Yang v. Navigators Group, Inc.
18 F. Supp. 3d 519
S.D.N.Y.2014Background
- Jennifer Yang was Group Chief Risk Officer at Navigators Group from June–Nov 2012 and alleges she was fired after repeatedly reporting risk-modeling problems and failures of risk-management subcommittees that understated investment risk and were not disclosed to rating agencies or in SEC filings.
- Yang discovered that legacy risk models underestimated risk for municipal bonds and structured products (≈60% of portfolio) and obtained a second consultant whose estimate showed materially higher market risk that could jeopardize the company’s S&P A rating.
- Yang reported these concerns up the chain (CFO DeFalco, CEO, general counsel, internal audit, and steering/committee meetings) and alleged the company’s 10-K and other disclosures were misleading about risk controls and subcommittee activity.
- DeFalco excluded Yang from certain board/committee meetings, disputed her use of a second consultant, and terminated her on November 2, 2012, stating she did not fit the company culture.
- Yang sued alleging retaliation under SOX (18 U.S.C. § 1514A) and the Dodd‑Frank Act (15 U.S.C. § 78u‑6(h)(1)); defendant moved for judgment on the pleadings and Yang sought leave to file a Second Amended Complaint (no new claims) to add factual detail.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Yang engaged in SOX-protected activity | Yang reported specific risk-modeling errors, nondisclosure to rating agencies/SEC, and false statements in filings — she reasonably believed this constituted securities/shareholder fraud | DeFalco argues Yang’s communications were routine job duties and not the specific, definitive allegation of securities violations required for SOX protection | Court: Yang’s allegations that she reported improper risk models, omitted disclosures, and false 10‑K statements plausibly plead protected SOX activity; job‑duty argument does not defeat protection |
| Whether Yang held a reasonable belief that violations occurred (SOX) | Yang’s training/experience plus consultant reports and allegedly omitted disclosures made an objectively and subjectively reasonable belief plausible | Navigators contends Yang did not explicitly allege she believed fraud occurred and points to signed certifications and her risk‑officer role | Court: On the pleadings, Yang plausibly alleged both subjective and objectively reasonable belief; defendant’s documentary arguments are not considered at this stage |
| Whether Yang qualifies as a Dodd‑Frank “whistleblower” when reporting internally (not to SEC) | Yang invokes the SEC rule (Rule 21F‑2) and agency interpretation: DFA’s anti‑retaliation protection incorporates SOX reporting, so internal reporting can qualify | Navigators argues the statutory definition limits ‘‘whistleblower’’ to those who report to the SEC (citing Asadi) and thus DFA protection does not cover internal reports | Court: The statute is ambiguous in context; the SEC’s Rule 21F‑2 is a reasonable interpretation that creates a narrow exception for SOX‑type internal reporting, so amendment to assert a DFA claim is not futile |
| Whether amendment should be allowed (futility/delay/prejudice) | Yang sought to amend to add factual detail; no new claims; limited discovery so no prejudice | Navigators argued delay and futility (claims insufficient as a matter of law) | Court: Grant leave to amend; no undue delay or prejudice and proposed amendments are not futile as to SOX and DFA claims |
Key Cases Cited
- Guyden v. Aetna, Inc., 544 F.3d 376 (2d Cir.) (an employee need not prove actual fraud to state a SOX retaliation claim)
- Bechtel v. Admin. Review Bd., 710 F.3d 443 (2d Cir.) (elements required to plead a SOX retaliation claim)
- Iqbal v. Ashcroft, 556 U.S. 662 (plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir.) (statutory‑text reading that DFA whistleblower protection limited to those reporting to the SEC)
- Leshinsky v. Telvent GIT, S.A., 942 F.Supp.2d 432 (S.D.N.Y.) (ARB/SEC‑oriented interpretation of SOX/DFA protections)
- Ruotolo v. City of New York, 514 F.3d 184 (2d Cir.) (standards on denial of leave to amend for undue delay)
- Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (agency interpretations receive deference when statute ambiguous)