Supreme Court Will Hear Whistleblower Protection Case
The Supreme Court agreed to hear a key issue regarding the protections afforded whistleblowers next term. Specifically, the High Court will consider whether to be protected under the anti-retaliatory provisions of Dodd-Frank the person must report the information to the SEC or if it is sufficient to have reported to the firm involved. Digital Realty Trust, Inc., v. Paul Summers, No. 16-1276 (cert. granted June 26, 2017, 2017). Prior to Digital Realty there was a split among the circuits. See Berman v. Neo@Ogilvy LLC, 801 F. 3d. 145 (2nd Cir. 2015)(need not report to SEC); Asadi v. G.E. Energy (USA), L.L.C., 720 F. 3d 620 (5th Cir. 2013)(must report to the SEC).
Each of these cases is tied to an interpretation of two provisions of Dodd-Frank Section 922. The first defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the . . .” SEC.
The second contains the anti-retaliation provisions and states in part that: “No employer may discharge, threaten, harass . . . a whistleblower . . . because of any lawful act done . . . (i) in providing information to the Commission . . . (2) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under . . . [SOX] and any other law, rule, or regulation subject to the jurisdiction of the Commission.”
Digital Realty is based on a complaint by Paul Somers. He was employed as a vice president at the firm. During his four year tenure at the company, which ended in 2014, he made several reports to senior management regarding possible securities law violations by Digital Realty. He was terminated. Prior to being terminated Mr. Somers did not report his concerns to the SEC.
Mr. Somers filed suit against his former employer under the anti-retaliatory provisions of Dodd-Frank, codified as Exchange Act Section 21F, quoted above, and other laws. The firm moved to dismiss in the District Court, arguing that Mr. Somers was not a whistleblower under the definition of that term in Dodd-Frank as quoted above. Since Mr. Somers did not provide information to the SEC, Digital Realty argued he was not protected by the Section. The District Court denied the motion after an extensive examination of the statutes and their legislative history. The District Court certified the question to the Ninth Circuit for review.
The Ninth Circuit affirmed. The case “must be seen against the background of twenty-first century statutes to curb securities abuses” the Court began. In 2002 Sarbanes-Oxley was passed to safeguard investors following a financial scandal. A key part of the Act requires internal reporting by lawyers working for public companies, a provision which is similar to obligations imposed on auditors by the Exchange Act. SOX protects those professionals and others who lawfully provide information to federal agencies, Congress or “a person with supervisory authority over the employee.”
Dodd-Frank, like SOX, was passed in the wake of a financial scandal. Section 21F contained a provision protecting whistleblowers from retaliation. The term whistleblower was defined as anyone who reports to the SEC “in a manner established, by rule or regulation, by the Commission.” The anti-retaliation provision provides protections to those who (i) furnish information to the SEC, (ii) testify or assist the Commission or (iii) make disclosures that are required or protected under SOX. This broad prescription evidences an intent to cover more than just those who report to the SEC since under SOX auditors, lawyers and others who report to their supervisor but not the Commission are protected, the Court concluded. It would thus be illogical to confine the protections to only those who report to the Commission. While there is a split on this question between the Second and Fifth Circuits, the Court found that when the provisions are read together it is clear that the anti-retaliation provisions were designed to cover those who report to the Commission and internally. Circuit Judge Owens dissented, citing the decision of the Fifth Circuit in Asadi.
The decisions by the Second and Ninth Circuits are in accord with the interpretation of the Commission. In 2011, the year after Dodd-Frank was passed, the SEC issued a rule interpreting the Section. In part the rule defines a whistleblower in a manner that is consistent with the statutory definition quoted above. The coverage of the anti-retaliation provision, however, is keyed to providing information in one of the three ways described by Section 922 quoted above. The Commission thus filed amicus briefs in Berman and Asaid arguing that a whistleblower need not report to the agency to be protected from retaliation.
A decision in Digital Realty is expected next term.