Texas District Court Dismisses SOX Whistleblower Claim For Lack of Protected Activity


On March 21, 2017, the Northern District of Texas dismissed a former employee's whistleblower retaliation claim on the ground that her allegations of fraud were too far removed from potentially harming the shareholders of a publicly-traded company to be covered under SOX's anti-retaliation protections. Brown v. Colonial Savings, F.A., No. 4:16-cv-00884 (N.D. Tex. Mar. 21, 2017).


Plaintiff Joann Brown was Defendant Colonial Savings, F.A.'s Assistant Vice President of Business Support. In February 2015, she allegedly learned that Defendant, which is a privately-owned bank that services mortgage loans for other banks (including publicly-traded banks) and on its own behalf, had mailed untimely and backdated notices to certain customers informing them of material changes to its automatic clearing house services. As a result, Plaintiff alleged, approximately 40,000 customers incurred overdraft fees and negative account balances. According to Plaintiff, however, Defendant underreported the scope of the error to the publicly-traded banks for which it services mortgages, causing those banks to materially misstate their financial statements, which in turn harmed shareholders of the banks who purchased or sold securities in reliance on such financial statements.

After learning about the untimely notices, Plaintiff alerted both her supervisor and the Human Resources Department that Defendant was potentially violating one of the consumer finance laws. In response to her complaints, Plaintiff alleged that her direct supervisor and another supervisor verbally abused her, excluded her from a leadership training event, issued a critical performance review to her, placed her on a "vague and impossible" performance improvement plan, and subsequently presented a severance package to her with the intention of terminating her employment. Plaintiff also alleged that Defendant defamed her and obstructed her unemployment benefits after she resigned.

Plaintiff filed suit against Defendant for violations of SOX and Dodd-Frank's anti-retaliation provisions, in addition to common law tort claims. With respect to her SOX whistleblower claim, Plaintiff asserted that Defendant's actions, including its alleged underreporting of the notice error to the "investors, banks, and government entities" for which Defendant services mortgages, constituted fraud and thus brought her complaints within the scope of SOX's whistleblower protections. Defendant moved to dismiss...

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