Does Dodd-Frank protect internal whistleblowers? SCOTUS will decide.

I can just hear Justice Gorsuch saying, "Paul Somers asks us to tweak a congressional statute – just a little – so that it might (he says) work a bit more efficiently. "Respectfully, I would decline Mr. Somers’s invitation and would instead just follow the words of the statute as written." [Changing the names in what he said in his dissent in Perry v. Merit Systems Protection Board (US Supreme Ct 06/23/2017).]

The US Supreme Court granted certiorari on June 26 in a case that will settle a circuit court split as to whether the Dodd-Frank Act's anti-retaliation provision for “whistleblowers” extends to individuals who make internal disclosures of alleged unlawful activity but do not report alleged misconduct to the Securities and Exchange Commission. Digital Realty Trust, Inc. v. Somers (cert granted 06/26/2017) [Cert petition] [9th Circuit opinion] [Supreme Court briefs].

The facts are simple. Paul Somers was a VP employed by Digital Realty Trust. Somers' complaint alleged that he made several reports to senior management regarding possible securities law violations by the company, soon after which the company fired him. Somers was not able to report his concerns to the SEC before Digital Realty terminated his employment.

Somers sued, claiming violation of Dodd Frank's anti-retaliation provision. Digital Realty sought to dismiss the claim on the ground that, because Somers reported the possible violations only internally and not to the SEC, he was not a “whistleblower” entitled to Dodd Frank's protections. The district court held in favor of Somers, and the 9th Circuit affirmed. Somers v. Digital Realty Trust (9th Cir 03/08/2017) [Opinion text].

The problem is 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, 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.” 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."

The 9th Circuit reasoned that subdivision (iii) incorporates the Sarbanes-Oxley Act disclosure requirements and protections and therefore "necessarily bars retaliation against an employee of a public company who reports violations to the boss."

There is a split among circuits. Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2nd Cir 2015) is in agreement with the 9th Circuit. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir 2013) is not.

Look for Supreme Court oral arguments in the Fall of 2017, with a decision during 2018.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]