On The Case

Dodd-Frank leaves muddle on forced arbitration of whistleblower claims

The U.S. Supreme Court will decide next term whether whistleblowers who report concerns within their companies are entitled to sue under the robust anti-retaliation provisions of the Dodd-Frank Act, even though Dodd-Frank elsewhere identifies whistleblowers as employees who tell the government about corporate wrongdoing. But when it comes to whistleblowers, defining who qualifies for which protections isn’t Dodd-Frank’s only inconsistency.

A new decision by a federal judge in Madison, Wisconsin, exposes a weird discrepancy in how Dodd-Frank deals with whistleblowers whose employment contracts include mandatory arbitration provisions. As it turns out, the law explicitly says whistleblowers cannot be forced to arbitrate anti-retaliation claims under the Sarbanes-Oxley Act – but Dodd-Frank does not specifically address whether employers can compel whistleblowers to arbitrate their anti-retaliation claims under Dodd-Frank itself.

The only federal circuit to have looked at this peculiarity, the 3rd U.S. Circuit Court of Appeals, held in 2014’s Khazin v. TD Ameritrade that Dodd-Frank language invalidating mandatory arbitration agreements for SOX whistleblowers does not extend to whistleblowers who sue under Dodd-Frank. The upshot, according to the 3rd Circuit (and similarly-minded federal trial courts in Los Angeles and Manhattan): Whistleblowers who claim they’re entitled to Dodd-Frank’s enhanced procedural and back pay provisions can be forced into arbitration, even though Dodd-Frank itself protects the right to sue for whistleblowers with claims under the less generous Sarbanes-Oxley Act. (One trial judge, U.S. District Judge Janet Hall of Connecticut, ruled in 2015’s Wiggins v. ING that Dodd-Frank requires litigation of whistleblower claims under the law itself, but she’s so far the only judge to have reached that conclusion.)

The Wisconsin whistleblower’s case decided last month presented a different wrinkle. Michael Wussow sued his former employer, the scientific instrument maker Bruker Corporation, for firing him after he complained to his colleagues and bosses about the company’s revenue recognition practices. Wussow, who is represented by Fox & Fox, asserted anti-retaliation claims under both Sarbanes-Oxley and Dodd-Frank. His case, according to U.S. District Judge William Conley of Madison, is the first in the 7th Circuit (and apparently the third in the country) in which a judge had to decide the implications of Dodd-Frank’s internal tension on arbitrability in a case involving whistleblower claims under both SOX and Dodd-Frank.

The judge agreed with Bruker’s lawyers from Nixon Peabody and Axley Brynelson that Wussow’s arbitration agreement requires him to arbitrate his Dodd-Frank whistleblower allegations. Like the 3rd Circuit in the Khazin case, Judge Conley pointed out that Dodd-Frank’s amendment of Sarbanes-Oxley to invalidate mandatory arbitration was an entirely different part of the law than the enhanced protections for whistleblowers who report misconduct to the government. Nothing in Dodd-Frank’s text “introduced or applied” a prohibition on mandatory arbitration for those whistleblowers, the judge held.

But the judge also refused Bruker’s motion to stay the entire case until the conclusion of arbitration of Wussow’s Dodd-Frank claims. Acknowledging that the statute allows Wussow to litigate his SOX anti-retaliation case, Judge Conley said deferring to arbitration “would be effectively denying plaintiff the right to a federal forum in substantial part (if not entirely).”

Bruker lawyer Bonnie Glatzer of Nixon Peabody said the split outcome is “the worst of all possible worlds” for both sides. Bruker doesn’t get the benefit of its arbitration agreement because it has to litigate the SOX claim. Wussow still has to arbitrate the Dodd-Frank claim – assuming, of course, that the Supreme Court decides employees who report up the corporate chain qualify as Dodd-Frank whistleblowers. And even the court, Glatzer said, has to expend resources to conduct litigation exactly paralleling an arbitration proceeding.

I asked Glatzer whether she thought Congress intentionally created the divergence between SOX and Dodd-Frank whistleblowers when it comes to arbitration of their claims. “How can I answer that?” she said. “You would think someone would have put more thought into it….The discrepancy doesn’t seem to make a lot of sense.”

That’s for sure. It also means plaintiffs lawyers should think about following the lead of Wussow’s lawyers and suing under both SOX and Dodd-Frank if they want to stay out of arbitration – a tactic defendants aren’t going to like at all.

Wussow lawyer Mary Kennelly of Fox & Fox declined to comment.