Supreme Court Narrows Coverage of “Whistleblower” Protection Under Dodd-Frank

In a unanimous decision issued on February 21, 2018, the U.S. Supreme Court held that would-be whistleblowers seeking to sue under the anti-retaliation protections of the Dodd-Frank Act (the "Act"), must report alleged misconduct to the U.S. Securities and Exchange Commission ("SEC"), whether or not they also report internally within the company.  See Digital Realty Trust, Inc. v. Somers, 583 U. S. __ (2018). (Our prior posts on this case reviewed the parties’ positions prior to oral argument here and following oral argument here.)  The Court’s decision resolved a split among the Circuits in holding that an individual who has not reported a violation of the securities laws to the SEC is not a "whistleblower" within the meaning of the anti-retaliation provisions of the Act, and therefore is not entitled to the protection of those provisions.  In so holding, the Court overruled the decision of the Ninth Circuit.

The facts of the case are fairly straightforward.  An employee (Somers) reported a suspected securities violation internally to his employer (Digital Realty), but did not also report the violation to the SEC.  Shortly thereafter, Digital Realty terminated Somers.  Somers filed suit seeking protection under the anti-retaliation provisions of the Act.  The central dispute in the case was whether Somers was a "whistleblower."  On the one hand, as Digital Realty argued, the Act plainly defines a "whistleblower," in relevant part, as "any individual who provides ... information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission." 15 U.S.C. § 78u-6(a)(6) (emphasis added).  But Somers, joined by the SEC, argued that the last clause - "in a manner established, by rule or regulation, by the Commission" - favored Sommers, given the SEC's adoption of a rule construing the statute to protect internal whistleblowers.

Ultimately, Justice Ruth Bader Ginsberg's unanimous opinion for the Court (which produced some interesting concurrences, discussed below) makes clear that where a definitional provision is as clear as the statute in this case - i.e., requiring reporting "to the Commission" - there is no ambiguity, even if the definition departs from the ordinary meaning of a term, and therefore no recourse to agency interpretive discretion, known as “Chevron deference.”  See Slip Op. at 9, 18-19; see also Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).  As the opinion notes, “Courts are not at liberty to dispense with the condition - tell the SEC - Congress imposed."  Slip Op. at 11.  "In sum," Justice Ginsburg wrote,

Dodd-Frank’s text and purpose leave no doubt that the term “whistleblower” in §78u-6(h) carries the meaning set forth in the section’s definitional provision.  The disposition of this case is therefore evident:  Somers did not provide information “to the Commission” before his termination, §78u–6(a)(6), so he did not qualify as a “whistleblower” at the time of the alleged retaliation.  He is therefore ineligible to seek relief under §78u–6(h).

Id. at 12.

But that was not all.  In separate dueling concurrences, Justices Sotomayor and Thomas sparred over the value and propriety of the majority’s reference to legislative history where the definition is otherwise clear.  For her part, Justice Sotomayor (in a concurrence that Justice Breyer joined) wrote that "[l]egislative history is of course not the law, but that does not mean it cannot aid us in our understanding of a law."  Sotomayor, J., concurring, Slip Op. at 1.  As Sotomayor explained, "even when, as here, a statute's meaning can clearly be discerned from its text, consulting reliable legislative history can still be useful, as it enables us to corroborate and fortify our understanding of the text."  Id. at 3.  Furthermore, "confirming our construction of a statute by considering reliable legislative history shows respect for and promotes comity with a coequal branch of Government."  Id.

Justice Thomas, joined by Justices Alito and Gorsuch, gave full expression to the textualist tradition for which the late Justice Scalia was renowned.  Justice Thomas wrote that because the definition clearly resolved the question before the Court, there was no need or basis to inquire into the statute’s "purpose."  See Thomas, J., concurring, Slip Op. at 1.  Quoting the concurrence of Justice Scalia in one of his last terms on the court, Thomas wrote that “[e]ven assuming a majority of Congress read the Senate Report, agreed with it, and voted for Dodd-Frank with the same intent, 'we are a government of laws, not of men, and are governed by what Congress enacted rather than by what it intended.'"  Id. (quoting concurrence of Justice Scalia in Lawson v. FMR LLC, 571 U. S. 429 (2014)).

The academically interesting debate on legislative history is unlikely to be resolved any time soon.  What is more clear, however, is that Digital Realty is likely to have important practical implications for companies.  On the one hand, the holding creates an additional hurdle for employees.  By requiring reporting to the SEC before an employee may file a wrongful termination action and seek the anti-retaliation protections of the Act, some would-be whistleblowers may find (like Somers) that the failure to do so will deprive them of a cause of action under the Act.  On the other hand, it seems likely that employees (guided by the plaintiff’s bar) will quickly learn from Somers’ lesson and will be motivated by a renewed incentive to share their tips with the SEC more promptly.  Naturally, this will require employers to respond to the SEC (and the employee) with less time for internal investigation than an earlier internal report might have allowed.  And, given the success of the SEC's whistleblower program to date, companies should anticipate that Digital Realty could well increase the number of tips to the SEC from whistleblowers both in the United States and abroad.  While it may be impossible to entirely avoid that result, companies can mitigate their risks, as always, by nurturing a culture of compliance, and by having in place sufficiently robust compliance programs and "hotlines" for receiving, managing, and investigating tips and complaints.

 

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