Categories: Financial Services

by Allen B. Roberts, Frank C. Morris, Jr., Stuart M. Gerson, and Michael J. Slocum

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) extended Sarbanes-Oxley’s whistleblower protection provision beyond employees of publicly-traded companies to reach the employees of their privately-held subsidiaries as well.  Reasoning that this extension was “a clarification of Congress’s intent with respect to the Sarbanes-Oxley whistleblower provision,” a federal court held that the extension applies retroactively to cover whistleblowers whose claims arise from events predating the Dodd-Frank amendments. Leshinsky v. Telvent GIT, S.A., No. 10-4511, (S.D.N.Y. July 9, 2012).

Although expanding employers’ exposure to retaliation claims at the margins, the practical impact of the Leshinsky decision will likely be minimal given the 180-day limitations period applicable to whistleblower claims under Sarbanes-Oxley. In other words, the decision should not revive claims by employees of privately-held subsidiaries who have not already filed and are therefore beyond the limitations period.

Plaintiff Claimed Retaliation for Objecting to Proposed Fraud in Obtaining a Government Contract  

Phillip Leshinsky had been employed by two privately-held subsidiaries of the publicly-traded firm Telvent GIT, S.A. He was terminated in July 2008, and filed a claim under the whistleblower protection provisions of Sarbanes-Oxley Section 806, claiming that he had been fired in retaliation for having objected to a proposal to use fraudulent information in a bid to win a contract with the New York Metropolitan Transit Authority.

Defendants argued that because Leshinsky had been an employee of Telvent GIT’s privately-owned subsidiaries, rather than a direct employee of the publicly-traded parent, Section 806 did not apply. Plaintiff countered that Dodd-Frank’s 2010 amendments, expanding the scope of Section 806 to cover not only employees of publicly-traded companies but also the employees of their privately-held subsidiaries, applied retroactively to afford him protection.

Court Agreed with ARB that Dodd-Frank’s Amendments to Sarbanes-Oxley Are Retroactive

District Judge J. Paul Oetken agreed with Plaintiff. Citing the Department of Labor, Administrative Review Board’s (“ARB”) decision in Johnson v. Siemens Bldg. Tech., Inc., ARB No. 08-032 (ARB March 31, 2011), Judge Oetken reasoned that Congress’s amendment to Section 806 was “a mere clarification of the previous statute, intended to make ‘what was intended all along ever more unmistakably clear.’” The court pointed to aspects of Dodd-Frank’s legislative history in support of its conclusion, including the Senate Report accompanying its enactment that referred to the amendment as a “clarification” of Section 806. The court also concluded that retroactive application was consistent with Congress’s evident intention, through Sarbanes-Oxley, “to provide protection for whistleblowers at all levels of a public company’s corporate structure, and not solely for those who were employed directly by the public entity itself.” In so concluding, Judge Oetken chose not to follow the contrary holding in Pezza v. Investors Capital Corp., 767 F.Supp. 2d 225 (D. Mass. 2011).

The Leshinsky decision may well result in a marginal increase in employers’ exposure to retaliation claims under Sarbanes-Oxley, but that increase is likely to prove minimal in practice. Even if other courts follow Judge Oetken’s lead and conclude that Dodd-Frank’s amendment to Section 806 applies retroactively, nonetheless an employee should be required to comply with Sarbanes-Oxley’s 180-day limitations period. Claims by employees of privately-held subsidiaries arising from events predating Dodd-Frank and that have not already been filed should be time-barred, and the decision in Leshinsky should not revive them.

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