Within the Dodd-Frank Act’s whistleblower provisions, Congress included some stiff anti-retaliation protections. Since the Act’s passage, however, the lower federal courts have struggled to try to determine whether the anti-retaliation protections apply only to whistleblowers who file reports with the SEC or whether or not the protections extend to individuals who file internal whistleblower reports within their own companies. A split on this issue has developed within the federal circuit courts and now the United States Supreme Court may have the opportunity to address the question.
The Conflicting Statutory Provisions
The Dodd-Frank Act defines the term “whistleblower” to mean “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” This definition seems pretty straightforward, as it seems to specifically restricts the term to individuals who file reports with the SEC.
Where the issues get complicated is in the Act’s “Protection of Whistleblowers” provisions, which extend anti-retaliation protection (in section h(i)) not only to those “providing information to the Commission” but also (in section h(iii)) to those “making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 … section 1513 (e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.”
In other words, the definition seems to restrict the term whistleblower to those filing whistleblower reports with the SEC, but the anti-retaliation provision seems to extend the protections to other whistleblowers, including, for example, those filing an internal whistleblower report within their own company under the Sarbanes Oxley Act.
As one district court said with respect to the tension between these two provisions, “at bottom, it is difficult to find a clear and simple way to read the statutory provisions … in perfect harmony with one another.”
As courts have struggled to address the question of whether or not the anti-retaliation protections are or are not limited only to those whistleblowers who have filed their reports with the SEC, the courts have also considered the SEC’s own regulations interpreting these statutory provisions; the SEC’s regulations in effect interpret the provisions to extend protections to all those who make disclosures of suspected violations, whether the disclosures are made internally or to the SEC.
Conflicting Judicial Interpretations
The question of the reach of the Dodd-Frank Act’s anti-retaliation protections has now been considered by three federal circuit courts.
The Fifth Circuit was the first to examine the question. In its 2013 decision in Asadi v. GE Energy (USA) L.L.C., the Fifth Circuit strictly applied the Dodd-Frank Act’s definition of “whistleblower” and applied the anti-retaliation provisions so as to require dismissal of the claimant’s action, because the claimants did not make his whistleblower report to the SEC. The Fifth Circuit rejected the SEC’s interpretation of the statutory provisions as well.
In a 2015 decision, the Second Circuit reached a contrary conclusion. In Berman v. Neo@Oglivy LLC, the Second Circuit found the statutory provisions to be ambiguous, and applied so-called “Chevron deference” to the SEC’s interpretation of the statute, to conclude that the anti-retaliation provisions protected whistleblowers whether they had made their report to the SEC or had made it internally.
In March 2017, the Ninth Circuit, in Somers v. Digital Realty Trust (here), expressly acknowledge the existence of the intercircuit disagreement but followed the Second Circuit and concluded that the SEC’s regulation “is consistent with Congress’s overall purpose to protect those who report violations internally as well as those who report to the government” and “correctly reflects congressional intent to provide protection for those who make internal disclosures as well as those who make disclosures to the SEC.”
In reviewing the statutory provisions, the Ninth Circuit stated that the definition provision that describes a “whistleblower” as one who reports to the SEC “should not be dispositive of the scope of the [Dodd-Frank Act’s] later anti-retaliation provisions.” In making this statement, the appellate court relied on the U.S. Supreme Court’s 2015 decision in King v. Burwell (the decision upholding Obamacare’s health insurance premium tax credits), in which the Supreme Court said that a term in one part of a statute “may mean a different thing” in a different part, depending on context. The Ninth Circuit also said that a strict application of the Act’s whistleblower definition would “in effect, all but read subdivision (iii) out of the statute,” adding that “we should try to give effect to all statutory language.
The Cert Petition
The U.S. Supreme Court may now get a chance to weigh in on these issues. On April 25, 2017, Digital Realty Trust filed a petition for writ of certiorari, seeking to have the U.S. Supreme Court review the Ninth Circuit’s decision. A copy of the cert petition can be found here.
In seeking Supreme Court review, Digital Realty Trust relied heavily on the existence of the circuit split as grounds for the Court to take up the case. In its petition, the company said that the case presents “a clear and intractable conflict on an important and recurring question of statutory interpretation.” The question, the company said, is whether the anti-retaliation provision extends to individuals who have not reported alleged misconduct to the SEC and thus fall outside the statutory definition of “whistleblower.”
It of course remains to be seen whether or not the Supreme Court will decide to take up the case. The clear circuit split would seem to suggest that it is likelier than not that the Court will take up the case.
Yet another consideration that might affect whether or not the Court will take up the case is the presence of the Chevron deference issue. Under this doctrine, which refers to the U.S. Supreme Court 1984 decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., courts defer to agency interpretations of statutory mandates unless the interpretations are unreasonable. Chevron Deference has been a hot button issue in conservative circles for years. It is in fact an issue on which new Supreme Court Justice Neil Gorsuch weighed in while he was on the Tenth Circuit; he called the doctrine “a judge-made doctrine for the abdication of the judicial duty.” The combination of this issue and the circuit split may provide sufficient traction for the Supreme Court to take up the case.
Whatever the likelihood of the Court taking up the case may be, there is a good argument to be made that the Court should take up the case. As Digital Realty Trust points out in its cert petition, there are at least a couple of dozen federal district court decisions trying to figure out this statutory interpretation issue, and the decisions are all over the map. This seems to be a situation that calls out for Supreme Court review. The tension between the statutory provisions makes Supreme Court review important. The presence of the Chevron deference issue could, if the Supreme Court takes up the case, make it an interesting case, as well.