The U.S. Supreme Court ruled on February 21, 2018 that the Dodd-Frank Act’s anti-retaliation provisions protect only whistleblowers that make a report to the SEC, and do not apply to whistleblowers who report internally. The Court’s ruling, which resolved a circuit split on the question of who was entitled to the Act’s provisions, will significant limit the scope of the anti-retaliation protections. The Court’s February 21, 2018 opinion in Digital Realty Trust, Inc. v. Somers can be found here.
Paul Somers claimed that when Digital Realty Trust fired him in 2014, it was in retaliation for his internal report to company management that the company had improperly eliminated certain internal controls. Somers filed an action claiming that the company’s action in firing him violated the Dodd-Frank Act’s whistleblower retaliation protections. The company filed a motion to dismiss, arguing that because Somers had not make his whistleblower report to the SEC, he was not entitled to rely on the Act’s anti-retaliation provisions. The district court denied the motion, and the Ninth Circuit affirmed the district court’s ruling.
The question of whether or not Somers is entitled to rely on the Dodd-Frank Act’s anti-retaliation provision arises because of conflicting statutory language.
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.”
Unsurprisingly, the circuit courts have split on the question of whether or not a whistleblower must have made a report to the SEC in order to be entitled to the Dodd-Frank Act’s whistleblower retaliation protections. The Ninth and the Second Circuits ruled that the Act’s protections extended to whistleblowers that had only made reports internally, while the Fifth Circuit held that a whistleblower must have made a report to the SEC in order to be able to rely on the Act’s protections.
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. In denying the motion to dismiss in Somers’ case, the district court had, among other things, deferred to the SEC’s interpretation. (This kind of deference to agency interpretation is referred to as Chevron deference).
The Court’s February 21, 2018 Opinion
In a majority opinion written by Justice Ruth Ginsburg in which all of the other justices either joined or concurred, the Court reversed the Ninth Circuit and held that Somers was not entitled to the Dodd-Frank Act’s anti-retaliation provisions. The Court held that in order to be entitled to rely on the Act’s protection, a whistleblower must have made a report to the SEC. “Dodd-Frank’s anti-retaliation provision does not extend to an individual, like Somers, who has not reported a violation of the securities laws to the SEC,” the court said. The statutory definition of the “whistleblowers” that is “clear and conclusive,”
The Court said that its interpretation of the statutory provisions was consistent with its understanding of the Act’s purpose. The Court said that its “understanding is corroborated by Dodd-Frank’s purpose and design. The core objective of Dodd-Frank’s whistleblower program is to aid the commission’s enforcement efforts by motivating people who know of securities law violations to tell the SEC.” The Court acknowledged that its “plain text” reading of the Act’s definition of the term whistleblower “undoubtedly shields fewer individuals from retaliation” that the alternative interpretation urged by Somers, but, the Court said, “even if the number of individuals qualifying for protection … is relatively limited,it is our function to give the statute the effect its language suggests, however modest that may be.”
The Court declined to get into the question of whether or not the agency interpretations are entitled to deference under the Chevron doctrine. The Court said that because the Congress has “spoken directly to the precise question at issue,” the Court would not defer to the SEC’s interpretation. The statute’s “unambiguous” whistleblower definition” precludes the Commission from “more expansively interpreting that term.”
The concurring opinions did not directly address the merits of the Court’s conclusion but rather addressed a peripheral issue of whether or not the Court should have referred to the Dodd-Frank Act’s legislative history in interpreting its provisions.
The Court’s decision in the Digital Realty Trust case represents a significant victory for business interests. For example, 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.”
Whistleblowers that do not report to the SEC may still be entitled to the protection of the Sarbanes Oxley whistleblower anti-retaliation provisions but those protections are subject to a relatively brief 180-day limitations period and also are subject to administrative review requirements – claimants seeking to rely on the Sarbanes-Oxley anti-retaliation provisions must first file their action with the Department of Labor. The relatively more advantageous approach of suing directly under the Dodd-Frank Act’s anti-retaliation provisions will not be available unless the whistleblower had made a report to the SEC.
Many Court observers had wondered whether the Court might use this case as a vehicle in which to reconsider the whole idea of deference to agency interpretation under the Chevron doctrine. Justice Gorsuch had been critical of the Chevron doctrine when he was on the Tenth Circuit. In the end, the Court declined to consider whether or not agency statutory interpretations should be given deference; the Court said only that because Congress had been clear when it defined the term “whistleblower,” this was not an appropriate occasion for agency deference.