In the flurry of opinions and orders on Monday on the final day of the U.S. Supreme Court’s term, and amid the hubbub over the Court’s action on the Trump administration travel ban order, you might well have overlooked the fact that on Monday the Court also agreed to take up the question of whether or not the Dodd-Frank Act’s anti-retaliation provisions apply to and protect individuals who did not make a whistleblower report to the SEC. The lower courts have struggled with the question of whether or not the anti-retaliation protections extend to individuals who file internal reports within their own companies. A split on the issue has developed and now the U.S. Supreme Court will have the opportunity to address the question in the case of Digital Realty Trust v. Somers. The Court’s June 26, 2017 order granting Digital Realty Trust’s petition for a writ of certiorari can be found here.
Conflicting Statutory Provisions
The reason that there has been confusion on the question of whether or not the Dodd-Frank Act’s anti-retaliation provisions protect internal whistleblowers is that the relevant statutory provisions conflict.
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 restrict 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 its 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.
The Circuit Court Split
Three federal circuit courts have now considered the question of whether or not internal whistleblowers are protected under the anti-retaliation provisions.
First, in a 2013 decision in Asadi v. GE Energy (USA) L.L.C., the Fifth Circuit strictly construed the Dodd-Frank Act’s definition of “whistleblower” and dismissed of the claimant’s action because the claimant did not make his whistleblower report to the SEC.
Next, 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.
The Ninth Circuit was the next circuit court to address this question, in the Digital Realty Trust case, the one in which the Supreme Court has now granted the cert petition. In March 2017, the Ninth Circuit, in Somers v. Digital Realty Trust (here), expressly acknowledged the existence of the inter-circuit 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
In seeking Supreme Court review, Digital Realty Trust relied heavily on the existence of the circuit split as grounds upon which the Court should take up the case. In its cert 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.”
The U.S. Chamber of Commerce filed an amicus brief in support of Digital Realty Trust’s petition, arguing that the Ninth Circuit’s interpretation of the Dodd-Frank Act “would greatly expand the number of employees authorized to pursue the enhanced remedies of the Act, and the period of time in which they may sue for alleged retaliation, without yielding the law enforcement benefits Congress intended when it enacted a ‘bounty’ and heightened protections for persons who complain to the Securities and Exchange Commission.”
The respondent, Somers, had tried to argue in his opposition to the petition that the supposed circuit split was “shallow,” in that only the Fifth Circuit had narrowly construed the anti-retaliation provisions, raising the possibility that the supposed split ultimately might resolve itself. The respondent also argued that the Ninth Circuit’s ruling in the case did not need to be reviewed for the simple reason that it was correct; that is, the respondent argued, the appellate court had correctly interpreted and applied the relevant SEC regulatory provisions.
The Supreme Court has now granted Digital Realty Trust’s petition, meaning that in the Supreme Court term that begins in October the Court will consider the question of whether or not the Dodd-Frank Act’s anti-retaliation provisions protect internal whistleblowers.
In taking up the case, the Court will not only have the opportunity to address the split between the circuits on the issue, but it may also have the opportunity to take up 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.”
Indeed, among the Court’s orders on its final day of the term on Monday, in a ruling of the Court in the case of Matthis v Shulkin, Justice Gorsuch dissented from the Court’s decision (here, see pages 28-29) in order to raise his question about the presumption of competence allowed Department of Veterans Affairs medical examiners. Where, Justice Gorsuch asked rhetorically, does this presumption come from (noting that it does not come from the relevant statutory provisions). He noted that the presumption’s “days may be numbered,” adding that this question of “worthy of the Court’s attention.”
In the Digital Realty Trust case, Justice Gorsuch may have the vehicle to address this question. Certainly, Chevron deference was a factor in the Second Circuit’s ruling on the anti-retaliation question, as discussed above. Courts’ deference to agency interpretation was also a factor in the Ninth Circuit’s opinion as well.
If nothing else, the Supreme Court’s consideration of this case should sort out who is entitled to rely on the protection of the anti-retaliation provisions. If the view of the Ninth Circuit and the Second Circuit prevails, the protections will apply broadly and protect a wide number of persons, whether or not they have filed a whistleblower report with the SEC. This expansive view could result in significantly increased numbers of retaliation actions. However, if the narrower view prevails, the protection will reach more narrowly and fewer actions will be filed.
The parties will now proceed to brief the merits of the case. This case will be an interesting one to watch in the Court’s next term.