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From Banking and Finance Law Daily, March 7, 2017

Bank officer successfully outlines retaliatory discharge claims

By Richard A. Roth, J.D.

A discharged bank officer will have the chance to prove that he was fired in retaliation for complaining and that his discharge violated the whistleblower protections of the Financial Institutions Reform, Recovery, and Enforcement Act and the Dodd-Frank Act. According to a U.S. district judge, the former officer described a situation in which he was fired at least in part because he complained to bank officers and managers and to examiners about the activities of two different bank presidents and the bank’s internal governance (Becotte v. The Cooperative Bank, March 6, 2017, Stearns, R.).

According to the officer, he was The Cooperative Bank’s Treasurer and Chief Financial Officer, and for part of the time in question he was its Chief Compliance Officer. Problems first arose in 2006, when he discovered that the bank’s president was using a credit card issued to the bank to pay personal expenses. He raised the issue with the president and also reported it to the bank’s attorney and its board of directors. During an examination the following year, he criticized the way the board had handled the matter.

The president eventually was fired by the bank and banned from the banking industry by the FDIC, although the judge’s opinion does not explain why this happened.

In 2011, a consulting company hired to evaluate possible successors to the then-president gave the officer a favorable review. However, the board settled on a different candidate—the board chairman, who was preparing to retire from his dentistry practice and who, at the consultants’ recommendation, was to be mentored for several years by the incumbent president due to his inexperience. Some of the bank’s managers, including the fired officer, were not pleased with the selection.

Bank employees soon reported to the officer that the new president was engaged in check cashing practices that were suspicious, although apparently not illegal. The chairman of the board appeared to be facilitating these activities. The officer and another manager met with one of the directors to discuss their concerns over the check cashing situation and other problems they had with the president.

Soon after, the bank president was suspended, and the acting president obtained an outside auditor report on the check cashing. The acting president then replaced the president. However, the officer was criticized for not acting more quickly and was replaced as CCO. The dentist-president also later was banned from the banking industry by the FDIC, the opinion noted.

In a subsequent examination, the officer complained about a number of corporate governance matters, all of which apparently were unknown to the examiners. The eventual report of examination criticized the board’s oversight of the bank, a director’s failure to tell the board of management’s concerns over the dentist-president’s qualifications and abilities, and the bank’s lack of whistleblower protections.

A memorandum of understanding between the bank and the FDIC resulted. The consultants hired to help the bank carry out its obligations under the MOU concluded that the officer was not qualified and recommended his dismissal—a recommendation that was promptly acted on.

FIRREA claim. FIRREA protects whistleblowers who give federal regulators information about violations of laws or regulations or about significant internal bank problems. It does not apply to complaints made inside the bank, the judge noted. Adverse actions are prohibited if the employee’s complaint was "a contributing factor," and the connection can be shown by circumstantial evidence. For example, if the bank official who took an adverse action knew of the employee’s complaint and the adverse action happened soon enough after the complaint that a reasonable person could decide there was a connection, the complaint could be a contributing factor.

The bank claimed that it discharged the officer based on the consultant’s recommendation and also that too much time passed between the complaints and the discharge to imply a connection. The judge disagreed.

There apparently was no dispute about the officer’s complaints, the judge said, and there was more than enough evidence of the board members’ unhappiness over the officer’s disclosures to examiners. The termination followed the complaints closely enough to imply retaliation. The officer also provided at least some evidence that the consultant’s recommendation was a pretext.

Dodd-Frank Act claim. The Dodd-Frank Act whistleblower protection provisions are different from those of FIRREA, the judge noted. For one thing, employees who make internal complaints are protected. For another, the complaint must relate to a "transaction with a consumer for a consumer financial product or service."

The bank asserted that the Dodd-Frank Act did not apply because the dentist-president’s check cashing practices involved only bank employee accounts, meaning there was no transaction with a consumer. The judge rejected that argument.

Since the act does not define "consumer," the judge said he would use the ordinary meaning—an individual who acquires a good or service for personal use. There was no reason in this case to distinguish between accounts of employees and those of other individuals, the judge said, because The Cooperative Bank was a cooperative. All of its depositors were member-owners.

There was no need for the bank employees to have suffered any permanent harm from the check-cashing activities, he also said. Any tangible interference with an employee’s rights in his account would suffice.

The case is No. 15-10812-RGS.

Attorneys: Paul F. Kelly (Segal Roitman, LLP) for Robert Becotte. Liam T. O'Connell (Nutter McClennen & Fish LLP) for The Cooperative Bank.

Companies: The Cooperative Bank

MainStory: TopStory DirectorsOfficersEmployers DoddFrankAct MassachusettsNews

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