On March 8, 2017, the United States Court of Appeals for the Ninth Circuit created a new wave in the ongoing debate over the scope of Dodd-Frank’s anti-retaliation or “whistleblower” protections. In Somers v. Digital Realty Trust Inc., No. 15-17352, 2017 WL 908245 (9th Cir. Mar. 8, 2017), a 2-1 decision, the Ninth Circuit held that Dodd‑Frank protects even employees who disclose only internally (i.e., to their employer) perceived corporate wrongdoing. This holding is significant in that it expands the coverage of Dodd-Frank’s whistleblower protection beyond only those that disclose alleged wrongdoing externally, to government regulators for example.
In Somers, the plaintiff was fired after making an internal disclosure of alleged securities law violations but before making a similar report to the Securities and Exchange Commission (“SEC”). 2017 WL 908245, at *2. The employer moved to dismiss the whistleblower claim, alleging that the employee was not entitled to the protection afforded a whistleblower under Dodd-Frank unless the employee reported the alleged misconduct to the SEC. Id. In affirming the district court’s denial of the motion to dismiss, the majority in Somers concluded that Dodd-Frank’s whistleblower provision is ambiguous and thus deferred to the SEC regulation interpreting the statute as affording protection to those reporting securities law violations, regardless of whether the report is made to the SEC. Id. at *4, see also 17 C.F.R. § 240.21F-2.
Consistent with the majority in Somers, the United States Court of Appeals for the Second Circuit would apply Dodd Frank’s whistleblower protection notwithstanding that the disclosure was only internal. Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d. Cir. 2015). In contrast, the Fifth Circuit leads the charge for the more restrictive view that Dodd-Frank’s whistleblower provision protects only those employees who report perceived wrongdoing to specifically the SEC. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013). The Fifth Circuit bases its conclusion, in part, on Dodd‑Frank’s definition of a “whistleblower” as one who provides “information relating to a violation of the securities laws to the Commission [SEC], in a manner established, by rule or regulation, by the Commission.” See 15 U.S.C. § 78u-6(a)(6) (emphasis added). Further, only a week before the Ninth Circuit issued its decision in Somers, the District Court of Maryland became the second district court in the Fourth Circuit to rely on Asadi in dismissing a claim of whistleblower retaliation under Dodd-Frank because the plaintiff failed to assert either that his employer was a publicly traded company or that he had reported directly to the SEC. Olekanma v. Wolfe, No. 15-0984 (D. Md. March 1, 2017).
The split finds its origin in a comparison of anti-retaliation language in the Sarbanes-Oxley Act (“Sarbanes-Oxley”) and Dodd-Frank. Specifically, Sarbanes-Oxley, which was enacted to address concerns regarding the integrity of corporate accounting, affords protection to employees who report specified categories of concerns to a supervisor (internal) or to a federal regulator (external). 18 U.S.C. § 1514A(a). Moreover, according to the Ninth Circuit, Sarbanes-Oxley requires that the disclosure of allegedly improper conduct occur prior to a report to regulators. Somers, 2017 WL 908245, at *3 (citing 15 U.S.C. § 78j-1(b)).
Dodd-Frank, which is aimed at addressing conduct potentially detrimental to the financial system, prohibits retaliation against an employee who reports alleged improper conduct to the SEC or who engages in any reporting conduct “protected under the Sarbanes-Oxley Act of 2002.” 15 U.S.C. § 78u-6(h)(1)(A). However, Dodd-Frank goes on to define a whistleblower as one who provides information specifically “to the Commission,” 15 U.S.C. § 78u-6(a)(6) (emphasis added), creating a tension between the scope of the act’s protections and the definition of those entitled to the act’s protections.
In affirming the district court, the Somers court noted that to limit protection to only those who report conduct to the SEC potentially leaves a person subject to retaliation in the interim between the time the allegedly improper conduct is first reported internally, as required under Sarbanes-Oxley, and the time the conduct is reported externally. The Ninth Circuit deemed such a potential outcome inconsistent with Congressional intent, relying in part on the express language of Dodd‑Frank’s whistleblower protection provision (as opposed to its definition of a “whistleblower”) “broadly incorporating through subdivision (iii) [15 U.S.C. § 78u-6(h)(1)(A)(iii)], Sarbanes-Oxley’s disclosure requirements and protections.” Somers, 2017 WL 908245, at *3.
The Somers court concluded that the reference to Sarbanes-Oxley’s subdivision (iii) belies the conclusion that Dodd-Frank and Sarbanes-Oxley’s whistleblower protections are coextensive. Rather, the Ninth Circuit viewed Dodd-Frank as suggesting that under some circumstances Sarbanes-Oxley might offer protections more favorable to employees than those under Dodd-Frank. Somers, at *4. Consequently, one should view Dodd-Frank and Sarbanes-Oxley as providing “alternative enforcement mechanisms.” Id.
The Somers decision deepens the division among the Courts of Appeals, making United States Supreme Court review more likely. In the meantime, employers should be aware that employees who report allegedly improper conduct only internally within the company may still be entitled to whistleblower protections.