Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The below article by Sean Colligan was featured in the April issue of Stinson Leonard Street’s Business Torts Update, which focuses on recent developments affecting litigation of securities law, whistleblower, trade secret and non-compete claims.

Two recent U.S. District Court decisions hold that whistleblower claims under the Dodd-Frank Act are subject to arbitration under an appropriate pre-dispute arbitration agreement. In addition, the first of these decisions highlights several important distinctions between Dodd-Frank and Sarbanes-Oxley Act (SOX) whistleblower protection provisions, and the second decision held that internal reporting is sufficient to trigger Dodd-Frank whistleblower protection.

Murray v. UBS Securities, LLC

In this case, a federal district judge in Manhattan rejected a plaintiff’s argument that his whistleblower claim could not be arbitrated under a SOX provision that invalidates agreements to arbitrate SOX whistleblower claims.

Plaintiff was a Commercial Mortgage-Backed Security (CMBS) analyst with UBS Securities. He alleged that he was terminated for complaining to his supervisors about pressure to skew his research in ways that would support UBS Securities’ ongoing CMBS trading and loan origination activities.

Following his termination, plaintiff filed both this lawsuit under the Dodd-Frank whistleblower protection statute, and an administrative claim with OSHA under the SOX whistleblower protection statute. The SOX claim was still pending at OSHA when the district court issued its decision on whether the federal court claim was arbitrable.


Plaintiff’s employment agreement contained an arbitration clause covering disputes arising out of or relating to his employment relationship or the termination of that relationship. The arbitration clause excluded claims arising under SOX. The SOX whistleblower protection statute states that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” The Dodd-Frank whistleblower statute contains no analogous prohibition on arbitration of Dodd-Frank whistleblower claims.

In resisting UBS Securities’ motion to compel arbitration of his federal court claim, plaintiff argued that his termination violated the Dodd-Frank whistleblower statute because his complaints to his supervisors were protected by SOX, and therefore that his claims arose under SOX. UBS argued that plaintiff had stated a claim in federal court only under Dodd-Frank, and could not avoid arbitration on the grounds that his Dodd-Frank claim was allegedly premised upon protected SOX activity. The court agreed with UBS that the SOX ban on arbitration did not apply.

Differences Between SOX and Dodd-Frank Whistleblower Claims

The Court noted that a SOX claim is subject to administrative exhaustion requirements at OSHA, and plaintiff had not submitted the instant claim to OSHA in the first instance, but directly to the court.

In addition to the differing exhaustion requirements for SOX and Dodd-Frank whistleblower claims, the court noted that the statutes provide different remedies for successful claimants. While SOX whistleblowers are limited to reinstatement and back pay with interest, Dodd-Frank whistleblowers are entitled to twice the amount of back pay with interest, as well as bounties of 10-30% on recoveries over $1 million in a government enforcement action that relies on information provided by the whistleblower.

In light of these statutory differences, the court refused to allow plaintiff to recharacterize his Dodd-Frank claim as a SOX claim. Because Dodd-Frank whistleblower claims are not statutorily exempt from arbitration, plaintiff’s claim had to be resolved by arbitration.

Khazan v. TD Ameritrade Holding Corp. (D.N.J. March 11, 2014)

In this case, the plaintiff had been an investment oversight officer with defendants. Plaintiff alleged that he was terminated in retaliation for reporting to his supervisors that certain of defendants’ financial products failed to comply with securities regulations.

Plaintiff reported the violations to the U.S. Securities and Exchange Commission (SEC) only after he was terminated. One of the primary issues in the case was whether plaintiff qualified for Dodd-Frank whistleblower protections, given that his only pre-termination reports were made to internal supervisors, and not to the SEC.

The Court noted a split of authority on the question whether purely internal reporting qualifies a plaintiff for Dodd-Frank whistleblower protections. An SEC regulation construing the statute says that internal reporting is sufficient to trigger Dodd-Frank protections. The Fifth Circuit U.S. Court of Appeals (covering Texas, Louisiana and Mississippi) and federal courts in the District of Colorado and the Northern District of California have held that the SEC’s regulation is not entitled to deference and that under the clear language of the statute, its protection applies only to whistleblowers who have reported their concerns to the SEC. But most federal district courts defer to the SEC’s interpretation that internal reporting is sufficient to qualify for the protection. The Khazan court sided with this majority.

Having determined that the Dodd-Frank whistleblower protection applied to plaintiff’s claims, the court turned to the question whether his claim was arbitrable under the arbitration clause in his employment agreement, or whether the statute invalidating arbitration of SOX whistleblower claims precluded arbitration.

The court addressed this question from an entirely different perspective than the court in Murray did, though it reached the same conclusion and required arbitration of the Dodd-Frank claim. Instead of examining whether the anti-arbitration provision applied to Dodd-Frank whistleblower claims or only to SOX whistleblower claims, the court found that the anti-arbitration provision passed in 2010 could not be applied retroactively to invalidate the parties’ arbitration agreement reached in 2006. Therefore, regardless of the scope of the anti-arbitration statute, the court found that it did not apply to the instant case, and that the claim must be submitted to arbitration.


Dodd-Frank whistleblower claims will often be more attractive to plaintiffs than SOX whistleblower claims due to the absence of exhaustion requirements and the ability to seek more generous remedies. However, Dodd-Frank whistleblower claims are subject to predispute arbitration clauses, such as the clauses that most brokerage firms have with their employees. The susceptibility of Dodd-Frank whistleblower claims to arbitration agreements may be one of the few downsides to plaintiffs of pursuing such a claim, due to the limited discovery available in such actions and the perception that arbitration awards tend be lower than damage awards in litigation.


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