Supreme Court Considers Scope of Dodd-Frank Whistleblower Retaliation Provision

On Tuesday, November 28, 2017, the Supreme Court heard oral argument in Digital Realty Trust v. Somers, a case in which the Court will decide when employees can challenge retaliation under the whistleblower protection provision of the Dodd-Frank Act.  See 15 U.S.C. § 78u-6(h).  The question before the Court is whether Dodd-Frank protects employees who report violations of securities laws internally, or only those who report violations to the Securities and Exchange Commission (SEC).  The statute defines a whistleblower as an employee who “provides information relating to a violation of the securities laws to the [Securities and Exchange] Commission.”  15 U.S.C. § 78u-6(a)(6).  The SEC and some courts interpreted the law to include employees who complain internally in addition to those who complain to the Commission.

Unfortunately for employees, Supreme Court Justices across the ideological spectrum expressed skepticism during oral arguments that Dodd-Frank protects internal whistleblowers.  The Justices seemed ready to abandon the interpretive guidance from the SEC and favorable decisions of federal Courts of Appeals.  For example, Justice Neil Gorsuch asked “How much clearer could Congress have been?,” while Justice Elena Kagan expressed that it was “peculiar.  It’s probably not what Congress meant.  But what makes it the kind of thing where we can just say we’re going to ignore it?”

At the heart of the debate is a 2011 regulation by the SEC broadening the definition of “to the Commission” to include whistleblowers who report either to the SEC or report internally.  Specifically, in clarifying the regulation, the SEC explained that “the statutory anti-retaliation protections [of Dodd-Frank] apply to three different categories of whistleblowers, and the third category includes individuals who report to persons or governmental authorities other than the Commission.”  Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300-01, at *34304 (June 13, 2011).  The SEC made this conclusion because the Dodd-Frank Act incorporates into its whistleblower provision the anti-retaliation protections of the Sarbanes-Oxley Act of 2002 (SOX), which expressly includes internal whistleblowers.  See 15 U.S.C. § 78u-6(h)(1)(A)(iii) (protecting whistleblowers who make disclosures required or protected under SOX, 18 U.S.C. § 1514A).

During oral argument, Justice Gorsuch questioned whether the Court should defer to the SEC’s interpretation.  Justice Gorsuch has routinely expressed doubts about deferring to agency interpretations of statutes.

The SEC’s regulation led to a split between the federal Courts of Appeals.  At the appellate level in Digital Realty v. Somers, the Ninth Circuit joined the Second Circuit and agreed with the SEC’s interpretation that Dodd-Frank’s whistleblower anti-retaliation provision “unambiguously and expressly protects” those who report to the SEC and those who report internally.  Somers v. Dig. Realty Tr., Inc., 850 F.3d 1045, 1049 (9th Cir. 2017).  See also Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 155 (2d Cir. 2015) (holding employee “entitled to pursue Dodd-Frank remedies for alleged retaliation after his report of wrongdoing to his employer, despite not having reported to the Commission before his termination”).  On the other side, the Fifth Circuit held that whistleblowers must take their complaints to the SEC first to be eligible for protection under Dodd-Frank.  See Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013).

Whistleblowers who are retaliated against for reporting violations of securities laws may be protected either through the Dodd-Frank Act (at a minimum to whistleblowers who report to the SEC) or the Sarbanes-Oxley Act (which expressly covers internal whistleblowers).  The statutes are different, however, in their remedial schemes, statutes of limitations, and administrative exhaustion requirements.  Any employee who has been retaliated against for whistleblowing about illegal corporate behavior should promptly contact an experienced whistleblower attorney.

If you or someone you know was retaliated against for reporting violations of securities laws, please contact us.  The whistleblower lawyers at Correia & Puth, PLLC are committed to ensuring that employees are protected when they take a stand against illegal employer conduct and to hold employers accountable for wrongdoing