Plaintiff Loses 9 of 10 Claims, But Dodd-Frank Whistleblower Claim Survives

| Jason M. Knott

For a baseball player, batting .100 won’t get you into the Hall of Fame.  But for Rosanne Ott, a former Black Hawk helicopter pilot turned portfolio manager, batting .100 kept her case alive.  See Ott v. Fred Alger Mgmt., Inc., No. 11 Civ. 4418 (LAP) (S.D.N.Y. Sept. 27, 2012).

Ott sued her former employer Fred Alger Management (“Alger”), associated companies, and Alger’s CEO/CIO for alleged violations of the Investment Advisors Act, breach of contract, and the Dodd-Frank Act’s whistleblower provisions.  She also filed a derivative claim against the CEO/CIO on behalf of Alger’s shareholders for breach of fiduciary duty.  In her 10-count, 65-page amended complaint, Ott alleged that Alger had adopted a trading policy for her fund (the Health Sciences Fund) that allowed other Alger funds to make better trades at her fund’s expense.  

Alger and the other defendants moved to dismiss.  For four counts, Ott didn’t respond, and for five others, the district court decided that she had not adequately alleged supporting facts.  That left only her whistleblower claim, based on the anti-retaliation provision of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h)(1)(A)(i).  (Say that cite three times fast.) 

The defendants argued that under Dodd-Frank, a whistleblower is only protected from retaliation if she provided new information to the SEC after the law was passed, and that here, Ott had already blown the whistle to the SEC before Dodd-Frank became effective.   The court disagreed, stating that the anti-retaliation provision requires only that information be provided, not that it be “new information”; further, Alger’s alleged adverse actions post-dated the effective date of the Act.

Next, the defendants challenged Ott’s alleged reasonable belief that the trading policy violated the securities laws, arguing that she abided by the policy for two months and that the policy was modeled after a policy governing another fund about which no one ever complained.  The court found that Ott’s version of events was plausible enough to support her claim, and declined to make a credibility determination as to what she really believed.  The court also said that her belief that the securities laws were violated was objectively reasonable, based on her allegations that a co-manager described the policy as sabotage and that the SEC referred the matter to its Enforcement Division.  Finally, the court ruled that Ott’s allegation that the CEO/CIO had told a co-worker that Ott was “wrong” and was “gonna start feeling the heat” was sufficient to show a causal connection between her whistleblowing and the adverse employment action against her (demotion and termination.  Thus, the Dodd-Frank whistleblowing claim survived. 

As a result, although Ott’s complaint fell below the Mendoza Line, she and Alger are headed for discovery.  We’ll keep an eye on further developments.