On February 21, 2018, the United States Supreme Court in Digital Realty Trust, Inc. v. Somers resolved a circuit split between the United States Courts of Appeals for the Second, Fifth and Ninth Circuits by clarifying who qualifies as a “whistleblower” under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). No. 16-1276, 2018 U.S. LEXIS 1377 (U.S. Feb. 21, 2018), 2018 WL 987345. In the opinion authored by Justice Ruth Bader Ginsburg, to which all eight other Justices either joined or concurred, the Court held that Dodd-Frank’s definition of a “whistleblower” is unambiguous and is limited to employees who report potential securities law violations directly to the Securities and Exchange Commission (“SEC”), and not to individuals who only report internally to their employer.
In Somers, Paul Somers filed a whistleblower retaliation suit under Dodd-Frank, alleging that petitioner Digital Realty Trust, Inc. (“Digital Realty”) terminated his employment shortly after he reported suspected securities law violations to senior management. Digital Realty moved to dismiss the claim on the ground that Mr. Somers was not a “whistleblower” because he did not report any alleged securities law violations to the SEC prior to the termination of his employment. The District Court denied the motion and the Ninth Circuit affirmed.
The Supreme Court reversed the Ninth Circuit. The Court held that Dodd-Frank’s anti-retaliation provision extends to an employee who reports a violation of securities laws to the SEC, not someone who only reports internally. Unlike the Sarbanes-Oxley Act of 2002, which specifically protects internal reporting at public companies, the Court relied on the unambiguous text of Dodd-Frank which defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the commission.” Somers, 2018 U.S. LEXIS 1377, at *11 (citing 15 U.S.C. §78u-6(a)(6)) (emphasis added). The Court also observed that Dodd-Frank’s intended purpose was to establish “‘a new, robust whistleblower program designed to motivate people who know of securities law violations to tell the SEC,'” id. at *10 (citing S. Rep. No. 111-176, p. 38 (2010)), which corroborates the Court’s conclusion.
The Court declined to give deference to the SEC’s Rule 21F-2, which expanded the definition of “whistleblower” under Dodd-Frank’s anti-retaliation regime to employees who report internally in a manner protected by Sarbanes-Oxley. 17 CFR §240.21F-2(b). The Court stated that “the statute’s unambiguous whistleblower definition . . . precludes the [SEC] from more expansively interpreting that term.” Id. at *30.
Somers is significant because employees may now directly report suspected securities law violations to the SEC rather than first reporting to their employer in order to gain anti-retaliation protection. It also represents a change in the law in New York, Connecticut and Vermont because the Second Circuit had previously held that internal reporting is protected under Dodd-Frank. Employers should consider adopting anti-retaliation policies for internal reporting to encourage employees to make their concerns known internally before reporting to the authorities. Somers is also a reminder that robust compliance policies and procedures are critical under Dodd-Frank.
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