On March 8, 2017, a divided panel of the Ninth Circuit issued an opinion in Somers v. Digital Realty Trust Inc. that further widened a circuit split on the issue of whether the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply to whistleblowers who claim retaliation after reporting internally or instead only to those who report information to the SEC. Following the Second Circuit’s 2015 decision in Berman v. [email protected] LLC, the Ninth Circuit panel held that Dodd-Frank protections apply to internal whistleblowers. By contrast, the Fifth Circuit considered this issue in its 2013 decision in Asadi v. G.E. Energy (USA), LLC and found that the Dodd-Frank anti-retaliation provisions unambiguously protect only those whistleblowers who report directly to the SEC.
Plaintiff Paul Somers alleged that Digital Realty Trust fired him after he made several reports to senior management regarding possible securities law violations. Somers only reported these possible violations internally at the company, and not to the SEC. After his employment was terminated, Somers sued Digital Realty, alleging violations of state and federal securities laws, including violations of the whistleblower protections under Dodd-Frank. Digital Realty moved to dismiss on the ground that Somers was not a “whistleblower” under Dodd-Frank. The district court denied the motion, deferring to the SEC’s interpretation that internal reporters are also protected from retaliation under Dodd-Frank.
The underlying issue is whether Congress intended to limit Dodd-Frank’s anti-retaliation protections to those who come within the Act’s formal definition of the term “whistleblower.” Section 21F of the Exchange Act, which includes the anti-retaliation protections created by Dodd-Frank, defines “whistleblower” as “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.” A later subsection of Section 21F, however, states that an employer may not retaliate against a whistleblower for (i) providing information to the Commission, (ii) initiating or assisting in an investigation or proceeding, or (iii) making disclosures that are required or protected under Sarbanes Oxley.
It is this latter subsection (iii) on which the Ninth Circuit relied—as did the Second Circuit in Berman—in concluding that Congress intended to broaden anti-retaliation protection to include internal reporters. The majority found that “[b]y broadly incorporating, through subdivision (iii), Sarbanes-Oxley’s disclosure requirements and protections, [Dodd-Frank] necessarily bars retaliation against an employee of a public company who reports violations to the boss, i.e., one who ‘provide[s] information’ regarding a securities law violation to ‘a person with supervisory authority over the employee.’” The court noted that “[a] strict application of [Dodd-Frank]’s definition of whistleblower would, in effect, all but read subdivision (iii) out of the statute.” The panel also pointed out that there are provisions of Sarbanes-Oxley and the Exchange Act that mandate internal reporting before external reporting in certain instances. Therefore, “[l]eaving employees without protection for that required preliminary step would result in early retaliation before the information could reach the regulators.” Citing King v. Burwell, 135 S. Ct. 2480, 2489 (2015), for the proposition that statutory “[t]erms can have different operative consequences in different contexts,” the majority held that the fact that “[Dodd-Frank]’s definitional provision describes ‘whistleblowers’ as employees who report ‘to the Commission’ thus should not be dispositive of the scope of the [Dodd-Frank]’s later anti-retaliation provision.”
Dissenting, Judge Owens wrote that the court should “quarantine King and its potentially dangerous shapeshifting nature to the specific facts of that case to avoid jurisprudential disruption on a cellular level.”
Whether the anti-retaliation protections extend to internal reporters could have far-reaching implications. Thus, it seems increasingly likely that the growing circuit split on this issue will lead to Supreme Court review.