Where a plaintiff in a Dodd-Frank whistleblower suit notified his supervisor of his concerns about unlawful activities and a later regulatory action addresses the same issues, followed by the plaintiff’s termination, it is reasonable to infer that his employer was aware that he complained to the regulator.
Feldman-Boland vs. Morgan Stanley, No. 15-CV-6698 (S.D. N.Y., 7/13/16).
Plaintiffs sued their former employer, Morgan Stanley and Morgan Stanley & Co. (collectively, “Morgan Stanley”), and their former supervisor, David Turetzky (“Turetzky”), alleging that they were fired for reporting improper and unlawful broker practices to the SEC and FINRA, in violation of the whistleblower protection provisions of Sarbanes-Oxley (“SOX”) and Dodd-Frank. Defendants moved to dismiss all claims on the grounds that: (1) the claims were barred by collateral estoppel, (2) the complaint failed to state a plausible SOX or Dodd-Frank claim, and (3) Plaintiffs failed to exhaust their administrative remedies under SOX. Defendants also moved to strike the claim for emotional distress damages under SOX and claims for special damages under Dodd-Frank.
Killed by Human Rights?
Defendants’ first argument is that, because the New York City Commission on Human Rights (“NYCCHR”) had determined that Plaintiffs were “terminated for legitimate non-discriminatory reasons and not because of discrimination,” Plaintiffs were collaterally estopped from bringing the claims in the present suit. The Court rejects this argument, holding that Plaintiffs’ claims are not precluded by collateral estoppel, because there is no identity of issues. Plaintiffs’ claims before the NYCCHR required them to establish that the sole reason for their respective terminations was discriminatory or retaliatory. In contrast, in the present whistleblower suit, Defendants need to demonstrate by clear and convincing evidence that Plaintiffs would have been fired for reasons other than their engaging in activities protected under the whistleblower protections of SOX and Dodd-Frank. In addition, Plaintiffs did not have a full and fair opportunity to litigate the issues before the NYCCHR, because they did not have the benefit of discovery or an evidentiary hearing where they could confront witnesses.
Did Defendant Know?
Next, the Court holds that Plaintiffs have alleged facts sufficient to support a claim under SOX and Dodd-Frank and reject Defendants’ claims that they were unaware of Plaintiffs’ complaints to the SEC before terminating them. Plaintiffs had informed Turetzky in April and July of 2011 of their concerns regarding unlawful activities. A subsequent FINRA audit in August of 2011 addressed some of the same issues raised by Plaintiffs to Turetzky; thus, it was reasonable to infer that Morgan Stanley had sufficient reason to know that Plaintiffs had filed a complaint with regulators, thereby triggering the audit. Moreover, Plaintiffs also alleged that a Morgan Stanley coworker saw Plaintiffs documenting regulatory violations and that Plaintiff Boland informed Morgan Stanley risk officers, prior to his termination, that he filed complaints with FINRA and the SEC.
What About OSHA?
Next, the Court holds that Plaintiffs exhausted their administrative remedies under SOX as to Morgan Stanley by filing complaints with OSHA, in which they alleged that they had informed Morgan Stanley of improper and unlawful broker practices, and, after Morgan Stanley failed to act, reported their concerns to the SEC and FINRA. Plaintiffs’ SOX claims against their former supervisor Turetzky were, however, properly dismissed on the ground that Plaintiffs failed to exhaust their administrative remedies against him, because he was not named as a defendant in their OSHA complaints.
Finally, the Court denies Defendants’ motion to strike the emotional distress damages under SOX and special damages under Dodd-Frank.
(SLC Ref. No. 2017-03-03)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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