Leung v. Federal Deposit Insurance Corporation

Background

Shirley Jane Leung alleged that she worked at Silicon Valley Bank Private, a division of Silicon Valley Bank, beginning in 2020. She alleged that she reported suspected violations of federal securities laws and regulations, including instructions to falsify documents, to her supervisor, John Longley, and to outside counsel Ghillaine Reid. Two days after a further conversation with Reid, Longley and a human-resources representative told Leung that she would be terminated effective March 17, 2023. Greg W. Becker, Silicon Valley Bank’s chief executive officer and Longley’s supervisor, approved the termination.

Silicon Valley Bank failed on March 10, 2023, and the Federal Deposit Insurance Corporation acting as receiver to Silicon Valley Bank (FDIC-R) took control of the bank’s assets, liabilities, and records. FDIC-R retained liabilities that were not expressly transferred to Silicon Valley Bridge Bank or later to First Citizens National Bank & Trust. Leung alleged that she did not receive salary or accrued-leave compensation from FDIC-R or another entity.

Leung’s first complaint included federal and state retaliation claims and an intentional-interference claim. In an earlier round of this case, the court dismissed First Citizens National Bank & Trust from the suit with prejudice, found that Leung adequately pleaded a Sarbanes-Oxley whistleblower claim against Longley, and allowed her to amend the claim against Becker. Leung’s amended complaint asserted the Sarbanes-Oxley claim against Longley and Becker and six claims against FDIC-R. The six claims included four previously asserted retaliation claims, a claim under 12 U.S.C. § 1831j, and a third-party-beneficiary breach-of-contract claim.

Standing and Claims Against Longley and Becker

The defendants argued that Leung lacked standing because her complaint stated that the termination was never completed. The court rejected that argument. It held that Leung suffered an adverse employment action when she was informed of the impending termination on February 16, 2023. The court also found that her alleged failure to receive salary or accrued-leave compensation supplied an additional alleged injury.

The court denied Longley’s motion to dismiss. Longley mainly renewed arguments previously rejected and challenged Leung’s alleged injury. The court declined to disturb its earlier findings.

The court also denied Becker’s motion to dismiss. In the earlier round, the court had found that Leung did not adequately allege that Becker knew about her protected whistleblowing or that it contributed to his termination decision. In the amended complaint, Leung alleged that Becker oversaw risk management and compliance, received related reports, supervised Longley, hired Reid, and was the final decision-maker on issues involving the bank’s performance and legal obligations. The court found these allegations sufficient at the motion-to-dismiss stage to support an inference that Becker knew or suspected that Leung had engaged in protected activity. It also found that the two-day interval between Leung’s complaint to Reid and the termination notice was enough to support an inference that the whistleblowing contributed to the termination.

Claims Against FDIC-R

The court denied FDIC-R’s motion to dismiss Counts 1 through 4. FDIC-R had answered those claims in the original complaint. The court held that FDIC-R’s answer prevented it from using a later amended complaint to revive a motion to dismiss those substantively similar claims. The court also held that the amended complaint adequately alleged that FDIC-R assumed responsibility for Leung’s alleged injuries and claims when it succeeded to Silicon Valley Bank’s rights and liabilities as receiver. Whether, why, how, and for how long Leung was paid after the bank’s failure presented factual issues that could not be resolved on a motion to dismiss.

The court granted FDIC-R’s motion to dismiss Count 5, a retaliation claim under 12 U.S.C. § 1831j. The statute required Leung to allege that she provided information about possible wrongdoing to a federal banking agency or the Attorney General. The court found that the amended complaint did not allege that Leung reported the alleged wrongdoing outside Silicon Valley Bank. It also found that the alleged termination occurred before FDIC-R became involved with the bank, making the required causal connection impossible on the allegations presented. The court dismissed Count 5 without leave to amend.

The court granted FDIC-R’s motion to dismiss Count 6, the third-party-beneficiary breach-of-contract claim. The court relied on the Transfer Agreement’s clause disclaiming third-party beneficiaries and on the general rule that people who benefit from a government contract are ordinarily only incidental beneficiaries. It concluded that Leung could not show that the Transfer Agreement was intended to benefit her or her colleagues. The court dismissed Count 6 without leave to amend.

Discovery and Disposition

The court denied the defendants’ motion to stay discovery as moot because the case would proceed as to the remaining defendants. The conclusion states: Longley’s motion to dismiss was denied; Becker’s motion to dismiss was denied; FDIC-R’s motion to dismiss Counts 1 through 4 was denied; and FDIC-R’s motion to dismiss Counts 5 and 6 was granted with prejudice. The defendants were directed to answer within 21 days after the order was issued.