Trevor Murray vs UBS - UBS Motion to Dismiss

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------x

TREVOR MURRAY,

Plaintiff,

-against-

UBS SECURITIES, LLC and UBS AG,

Defendants.

::::::::::

Civil Action No. 12 Civ. 5914 (JMF) ORAL ARGUMENT REQUESTED

----------------------------------------------------------x

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT

Eugene Scalia (Admitted Pro Hac Vice) Daniel P. Rathbun (Admitted Pro Hac Vice) GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, District of Columbia 20036 Telephone: 202.955.8206 Facsimile: 202.530.9606

Gabrielle Levin GIBSON, DUNN & CRUTCHER LLP 200 Park Avenue New York, NY 10166-0193 Telephone: 212.351.3901 Facsimile: 212.351.5301 Attorneys for Defendants

September 21, 2012

Case 1:12-cv-05914-JMF Document 14 Filed 09/21/12 Page 1 of 14

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TABLE OF CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

FACTUAL AND PROCEDURAL BACKGROUND.................................................................... 1

ARGUMENT .................................................................................................................................. 2

I. Plaintiff Fails To State A Claim Because He Is Not A “Whistleblower” Within The Meaning Of The Dodd-Frank Act. ......................................................................................... 3

II. The Decisions Suggesting That Dodd-Frank “Whistleblower” Claims May Be Brought Without A Report “To The Commission” Are Mistaken. ....................................... 5

CONCLUSION ............................................................................................................................. 10


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TABLE OF AUTHORITIES

Page

Cases

Asadi v. G.E. Energy, LLC, 2012 WL 2522599 (S.D. Tex. June 28, 2012) ........................................................................ 7, 8

Ashcroft v. Iqbal, 556 U.S. 662 (2009) .................................................................................................................... 2

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .................................................................................................................... 2

Berninger v. Meadow Green-Wildcat Corp., 945 F.2d 4 (1st Cir. 1991) ........................................................................................................... 5

Bhd. of R.R. Trainmen v. Balt. & Ohio R.R. Co., 331 U.S. 519 (1947) .................................................................................................................... 5

Egan v. Tradingscreen, Inc., 2011 WL 1672066 (S.D.N.Y. May 4, 2011) .................................................................. 6, 7, 8, 9

Gonzales v. Oregon, 546 U.S. 243 (2006) .................................................................................................................... 7

Meese v. Keene, 481 U.S. 465 (1987) .................................................................................................................... 4

Morrison v. Nat’l Australia Bank Ltd., 130 S. Ct. 2869 (2010) ................................................................................................................ 4

Nollner v. S. Baptist Convention, Inc., 2012 WL 1108923 (M.D. Tenn. Apr. 3, 2012) ........................................................................... 7

Rios v. N.Y. Marriot Marquis, 2001 WL 863425 (S.D.N.Y. July 30, 2001) ............................................................................... 6

Stenberg v. Carhart, 530 U.S. 914 (2000) .................................................................................................................... 4

TM Patents v. IBM, 107 F. Supp. 2d 352 (S.D.N.Y. 2000) ........................................................................................ 6

U.S. v. Matos, 589 F.Supp.2d 407 (S.D.N.Y. 2008) .......................................................................................... 6

Statutes

15 U.S.C. § 7201 ............................................................................................................................. 3

15 U.S.C. § 78u-6(a)(6) .......................................................................................................... 1, 3, 8

15 U.S.C. § 78u-6(b)(1) .................................................................................................................. 3

15 U.S.C. § 78u-6(c) ....................................................................................................................... 3


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15 U.S.C. § 78u-6(h)(1) .................................................................................................................. 2

15 U.S.C. § 78u-6(h)(1)(A)..................................................................................................... 3, 8, 9

15 U.S.C. § 78u-6(h)(1)(A)(iii)................................................................................................... 7, 9

15 U.S.C. § 78u-6(h)(C) ................................................................................................................. 9

15 U.S.C. 78(m) .............................................................................................................................. 3

15 U.S.C. 78a .................................................................................................................................. 3

18 U.S.C. § 1514A .......................................................................................................................... 2

18 U.S.C. § 1514A(c) ..................................................................................................................... 9

Other Authorities

Corporate Law-Securities Regulation-Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC Dodd-Frank Act, 124 Harv. L. Rev. 1829 (2011) ................................................................................................... 5

Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, 111th Cong. § 922(a) (2d Sess. 2010) ...................................................................... 5

Restoring American Financial Stability Act of 2010, H.R. 4173, 111th Cong. § 922(a) (2d Sess. 2010) ...................................................................... 4

Securities and Exchange Commission, Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300-01 (June 13, 2011) ...................................................................................... 7

Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong. § 7023(a) (1st Sess. 2009) ................................................................... 4


INTRODUCTION

Defendants UBS Securities LLC and UBS AG (collectively, “Defendants” or “UBS”)

respectfully request the dismissal of Plaintiff’s Complaint pursuant to Rule 12(b)(6) of the

Federal Rules of Civil Procedure. Plaintiff purports to bring a single claim against UBS under

the Dodd-Frank Act of 2010 (“Dodd-Frank” or the “Act”). However, because Plaintiff has not

alleged that he made a report “to the [Securities and Exchange] Commission,” he is not a

“whistleblower” as defined by the Act. 15 U.S.C. § 78u-6(a)(6). Therefore, he is not entitled to

relief and his Complaint should be dismissed.1

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff worked for UBS as a Senior Commercial Mortgage-Backed Security (“CMBS”)

Strategist from May 2011 to February 2012. Compl. ¶ 5. His responsibility as a CMBS

Strategist, he says, was to “perform research and creat[e] reports about UBS’s CMBS products

that were distributed to UBS’s current and potential clients.” Id. ¶ 12.

In his Complaint, Plaintiff alleges that UBS attempted “to influence [him] to skew his

published research in ways designed to support UBS Securities’ ongoing CMBS trading and loan

origination activities.” Id. ¶ 13. Plaintiff alleges a handful of purported encounters with UBS

personnel who have responsibility for CMBS trading and commercial mortgage originations and

who allegedly told him they “disagreed with [his] research,” said “not to publish anything

negative” and to “write what the business line wanted,” and “admonished him” for publishing

articles that were “too bearish.” Id. ¶¶ 14-17.

Plaintiff claims that he reported these alleged actions to “his superiors,” as follows:

• In “around December 2011” and “around January 2012,” Plaintiff alleges, he told his supervisor about others’ “negative response to his research,”

1 Defendants attest that they have complied with Rule 3(b)(i) of the Court’s Individual Rules.


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including their “comment that Plaintiff’s published articles were ‘too bearish’ and ‘off message’ . . .” Id. ¶ 18.

• In “around January 2012,” Plaintiff alleges, he told a co-worker who was a Managing Director that the head of the CMBS group “only interacted with Plaintiff to criticize his research and attempt to manipulate his reports.” Id. Plaintiff states that he “gave examples” of how he had been “pressured.” Id.

Plaintiff nowhere alleges that he contacted or “reported” this to the Securities and Exchange

Commission (“SEC”) or any other law enforcement or regulatory agency.

On February 6, 2012, UBS separated Plaintiff’s employment as part of a reduction in

force. Plaintiff claims this was retaliatory.

Plaintiff filed the Complaint on August 2, 2012. Plaintiff’s Complaint purports to allege

a single cause of action under Dodd-Frank: that UBS “violated 15 U.S.C. § 78u-6(h)(1) because

[its] decision to terminate [his] employment was motivated, in part, by his making disclosures

that are protected by Section 806 of the Sarbanes Oxley Act (18 U.S.C. § 1514A).” Id. ¶ 24.2

ARGUMENT

Plaintiff fails to “state a[ny] claim to relief that is plausible on its face” because he does

not allege that he reported UBS’s alleged conduct to the SEC, and he therefore is not a

“whistleblower” under the plain language of the Dodd-Frank Act. Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

Although two courts have opined, in dicta, that claimants may bring Dodd-Frank whistleblower

claims without having made a report to the SEC, those statements are plainly erroneous and are

not binding on this Court.

2 Plaintiff has also filed a complaint with the United States Department of Labor alleging a violation of the Sarbanes-Oxley “whistleblower” provision, 18 U.S.C. § 1514A.


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I. Plaintiff Fails To State A Claim Because He Is Not A “Whistleblower” Within The Meaning Of The Dodd-Frank Act.

The Dodd-Frank Act seeks to further enforcement of the securities laws by establishing a

“bounty” for “whistleblowers” and protecting them from “retaliation.” A “whistleblower” is

defined as “any individual who provides, or 2 or more individuals acting jointly who provide,

information relating to a violation of the securities laws to the Commission, in a manner

established, by rule or regulation, by the Commission.” 15 U.S.C. § 78u-6(a)(6) (emphasis

added). The Act entitles “whistleblowers” that assist in “successful” enforcement actions to

recover 10-30% of “what has been collected of the monetary sanctions imposed in that action.”

Id. at § 78u-6(b)(1).3 To protect “whistleblowers” from “retaliation,” the Act further provides:

No employer may discharge, demote, suspend, threaten, harass . . . or in any other manner discriminate against[] a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—(i) in providing information to the Commission in accordance with this section; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78(m)), section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

Id. at § 78u-6(h)(1)(A) (emphases added).

Plaintiff does not allege that he provided any information “to the Commission,” but only

that he “told his supervisors” about UBS’s purported misconduct. Compl. ¶¶ 1, 18, 27, 28.

Therefore, on a plain reading of Dodd-Frank, Plaintiff is not a “whistleblower” and is not entitled

to the protections of the Act’s anti-retaliation provision. 15 U.S.C. §§ 78u-6(a)(6), (h)(1)(A).

Because “[i]t is axiomatic that the statutory definition of [a] term excludes unstated meanings of

3 The Commission determines the precise “award” by considering the “degree of assistance” provided by the “whistleblower,” among other things. 15 U.S.C. § 78u-6(c).


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that term,” Plaintiff may not stretch the definition of “whistleblower” to cover alleged reports to

“supervisors.” See Meese v. Keene, 481 U.S. 465, 484 (1987). Rather, this Court’s role is to

apply the statute’s unambiguous meaning, which plainly requires dismissal of the Complaint.

Stenberg v. Carhart, 530 U.S. 914, 942 (2000) (“When a statute includes an explicit definition,

we must follow that definition.”); Morrison v. Nat’l Australia Bank Ltd., 130 S. Ct. 2869, 2886

(2010) (“It is our function to give [a] statute the effect its language suggests, however modest

that may be; not to extend it to admirable purposes it might be used to achieve.”).

Because the language of the statute is clear, it is appropriate for the Court’s analysis to

stop there, without consulting legislative history. But in fact, that history confirms that Dodd-

Frank’s anti-retaliation provision is limited to “whistleblowers” who give information “to the

Commission.” The bill first passed by the House of Representatives did not define

“whistleblower,” but used that term to refer to potential recipients of the Dodd-Frank “bounty.”

See Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong.

§ 7023(a) (1st Sess. 2009). The bill’s anti-retaliation provision broadly prohibited discrimination

against “an employee, contractor, or agent . . . because of any lawful act done by [such

persons] in providing information to the Commission in accordance with subsection (a), or in

assisting in any investigation or judicial or administrative action of the Commission based upon

or related to such information.” See id. (emphasis added).

The Senate amended the House bill by adding what is now the Act’s definition of

“whistleblower.” See Restoring American Financial Stability Act of 2010, H.R. 4173, 111th

Cong. § 922(a) (2d Sess. 2010). Moreover, the Senate replaced the House’s broad protection of

“employee[s], contractor[s], or agent[s]” with the narrower prohibition on discrimination against

“a whistleblower” that now appears in the Act. Id.


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The intent and effect of these changes was to clarify that the “bounty” and “anti-

retaliation” provisions apply only to “whistleblowers” who report information “to the

Commission.” See Recent Legislation, Corporate Law-Securities Regulation-Congress Expands

Incentives for Whistleblowers to Report Suspected Violations to the SEC Dodd-Frank Act, 124

Harv. L. Rev. 1829, 1832 (2011) (“[T]he text of section 922 . . . unambiguously indicates that a

person who reports only internally cannot qualify as a whistleblower under [§ 78u-6] and is

therefore not protected by its anti-retaliation provisions.”). The text and title of the final Act

further evidence this by grouping the “bounty” and “anti-retaliation” provisions together as a

single set of amendments to the Securities Exchange Act of 1934, titled “Securities

Whistleblower Incentives and Protection.” See Dodd-Frank Wall Street Reform and Consumer

Protection Act, H.R. 4173, 111th Cong. § 922(a) (2d Sess. 2010) (emphasis added). “It is well

established that a statute’s title may aid in construing any ambiguities in a statute.” Berninger v.

Meadow Green-Wildcat Corp., 945 F.2d 4, 9 (1st Cir. 1991) (citing Bhd. of R.R. Trainmen v.

Balt. & Ohio R.R. Co., 331 U.S. 519, 529 (1947)). Dodd-Frank’s use of the defined term

“whistleblower” in the “bounty” provision, the “anti-retaliation” provision, and in the statutory

title of those two provisions leaves no doubt that Congress was consistently referring to

“whistleblowers” as defined in the statute, not in some broader or different sense.

II. The Decisions Suggesting That Dodd-Frank “Whistleblower” Claims May Be Brought Without A Report “To The Commission” Are Mistaken.

Plaintiffs may attempt to rely on dicta from cases which suggest that Dodd-Frank’s

whistleblower definition allows an “exception” for employees who have reported to superiors but

not “to the Commission.” That dicta is plainly mistaken.

In the first case to construe Dodd-Frank’s whistleblower provisions, Judge Sand of this

Court opined that a claimant who has not provided information “to the Commission” may still


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maintain a suit in certain circumstances. Egan v. Tradingscreen, Inc., 2011 WL 1672066

(S.D.N.Y. May 4, 2011). The court in that case saw a contradiction between (1) the Act’s

definition of a “whistleblower” as someone who reports information “to the Commission,” and

(2) its prohibition of “retaliation” against “whistleblowers” not only for their reports “to the

Commission,” but also for other “disclosures that are required or protected under . . . any other

law, rule, or regulation subject to the jurisdiction of the Commission.” Id. at *4. (That would

include disclosures that are separately protected from retaliation under the Sarbanes-Oxley Act’s

anti-retaliation provision.) A “literal reading” of the Act’s definition of “whistleblower,” the

court said in Egan, would “effectively invalidate” its protection of “other” reports by

“whistleblowers” beyond their initial report “to the Commission.” Id. Accordingly, the court

purported to “harmoniz[e]” the Act by reading the portion of the anti-retaliation provision that

protects “other” reports as a “narrow exception,” such that it extends Dodd-Frank’s protections

to anyone who made “required or protected” disclosures, regardless of whether there was a

report “to the Commission.” Id. at *5.

These statements in Egan were dicta, because the court concluded that the plaintiff had

not alleged a disclosure that would trigger the new-found supposed narrow “exception” in any

event. Id. at *6-7.4 Nonetheless, one other court has relied on Egan to suggest a similar

4 Even if the statements in Egan were not dicta, they would not be binding on this Court. See, e.g., TM Patents v. IBM, 107 F. Supp. 2d 352, 353 (S.D.N.Y. 2000) (McMahon, J.) (“IBM is wrong to argue that the decision of another judge of this Court in [another case concerning the same issue] is binding on this Court.”); Rios v. N.Y. Marriot Marquis, 2001 WL 863425, at *1 n.2 (S.D.N.Y. July 30, 2001) (Buchwald, J.) (“Additionally, that another judge in this Court reads [a Supreme Court] decision differently does not create manifest unfairness. Good-faith differences of opinion among judges in this Court on evolving areas of the law are both common and inevitable.”); U.S. v. Matos, 589 F.Supp.2d 407, 408 (S.D.N.Y. 2008) (Rakoff, J.) (“It is true that another judge of this Court opined that, if the authorities are not able to apprehend within a reasonable time a probationer charged with violations, the warrant ‘loses its force and vitality’ . . . But this Court disagrees.”).


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interpretation of Dodd-Frank, albeit again in dicta. See Nollner v. S. Baptist Convention, Inc.,

2012 WL 1108923, at *7-10 (M.D. Tenn. Apr. 3, 2012) (accepting Egan’s “harmonization” in

theory, but dismissing plaintiff’s Dodd-Frank claims because defendants were not “subject to the

jurisdiction of the SEC”); and cf. Asadi v. G.E. Energy, LLC, 2012 WL 2522599 (S.D. Tex. June

28, 2012) (describing the interpretation in Egan and Nollner without adopting it or otherwise

“reach[ing] the issue of whether Plaintiff qualifies as a whistleblower.”). Additionally, in its

final rule implementing Dodd-Frank’s “bounty” provision, the SEC echoed Egan without

analysis. See Securities and Exchange Commission, Securities Whistleblower Incentives and

Protections, 76 Fed. Reg. 34300-01, at *34304 (June 13, 2011) (“[T]he statutory anti-retaliation

protections apply to three different categories of whistleblowers, and the third category includes

individuals who report to persons or governmental authorities other than the [SEC].”).5

For multiple reasons, the dicta in Egan and Nollner is mistaken and deserves no

deference:

1. The interpretation conflicts with the plain language of the statute. Egan purported to

“rea[d]” Section 78u-6(h)(1)(A)(iii) as a “narrow exception” to the Act’s definition of

“whistleblower.” Egan, 2011 WL 1672066, at *5. But the language of that subsection is not

presented or phrased as an exception at all; rather, it delineates one of three circumstances where

“whistleblowers” are specifically protected against “retaliation.” To read that delineation as

removing the requirement that there be a statutorily-defined “whistleblower” at all is not a

“narrow exception;” it is an evisceration.

5 This characterization is not entitled to Chevron deference because the anti-retaliation provision has a plain meaning that is inconsistent with the Commission’s characterization, and the Commission was not purporting to clarify a statutory ambiguity. See, e.g., Gonzales v. Oregon, 546 U.S. 243, 255-56 (2006).


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Indeed, Egan essentially acknowledged that its reading was inconsistent with the

statutory language, by expressly disavowing a “literal reading of the [Act’s] definition of the

term ‘whistleblower.’” See Egan, 2011 WL 1672066, at *4. The court in Egan also seemed to

acknowledge at one point that its interpretation was contrary to Congress’s intent, observing that

“other provisions of the Dodd-Frank Act show that Congress was perfectly capable of extending

whistleblower protection to persons other than those reporting to a particular federal agency . . .

the absence of similarly broad protections for whistleblowers alleging securities law violations

indicates that Congress intended to encourage whistleblowers reporting such violations to report

to the SEC.” Egan, 2011 WL 1672066, at *4. Another court has noted these inconsistencies,

explaining that Egan “held that a ‘whistleblower’ for Dodd-Frank retaliation purposes actually is

broader than the statutory definition.” Asadi, 2012 WL 2522599, at *3 (emphasis added).6

2. Egan also rests on flawed reasoning. The court said in Egan that a “literal reading” of

the Act’s definition of “whistleblower” would “effectively invalidate” the anti-retaliation

protection given to “whistleblowers” who disclose information to entities other than the

Commission. See Egan, 2011 WL 1672066, at *4. That is incorrect: statutorily-defined

“whistleblowers” who make required or protected reports would be protected, and the court’s

statement fundamentally misunderstands how the statutory provisions interact. On the

“literal”—and proper—reading, the definition in Section 78u-6(a)(6) explains who is protected

(“whistleblowers”), and the anti-retaliation provision in Section 78u-6(h)(1)(A) explains what

whistleblowers are protected doing: reporting information to the Commission, assisting in

6 Although the court in Asadi sidestepped the definition of “whistleblower,” the method it followed runs counter to the expansive approach Plaintiff presents here. See Asadi, 2012 WL 2522599, at *4-5 & n.51 (declining to apply Dodd-Frank to conduct abroad because doing so would conflict with the “plain language” of Dodd-Frank, which generally bars extraterritorial application, and suggesting that the extraterritorial reach of statutes “encompass[ed]” by Dodd-Frank would be insufficient to extend Dodd-Frank extraterritorially).


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Commission investigations, and making other disclosures that are “required or protected” under

Commission-administered laws. Once a “whistleblower” reports information “to the

Commission,” Section 78u-6(h)(1)(A) ensures that her employer may not retaliate against her for

(1) the disclosure “to the Commission,” or (2) further disclosures that are “protected” or

“required” by Commission-administered laws and regulations. 15 U.S.C. § 78u-6(h)(1)(A). It

makes perfect sense and is entirely consistent with Congress’s intent to protect a “whistleblower”

who has gone to the Commission from retaliation not only for that act, but also for other steps

such a “whistleblower” might take to further compliance with the law.

3. It is in fact Egan’s construction that “effectively invalidates” the existing statutory

framework. Under Egan, even if an employee does not “blow the whistle” in the manner that

was deemed particularly valuable and incentivized by the Dodd Frank “Securities Whistleblower

Incentives and Protection” provision, she may nonetheless avail herself of the special protection

and remedies afforded by that same provision. The Dodd-Frank protections are more generous

than those provided by the Sarbanes-Oxley anti-retaliation provision, which protects employees

who have complained internally as well as those who go to the government: Dodd-Frank

provides a limitations period as long as 10 years (versus 180 days); enables claimants to recover

“2 times the amount of back pay” (versus straight back pay); and permits claimants to proceed

directly to federal district court (versus filing initially with the U.S. Secretary of Labor).

Compare 15 U.S.C. § 78u-6(h)(C), with 18 U.S.C. § 1514A(c).

Under Egan’s interpretation, then, every employee who claims to have made disclosures

“protected” by Sarbanes-Oxley now has unfettered discretion to by-pass the Sarbanes-Oxley

anti-retaliation protection provision, and to rely on the protections established for Dodd-Frank

“whistleblowers.” That would severely disrupt the carefully-constructed anti-retaliation program


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established by Sarbanes-Oxley—with its short limitations period and provision for review by an

expert administrative agency—because few claimants will settle for a Sarbanes-Oxley claim of

back pay only, when they can get double damages under Dodd-Frank. Egan’s dicta is not a

“narrow exception,” it is a sweeping revision of two separate statutory frameworks.

For all of these reasons, Dodd-Frank should be applied in accordance with its plain

language to extend its heightened protections only to “whistleblowers” within the meaning of

that statutorily-defined term.

CONCLUSION

For all the foregoing reasons, Plaintiff’s claims against Defendants should be dismissed

with prejudice for failure to state a claim under Rule 12(b)(6).

Dated: September 21, 2012 GIBSON, DUNN & CRUTCHER LLP

By: /s/ Gabrielle Levin Gabrielle Levin 200 Park Avenue New York, New York 10166 Telephone: 212.351.3901 Facsimile: 212.351.5301 Eugene Scalia (Admitted Pro Hac Vice) Daniel P. Rathbun (Admitted Pro Hac Vice) 1050 Connecticut Ave., NW Washington, District of Columbia 20036 Telephone: 202.955.8206 Facsimile: 202.530.9606 Attorneys for Defendants


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Trevor Murray vs UBS - UBS Motion to Dismiss