Berman v. Neo@Ogilvy LLC

• Decision Date: 10 September 2015
• Docket Number: No. 14–4626.,14–4626.
• Citation: 801 F.3d 145
• Parties: Daniel BERMAN, Plaintiff–Appellant, v. NEO@OGILVY LLC, WPP Group USA, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

801 F.3d 145

Daniel BERMAN, Plaintiff–Appellant

v.NEO@OGILVY LLC, WPP Group USA, Inc., Defendants–Appellees.

No. 14–4626.

United States Court of Appeals, Second Circuit.

Argued: June 17, 2015.

Decided: Sept. 10, 2015.

Alissa Pyrich, Jardim, Meisner & Susser, P.C., Florham Park, NJ (Bennet Susser, Richard S. Meisner, Jardim, Meisner & Susser, P.C., Florham Park, NJ, on the brief), for Appellant.

Howard J. Rubin, Davis & Gilbert LLP, New York, N.Y. (Jennifer Tafet Klausner, David J. Fisher, Davis & Gilbert LLP, New York, NY, on the brief), for Appellees.

William K. Shirey, Asst. Gen. Counsel, Washington, DC (Anne K. Small, Gen. Counsel, Michael A. Conley, Deputy Gen. Counsel, Stephen G. Yoder, Senior Counsel, Washington, DC), for amicus curiae Securities and Exchange Commission, in support of Appellant.

Kate Comerford Todd, U.S. Chamber Litigation Center, Inc., Washington, DC, Eugene Scalia, Gibson, Dunn & Crutcher LLP, Washington, DC (Rachel E. Mondel, Gabrielle Levine on the brief) for amicus curiae The Chamber of Commerce of the United States of America, in support of the Appellees.

Before: NEWMAN, JACOBS, and CALABRESI, Circuit Judges.

Opinion

Judge JACOBS dissents with a separate opinion.

JON O. NEWMAN, Circuit Judge.

This appeal presents the recurring issue of statutory interpretation that arises when express terms in one provision of a statute are arguably in tension with language in another provision of the same statute. The Supreme Court recently encountered a similar issue when it interpreted a provision in the Patient Protection and Affordable Care Act in Burwell v. King, –––U.S. ––––, 135 S.Ct. 2480, 192 L.Ed.2d 483 (2015). In the pending case, the tension occurs within the whistleblower protection provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd–Frank”). Pub.L. No. 111–203, Title IX, § 922(a), 124 Stat. 1376, 1841 (2010), which added section 21F to the Exchange Act of 1934, codified at 15 U.S.C. § 78u–6. The relevant administrative agency, the Securities and Exchange Commission (“SEC” or “Commission”), has issued a regulation endeavoring to harmonize the provisions that are in tension.

Plaintiff–Appellant Daniel Berman appeals from the December 8, 2014, judgment of the District Court for the Southern District of New York (Gregory H. Woods, District Judge), dismissing on motion for summary judgment his suit against Defendants–Appellees Neo@Ogilvie LLC and WPP Group USA, Inc. See Berman v. Neo@Ogilvy LLC, 72 F.Supp.3d 404 (S.D.N.Y.2014). We conclude that the pertinent provisions of Dodd–Frank create a sufficient ambiguity to warrant our deference to the SEC's interpretive rule, which supports Berman's view of the statute. We therefore reverse and remand for further proceedings.

Background

The statutory and regulatory provisions. Section 21F, added to the Exchange Act by Dodd–Frank, is captioned “Securities Whistleblower Incentives and Protection.” 15 U.S.C. § 78u–6. Subsection 21F(b) provides the incentives by directing the SEC to pay awards to individuals whose reports to the Commission about violations of the securities laws result in successful Commission enforcement actions. See 15 U.S.C. § 78u–6(b). Subsection 21F(h) provides the protection by prohibiting employers from retaliation against employees for reporting violations. Id. § 78u–6(h).

This appeal concerns the relationship between the definition of “whistleblower” in section 21F and one subdivision of the provision prohibiting retaliation, which was added by a conference committee just before final passage. Subsection 21F(a), the definitions subsection of section 21F, contains subsection 21F(a)(6), which defines “whistleblower” to mean “any individual who provides ... information relating to a violation of the securities laws to the Commission ....” Id. 78u–6(a)(6) (emphasis added). Subsection 21F(h), the retaliation protection provision, contains subsection 21F(h)(1)(A), which provides:

(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. ), this chapter [i.e., the Exchange Act], including section 78j–1(m) of this title [i.e., Section 10A(m) of the Exchange Act], section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

Id. 78u–6(h)(1)(A).

The Sarbanes–Oxley Act of 2002 (“Sarbanes–Oxley”), Public L. No. 107–204, 116 Stat. 475 (2002), which is cross-referenced by subdivision (iii) of subsection 21F(h)(1)(A) of Dodd–Frank, includes several provisions concerning the internal reporting of securities law violations or improper practices.

For example, section 307 of Sarbanes–Oxley requires the SEC to issue rules requiring an attorney to report securities law violations to the chief legal counsel or chief executive officer of the company. See 15 U.S.C. § 7245(1). Section 301 of Sarbanes–Oxley added to the Exchange Act section 10A(m)(4), requires the SEC by rule to direct national securities exchanges and national securities associations to require audit committees of listed companies to establish internal company procedures allowing employees to submit complaints regarding auditing matters. This section is not codified. Section 806(a) of Sarbanes–Oxley prohibits a publicly traded company from retaliating against an employee who provides information concerning securities law violations to, among other, a federal regulatory or law enforcement agency, a member of Congress, or “a person with supervisory authority over the employee.” 18 U.S.C. § 1514A(a)(1).

This appeal concerns the arguable tension between the definitional subsection, subsection 21F(a)(6), which defines “whistleblower” to mean an individual who reports violations to the Commission, and subdivision (iii) of subsection 21F(h)(1)(A), which, unlike subdivisions (i) and (ii), does not within its own terms limit its protection to those who report wrongdoing to the SEC. On the contrary, subdivision (iii) expands the protections of Dodd–Frank to include the whistleblower protection provisions of Sarbanes–Oxley, and those provisions, which contemplate an employee reporting violations internally, do not require reporting violations to the Commission.

In statutory terms, the issue presented is whether the “whistleblower” definition in subsection 21F(a)(6) of Dodd–Frank applies to subdivision (iii) of subsection 21F(h)(1)(A). In operational terms, the issue is whether an employee who suffers retaliation because he reports wrongdoing internally, but not to the SEC, can obtain the retaliation remedies provided by Dodd–Frank.

The SEC believes he can. In 2011, using its authority to issue rules implementing section 21F, see 15 U.S.C. § 78u–6(j), the SEC promulgated Exchange Act Rule 21F–2, 17 C.F.R. § 240.21F–2, which provides:

(a) Definition of a whistleblower.

(1) You are a whistleblower if, alone or jointly with others, you provide the Commission with information pursuant to the procedures set forth in § 240.21F–9(a) of this chapter, and the information relates to a possible violation of the Federal securities laws (including any rules or regulations thereunder) that has occurred, is ongoing, or is about to occur. A whistleblower must be an individual. A company or another entity is not eligible to be a whistleblower.

(2) To be eligible for an award, you must submit original information to the Commission in accordance with the procedures and conditions described in §§ 240.21F–4, 240.21F–8, and 240.21F–9 of this chapter.

(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.¹

Echoing section 21F(a)(6) of Dodd–Frank, subsection 21F–2(a)(1) of Exchange Act Rule 21F–2 defines a whistleblower as a person who “provide[s] the Commission” with specific information. 17 C.F.R. § 240.21F–2(a)(1). However, subsection 21F–2(b) of the Rule, headed “Protection against retaliation,” provides, in subdivision 21F–2(b)(ii) that, for purposes of the retaliation protections of Dodd–Frank, a person is a whistleblower if the person “provide[s]” specified information “in a manner described in” the retaliation protection provisions of Dodd–Frank, which includes the cross-reference in subdivision (iii) to the reporting provisions of Sarbanes–Oxley. Id. § 240.21F–2(b)(ii). Those provisions, as explained above, protect an employee who reports internally without reporting to the Commission.

As the SEC explained in its release accompanying issuance of Exchange Rule 21F–2, “the statutory anti-retaliation protections [of Dodd–Frank] apply to three different categories of whistleblowers, and the third category [described in subdivision (iii) of subsection 21F(h)(1)(A) ] includes individuals who report to persons or governmental authorities other than the Commission. ” Securities Whistleblower Incentives and Protections, Release No....