A unanimous Supreme Court has held that a whistleblower who reports wrongdoing to management – but not to the SEC – does not get protection from the Dodd-Frank Act's anti-retaliation provision. Digital Realty Trust v. Somers (US Supreme Court 02/21/2018) [PDF]. Did I already say this was a unanimous decision? [NOTE: The plaintiff could have used Sarbanes-Oxley, but he missed the statute of limitations.]
The facts: Paul Somers was a VP employed by Digital Realty Trust. Somers says that he made several reports to senior management regarding possible securities law violations by the company, and soon thereafter the company fired him. Somers was not able to report his concerns to the SEC before Digital Realty terminated his employment.
The suit: Somers sued, claiming violation of Dodd Frank's anti-retaliation provision. Digital Realty moved to dismiss that claim on the ground that Somers was not a whistleblower because he did not alert the SEC prior to his termination. The District Court denied the motion, and the Ninth Circuit affirmed. Somers v. Digital Realty Trust (9th Cir 03/08/2017) [PDF].
The problem was that Dodd-Frank has two different places where the word "whistleblower" is expressly used. One is the addition of Section 21F to the Securities Exchange Act of 1934, which defines a whistleblower as, "any individual who provides … information relating to a violation of the securities laws to the [Securities and Exchange] Commission, in a manner established, by rule or regulation, by the Commission." Obviously, this does not cover internal whistleblowers.
But there's another part of Section 21F which provides:
"No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—
"(i) in providing information to the Commission in accordance with this section;
"(ii) 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 the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission."
Justice Ginsburg's opinion explained – in simple terms – how these two pieces fit together: (1) The definition describes who might qualify for protection – a whistleblower who provides pertinent information "to the Commission." (2) The other three clauses then describe what conduct, when engaged in by a whistleblower, is shielded from employment discrimination.
What about the SEC regulation? SEC Rule 21F-2 provides that protection from retaliation is based on disclosing information in a manner described in any of Section 21F's anti-retaliation provisions, including subsection (iii) and the statutes mentioned in subsection (iii). That would have meant Somers would have been protected even though he made no report to the SEC. And the 9th Circuit gave deference to the SEC Rule, using the deference formula in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).
No Chevron deference. The Supreme Court opinion – contrary to the 9th Circuit – gave no deference at all to the SEC Rule. In the Court's words:
"'When a statute includes an explicit definition, we must follow that definition,' even if it varies from a term's ordinary meaning. Burgess v. United States, 553 U. S. 124, 130 (2008) (internal quotation marks omitted). This principle resolves the question before us."
"The definition section of the statute supplies an unequivocal answer: A 'whistleblower' is 'any individual who provides … information relating to a violation of the securities laws to the Commission.'"
"Because 'Congress has directly spoken to the precise question at issue,' Chevron, 467 U. S., at 842, we do not accord deference to the contrary view advanced by the SEC in Rule 21F–2. *** The statute's unambiguous whistleblower definition, in short, precludes the Commission from more expansively interpreting that term."
Concurring opinions. Two concurring opinions will be of interest to anyone who wants to know the intellectual process that Justices use when interpreting statutes. The issue is whether judges should go beyond the raw text of a statute and also look at (1) the statute's purpose and (2) legislative history.
Justice Thomas (joined by Justices Alito and Gorsuch) faults the majority because – even though the statutory definition "resolves the question before us" – "The Court goes on, however, to discuss the supposed 'purpose' of the statute, which it primarily derives from a single Senate Report."
Justice Sotomayor (joined by Justice Breyer) concurred "only to note my disagreement with the suggestion in my colleague's concurrence that a Senate Report is not an appropriate source for this Court to consider when interpreting a statute."