SCOTUS to Address Whistleblowing Protections in Dodd-Frank

Ryan McGovern Quinn
On June 26, 2017, the Supreme Court granted certiorari in Digital Realty Trust, Inc. v. Somers, which is likely to settle whether employees who report misconduct to their employer rather than directly to the Securities and Exchange Commission (SEC) qualify as whistleblowers under the Dodd-Frank Act (“DFA”), thus resolving a split in the circuits on the question. See Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 153 (2d Cir. 2015) (noting a circuit split on this issue, and listing the cases on each side of the split). This case will be important for NUSL students interested in employment law, securities law, and corporate compliance.

The Circuit Split: Plain Meaning Versus the Rule Against Surplusage

The split arises from an apparent ambiguity in the use of the term “whistleblower” in the DFA, see Berman, 801 F.3d at 155, which defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission,” 15 U.S.C. § 78u-6(a)(6), but which later establishes anti-retaliation protections for “any lawful act done by the whistleblower” in providing such information to the SEC, testifying about such information, or making any other required or protected disclosures under securities laws, which include mandated internal disclosures under the Sarbanes-Oxley Act (SOX). 15 U.S.C. 78u-6(h)(1)(A). The Supreme Court is asked to resolve whether the later anti-retaliation provision’s use of “whistleblower” is governed solely by the earlier definition, which references only reports to the SEC, or whether other methods of statutory construction permit a broader reading of the anti-retaliation language to cover internal reports of misconduct. See Petition for a Writ of Certiorari, p. 3-4, Digital Realty Trust, Inc. v. Somers, 2017 WL 1488628 (U.S. April 25, 2017).

The Second and Ninth Circuits have held that such internal reporting is protected because the unambiguous intent of Congress in passing Dodd-Frank was to protect both internal and external whistleblowing, Somers v. Digital Realty Trust, Inc., 850 F.3d 1045, 1049-51 (9th Cir. 2017), cert. granted, No. 16-1276, 2017 WL 1480349 (U.S. June 26, 2017), and because a narrow statutory construction of the term “whistleblower” would leave employees who are required by SOX to report misconduct internally without protection under DFA, rendering parts of the anti-retaliation provision surplus. Berman, 801 F.3d at 152-53. The Fifth Circuit found that internal reporting is not protected by the DFA because the statute is unambiguous in defining a whistleblower as someone who provides information to the SEC. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 622-23 (5th Cir. 2013), citing 15 U.S.C. 78u-6(a)(6).

Congressional Ratification of Internal Protection Within Similar Whistleblower Provisions

It is significant that the Fifth Circuit is the only Court of Appeals to find that there is no protection for internal reporting. Id.; see also Berman, 801 F.3d at 153 (listing the jurisdictions that have addressed the DFA’s definition of “whistleblower”). The Fifth Circuit previously held that similar provisions in the Energy Reorganization Act of 1974 did not protect “purely internal” disclosures, Brown & Root, Inc. v. Donovan, 747 F.2d 1029, 1036 (5th Cir. 1984), but later acknowledged that subsequent Congressional amendments had “clarified by statute that Brown & Root was incorrect in holding that complaints to employers were not protected”. Willy v. Admin. Review Bd., 423 F.3d 483, 489 n.11 (5th Cir. 2005).

Indeed, every time Congress has clarified ambiguous whistleblower provisions, it has explicitly stated its intent to protect internal disclosures. See, e.g., S. REP. 95-181, 36, 1977 U.S.C.C.A.N. 3401, 3436 (ratifying judicial interpretations of the Federal Coal Mine Health and Safety Act of 1969 that interpreted the act to protect internal reporting); H.R. REP. 102-474, 78, 1992 U.S.C.C.A.N. 2182, 2296 (amending “the whistleblower protection provisions of the Energy Reorganization Act of 1974 to explicitly provide whistleblower protection for . . . employees . . . [to] notify their employer of an alleged violation rather than a federal regulator”); S. REP. 112-155, 41, 2012 U.S.C.C.A.N. 589, 629 (clarifying that “a disclosure does not lose protection” under the Whistleblower Protection Act of 1989 “because . . . the disclosure was made to a . . . supervisor”).

With such a substantial history of Congressional ratification of judicial interpretations that protect internal disclosures, one may wonder whether there is any ambiguity at all in DFA’s definition of whistleblower. After all, if Congress has routinely corrected courts when they fail to protect internal whistleblowing, it might be appropriate for courts to adopt a presumption that Congress intends to protect internal disclosures, unless there is clear language to the contrary.