Laura Wilcoxen Jan. 20, 2016, 10:16am


KNOXVILLE, Tenn. (Legal Newsline) — A Tennessee federal judge has dismissed a whistleblower's retaliation lawsuit because he alerted the wrong federal agency to what he felt was wrongdoing by his employer, Morgan Stanley.

Judge Thomas A. Varlan, of the U.S. District Court for the Eastern District of Tennessee, dismissed John Verble's lawsuit on Dec. 8. Verble, a former financial advisor at Morgan Stanley in Knoxville, claimed whistleblower protection under three laws, including the False Claims Act.

The Securities and Exchange Commission even filed a brief in support of Verble, who claimed he was fired by Morgan Stanley in retaliation for providing information about alleged wrongful activities at the firm to the FBI prior to his termination and to the SEC after his termination.

The court dismissed Verble's claims under the FCA, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act.

"I think some courts have been trying to expand the protections set forth in Dodd-Frank and are trying to find ambiguities in the anti-retaliation portion of statute to reach that conclusion," said Harris Mufson, attorney at Proskauer Rose in New York.

"I think that the U.S. Supreme Court is eventually going to have to decide this question, because it's a fundamental question about who is covered by the statute.”

Judge Varlan rejected the plaintiff's argument that Dodd-Frank offers protection to whistleblowers who report information to any federal agency (in this case the FBI), instead deciding that the law's definition of “whistleblower” applies only to active employees who complain to the SEC.

Second, the court found that the plaintiff did not provide adequate proof that he engaged in protected activity under the FCA. Finally, the court ruled that the plaintiff was not entitled to Sarbanes-Oxley protection because he failed to file his complaint within 180 days of his termination.

Varlan's ruling on the Dodd-Frank claim is in direct contrast to decisions in similar cases by the Second and Fifth circuit courts of appeal. Mufsin said courts may be differing on a particular part of the statute.

“The definition of a whistleblower in the statute is clear on its face — it is someone who provides information to the SEC,” Mufson said.

“But the anti-retaliation portion is broader than the definition of whistleblower. That's why there's this disagreement among courts about what Congress intended."

Mufson said that Varlan's ruling should not deter future whistleblowers, as there are several state and federal statutes to ensure their protection.

But plaintiffs and attorneys should be aware of the language of the various laws, as this ruling demonstrates that courts may take a very literal line in interpreting whistleblower protections.

“Certainly this district court is going to strictly interpret the statute in accordance with the plain language of the statute — that is, that there's a requirement that before one can sue under the anti-retaliation provisions of Dodd-Frank, they need to complain to the SEC,” Mufson said.

“In addition, this court is going to enforce the 180-day statute of limitations with respect to filing the Sarbanes-Oxley complaint with OSHA, which the plaintiff failed to do here. Had the plaintiff filed his complaint with OSHA in a timely basis, I don't know if his SOX complaint would have been dismissed.”

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Morgan Stanley
1585 Broadway, New York, NY 10036, United States
New York, NY 10036

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