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'Watch List' Update: Third Circuit Avoids Opining on Protection of Internal Whistleblowers

August 6, 2015

Author: Christine B. Hawes.

The Third Circuit Court of Appeals recently issued its decision in Safarian v. American DG Energy Inc., a case we have been watching closely. Although the trial court sidestepped the issue, the SEC had filed an amicus curiae brief asking the Third Circuit to hold that the Dodd-Frank Act covers whistleblowers who report their concerns internally, not just those who file complaints with the SEC. The SEC and putative whistleblowers hoped that the Third Circuit would resolve this issue in their favor and create a Circuit split with the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), L.L.C. However, the Third Circuit declined the invitation to address the question of internal Dodd-Frank whistleblowers.

Mikael Safarian was an engineer who, through his own company, serviced ADG’s machines. While providing these services to ADG, Safarian disclosed and “threatened to disclose” overbilling, improper construction, and failure to obtain appropriate permits. His relationship with ADG was terminated, and he filed his lawsuit alleging violations of various whistleblower protection statutes, including the Dodd-Frank Act, the Fair Labor Standards Act, and the New Jersey Conscientious Employee Protection Act (CEPA). The trial court dismissed several of Safarian’s claims because the applicable statutes only protect employees and he was an independent contractor. The trial court also granted summary judgment on Safarian’s Dodd-Frank claim, finding that the content of his disclosures did not fall under Dodd-Frank, and therefore the court did not need to address whether he would have been protected by Dodd-Frank by reporting his concerns internally rather than to the SEC.

In a short footnote, the Third Circuit affirmed the trial court’s finding that the concerns Safarian raised were not the type of disclosures covered by Dodd-Frank. The Court remanded Safarian’s FLSA and CEPA claims for a more detailed analysis of the “economic realities test” to determine whether Safarian truly was an independent contractor.

The next opportunity for a Circuit court to address the scope of Dodd-Frank protections for whistleblowers, and potentially to create a Circuit split, should arise in the Second Circuit, where the appeal in Berman v. Neo@Ogilvy LLC is currently pending. The SEC filed a similar amicus curiae brief on the same issue in Berman.

Christine B. Hawes
Counsel – Washington, D.C.
Phone: +1 202.624.2968
Email: chawes@crowell.com