Brawer v. Egan-Jones Ratings Company

Background

Michael Brawer and Philip Galgano sued Egan-Jones Ratings Company, Sean Egan, and Wenrong Hu. They alleged retaliation under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and New York Labor Law. This order concerned only Hu’s motion to dismiss the plaintiffs’ Sarbanes-Oxley claims for lack of subject-matter jurisdiction and failure to state a claim.

The plaintiffs alleged that they observed conduct they believed violated federal securities laws, regulations governing nationally recognized statistical rating organizations, and a settlement involving Egan-Jones and the Securities and Exchange Commission. They reported their concerns to company management, counsel, the board, an outside investigator or consultant, and the Securities and Exchange Commission. They alleged that, after Hu and Egan learned of the reports, they threatened and harassed the plaintiffs and ultimately fired both plaintiffs on January 3, 2024.

Administrative exhaustion and timing

The Sarbanes-Oxley Act requires an employee alleging retaliation to first file a complaint with the Occupational Safety and Health Administration within 180 days of the alleged retaliatory action, or of learning about it. The plaintiffs filed their Occupational Safety and Health Administration complaints on March 14, 2024. They later amended this federal lawsuit on October 24, 2024, to add their Sarbanes-Oxley claims against Hu.

The court held that the plaintiffs’ claims concerning their January 3, 2024 terminations were timely. The alleged threats and other actions occurring before September 16, 2023, however, fell outside the 180-day period. The court treated the alleged threats and harassment as separate unlawful acts rather than as part of a continuing violation that could extend the filing period. It therefore granted Hu’s motion as to the Sarbanes-Oxley claims based on retaliatory threats and harassment.

The dismissal of those claims operates without prejudice. The court gave the plaintiffs until October 30, 2025, to move for permission to amend their complaint in light of the court’s reasoning. If they do not timely seek permission, or if the court denies the request, the dismissal will be with prejudice. The court also stated that the untimely allegations may serve as background evidence for the timely termination claims.

Termination claim

To state a Sarbanes-Oxley retaliation claim, a plaintiff must allege protected activity, the defendant’s knowledge of that activity, an unfavorable employment action, and that the protected activity contributed to that action. Hu argued that the plaintiffs had not plausibly alleged that she was an employee or agent covered by the statute, or that she was materially involved in the terminations after her resignation.

The court rejected that argument at the motion-to-dismiss stage. It accepted the amended complaint’s factual allegations as true and drew reasonable inferences for the plaintiffs. Those allegations included that Hu’s resignation was nominal, that she continued providing guidance and direction to Egan-Jones, that company personnel acted at her direction, and that she remained involved in personnel decisions. The court found it plausible that Hu continued acting for Egan-Jones and could have been involved in the plaintiffs’ terminations.

Accordingly, the court denied Hu’s motion as to the plaintiffs’ Sarbanes-Oxley claim based on retaliatory termination. The court’s final order granted Hu’s motion in part as to the threats and harassment claims and denied it as to the termination claim.