Supreme Court Grants Certiorari in Digital Realty Trust, Inc. v. SomersDecision May Resolve Circuit Split On Question of Whether Dodd-Frank Act Protects Internal Whistleblowers June 30, 2017
Section 21F of the Dodd-Frank Act, titled Securities whistleblower incentives and protection, provides that an employer may not retaliate against “a whistleblower” for “providing information to the Commission in accordance with this section; . . . . [or] making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201, et seq.), [other provisions of Dodd-Frank], and any other law, rule, or regulation subject to the jurisdiction of the Commission.” 15 U.S.C. § 78u-6(h)(1)(A). But Section 21F defines a whistleblower as “any individual who provides . . . information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” Id. at § 78u-6(a)(6) (emphasis added).
In a 2011 rulemaking, the SEC took the position that the Dodd-Frank whistleblower protection extends to individuals who disclose potential securities law violations internally to employers, as well as those who report directly to the SEC. 17 C.F.R. § 240.21F-2. The SEC reiterated its position in a 2015 interpretive rule. 80 Fed. Reg. 47,829 (Aug. 4, 2015). The SEC reasoned that this interpretation strengthened the “investor-protection and law-enforcement benefits that can result from internal reporting.” See id.
The circuit courts have split over the proper interpretation of the anti-retaliation provision. The Ninth Circuit’s decision, to be reviewed by the Supreme Court, held that Section 21F “unambiguously and expressly protects from retaliation all those who report to the SEC and who report internally.” Somers v. Digital Realty Trust Inc., 850 F.3d 1045, 1049 (9th Cir. 2017). And the Second Circuit has held that Section 21F is “sufficient[ly] ambiguous to warrant our deference to the SEC’s interpretive rule.” Berman v. [email protected] LLC, 801 F.3d 145, 146 (2d Cir. 2015). But the Fifth Circuit has explicitly “reject[ed] the SEC’s expansive interpretation of the term ‘whistleblower’ for purposes of the whistleblower-protection provision.” Asadi v. G.E. Energy (USA) LLC, 720 F.3d 620, 630 (5th Cir. 2013). It held that a would-be whistleblower must report a violation to the SEC in order to receive protection under Section 21F. See id. at 623.
The whistleblower definition the Supreme Court ultimately adopts has consequences with respect to the viability of the whistleblower protections provided by the Sarbanes-Oxley Act (“SOX”). The significant procedural and substantive advantages to a plaintiff of bringing a whistleblower claim under Dodd-Frank compared to SOX may render the SOX cause of action obsolete if Dodd-Frank is held to allow plaintiffs to bring retaliation claims without first reporting to the SEC. Unlike SOX, Dodd-Frank has no prerequisite of an administrative complaint, has a much longer statute of limitations and provides for more extensive relief. As the Fifth Circuit noted in Asadi, “construing the Dodd-Frank whistleblower-protection provision to extend beyond the statutory definition of ‘whistleblowers’ renders the SOX anti-retaliation provision, for practical purposes, moot. Such a construction has this impact because an individual who makes a disclosure that is protected by the SOX anti-retaliation provision could also bring a Dodd-Frank whistleblower-protection claim on the basis that the disclosure was protected by SOX. It is unlikely, however, that an individual would choose to raise a SOX anti-retaliation claim instead of a Dodd-Frank whistleblower-protection claim,” because of the advantages Dodd-Frank has over SOX. 720 F.3d at 629–30.