Why it matters: Must an employee “whistleblower” specifically provide information about alleged corporate misconduct to the Securities and Exchange Commission (SEC) in order to get protection under the anti-retaliation provisions of Dodd-Frank? The circuits are split, and the Supreme Court has agreed to decide the issue in Digital Realty Trust, Inc. v. Somers.
Detailed discussion: On June 26, 2017, the Supreme Court granted certiorari in Digital Realty Trust Inc. v. Somers, agreeing to review the question presented of “[w]hether the anti-retaliation provision for ‘whistleblowers’ in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 [Dodd-Frank] extends to individuals who have not reported alleged misconduct to the Securities and Exchange Commission and thus fall outside the act’s definition of ‘whistleblower.’”
We discussed the Somers case in our May 2017 newsletter under “Eye on the Circuit Courts.” To briefly summarize the facts and procedural history of the case, plaintiff Paul Somers was employed from 2010 to 2014 as a vice president at Digital Realty Trust Inc. (Digital Realty). In his complaint for wrongful termination filed in the Northern District of California, Somers alleged that soon after he made several reports to Digital Realty senior management regarding possible securities law violations, he was fired. Somers claimed that he was not able to report his concerns to the SEC before Digital Realty terminated his employment. The district court denied Digital Realty’s motion to dismiss—which had been based on the fact that Somers did not disclose to the SEC and thus was not a “whistleblower” entitled to protection under Dodd-Frank—and certified the issue for interlocutory appeal to the Ninth Circuit.
On March 12, 2017, the Ninth Circuit (with one dissent) ruled that employees do not have to specifically disclose alleged misconduct to the SEC in order to qualify for “whistleblower” status under the anti-retaliation provisions of Dodd-Frank, and that internal reporting of such misconduct to management is sufficient.
In reaching this conclusion, the Ninth Circuit relied on the Second Circuit’s 2015 decision in Berman v. Neo@Ogilvy, LLC, where the Second Circuit found that the relevant statutory language in Dodd-Frank was ambiguous and held that Chevron deference must be given to the SEC’s regulation issued on the matter (17 C.F.R. § 240.21F-2), which provides that the Dodd-Frank whistleblower provisions “extend protections to all those who make disclosures of suspected violations, whether the disclosures are made internally or to the SEC.”
By siding with the Second Circuit, the Ninth widened the split with the First Circuit, which had ruled in the 2013 case of Asadi v. G.E. Energy (USA) that disclosure to the SEC was required in order to receive protection under the anti-retaliation provisions of Dodd-Frank based on the “clear on its face” statutory language specifically defining a “whistleblower” as an employee who discloses information to the SEC. Thus, the First Circuit found that internal reporting of alleged misconduct alone is not sufficient to qualify for protection under Dodd-Frank.
The Somers case is on the docket for the Supreme Court’s 2017–2018 term. We will be watching with avid interest and will report back.