Whistleblower

The U.S. Court of Appeals for the Second Circuit held for the first time Thursday that whistleblower claims brought under the Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010 can be forced into arbitration.

The decision, in a case where a former Citigroup executive alleged gender discrimination and retaliation, brought the Second Circuit in line with the Third Circuit, the only other federal appeals court to have ruled on the issue.

In a 33-page opinion, a three-judge panel of the Second Circuit said the landmark financial regulation law had amended other acts to include provisions barring arbitration for whistleblower claims, but was tellingly silent with respect to its own whistleblower provision.

"Congressʹs failure to attach an anti‐arbitration provision to the Dodd‐Frank whistleblower provision … while simultaneously amending similar statutory regimes to include the same, is a strong indication of its intent not to preclude Dodd‐Frank whistleblower claims from arbitration," Second Circuit Judge Robert D. Sack wrote.

The decision upheld a Manhattan federal judge's 2017 ruling, which dismissed a lawsuit by Erin Daly, a former vice president of Citi's private bank division, who claimed she was marginalized based on her gender and later fired after reporting her boss for requesting that she disclose nonpublic information so that he could pass it along to his clients.

U.S. District Judge Richard J. Sullivan had held that Daly's claims were subject to a contractual provision requiring that "all employment‐related disputes" be sent to arbitration. He also dismissed a claim under the Sarbanes-Oxley Act because Daly had failed to first file an administrative complaint through the proper channels.

On appeal, Daly argued that Sarbanes-Oxley's anti-arbitration provision extended to her claims under Dodd-Frank because both involved the same whistleblower activity.

But Sack found that, in addition to Dodd-Frank's silence on arbitration, there were key differences between the whistleblower statutes that prevented Sarbanes-Oxley's whistleblower protections from extending to Dodd-Frank.

For instance, he said whistleblowers under Sarbanes-Oxley must first lodge an administrative complaint through the Department of Labor's Occupational Safety and Health Administration, and whistleblowers proceeding under Sarbanes-Oxley are able to obtain back pay, with interest, while Dodd-Frank whistleblowers are entitled to double that amount.

"These differences in the statutesʹ whistleblower provisions support our conclusion that Congress did not intend for SOXʹs anti‐arbitration provision to extend to whistleblower claims arising under Dodd‐Frank," he said.

Sack was joined in the opinion by Judges Peter W. Hall and Christopher F. Droney.

An attorney for Daly did not immediately return a call seeking comment late Thursday afternoon.

An attorney for Citi did not immediately provide comment.

Daly was represented by Michelle N. Daly, an attorney in Hopewell Junction, New York.

Citi was represented by Lisa B. Lupton and Michael Delikat of Orrick, Herrington & Sutcliffe in New York.

The case was captioned Daly v. Citigroup.

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