Boyle v. Evolve Bank & Trust, et al.

Filing 92

ORDER granting in part 8 Motion to Dismiss. ORDER REMANDING CASE TO STATE COURT. Signed by Judge Samuel H. Mays, Jr on 07/19/2017. (Mays, Samuel)

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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION JAYME BOYLE, Plaintiff, v. EVOLVE BANK & TRUST and EVOLVE FINANCIAL GROUP, INC., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) No. 16-02171 ORDER Before the Court is Defendants Evolve Bank & Trust and Evolve Financial Group, Inc.’s (collectively, “Evolve”) March 31, 2016 Motion to Dismiss Plaintiff’s Second Amended Complaint (“Evolve’s Motion”). (ECF No. 8 at PageID 579.) Plaintiff Jayme Boyle responded on May 18, 2016. (ECF No. 14 at PageID 617.) (ECF No. 21 at PageID Evolve replied on June 3, 2016. 935.) Also before the Court is Boyle’s July 12, 2016 Motion to Dismiss Evolve’s Counterclaim (“Boyle’s Motion”). at PageID 989.) (ECF No. 26 Evolve responded on August 18, 2016. 34 at PageID 1005.) (ECF No. Boyle replied on September 12, 2016. No. 40 at PageID 1029.) (ECF On September 22, 2016, Evolve moved to file a sur-reply in opposition to Boyle’s Motion. at PageID 1082.) motion. (ECF No. 43 On July 17, 2017, the Court granted Evolve’s (ECF No. 91 at 1703.) For the following reasons, Evolve’s Motion, to the extent it seeks dismissal of Boyle’s Dodd-Frank Act claims, is GRANTED. This action is REMANDED to the Circuit Court of Shelby County, Tennessee, for the Thirtieth Judicial District at Memphis. I. Background On May 20, 2014, Boyle filed this action against Evolve in the Circuit Court of Shelby County, Tennessee, for the Thirtieth Judicial District at Memphis. (ECF No. 1-2 at PageID 9.) Boyle filed an Amended Complaint on September 5, 2014. (Id. at PageID 115.) arising The Amended Tennessee law. Boyle 2016. Complaint No. asserts employment asserted claims under (Id. at PageID 125.) filed (ECF Complaint a Second 1-4 at Amended PageID Tennessee contract; state intentional Complaint 407.) law on The February Second claims for infliction of 29, Amended breach of emotional distress; negligent infliction of emotional distress; common law retaliatory discharge; and claims under Tenn. Code Ann. § 50-1304 for harassment, hostile work environment, retaliatory wrongful demotion, and retaliatory or wrongful discharge. at PageID claims 445.) under the The Second Amended Complaint “whistleblower-protection 2 also provision” or (Id. asserts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank claims”). Act”), 15 U.S.C. § 78u-6(h) (Id. at PageID 445-46.) specifically alleges state law (the “Dodd-Frank Act The Second Amended Complaint and Dodd-Frank Act claims as follows: Defendants repeatedly breached Plaintiff’s employment contract and also harassed him, humiliated him, subjected him to a hostile work environment, demoted him, and finally constructively discharged him, all because he made numerous internal reports of obvious, repeated, and continuing violations of the Truth in Lending Act (TILA), Regulation Z, as amended (2011); Section 1036 of the Consumer Financial Protection Act (CFPA), 12 U.S.C. § 5536(a)(1)(A); 12 C.F.R. § 1026.36(d)(1)(i) (2011) “Compensation Rule”; Section 1036(a)(1)(A) of the Consumer Financial Protection Act (CFPA), 12 U.S.C. § 5536(a)(1)(A); 12 C.F.R. § 1026.25(a) (2011); “Record Retention Rule”; 12 C.F.R. § 1026.36(d)(1)(iv)(1) and (2) “The 10/10 Exemption to the Compensation Rule”; and HUD 4040.1, REV-2 “Prohibition of Capital Contributions”, asking each and every time for Defendants to correct the numerous violations and bring their policies and procedures into compliance with Federal law, and then refused to stop complaining about the numerous violations unless Defendants conformed their conduct to the applicable laws. (Id. at PageID 407-08.) On March 18, 2016, Evolve removed the action to this Court. (ECF No. 1 at PageID 1.) As grounds for removal, Evolve asserted that, under 15 U.S.C. § 78aa, the district courts of the United arising States under the have exclusive jurisdiction whistleblower-protection over provision claims of the Dodd-Frank Act, and that, under 28 U.S.C. § 1331, the Court has 3 subject-matter jurisdiction over this action Dodd-Frank Act claims raise a federal question. PageID 2-3.) jurisdiction § 1367(a). because Boyle’s (Id. ¶¶ 7, 9 at Evolve asserted that the Court has supplemental over Boyle’s state law claims under 28 U.S.C. (Id. ¶ 10 at PageID 3.) On June 20, 2016, Evolve filed its Answer to the Second Amended Complaint in which it asserts a counterclaim against Boyle for breach of contract and for misappropriation under the Tennessee Uniform Trade Secrets Act (the “TUTSA”), Tenn. Code Ann. §§ 47-25-1701, et seq. (the “Counterclaim”). at PageID 947, 964, 968-70.) (ECF No. 22 The Counterclaim alleges that “Boyle was a former employee of Evolve who resigned in May 2013 to join Perl [Mortgage, Inc.] in creating a Memphis branch with Jeff Kuehn (‘Kuehn’), production officers.” a former manager of (Id. at PageID 964.) the Evolve loan The Counterclaim alleges that “Boyle and Kuehn misappropriated confidential and trade secret information concerning Evolve’s loan customers and potential customers for use at Perl,” to Evolve’s detriment. (Id.) Evolve asserts that the Counterclaim is a compulsory counterclaim under Federal Rule of Civil Procedure 13 and that the Court has supplemental jurisdiction over the Counterclaim under 28 U.S.C. § 1367(a). (Id. at PageID 964.) 4 Evolve and Boyle respectively move to dismiss all claims asserted by the opposing party. (ECF No. 8-1 at PageID 582; ECF No. 26 at PageID 989-90.) II. Jurisdiction The Court has federal-question jurisdiction Dodd-Frank Act claims under 28 U.S.C. § 1331. over Boyle’s “The district courts of the United States and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction” alleging violations of the Dodd-Frank Act. over claims 15 U.S.C. § 78aa(a). The Court has supplemental jurisdiction over Boyle’s state law claims under 28 U.S.C. § 1367 because they derive from a “common nucleus of operative fact.” See 28 U.S.C. § 1367; United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966).1 III. Standard of Review In addressing a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), the court must construe the complaint in the light most favorable to the plaintiff and accept all well-pled factual allegations as true. League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). A plaintiff 1 can support a claim “by The parties contest whether the Court has supplemental jurisdiction over Evolve’s Counterclaim under § 1367. (Compare ECF No. 22 at PageID 964 with ECF No. 26 at PageID 989-90.) For the reasons discussed below, the Court need not address that dispute. 5 showing any set of facts consistent with the allegations in the complaint.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563 (2007). This standard requires more than bare assertions of legal conclusions. Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009). “[A] formulaic recitation of the elements of a cause of action will not do.” To survive a motion to dismiss, Twombly, 550 U.S. at 555. a complaint must contain sufficient facts “to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, plaintiff do with not no suffice.” facts and Id. “armed (citation with omitted). nothing more conclusions” cannot “unlock the doors of discovery.” 678-79. To survive a motion to dismiss, a A than Id. at complaint must “contain either direct or inferential allegations respecting all material elements necessary for recovery under a viable legal theory.” D’Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014) (quotation marks omitted), cert. denied, 135 S. Ct. 758 (2014). 6 IV. Analysis Boyle’s which the Dodd-Frank Court Act has claims original are the sole subject-matter claims over jurisdiction. Boyle’s remaining claims and the claims asserted in Evolve’s Counterclaim arise under Tennessee law. court may decline to exercise Because a “district supplemental jurisdiction over state law claims if it has dismissed all claims over which it had original jurisdiction,” Novak v. MetroHealth Med. Ctr., 503 F.3d 572, 583 (6th Cir. 2007) (citing 28 U.S.C. § 1367(c)(3)), the Court should first address Evolve’s Motion for dismissal of the Dodd-Frank Act claims. Evolve argues that the Dodd-Frank Act claims must be dismissed because Boyle “has failed to identify a rule, law, or regulation within the [Security and Exchange Commission’s (“SEC”)] jurisdiction under which his alleged complaints were made and further failed to allege that such disclosures were required or protected by such law.” 588.) Evolve argues whistleblower-protection that, to provision (ECF No. 8-1 at PageID allege of a the claim under Dodd-Frank the Act, a plaintiff must show that the disclosure of an alleged violation was made pursuant to a rule, law, or regulation subject to the jurisdiction of the SEC and that the disclosure was required or protected by that rule, law, or regulation. (Id. (citing Azim v. Tortoise Capital Advisors, LLC, No. 13-2267-DDC-JPO, 2015 WL 7 6802540, at *12 (D. Kan. Nov. 5, 2015)).) although Boyle violations of alleges he made various federal Evolve, none of the federal numerous Evolve argues that, internal provisions while reports of working at provisions listed in the Second Amended Complaint is subject to the jurisdiction of the SEC and none of the alleged violations Boyle lists is a required or protected disclosure under a rule, law, or regulation subject to the jurisdiction of the SEC. (Id. at PageID 588-89.) Evolve also argues that it is a bank, is not required to make filings with the SEC, and is not subject to the jurisdiction of the SEC. (Id. at PageID 589.) Thus, the whistleblower-protection provision of the Dodd-Frank Act would not apply. (Id.) The Dodd-Frank Act, inter alia, “provides a private cause of action for whistleblowers alleging retaliatory discharge or other forms of discrimination under certain circumstances.” Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, 992 (M.D. Tenn. 2012) (citing 15 U.S.C. § 78u-6(h)(1)(B)(i)). The Dodd-Frank the Act protects whistleblowers by prohibiting following forms of retaliation: No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, 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; 8 (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.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission. 15 U.S.C. § 78u-6(h)(1)(A). “[T]he first two anti-retaliation categories protect whistleblowers who report potentially illegal activity to the SEC or who work with the SEC directly, in concerning potential securities violations.” Supp. 2d at 993. Boyle does not allege some manner, Nollner, 852 F. that he reported violations to the SEC or that he worked with the SEC in any capacity. He violations while alleges at that he Evolve. made The only internal reports subprovision of of the whistleblower-protection provision under which Boyle might be protected is § 78u-6(h)(1)(A)(iii). “[A] plaintiff seeking protection under § 78u- 6(h)(1)(A)(iii) must at least show the following: (1) he or she was retaliated against for reporting a violation of the securities laws, (2) the plaintiff reported that information to the SEC or appropriate; to another (3) the entity disclosure 9 (perhaps was made even internally) pursuant to a as law, rule, or (4) the regulation disclosure subject was to the ‘required or SEC’s jurisdiction; protected’ by rule, or regulation within the SEC’s jurisdiction.” that and law, Nollner, 852 F. Supp. 2d at 995.2 As Evolve, alleged Boyle in the Second internally Amended reported Complaint, violations of while at numerous banking- and lending-related statutes, rules, and regulations. Boyle does not allege in the Second Amended Complaint that he reported violations of a law, rule, or regulation subject to the jurisdiction of the SEC. He does not allege that any disclosure he made was required or protected by a law, rule, or regulation within the jurisdiction of the SEC. 2 Thus, Boyle fails to state The parties contest whether Boyle may qualify under § 78u6(h)(1)(A)(iii) without having reported violations to the SEC. Courts are split on the issue. Compare Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 155 (2d Cir. 2015) (holding that plaintiff may qualify as whistleblower for purposes of Dodd-Frank Act’s anti-retaliation provision by reporting violations internally), with Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 629 (5th Cir. 2013) (holding that only individuals who report violations to SEC qualify). Recently, the Court of Appeals for the Sixth Circuit was presented with an opportunity to address this issue, but the Court decided the appeal on other grounds. Verble v. Morgan Stanley Smith Barney, LLC, No. 15-6397, 2017 WL 129040, at *4 (6th Cir. Jan. 13, 2017). The Supreme Court recently granted certiorari in Digital Realty Trust, Inc. v. Somers to address “[w]hether the anti-retaliation provision for ‘whistleblowers’ in the [Dodd-Frank Act] extends to individuals who have not reported alleged misconduct to the [SEC].” No. 16-1276 (June 26, 2017). The Court need not resolve this issue or defer addressing Evolve’s Motion. As discussed below, even if § 78u6(h)(1)(A)(iii) could protect individuals who do not report violations to the SEC, Boyle would not qualify for protection under that section for other reasons. 10 a claim upon which relief can be granted under whistleblower-protection provision of the Dodd-Frank Act. the See, e.g., Azim, 2015 WL 6802540, at *18 (“[E]ven if plaintiff could satisfy the first two elements of a Dodd-Frank Act retaliation claim . . . plaintiff’s claim fails because he has not proved the third or fourth elements of this claim. . . . While plaintiff asserts that he complained about securities violations to human resources, he has failed to identify a rule, law, or regulation within the SEC’s jurisdiction under which his alleged complaints were made, required, or protected.”); Zillges v. Kenney Bank & Trust, 24 F. Supp. 3d 795, 801 (E.D. Wis. 2014) (concluding that banking laws alleged to have been violated by defendants were not securities laws, as defined by 15 U.S.C. § 78c(a)(47), and that the whistleblower protections of the Dodd-Frank Act do not “extend to those who disclose violations or possible violations of non-securities laws”). Boyle contends that Evolve, “as part of [its] normal business plan,” sells the loans it makes “to other financial institutions that repackage and sell the loans to investors,” and that those financial institutions corporations regulated by the SEC.” 642-43.) Boyle argues that “are publicly held (ECF No. 14-1 at PageID Evolve has “knowingly and intentionally placed the loans they have made in violation of Dodd-Frank, Regulation Z, [t]he 11 Truth in Lending Act, the Consumer Financial regulations Protection because of, Act, among and other various wrongful other acts, federal steering, overages, and dual compensation into the stream of commerce and into the hands of uninformed investment banks and unknowing investors in contravention of the intent and specific purpose of the laws enacted precisely (Id. at PageID 643.) suggests that, to prevent this from occurring.” Without citation to any authority, Boyle because Evolve sold loans to institutional customers regulated by the SEC, Boyle may sue Evolve under the whistleblower-protection provision of the Dodd-Frank Act because Evolve retaliated against him for reporting violations of other federal laws. Boyle focuses on whether the defendant generally (or its customers) is regulated by the SEC. § 78u-6(h)(1)(A)(iii) have required Courts that have construed that the law, rule, or regulation allegedly violated by the defendant be within the jurisdiction of the SEC. E.g., Azim, 2015 WL 6802540, at *18; Zillges, 24 F. Supp. 3d at 801; Nollner, 852 F. Supp. 2d at 995. The whistleblower-protection provision of the Dodd-Frank Act is not a general-purpose anti-retaliation provision. certain kinds violations. not implicate of whistleblowers who report It protects certain kinds of Because the alleged violations Boyle reported do the whistleblower-protection provision, Boyle’s Dodd-Frank Act claims under § 78u-6(h)(1)(A) necessarily fail. 12 Evolve’s Motion, to the extent it seeks dismissal of Boyle’s Dodd-Frank Act claims, is GRANTED. V. Propriety of Exercising Supplemental Jurisdiction Boyle’s remaining claims and Evolve’s under Tennessee law. Counterclaim arise Absent the Dodd-Frank Act claims, neither party asserts that, under 28 U.S.C. § 1331, this case “arise[s] under federal law ‘[because] the vindication of a right under state law necessarily turn[s] on some construction of federal law.’” Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 9 (1983)); see also Nollner, 852 F. Supp. 2d at 1000 (concluding that, although Tennessee retaliatory discharge claims under Tenn. Code Ann. § 50-1-304 may be premised on federal-policy violations, such claims “do not present a federal question, because a state-law employment action for wrongful termination in violation of federal public policy does not present a substantial federal question over which federal courts may exercise ‘arising under’ jurisdiction under 28 U.S.C. § 1331” (quotation marks omitted)). The Court has supplemental jurisdiction over the remaining claims under 28 U.S.C. § 1367.3 3 Evolve did not invoke this Court’s jurisdiction under 28 U.S.C. § 1332. 13 Under § 1367(c), “district courts may decline to exercise supplemental jurisdiction over a claim” if “the district court has dismissed all jurisdiction.” 28 claims U.S.C. over which § 1367(c)(3). it has “When original all federal claims are dismissed before trial, the balance of considerations usually will remanding point them to to dismissing state court the if the state action law was claims, or removed.” Musson Theatrical, Inc. v. Fed. Express Corp., 89 F.3d 1244, 1254-55 (6th Cir. 1996) (collecting cases). “In determining whether to retain jurisdiction over state-law claims, a district court should consider and weigh several factors, including the ‘values comity.’” of judicial economy, convenience, fairness, and Gamel v. City of Cincinnati, 625 F.3d 949, 951 (6th Cir. 2010) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988)). plaintiff has A court may also consider (a) whether the engaged in forum manipulation, (b) whether the parties have completed discovery, and (c) whether any pending summary judgment motions are ripe for decision. See id. at 952. “In cases that have been removed to federal court . . . when all federal claims have been dismissed before trial, the best course is to remand the state law claims to the state court from which the case was removed.” Novak, 503 F.3d at 583 (quotation marks omitted). 14 This action asserts numerous claims arising under Tennessee law based on conduct alleged to have occurred in Tennessee by Tennessee deciding parties. this stages. Tennessee Tennessee The parties action. have not courts have This case completed an is interest in its discovery, in early and any discovery that has been completed will facilitate the resolution of claims in state court. No judgment are ripe for decision. pending motions for summary There is no indication that Boyle engaged in forum manipulation when he amended his Amended Complaint to add his federal claims. Remand would not disserve the interests of convenience or fairness to the parties, and remand would serve the values of judicial economy and respect for comity. See Gamel, 625 F.3d at 951. For these reasons, because the Dodd-Frank Act claims have been dismissed, the “best course is to remand” the remaining state law claims. Novak, 503 F.3d at 583. VI. Conclusion For the foregoing reasons, Evolve’s Motion, to the extent it seeks dismissal of Boyle’s Dodd-Frank Act claims, is GRANTED. This action is REMANDED to the Circuit Court of Shelby County, Tennessee, for the Thirtieth Judicial District at Memphis. So ordered this 19th day of July, 2016. 15 /s/_Samuel H. Mays, Jr._____ SAMUEL H. MAYS, JR. UNITED STATES DISTRICT JUDGE 16

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