In Somers v. Digital Realty Trust, 15-17352 (9th Cir. March 8, 2017), a split Ninth Circuit Court of Appeals widened an existing circuit court split by ruling that Section 21F of the Dodd-Frank Act (“DFA”) protects individuals who make internal disclosures as well as those who make disclosures to the Securities and Exchange Commission (“SEC”).
Paul Somers, a former Digital Realty Trust, Inc. executive, alleged his employment was terminated after he reported possible securities law violations to senior management. Although Somers never provided any information to the SEC, he claimed protection under Section 21 of the DFA’s anti-retaliation provision.
Digital Realty sought dismissal of Somers’ DFA claim based on the fact that the DFA defines a “whistleblower” as an employee who makes a report “to the Commission.” Under this definition of “whistleblower,” Digital Realty argued, Somers did not qualify for protection under Section 21F. Somers countered that his actions were protected under subsection 21F(h)(1)(A)(iii), which extends anti-retaliation protection to individuals who make internal disclosures of alleged unlawful activity. The district court agreed with Somers and the split three-judge panel affirmed this decision.
The tension between the anti-retaliation provision in 21F(h)(1)(A)(iii) and the whistleblower definition articulated in 21F(a)(6) has resulted in uncertainty and division across the federal judiciary.
A majority of courts have adopted an inclusive definition of “whistleblower.” In Berman v. Neo@Ogilvy LLC, 14-4626 (2d Cir. Sept. 10, 2015), the Second Circuit held that an individual’s internal complaint was sufficient to support a claim of retaliation under the DFA. In Berman, and subsequently in Somers, the court relied on the SEC’s implementing regulations that resolved the ambiguity in favor of individuals who only made internal disclosures of alleged unlawful activity.
Somers and Berman conflict with the Fifth Circuit Court’s decision in Asadi v. G.E. Energy, No. 12-20522 (5th Cir. July 17, 2013). This court the first federal appeals court to decide this issue, held the DFA’s definitional provision limited protection to individuals who in fact make a disclosure of information to the SEC. The dissent in Somers followed the same reasoning as Asadi: language that is expressly defined must have a fixed definition. The Sixth Circuit considered similar issues but determined the employee’s claims were too vague to afford him whistleblower protections. The Third Circuit is currently weighing this issue.
The Somers decision reflects a concern that a narrower reading of the DFA will undercut Congressional intent to protect consumers from abusive financial services practices. President Trump has proposed narrowing the scope of the DFA, but it is unclear what effect, if any, new legislation will have on the statute’s whistleblower provisions. In the interim, the DFA will remain an appealing option for internal whistleblowers and the widening split may prompt attention from the Supreme Court.