Securities Regulation Daily Court mulls open Dodd-Frank whistleblower issues in claim preclusion case
Tuesday, October 4, 2016

Court mulls open Dodd-Frank whistleblower issues in claim preclusion case

By Mark S. Nelson, J.D.

The former independent auditor general of the City of Miami has lost his bid to assert Dodd-Frank Act whistleblower claims against the city in federal court. Victor Igwe sued the city after being terminated for what he said was his providing information about the city’s financial practices to the SEC. The court held that two portions of the Exchange Act whistleblower section that houses additions made by the Dodd-Frank Act are statutes of repose, while seemingly deciding a third part functions as a limitations period. Igwe’s federal case ultimately turned on the preclusive effect given to a state court case he brought, necessitating another Dodd-Frank interpretation that resulted in the federal case being dismissed with prejudice (Igwe v. The City of Miami, September 29, 2016, Lenard, J.).

City auditor terminated. Igwe joined the City of Miami as Director of Internal Audits in 1999 and was later appointed to two four-year terms as the city’s Independent Auditor General. Igwe had been subpoenaed to testify before the SEC in April and November of 2010, where he described the city’s alleged use of special fund revenues to pay general fund expenses. A few years later, the SEC brought an action against the city and its one-time budget manager for securities violations.

In 2011, when Igwe was again due for re-appointment, the city opted not to re-appoint him, although Igwe was given a 60-day provisional extension and the city commission’s audit advisory committee unanimously recommended that Igwe be re-appointed. Eventually, Igwe was terminated and re-applied for his own open position only to be turned down. The city then re-posted the job with lowered requirements.

Suit clears first hurdles. The court quickly dispatched the question of whether Dodd-Frank’s whistleblower provision applies to a municipal employer regarding private law suits. Although the law does not explicitly define employer, it can be read broadly to apply to "all" employers. The City of Miami had argued for a narrow reading based on its theory that the provision only applied to publicly traded companies and their subsidiaries.

Likewise, the court quickly held that Igwe’s termination in late July 2011occurred just over a year after the Dodd-Frank whistleblower provision became effective. The president signed the Dodd-Frank Act into law on July 21, 2010 and many of its provisions, including the whistleblower one, became effective one day later. As a result, the city’s retroactivity argument failed.

Limitations theory leans toward City. The court then turned to an examination of the limitations and repose issues inherent in Dodd-Frank’s addition of Exchange Act Sections 21F(h)(1)(B)(iii)(I) and (II). The court relied on Supreme Court precedent and the law’s plain meaning in finding that Section 21F(h)(1)(B)(iii)(I)(aa) is a statute of repose—the Supreme Court had said so in Waldburger. The court also had little trouble finding that Section 21F(h)(1)(B)(iii)(II) is "undoubtedly a statute of repose."

But Section 21F(h)(1)(B)(iii)(I)(bb) is meddlesome. The court even noted that this question would be one of first impression for the Eleventh Circuit. Igwe argued this is a tolling provision that works in tandem with the repose period in Section 21F(h)(1)(B)(iii)(I)(aa). By contrast, the City of Miami argued the same provision is a limitations period that bars Igwe’s claim.

According to the court, the Dodd-Frank Act’s plain meaning suggests an outcome in line with the City of Miami’s theory, as backed by language in two district court opinions from the Eastern District of Kentucky (GriffithZeefe). Still, other courts, including the Fifth Circuit in the blockbuster Asadi case, have suggested in dicta that Dodd-Frank whistleblowers may have between six to ten years to file claims. Nevertheless, the court’s analysis reached a somewhat anticlimactic end because regardless of how the provision is ultimately classified, Igwe’s claim failed due to claim preclusion.

Dodd-Frank, preclusion end case. The court moved on to interpret another unsettled portion of the Dodd-Frank whistleblower provisions—the tension between Exchange Act Section 21F(h)(1)(B)(i) and Section 27(a). The answer would determine if Igwe’s case could have been brought in an earlier state court law suit (it was not) and, thus, must be dismissed on grounds of res judicata. The City of Miami urged concurrent jurisdiction supporting preclusion, while Igwe argued for exclusive federal court jurisdiction.

The Dodd-Frank whistleblower provision (Section 21F(h)(1)(B)(i)) uses the word "may," which the court found to be permissive language backing the longstanding presumption of concurrent federal-state court jurisdiction absent congressional intent to "affirmatively oust" the state courts. Moreover, the court said the Dodd-Frank provision was a newer, more specific, congressional statement that showed lawmakers understood the import of the law’s words. As a result, the court found concurrent federal-state court jurisdiction.

Because Igwe could have, but did not, bring the Dodd-Frank whistleblower claim in his now dismissed Florida law suit, he cannot re-assert that claim in federal court. The court noted that the admonition against claim splitting strongly supported application of res judicata. These same principles also counseled against letting Igwe bring his related First Amendment and Section 1983 claims in the federal law suit. As a result, the City of Miami’s motion to dismiss was granted and Igwe’s federal case was dismissed with prejudice.

The case is No. 15-cv-21603.

Attorneys: Ryan C. Brenton (Brenton Legal PA) for Victor Igwe. Kevin Renard Jones for the City of Miami.

Companies: The City of Miami

MainStory: TopStory AccountingAuditing DoddFrankAct MunicipalSecuritiesNews WhistleblowerNews FloridaNews

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