In late June, the Supreme Court granted certiorari in Digital Realty Trust Inc. v. Paul Somers, No. 16-1276, to review whether Dodd-Frank whistleblower protection applies to employees who only report securities law violations internally, but not to the Securities and Exchange Commission (“SEC”). Currently, the Ninth and Second Circuits are split with the Fifth Circuit regarding whether the Dodd-Frank anti-retaliation provision applies to all reports, or just those actually made to the SEC.
The Dodd-Frank anti-retaliation provision protects “whistleblowers” who (i) provide information about potential securities laws violations to the SEC; (ii) initiate, testify in, or assist in any investigation or judicial or administrative action of the SEC based upon the information reported; or (iii) make disclosures that are required or protected under federal securities laws. 15 U.S.C. § 78u-6(h)(1)(A)(i) through (iii). Under Dodd-Frank, a “whistleblower” is “any individual who provides . . . information relating to a violation of the securities laws to the Commission.” 15 U.S.C. § 78u-6(a)(6). Though the statutory definition plainly requires reporting to the Commission, a 2011 SEC rule that interpreted “whistleblower” in the anti-retaliation context cut the other way. See 17 C.F.R. 240.21F-2(d)(1)(ii). The SEC defines “whistleblower” as any person who engages in the activities the anti-retaliation provision protects, without requiring that the person report the potential securities laws violations to the SEC. Thus, under the SEC rule, an individual that makes a required internal disclosure under Sarbanes-Oxley, for instance, is a whistleblower for purposes of the Dodd-Frank anti-retaliation provisions. Without this rule, this same action would require that information to be provided to the SEC for the Dodd-Frank whistleblower protections to apply.
In the case at bar, Somer v. Digital Realty Trust, Somer was a vice president of portfolio management for Digital Realty Trust, a real estate investment trust that develops data centers. 119 F. Supp. 3d 1088, 1092 (N.D. Cal. 2015). Somer complained to senior management that his supervisor had eliminated various internal controls in violation of Sarbanes Oxley. He also told senior management that his supervisor as hid substantial cost overruns on a specific project. Id. He did not complain to the SEC. Digital Realty Trust subsequently fired him for alleged misconduct. Id. In late 2014, Somer sued Digital Realty Trust alleging, among other things, that it wrongfully terminated him in violation of the Dodd-Frank anti-retaliation provisions. Id. The United States District Court for the Northern District of California denied the company’s motion to dismiss, on the basis of the SEC rule discussed above. It held that the statutory definition of “whistleblower” which requires reporting to the SEC, conflicts with Dodd-Frank’s anti-retaliation provisions that protect employees who internally report securities laws violations. Id. at 1097-98. To resolve this ambiguity, the court looked to the SEC rule, which does not require a whistleblower to report to the SEC. Id. at 1105-06. As a result, Somer’s Dodd-Frank claim survived. Id. at 1108. Nonetheless, the District Court certified its order denying the motion to dismiss for interlocutory review. The Ninth Circuit granted the company’s petition for permission to appeal.
The Ninth Circuit ultimately held that the Dodd-Frank anti-retaliation protections apply to both an internal whistleblower and a whistleblower who reports to the SEC. This decision echoed a similar opinion from the Second Circuit, which held that courts must defer to the SEC rule considering the narrow statutory definition of “whistleblower” and the broad anti-retaliation provision in Dodd-Frank. See Berman v. Neo @ Ogilvy LLC, 801 F.3d 145, 155 (2d Cir. 2015) (company’s petition for certiorari withdrawn). Berman sharply contrasts with Asadi v. G.E. Energy (USA) L.L.C, in which the Fifth Circuit held that only those whistleblowers who report potential securities laws violations to the SEC are protected under Dodd-Frank’s anti-retaliation provisions. See Asadi v. G.E. Energy (USA) L.L.C., 720 F.3d 620, 621 (5th Cir. 2013).
Digital Realty Trust v. Somer presents the perfect factual underpinnings to settle this split at the Supreme Court and determine the scope of Dodd-Frank whistleblower protection. In the meantime, employers should continue to apply their policies in accordance with the broad whistleblower protections available under Dodd-Frank as articulated in the SEC rule.
