(Article from Securities Law Alert, July 2017)
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On June 27, 2017, the Supreme Court granted certiorari in Digital Realty Trust v. Somers (No. 16-1276) to determine whether the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) protect whistleblowers who report potential misconduct internally but do not alert the SEC to that misconduct.
The Dodd-Frank Act defines a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC].” 15 U.S.C. § 78u-6(a)(6). However, the anti-retaliation provisions of the Dodd-Frank Act apply to a “whistleblower” who makes “disclosures that are required or protected under the Sarbanes-Oxley Act.” 15 U.S.C. § 78u-6(h)(1)(A)(iii). The Sarbanes-Oxley Act protects those who provide information regarding potential securities law violations to “a person with supervisory authority over the employee.” 18 U.S.C. § 1514A(a).
The SEC’s Dodd-Frank Act implementing regulations do not limit the term “whistleblower” to an individual who reports to the SEC but instead define the term “whistleblower” to include individuals who make disclosures that are required or protected under the Sarbanes-Oxley Act. 17 C.F.R. § 240.21F-2(b)(1).
The circuits are divided on whether an individual who reports alleged misconduct internally but does not report that misconduct to the SEC qualifies for the Dodd-Frank Act’s anti-retaliation protections. In Asadi v. G.E. Energy (USA), 720 F.3d 620 (5th Cir. 2013), the Fifth Circuit held the Dodd-Frank Act’s definition of “whistleblower” “expressly and unambiguously requires that an individual provide information to the SEC.”[1] The court “reject[ed] the SEC’s expansive interpretation of the term ‘whistleblower’” in its implementing regulations.
Both the Second and Ninth Circuits have reached the opposite conclusion. In Berman v. Neo@Ogilvy, 801 F.3d 145 (2d Cir. 2015), the Second Circuit found the tension between the two relevant provisions of the Dodd-Frank Act “creates sufficient ambiguity” to require the court‘s deference to the definition of “whistleblower” in the SEC’s implementing regulations.[2]
In Somers v. Digital Realty Trust, 850 F.3d 1045 (9th Cir. 2017), the Ninth Circuit similarly held that the Dodd-Frank Act “necessarily bars retaliation against an employee of a public company who reports violations to the boss” but not to the SEC.[3] The court determined that the Dodd-Frank Act’s definition of the term “whistleblower” “should not be dispositive of the scope of” the Act’s anti-retaliation provision because “[t]erms can have different operative consequences in different contexts.”
The Supreme Court granted defendant’s petition for a writ of certiorari to review the Ninth Circuit’s decision in Digital Realty Trust to address the question of who qualifies as a “whistleblower” for purposes of the Dodd-Frank Act’s anti-retaliation provisions.
[1] Please click here to read our prior discussion of the Fifth Circuit’s decision in Asadi.
[2] Please click here to read our prior discussion of the Second Circuit’s decision in Berman.
[3] Please click here to read our prior discussion of the Ninth Circuit’s decision in Digital Realty Trust.