Connecticut Federal Court Accepts Plaintiff’s, SEC’s Broad Reading of Dodd-Frank Whistleblower Law

| Jason M. Knott

The Dodd-Frank Act, passed in 2010, has been a hot issue on the campaign trail.  One provision of Dodd-Frank that hasn’t gotten a lot of play, politically speaking, is Section 922 – the law’s whistleblower protection provision.

But in the federal courts, Dodd-Frank whistleblower law is heating up.  We previously covered how a New York federal court allowed one such whistleblower’s claim to proceed.  Now, the District of Connecticut brings us the case of Kramer v. Trans-Lux Corp.

Richard Kramer was Vice President of Human Resources for Trans-Lux (a company that makes digital displays) and sat on Trans-Lux’s pension committee.  Kramer was fired in 2011, and sued Trans-Lux for violating the Dodd-Frank whistleblower law.  According to Kramer, Trans-Lux retaliated against him after he made internal complaints about the company’s pension plan practices and sent a letter to the SEC alleging that the company improperly amended its plan in 2009.  Indeed, Kramer says, the company fired not only him, but the entire HR department.  Sounds like something Keyser Soze might do.

Trans-Lux moved to dismiss Kramer’s complaint.  It argued that Kramer did not meet the law’s definition of a “whistleblower” because his complaints were internal rather than directed to the SEC.  Further, it said, any report that he did make to the SEC did not disclose an actual violation of the securities laws and was not made through the methods required by the SEC (online or by mailing a “Form TCR”). 

The court (Judge Stefan Underhill) rejected these arguments.  Instead, Judge Underhill agreed with the SEC’s rule applying the whistleblower provision, under which a whistleblower can be protected from retaliation even if (1) the whistleblowing activity is purely internal and (2) the reporting to the SEC isn’t done using the required methods.  Under this interpretation of Dodd-Frank, Kramer’s internal and external communications could each support his claim.  Further, wrote Judge Underhill, a whistleblower can survive dismissal by alleging only that he reasonably believed that the information related to a possible securities violation, even if he cannot show that any violation actually occurred.   

Tomorrow, we'll talk more about the potential conflict - which Trans-Lux identified and relied on - between Dodd-Frank's protections against retaliation and its other provisions relating to the payment of bounties to successful whistleblowers.