Supreme Court Adopts Narrow Reading of Dodd-Frank’s Whistleblower Provision
By: Andrew McKinley
In Digital Realty Trust, Inc. v. Somers, No. 16-1276 (U.S. Feb. 21, 2018), the U.S. Supreme Court determined that the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) is limited to individuals who report a violation of the securities laws to the Securities and Exchange Commission (“SEC”) under § 78u-6(h). The plaintiff alleged that defendant terminated him shortly after he reported suspected securities law violations to senior management, in violation of Dodd-Frank’s anti-retaliation provision. Although plaintiff could have alerted the SEC prior to his termination, he did not do so. In the district court, the defendant moved to dismiss the claims, arguing that plaintiff did not qualify as a “whistleblower” under Dodd-Frank because he did not report any alleged violations to the SEC.
The trial court deferred to the SEC’s Rule 21F-2, which provides that Dodd-Frank’s retaliation procedures could apply in situations where information was not provided to the SEC, so long as the individual provided information shielded by one of the anti-retaliation provision’s three clauses. A divided panel of the Ninth Circuit affirmed.
The Supreme Court observed that its charge was to determine the meaning of “whistleblower” within the context of Dodd-Frank’s anti-retaliation provision. With that task in mind, the Court explained the statute defines a “whistleblower” as “any individual who provides information relating to a violation of the securities laws to the Commission.” The statute further instructs that the definition applies throughout the anti-retaliation provision. The definition clearly identifies who is eligible for protection under Dodd-Frank (an individual who provides information “to the Commission”), and the three clauses of the anti-retaliation provision clearly delineate what conduct is shielded from employment discrimination. The Supreme Court held that both requirements must be met to invoke Dodd-Frank.
The Court buttressed its conclusion in two other respects. First, it observed that a separate whistleblower protection in Dodd-Frank did not require that information be conveyed to a governmental agency. The Court reasoned that the inclusion of the reporting requirement in § 78u-6(h), but not in other parts of Dodd-Frank, was an intended difference in meaning. Second, it noted that the core objective of the whistleblower program is to motivate individuals with knowledge of securities law violations “to tell the SEC.” Therefore, the Court concluded that both the text and purpose of the statute make clear that an individual does not qualify as a whistleblower under § 78u-6(h) unless he provides information to the SEC.
Somers signals a rejection of an expansive view of Dodd-Frank’s anti-retaliation provisions. While employers may benefit from this narrower definition, the Court’s ruling may ultimately lead to limited opportunities for internal corporate resolution, as whistleblowers may be incentivized to report concerns to the SEC rather than internally.