The U.S. Supreme Court yesterday granted certiorari in Somers v. Digital Realty Trust Inc., a case the Ninth Circuit Court of Appeals decided this past March.1 This is significant because the Supreme Court may clarify how broad the term “whistleblower” is defined under the Dodd-Frank Act.

The issue in Somers was whether Digital Realty’s former vice president could invoke the anti-retaliation protections of the Dodd-Frank Act when he alleged that he was fired after making several internal reports to senior management regarding possible securities law violations at the company, although he had never reported directly to the Securities and Exchange Commission (SEC).2 The Ninth Circuit held that he could because Dodd-Frank’s definition of whistleblower includes not only those who disclose information to the SEC, but also employees who report alleged unlawful activity internally within their companies.3 In deciding Somers, the Ninth Circuit agreed with the Second Circuit’s broader definition of whistleblower,4 splitting with the Fifth Circuit’s narrower interpretation that requires the whistleblower to have reported to the SEC.5

The Supreme Court’s decision to review Somers suggests that it will resolve the critical issue of who qualifies as a whistleblower under Dodd-Frank and therefore is entitled to that law’s anti-retaliation protections and monetary awards. Since Dodd-Frank established its new whistleblower awards in 2011 (providing that a whistleblower can receive between 10-30% of a monetary judgment from a successful enforcement action), the SEC has seen an uptick in the number of tips, complaints and referrals it receives per year.6 Over the same period, the SEC has awarded 44 whistleblowers a total of approximately US$154 million.7 The Supreme Court’s review of Somers is an important turning point. If the Court affirms the Ninth Circuit’s broader definition, whistleblowers will continue to catalyze white collar enforcement across the country. If, on the other hand, the Supreme Court moves toward a narrower definition like the Fifth Circuit’s, it could interrupt these trends and reduce the role whistleblowers play in future SEC actions.

The Supreme Court’s decision to review Somers was not altogether unexpected given the split between circuit courts. Furthermore, although both the Second and Ninth Circuits ultimately agreed on the broader definition of whistleblower, they reached that conclusion in different ways. In Somers, the Ninth Circuit applied statutory interpretation principles to find that Dodd-Frank’s whistleblower protections were meant to include those who report internally as well as those who also report directly to the SEC.8 In contrast, in Berman v. [email protected] LLC, the Second Circuit found the statutory language to be ambiguous and applied the Supreme Court’s decision in Chevron9 to defer to the SEC’s rule recognizing whistleblowers who report externally or internally.10 Notwithstanding the Berman decision, recently there has been increased judicial and congressional skepticism toward Chevron and the broad interpretive authority it provides to administrative agencies.11 Somers provides the Supreme Court an opportunity to resolve the definition of whistleblower while simultaneously addressing the broader issue of Chevron’s utility to the modern administrative state.

Regardless of which side prevails in Somers, the Supreme Court’s grant of certiorari provides the prospect that Dodd-Frank’s definition of whistleblower will be clarified. Companies should pay close attention to Somers’ outcome as it will be instructive for how to develop best internal practices to successfully address whistleblower complaints. Especially if the Supreme Court affirms the Ninth Circuit’s broader definition, companies will have to perform a careful balancing act of establishing comprehensive programs that encourage internal reporting while not simultaneously stifling whistleblower reports to the SEC.12