David Danon v. Vanguard Group Inc
686 F. App'x 101
3rd Cir.2017Background
- David Danon, a Vanguard tax lawyer, alleged beginning in 2010 that Vanguard engaged in illegal tax/corporate practices and repeatedly communicated these concerns to senior employees and the tax department.
- Vanguard managers rejected Danon’s legal conclusions and told him to stop raising them and not to put them in writing; Danon also refused a requested task he believed unlawful.
- Vanguard informed Danon in January 2013 that he would be terminated; his employment ended in June 2013.
- Danon sued in New York state court (May 2013), including a New York False Claims Act retaliation claim; that complaint was dismissed for failing to plead that Vanguard knew of his protected conduct before the January 2013 notice of termination.
- While that dismissal was on appeal, Danon filed in federal court alleging retaliation under SOX, Dodd-Frank, and the Pennsylvania Whistleblower Law; the District Court dismissed, relying chiefly on issue preclusion from the New York dismissal and alternative grounds (statute of limitations and administrative exhaustion).
- Danon appealed only the preclusion ruling as to the Dodd-Frank claim; the Third Circuit vacated the issue-preclusion dismissal of the Dodd-Frank claim and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether New York judgment precludes relitigation of Vanguard’s knowledge of Danon’s protected activity | Danon argued the federal complaint adequately alleges Vanguard’s knowledge and thus is not barred | Vanguard argued the state-court dismissal precludes Danon from relitigating causal link and knowledge | Vacated District Court’s preclusion holding as to Dodd-Frank: New York court decided only pleading defect, not the factual question of actual knowledge, so issue preclusion does not bar Danon from alleging knowledge in federal suit |
| Whether federal courts must give preclusive effect to state-court rulings | Danon contended any preclusion must follow New York law; he disputed that the prior ruling decided factual knowledge | Vanguard relied on full faith and credit principle to apply New York issue preclusion | Court applied New York preclusion law and concluded prior dismissal did not necessarily decide factual knowledge, so preclusion limited |
| Whether the federal complaint repeats the same pleading defect as the state complaint | Danon argued the federal complaint alleges knowledge and corrects prior defects | Vanguard contended the defects persisted and dismissal should follow | Court found the federal complaint alleges knowledge; therefore it does not suffer the same defect and preclusion cannot defeat the Dodd-Frank claim |
| Whether other dismissals should be disturbed on appeal | Danon challenged other dismissals (SOX exhaustion, PA statute of limitations) | Vanguard maintained District Court’s alternative grounds justified dismissal | Danon did not appeal those determinations; Court declined to disturb them and limited relief to Dodd-Frank claim only |
Key Cases Cited
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (federal courts give state-court judgments the same preclusive effect as state law requires)
- Jean Alexander Cosmetics, Inc. v. L’Oreal USA, Inc., 458 F.3d 244 (3d Cir. 2006) (standard of review for dismissal based on issue preclusion)
- PenneCom B.V. v. Merrill Lynch & Co., 372 F.3d 488 (2d Cir. 2004) (quoting New York law on issue preclusion requirements)
- Schwartz v. Pub. Adm’r of Bronx Cty., 246 N.E.2d 725 (N.Y. 1969) (New York formulation of issue preclusion elements)
- 175 E. 74th Corp. v. Hartford Acc. & Indem. Co., 416 N.E.2d 584 (N.Y. 1980) (dismissal for failure to state claim has preclusive effect only as to identical uncorrected defects)
- Atl. Mut. Ins. Co. v. Lauria, 739 N.Y.S.2d 394 (N.Y. App. Div. 2002) (New York appellate discussion of collateral estoppel)