Internal whistleblowers: SCOTUS argument summary

Digital Realty Trust v. Somers [Briefs] came up for US Supreme Court oral arguments on November 28 [Transcript]. Paul Somers says that he reported possible securities law violations to his employer's managers, and that they fired him for that. He never did make a report to the SEC. So the question is 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 SEC.

The employer's argument is straightforward: Dodd-Frank Section 21F defines a "whistleblower" as "any individual who provides … information relating to a violation of the securities laws to the [Securities and Exchange] Commission." Obviously, this does not cover internal whistleblowers such as Somers.

Somers's argument relies on another part of Section 21F which provides that "No employer may discharge … a whistleblower … because of any lawful act done by the whistleblower … (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 … ."

The Sarbanes-Oxley Act would have protected Somers, but he didn't file suit in time. Dodd-Frank has a longer statute of limitations.

Both sides cited "anomalies" in the others' reading of these two sections. Under the employer's reading, an employee who once reported something to the SEC would have lifetime protection – even for later internal reports that had no relationship to the original report to the SEC, and which themselves never got to the SEC. Under Somers's reading, employees would get protection without ever going to the SEC – in direct contradiction to the main "whistleblower" definition in Dodd-Frank. Some of the Justices had fun pointing out that it ought to follow the main "whistleblower" definition – even if that resulted in some "anomalies" – so long as that did not result in an "absurdity." As Justice Ginsburg put it:

"I thought the stock phrase was "absurd," that … if the statute gives a definition, you follow the definition in the statute unless it would lead not merely to an anomaly, but to an absurd result."

Of course, Somers (and the government arguing on his side) points out that the employer's reading would run contra to all other modern whistleblowing provisions, which are designed to encourage internal reporting. Indeed, most companies prefer that whistleblower statutes protect internal reporting because encouraging internal reporting gives them a chance to make corrections with getting the SEC involved.

But the problem with comparing Dodd-Frank to other whistleblower statutes is that it's not the Supreme Court's job to decide what sort of legislative scheme is best for the country. That's Congress's job. The Supreme Court's job is to decide what Congress's statute means.

The Court spent considerable time on the question of whether an SEC rule was entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). 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). Both sides – of course – argue that their interpretation of the statute is correct, and there is no need to go through the Chevron analysis. Somers goes the extra step to argue that the SEC's interpretation is entitled to deference. The employer (with almost heroic assistance from Justice Gorsuch) argues that the SEC adopted its rule without proper notice-and-hearing procedures, so it is entitled to no deference.

Look for a decision in early 2018.

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