E.D. Pa. Clarifies that Whistleblower Protections under Dodd-Frank and Sarbanes-Oxley Acts Only Cover Conduct Involving Publicly-Traded Companies

Patrick M. Hromisin
Published September 13, 2017

​A trial court in the Eastern District of Pennsylvania recently ruled that the whistleblower protections of the Dodd-Frank Act and Sarbanes-Oxley Act (“SOX”) do not necessarily apply to employees of private entities, even if those entities perform work for publicly-traded companies.  The court reached this conclusion in dismissing the Plaintiff’s complaint in Reyher v. Grant Thornton LLP, No. 16-CV-1757. This ruling recognizes the limits of the Supreme Court’s 2014 holding in Lawson v. FMR and provides guidance on the scope of whistleblower protections under these Acts in the Third Circuit.

In Reyher, the plaintiff, Ann Marie Reyher, was a certified public accountant who worked for less than two months for Grant Thornton LLP, a privately-held accounting firm.  In her suit, Reyher alleged that she discovered accounting irregularities relating to four of Grant Thornton’s clients and reported her concerns about those irregularities to her supervisors.  She further alleged that Grant Thompson terminated her employment in retaliation for raising her concerns and failed to take appropriate action to remedy the irregularities. 
Reyher claimed her employer violated Section 922 of the Dodd-Frank Act, 15 U.S.C. § 78u-6.  Section 922 creates a private right of action for an individual whose employment is terminated in retaliation for making disclosures protected under other federal securities laws, including SOX.  The SOX anti-retaliation provision, 18 U.S.C. § 1514A, prohibits publicly-traded companies from firing employees who report potential violations of federal securities laws.  Reyher argued that because her employer violated the SOX anti-retaliation provision by firing her, the Dodd-Frank Act created a right of action for her to sue Grant Thornton.
Of course, the SOX anti-retaliation provisions only protect employees of publicly-traded companies, and Grant Thornton is not a publicly-traded company.  To invoke the SOX whistleblower protections, Reyher relied on Lawson v. FMR LLC, 134 S.Ct. 1158 (2014), where the Supreme Court extended SOX whistleblower protections to employees of privately-held outside contractors that perform work for publicly-traded companies.  Reyher argued that because Grant Thornton provided accounting services to some publicly-traded companies, SOX whistleblower protections applied to her under Lawson.
Notably, though, Reyher did not allege that the accounting violations she reported involved publicly-traded companies. As the Reyher court noted, that stood in contrast to the outside contractors in Lawson, who provided all day-to-day operational services for the publicly-traded mutual funds at issue.  The Reyher court determined that “the Lawson majority clearly contemplated that [the SOX anti-retaliation provision] would not extend to an individual such as Reyher, who engaged in whistleblowing unrelated to her employer’s work as a contractor to public companies.”  The court also pointed out that another court in the Eastern District of Pennsylvania, in Gibney v. Evolution Marketing Research, 25 F. Supp. 3d 741 (E.D. Pa. 2014), similarly interpreted the limited scope of the Lawson decision.
Based on these factors, the court dismissed Reyher’s complaint, ruling that the SOX whistleblower provisions did not apply to her.  This ruling establishes a boundary for the whistleblower protections available under SOX and Dodd-Frank to employees of private companies: the statutes provide a cause of action for employees of privately-held companies, but only if the whistleblowing at issue involves the privately-held company’s work for a publicly-traded company. 
Key Takeaway
The ruling reflects a growing consensus in the Eastern District of Pennsylvania about the scope of protections for employees who report irregularities under Dodd-Frank and SOX.  Privately-held companies that perform work for publicly-traded companies should be aware that they may be subject to the SOX and Dodd-Frank whistleblowing provisions.  After Reyher, privately-held companies now have a better understanding of when these whistleblower protections apply to their employees and are better positioned to defend against such claims.

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