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From Securities Regulation Daily, May 22, 2014

To reconcile inconsistency, court disregards statutory definition of “whistleblower”

By Anne Sherry, J.D.

A court grappling with an apparent contradiction in the Dodd-Frank whistleblower statute found that by giving “whistleblower” its ordinary meaning — notwithstanding the narrower definition found in the statute itself — “everything falls into place.” The court accordingly declined the recommendation of the magistrate judge who had taken a strict reading of the statute to find that the plaintiff was not protected from retaliation (Bussing v. COR Clearing, LLC, May 21, 2014, Gerrard, J.).

Background. Julie A. Bussing alleged that she was fired from her job as an accountant with Legent Clearing, LLC, a wholly owned subsidiary of COR Clearing, LLC, for internally reporting violations of FINRA rules and federal securities laws, including anti-money-laundering provisions and the Bank Secrecy Act of 1970. She sued under the Dodd-Frank whistleblower provision, along with a number of state law claims. The magistrate found that Bussing failed to state a claim under Dodd-Frank because she had not reported any information to the SEC; Bussing objected to this finding.

Statutory inconsistency. Dodd-Frank added Section 21F to the Exchange Act to bar employers from discriminating against “a whistleblower” because of a lawful act in providing information to the SEC; in being involved in an investigation or action based on the information; or in making disclosures required or protected under the securities laws. That third category of protected disclosures subsumes certain categories of internal reporting and other reports that are not necessarily made to the SEC. But “whistleblower” is defined elsewhere in Section 21F as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”

Courts have divided on how to handle this inconsistency, particularly in light of the SEC’s implementing regulation, which intentionally omitted SEC reporting as a prerequisite to whistleblower protection. The SEC has requested that its rule be afforded deference under Chevron, recently in an amicus brief filed in an appeal pending before the Second Circuit. Several courts have deferred to the SEC rule, while others, notably the Fifth Circuit Court of Appeals, have interpreted the statute narrowly to preclude protection for plaintiffs who did not report to the SEC.

Ordinary meaning of “whistleblower.” Instead of deferring to the SEC rule under Chevron, the court reconciled the statute by reading the word “whistleblower” as used in Section 21F to carry its ordinary meaning, notwithstanding that the statute contains its own (and narrower) definition of the word. Compared to Chevron, this statutory interpretation “offers a more direct resolution of this tension,” the court proffered. “When it is apparent that Congress intended a word to be given its ordinary meaning, notwithstanding the presence of a statutory definition to the contrary, and when applying the definition to the provision at issue would defeat that provision’s purpose, the Court will not mechanically read the statutory definition into that provision.”

If the anti-retaliation provision is read using the “everyday” meaning of the word “whistleblower,” the court wrote — “’a person who tells police, reporters, etc., about something (such as a crime) that has been kept secret,’ or an ‘employee who reports employer wrongdoing to a governmental or law-enforcement agency’” — “all parts of the statute fit together into a harmonious and coherent whole.” The defined term “whistleblower” is not rendered superfluous by its reading, the court reasoned, because that narrower definition still applies to determining whether an SEC informant is eligible for a whistleblower award under the statute’s bounty provision.

The court found that Bussing qualified as a Dodd-Frank whistleblower notwithstanding the lack of reports to the SEC, and found that she had made protected disclosures. Her Dodd-Frank retaliation claim, along with her claims for discrimination under the Nebraska Fair Employment Practice Act, wrongful termination, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference, and negligence, were allowed to proceed.

The case is No. 8:12-CV-238.

Attorneys: David M. Gaba (Compass Law Group) for Julie A. Bussing. Gillian G. O'Hara (Kutak Rock LLP) for COR Securities Holdings Inc. and COR Clearing, LLC.

Companies: COR Securities Holdings Inc.; COR Clearing, LLC

MainStory: TopStory DoddFrankAct NebraskaNews

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