Pennsylvania Record

Monday, October 14, 2019

Third Circuit Court says tax attorney's whistleblower-related retaliation claims not precluded

By Nicholas Malfitano | Apr 25, 2017

PHILADELPHIA – The U.S. Court of Appeals for the Third Circuit has decided that a tax attorney was not precluded from claiming wrongful termination against his former employer, for blowing the whistle on their allegedly illegal practices.

On April 12, Third Circuit judges Michael A. Chagares, L. Felipe Restrepo and Jane R. Roth decided the factual issue of preclusion was not decided in the case first brought by David Danon against Vanguard Group, Inc. in the U.S. District Court, and thereby vacated said issue of preclusion when Danon decided to appeal.

In 2010, Danon, in the course of his employment for Vanguard as a tax attorney, came to the conclusion the company allegedly engaged in illegal tax and corporate practices. Danon claims that beginning at that time and continuing throughout the rest of his tenure with Vanguard, he discussed his conclusion with various senior corporate employees and members of Vanguard’s tax department. However, these individuals supposedly rejected his conclusion.

He alleges that Vanguard’s senior employees told him to stop attempting to notify individuals at Vanguard of his conclusion and not to put this conclusion in writing. In addition, he claims that, around this same time, a Vanguard employee requested that Danon perform certain unspecified duties (that Danon refused to perform, because he believed they were in violation of the law). On or around Jan. 3, 2013, Vanguard informed Danon it was going to terminate his employment soon and that he should seek other professional endeavors.

Vanguard ultimately terminated Danon’s employment in June 2013.

Just before his firing, on May 8, 2013, Danon filed litigation against Vanguard with the Supreme Court of New York, in New York County. Danon suggested that Vanguard retaliated against him by firing him for his efforts to stop Vanguard’s illegal activities, and that this same retaliation violated the New York False Claims Act. However, the Court dismissed his complaint.

The court believed Danon’s suit “failed to allege a claim for retaliation under the statute because it did not contain any allegations that [Vanguard] knew in January 2013 that Danon was involved in protected conduct.”

“While he repeatedly stressed that Vanguard knew about his conduct, he did ‘not indicate the dates when he expressed his concerns to Vanguard’s employees and, in particular, whether he did so before he was informed of his termination in January 2013.’ Because knowledge was a necessary element of Danon’s claim, failing to plead knowledge adequately was sufficient to warrant dismissal,” Roth said.

As Danon was appealing that dismissal, he filed the instant litigation versus Vanguard in the U.S. District Court for the Eastern District of Pennsylvania and claimed that his termination was a form of retaliation, in violation of the whistleblower protections of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Pennsylvania Whistleblower Law.

Vanguard moved to dismiss the suit for reasons of issue preclusion and failure to provide sufficient factual allegations to support the claim for retaliation. The District Court ruled that issue preclusion did in fact apply and defeated Danon’s claims, and further held the Pennsylvania Whistleblower Law claim was time-barred because Danon did not bring his claim within 180 days after occurrence of the alleged violation, as required by the statute – while the Sarbanes-Oxley claim was barred because it was not administratively exhausted with the Occupational Safety and Health Administration (OSHA), as required by its respective statute.

Roth reiterated the District Court held that Danon was precluded “from re-litigating whether there was a causal connection between his firing and his activities, even if such activities are protected. As a causal connection is a component of the prima facie case for retaliation claims under SOX, Dodd-Frank, and the Pennsylvania Whistleblower Law, plaintiff’s complaint must be dismissed.”

However, the judges of the appeals court ruled differently on the issue of preclusion.

“The District Court held that a New York state court case gave rise to preclusion here. The issue that was decided in the New York case was whether Danon’s complaint adequately alleged facts regarding Vanguard’s knowledge of Danon’s whistleblowing activities. The court did not decide whether, in fact, Vanguard knew about Danon’s activities. Hence, Danon is not precluded from asserting that Vanguard knew about Danon’s activities in this case; that factual issue was not decided,” Roth said.

“More generally, the New York decision can give rise to issue preclusion only insofar as Danon’s complaint suffers from the same defects as the New York complaint did. The federal complaint does allege knowledge, so it does not suffer from the same defect. For this reason, we will vacate the issue preclusion portion of the District Court’s opinion,” Roth concluded.

The plaintiff is represented by James L. Griffith Sr. in Blue Bell.

The defendant is represented by Heidi A. Wendel of Jones Day in New York, N.Y., and Paul G. Nofer of Klehr Harrison Harvey Branzburg in Philadelphia.

U.S. District Court for the Eastern District of Pennsylvania case 2:15-cv-06468

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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