) as three federal district courts, including one from the Southern District of
New York, have recently held, the definition of “whistleblower” in Dodd-Frank cannot be
applied, as UBS urges, in a manner that would eliminate provisions of Dodd-Frank that explicitly
protect individuals from retaliation for making disclosures protected under Sarbanes-Oxley, and
(b) UBS’s interpretation of Dodd-Frank is inconsistent with rules and a guidance promulgated by
the SEC, which are entitled to deference. UBS’s motion to dismiss therefore should be denied.
1 “[A]ny individual who provides, or 2 or more individuals acting jointly who provide, information
relating to a violation of the securities laws to the [SEC], in a manner established, by rule or regulation,
by the [SEC]” 15 U.S.C. § 78u-6(a)(6)
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1. UBS’s Interpretation of the Dodd-Frank Act Should be Rejected
Because it Is Inconsistent with, and Would Effectively Eliminate,
Substantive Provisions of that Law.
UBS’s overly narrow interpretation of Dodd-Frank should be rejected because it would
effectively eliminate 15 U.S.C. § 78u-6(h)(1)(A)(iii) from the statute. “[O]ne of the most basic
interpretive canons [is] that ‘ “[a] statute should be construed so that effect is given to all its
provisions, so that no part will be inoperative or superfluous, void or insignificant.” ’ ” Corley v.
United States, 556 U.S. 303, 314 (2009) (quoting Hibbs v. Winn, 542 U.S. 88, 101 (2004));
Garcia-Villeda v. Mukasey, 531 F.3d 141, 147 (2d Cir. 2008) (“There is a presumption against
construing a statute as containing superfluous or meaningless words or giving it a construction
that would render it ineffective.”) (quoting United States v. Blasius, 397 F.2d 203, 207 n. 9 (2d
Cir.1968)). When Congress identified, at 15 U.S.C. § 78u-6(h)(1)(A), the types of disclosures it
intended to protect in Dodd-Frank, it explicitly incorporated, at 15 U.S.C. § 78u-6(h)(1)(A)(iii),
disclosures “that are required or protected under the Sarbanes-Oxley Act of 2002,” which include
disclosures made by employees to their supervisors. 18 U.S.C. § 1514A(a)(1)(C). UBS’s
argument that Dodd-Frank only protects disclosures made to the SEC would render 15 U.S.C. §
78u-6(h)(1)(A)(iii) meaningless and ineffective. It therefore must be rejected.
In Egan v. TradingScreen, Inc., 2011 WL 1672066 at *4 (S.D.N.Y. May 4, 2011), the
court rejected the same argument that UBS urges here. It held that mechanically applying the
definition of “whistleblower” in Dodd-Frank to limit retaliation claims to only those based on
disclosures to the SEC would “invalidate” 15 U.S.C. § 78u-6(h)(1)(A)(iii). The court in Egan
determined that Dodd-Frank should instead be “harmonized by reading 15 U.S.C. §
78u[-]6(h)(1)(A)(iii)’s protection of certain whistleblower disclosures not requiring reporting to
the SEC as a narrow exception to 15 U.S.C. § 78u-6(a)(6)’s definition of a whistleblower as one
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who reports to the SEC.” Id. at *5. The court in Nollner v. Southern Baptist Convention, Inc.,
852 F.Supp.2d 986, 993-94 (M.D. Tenn. 2012) analyzed the same provisions of Dodd-Frank and
reached the same conclusion, finding that 15 U.S.C. § 78u-6(h)(1)(A)(iii) “does not require that
the whistleblower have interacted directly with the SEC—only that the disclosure, to whomever
made, was ‘required or protected’ by certain laws within the SEC's jurisdiction.” The court in
Kramer v. Trans-Lux, 2012 WL 4444820 at *4-5 (D. Conn. Sept. 25, 2012) also rejected the
argument that Dodd-Frank’s anti-retaliation provisions protect only individuals who make
disclosures to the SEC, and agreed with the decisions in Egan and Nollner that “the language of
[15 U.S.C. § 78u-6(h)(1)(A)(iii)] indicates that disclosures that are protected under Sarbanes-
Oxley’s whistleblower provisions are also protected under the Dodd-Frank Act’s whistleblower
provision.” Id. at *6. 2
Defendants cite to no authority for their erroneous interpretation of Dodd-Frank, but
instead raise numerous faulty attacks on Egan and Nollner, each of which should be rejected.
First, defendants are incorrect when they claim that the interpretations of Dodd-Frank in Egan
and Nollner should be disregarded as dicta. Defendants’ Memorandum at p. 6.
“ ‘Dictum’ generally refers to an observation which appears in the opinion of a court
which was ‘unnecessary to the disposition of the case before it’.” Burroughs v. Holiday
Inn, 621 F.Supp. 351, 353 (W.D.N.Y.1985) (quoting 1B Moore's Federal Practice, ¶
0.402[2] at 40 (2d ed. 1984)). It is a “statement in a judicial opinion that could have been
deleted without seriously impairing the analytical foundations of the holding....” Sarnoff
v. American Home Products Corp., 798 F.2d 1075, 1084 (7th Cir.1986)
Hormel Foods Corp. v. Jim Henson Productions, Inc., 73 F.3d 497, 508 (2d Cir. 1996).
2 Defendant’s suggestion that Asadi v. G.E. Energy, LLC, 2012 WL 2522599 (S.D. Tex. June 28, 2012)
supports its interpretation of Dodd-Frank is incorrect. Defendant’s Memorandum at p. 8 n. 6. The court
in Asadi made no decision as to the defendant’s claim that Dodd-Frank only protects individuals against
retaliation for making disclosures to the SEC, and decided the case on entirely different, and inapplicable,
grounds. Id. at *3.
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In Egan, the plaintiff claimed that his employer terminated him in retaliation for
complaining to the company’s president about allegedly illegal acts committed by its CEO.
Egan, 2011 WL 1672066 at *1. The plaintiff in that case claimed that his employer violated
Dodd-Frank because it retaliated against him for making disclosures protected under Sarbanes-
Oxley. Id. at *2. It was therefore necessary for the court in Egan to determine whether the
plaintiff could state a claim under Dodd-Frank alleging retaliation for making internal
disclosures protected under Sarbanes-Oxley. Although the Egan court ultimately rejected the
plaintiff’s claim on the ground that his employer was not a company covered by Sarbanes-Oxley,
the court could not possibly have reached that conclusion had it not first determined that Dodd-
Frank protects employees from retaliation for making internal disclosures protected under
Sarbanes-Oxley. Thus, the analytical foundations of the Egan court’s holding would have been
seriously impaired if the court had not first determined that internal disclosures protected by
Sarbanes-Oxley are among the disclosures protected by Dodd-Frank. Hormel Foods Corp., 73
F.3d at 508. As such, that determination cannot be ignored as dicta.
The same is true of Nollner. In that case, a plaintiff alleged that he was retaliated against
in violation of Dodd-Frank when he disclosed to his supervisors certain corrupt practices that his
employer had allegedly committed in India, and that those disclosures were “required or
protected under . . . [a] law, rule, or regulation subject to the jurisdiction of the” SEC (15 U.S.C.
§ 78u-6(h)(1)(A)(iii)). Nollner, 852 F.Supp.2d at 989. The court was first required to determine
whether disclosures protected under a “law, rule, or regulation subject to the jurisdiction of the”
SEC, within the meaning of 15 U.S.C. § 78u-6(h)(1)(A)(iii), include disclosures other than those
made to the SEC. Id. at 995. The court determined that such disclosures are included in the
statute’s protection, but found that the SEC did not have jurisdiction over the plaintiff’s
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employer under the law alleged to have been violated. Id. at 996. As in Egan, it was necessary
for the Nollner court to interpret the scope of 15 U.S.C. § 78u-6(h)(1)(A)(iii) in order to decide
whether the plaintiff stated a claim. Id. The court’s interpretation of Dodd-Frank in Nollner is
therefore not dicta. 3
Defendants also argue, hyperbolically, that Egan’s decision to harmonize 15 U.S.C. §
78u-6(h)(1)(A)(iii) with 15 U.S.C. § 78u-6(a)(6) is an “evisceration” of the definition of the term
“whistleblower” in the Dodd-Frank Act. Defendants’ Memorandum at p. 7. This argument
ignores basic principles of statutory construction. Definitions of terms within statutes cannot be
applied in a manner that eliminates a major purpose of a law. See Philko Aviation, Inc. v.
Shacket, 462 U.S. 406, 412 (1983); Lawson v. Suwannee Fruit & S.S. Co., 336 U.S. 198, 201
(1949). Consistent with this principle, the court in Egan properly held that the definition of the
term “whistleblower” in Dodd-Frank cannot be used to eliminate an entire substantive provision
of the law that provides expanded protections for individuals who make disclosures protected
under Sarbanes-Oxley. Egan, 2011 WL 1672066 at *5.
Defendants also criticize the decision in Egan for failing to apply their preferred, but
erroneous, interpretation of Dodd-Frank. Defendants’ Memorandum at pp. 8-9. Citing to no
authority whatsoever, defendants claim that Dodd-Frank only protects an employee from
retaliation for making disclosures protected under Sarbanes-Oxley after that employee first made
protected disclosures to the SEC. Id. This argument must be rejected, as is contrary to the text
of the statute. There are three categories of protected disclosures under 15 U.S.C. § 78u-
6(h)(1)(A): disclosures made to the SEC (15 U.S.C. § 78u-6(h)(1)(A)(i)); disclosures made “in
3 The interpretation of the anti-retaliation provisions of Dodd-Frank in Kramer, 2012 WL 4444820, which was
decided after defendants submitted their motion to dismiss, is also not dicta. The court in Kramer was required to
interpret Dodd-Frank when it heard, and rejected, a motion to dismiss a retaliation claim brought under Dodd-Frank
on the ground that only disclosures made to the SEC were entitled to the law’s protection. Id. at *4.
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initiating, testifying in, or assisting in any investigation or judicial or administrative action of
the” SEC (15 U.S.C. § 78u-6(h)(1)(A)(ii)); and disclosures required or protected under Sarbanes-
Oxley and “any other law, rule, or regulation subject to the jurisdiction of the” SEC, (15 U.S.C. §
78u-6(h)(1)(A)(iii)). Those three categories are separated by the word “or,” demonstrating that
Congress intended to protect individuals from retaliation for making disclosures protected under
any of the three categories, not a combination of the three (or, as defendants urge, without citing
to any authority, a combination of the first or second categories with the third category). See
U.S. Customs Serv., Region II v. Fed. Labor Relations Auth., 739 F.2d 829, 832 (2d Cir. 1984)
(“When ‘or’ is inserted between two clauses, the clauses are treated disjunctively rather than
conjunctively.”). The defendant in Kramer raised the same erroneous interpretation of Dodd-
Frank that is urged by defendants here, and the court properly rejected it as inconsistent with the
text and purpose of the law. Kramer, 2012 WL 4444820 at *3.
Finally, defendants claim that the decision in Egan “disrupt[s] the carefully-constructed
anti-retaliation program established by Sarbanes-Oxley,” by providing a longer statute of
limitations and providing successful plaintiffs with additional remedies. Defendants’
Memorandum at pp. 9-10. This argument rests upon a fundamental misunderstanding of the
purpose of Dodd-Frank. The expanded protections for whistleblowers in Dodd-Frank do not
disrupt federal anti-retaliation laws, but, rather, evidence Congress’s intent to expand anti-
retaliation protections. As the court in Kramer explained, the “the goal of the Dodd-Frank Act
. . . was to ‘improve the accountability and transparency of the financial system,’ and create ‘new
incentives and protections for whistleblowers.’ ” Kramer, 2012 WL 4444820 at *4 (quoting
Asadi, 2012 WL 2522599 at *3). Accordingly, the court in Kramer rejected the very same
argument that defendants raise here, explaining that “the Dodd-Frank Act appears to have been
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intended to expand upon the protections of Sarbanes-Oxley, and thus the claimed problem is no
problem at all.” Id. at *5.
2. UBS’s Interpretation of the Dodd-Frank Act Should Be Rejected
because it Is Inconsistent with SEC Rules, which Are Entitled to
Deference.
The SEC has promulgated rules and interpretive guidance explaining that
“whistleblowers” under Dodd-Frank include individuals who make disclosures that are protected
under Sarbanes-Oxley, regardless of whether those disclosures were made to the SEC. The
applicable SEC rule states:
(b) Prohibition against retaliation:
(1) For purposes of the anti-retaliation protections afforded by Section 21F(h)(1)
of the Exchange Act (15 U.S.C. 78u–6(h)(1)), you are a whistleblower if:
(i) You possess a reasonable belief that the information you are providing
relates to a possible securities law violation (or, where applicable, to a
possible violation of the provisions set forth in 18 U.S.C. 1514A(a)) that
has occurred, is ongoing, or is about to occur, and;
(ii) You provide that information in a manner described in Section
21F(h)(1)(A) of the Exchange Act (15 U.S.C. 78u–6(h)(1)(A)).
(iii) The anti-retaliation protections apply whether or not you satisfy the
requirements, procedures and conditions to qualify for an award.
17 C.F.R. § 240.21F–2(b)(1)(emphasis added).
The SEC’s comments to that rule explain that:
The second prong of the Rule 21F-2(b)(1) standard provides that, for purposes of the
anti-retaliation protections, an individual must provide the information in a manner
described in Section 21F(h)(1)(A). This change to the rule reflects the fact that the
statutory anti-retaliation protections apply to three different categories of whistleblowers,
and the third category includes individuals who report to persons or governmental
authorities other than the Commission. Specifically, Section 21F(h)(1)(A)(iii)—which
incorporate[s] the anti-retaliation protections specified in Section 806 of the Sarbanes-
Oxley Act, 18 U.S.C. 1514A(a)(1)(C)—provides anti-retaliation protections for
employees of public companies, subsidiaries whose financial information is included in
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the consolidated financial statements of public companies, and nationally recognized
statistical rating organizations when these employees report to (i) A Federal regulatory or
law enforcement agency, (ii) any member of Congress or committee of Congress, or (iii)
a person with supervisory authority over the employee or such other person working for
the employer who has authority to investigate, discover, or terminate misconduct.
Securities and Exchange Commission, Securities Whistleblower Incentives and Protections, 76
Fed.Reg. 34300-01, at *34304, 2011 WL 2293084 (F.R.) (June 13, 2011) (codified at 17 C.F.R.
pts. 240-249) (emphasis added). The SEC’s comments further explain:
In a few limited situations—reporting by employees of subsidiaries and NRSRO's
covered by SOX Section 806, and by employees whose reports were required or
protected under SOX or the Exchange Act, see Section 21F(h)(1)(A)(iii)—internal
reporting is expressly protected.
76 Fed.Reg. at *34304 n 38.
As the court in Kramer properly determined, the SEC’s interpretation of Dodd-Frank is
entitled to deference under the framework set forth by the U.S. Supreme Court in Chevron,
U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984). Kramer, 2012 WL
4444820 at *4-5; see Nollner, 852 F. Supp.2d at 993 n. 8. Under Chevron, the test to determine
whether an agency’s interpretation of a statute is entitled to deference consists of a two-step
analysis:
First, always, is the question whether Congress has directly spoken to the precise
question at issue. If the intent of Congress is clear, that is the end of the matter; for the
court, as well as the agency, must give effect to the unambiguously expressed intent of
Congress. If, however, the court determines Congress has not directly addressed the
precise question at issue, the court does not simply impose its own construction on the
statute, as would be necessary in the absence of an administrative interpretation. Rather,
if the statute is silent or ambiguous with respect to the specific issue, the question for the
court is whether the agency's answer is based on a permissible construction of the statute.
Chevron, U.S.A., Inc., 467 U.S. at 842-43.
In the instant case, as the courts in Egan and Kramer recognized, it is not unambiguously
clear that Congress intended to restrict the scope of Dodd-Frank to cover only individuals who
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make disclosures to the SEC. Egan, 2011 WL 1672066 at *5; Kramer, 2012 WL 4444820 at *4
(“I do not believe it is unambiguously clear that the Dodd–Frank Act's retaliation provision only
applies to those individuals who have provided information relating to a securities violation to
the Commission, and have done so in a manner established by the Commission.”). Indeed, such
an interpretation is contradicted by the text of the statute, which protects individuals from
retaliation who make disclosures “required or protected under” Sarbanes-Oxley (15 U.S.C. §
78u-6(h)(1)(A)(iii)), and has been rejected by the three federal courts that have considered it.
Egan, 2011 WL 1672066 at *5; Kramer, 2012 WL 4444820 at *4; Nollner, 852 F.Supp.2d at
993-94.
Because Congress has not unambiguously expressed its intent to limit the scope of Dodd-
Frank’s anti-retaliation provisions to only those individuals who report to the SEC, the SEC’s
interpretation of Dodd-Frank must be given deference, so long as it is a permissible construction
of the law. Chevron, U.S.A., Inc., 467 U.S. at 842-43. SEC’s rules and interpretative guidance
meet the “permissible construction” threshold. First, as the courts in Egan and Kramer held,
SEC’s interpretation of Dodd-Frank is consistent with the text of the law, which expressly
creates a cause of action for individuals who have been retaliated against for making disclosures
protected by Sarbanes-Oxley, including disclosures not made to the SEC. Egan, 2011 WL
1672066 at *5; Kramer, 2012 WL 4444820 at *6. 15 U.S.C. § 78u-6(h)(1)(A)(iii). Second, as
the court in Kramer explained, the SEC’s interpretation is consistent with purpose of the law,
which is to expand upon the whistleblower protections in Sarbanes-Oxley. Kramer, 2012 WL
4444820 at *4. Third, as the SEC itself has explained, one of the primary aims of its
interpretation of Dodd-Frank’s anti-retaliation provisions was to address employers’ concerns
that employees should be encouraged to use companies’ internal compliance procedures, rather
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than be required to disclose potential violations directly to the SEC. 76 Fed.Reg. at *34300. In
response to these employer concerns, the SEC’s final rulemaking states, “we have made
additional changes to the rules to further incentivize whistleblowers to use their companies’
internal compliance and reporting systems when appropriate.” Id. at *34300-01. Thus, the
SEC’s interpretation of Dodd-Frank, as set forth in its rules and interpretive guidance, is a
permissible construction of the statute and is entitled to deference under Chevron.
Because the SEC’s interpretation of Dodd-Frank is entitled to deference under Chevron,
and defendants’ interpretation of Dodd-Frank is at odds with the interpretation promulgated by
the SEC, Defendants’ motion to dismiss should be denied.
IV. CONCLUSION
For the foregoing reasons, plaintiff respectfully requests that the Court deny defendants’
motion to dismiss in its entirety.
Dated: October 12, 2012
New York, New York
Respectfully submitted,
BROACH & STULBERG, LLP
By:__________/s/_____________
Robert B. Stulberg (RS2734)
Michael H. Isaac (MI2123)
Counsel for Plaintiff
One Penn Plaza, Suite 2016
New York, New York 10119
(212) 268-1000
