Wednesday, March 02, 2011

District Court: Dodd-Frank Arbitration Ban for Sarbanes-Oxley Whistleblower Cases Applied Retroactively

A federal district court held that the Dodd-Frank Act ban on pre-dispute arbitration agreements for whistleblower claims under Section 806 of the Sarbanes-Oxley Act applied to alleged misconduct that occurred before enactment of the Wall Street reform legislation. U.S. District Judge Douglas P. Woodlock decided that the court (D Mass), rather than a FINRA arbitration panel, had subject matter jurisdiction over a whistleblower claim and denied a defense motion to compel arbitration.

Section 922 of the Dodd-Frank Act added new subsection (e) to Sarbanes-Oxley Act Section 806 to ban pre-dispute arbitration agreements concerning civil whistleblower claims. The plaintiff in this case, after complying with the Department of Labor’s administrative claims process, filed suit alleging retaliation in violation of the Sarbanes-Oxley Act’s whistleblower protection provisions. The Dodd-Frank Act Section 922 ban became effective during the court's consideration of the defense motion to compel arbitration.

Initially, the court found that it was unclear whether Congress intended the section to apply retroactively. Judge Woodlock then determined that retroactive application of Section 922 would not produce a significant prejudicial consequence. The court, referring to the 1994 Supreme Court holding in Landgraf v. USI Film Products, noted that jurisdictional statutes may be applied in suits arising before their enactment without raising concerns about retroactivity. The rationale is that this type of statute takes away no substantive right but simply changes the tribunal that is to hear the case. The judge stated that "[w]hile Section 922 affects the validity of the arbitration clause, a contractual term agreed upon by the parties, I am of the view that this section principally concerns the type of jurisdictional statute envisioned in Landgraf."

Pezza v. Investors Capital Corp. (DC Mass, Civil Action No. 10-10113-DPW)


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