On Wednesday, February 21, 2018, the Supreme Court ruled that the anti-retaliation protections of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) extend only to whistleblowers who report securities law violations to the Securities and Exchange Commission (SEC).1 The decision in Digital Realty Trust Inc. v. Somers resolves a federal circuit split regarding the scope of the term “whistleblower” for purposes of anti-retaliation protections under Dodd-Frank.
In Section 78u-6, the term “whistleblower” is given the following definition:
The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.2
Dodd-Frank’s anti-retaliation provision states: “No employer may [retaliate against] a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower … in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 ….” 15 U.S.C. §78u-6(h)(1)(A)(iii). Because disclosures protected under Sarbanes-Oxley include those made internally at an employer, the circuit split concerned whether a plaintiff retaliated against solely for internal whistleblowing under Sarbanes-Oxley could receive the protections afforded under Dodd-Frank.
One line of cases, led by the Fifth Circuit Court of Appeals in Asadi v. G.E. Energy (USA) L.L.C., 720 F.3d 620 (5th Cir. 2013), followed a narrow interpretation of the statute to hold that “whistleblower,” by definition, clearly and unambiguously includes only those individuals who report violations to the SEC. The later weight of authority, led by the Second Circuit in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015), and reinforced by the SEC in its rulemaking,3 found that the provision is ambiguous and offered a broader interpretation that did not limit Dodd-Frank anti-retaliation protections to those who report to the SEC. The Ninth Circuit’s opinion in Somers v. Digital Realty Trust Inc., 850 F.3d 1045 (9th Cir. 2017), followed the Second Circuit’s Berman line of authority, which had been the majority view prior to Wednesday’s decision. The Court reversed the Ninth Circuit’s interpretation, favoring a more literal interpretation of the statutory language.
Rules the SEC promulgated pursuant to Dodd-Frank distinguished what was required to obtain an award under the whistleblower provisions—namely, providing information to the government—from what was required to obtain protection under the anti-retaliation provisions. The final version of Rule 21F-2 instructed: “The anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award.”4
The respondent in the Digital Realty decision, Paul Somers, was formerly employed as a Vice President of Digital Realty. Somers was terminated shortly after making several reports to senior management regarding possible securities law violations. Somers sued Digital Realty, asserting a claim under Section 21F of the Exchange Act, which includes Dodd-Frank’s anti-retaliation provisions. Digital Realty moved to dismiss the complaint, arguing that Somers did not qualify as a whistleblower because he had not reported the suspected violations to the SEC before his termination. The district court denied Digital Realty’s motion, and the Ninth Circuit affirmed in a 2-1 decision.5
On certiorari, the Supreme Court reversed the Ninth Circuit’s ruling. Justice Ginsburg, writing for the majority,6 sided with the Fifth Circuit’s narrow interpretation of “whistleblower.” “‘When a statute includes an explicit definition, we must follow that definition,’ even if it varies from a term’s ordinary meaning,” the Court wrote; “[t]his principle resolves the question before us.”7 The majority noted that the definition section of the Dodd-Frank Act “supplies an unequivocal answer” that “a ‘whistleblower’ is ‘any individual who provides … information relating to a violation of the securities laws to the Commission.’”8 The Court went on to discuss the interaction between Dodd-Frank’s definition section (§78u-6(a)(6)) and its anti-retaliation provisions (§78c-6(h)(1)(A)). The definition, which limits whistleblowers to those individuals who report information to the Commission, describes who is eligible for protection, whereas the anti-retaliation provisions, which extend protections to individuals who report violations internally, describe the conduct that is shielded from employment discrimination.9
In further support of its interpretation, the Court contrasted the anti-retaliation provision from Title 10 of the statute, which created the Consumer Financial Protection Bureau. Title 10 “imposes no requirement that information be conveyed to a government agency” but rather “prohibits discrimination against a ‘covered employee’ who, among other things, ‘provide[s] … information to [his or her] employer, the Bureau, or any other State, local, or Federal, government authority or law enforcement agency relating to’ a violation of a law ….”10 The court reiterated the canon of statutory construction that when “Congress includes particular language in one section of a statute but omits it in another, this Court presumes that Congress intended a difference in meaning.”11
The Court also rejected the distinction drawn by the SEC in Rule 21F-2, holding that Dodd-Frank’s definition provision in § 78u-6(a) is controlling for the provisions of Dodd-Frank that describe what conduct is shielded from employment discrimination. Finding “the statute’s definition of ‘whistleblower’ clear and conclusive,”12 the Court declined to afford Chevron deference to the SEC’s rule “[b]ecause Congress has directly spoken to the precise question at issue…. The statute’s unambiguous whistleblower definition, in short, precludes the Commission from more expansively interpreting that term.”13
In support of its decision, the Court explained that its interpretation of the term “whistleblower” comports with the purpose of Dodd-Frank. Citing legislative history, the Court noted that the “core objective” of Dodd-Frank is “to motivate people who know of securities law violations to tell the SEC.”14 The Court rejected arguments raised by Somers and the Solicitor General that a narrowed definition would “shrink to insignificance [Dodd-Frank’s] ban on retaliation,” noting that the Solicitor General “offers scant evidence to support that assertion”15 and that the Court’s interpretation continued to afford significant protections to whistleblowers, consistent with Dodd-Frank’s purpose. The Court noted, “[i]t is our function to give the statute the effect its language suggests, however modest that may be.”16
The opinion is not a surprise to those watching the case—several justices appeared to lean toward a more strict construction of the term whistleblower during oral arguments, including Justice Kagan, who noted, “You have this definitional provision, and it says what it says.”17