On February 21, 2018, the Supreme Court of the United States ruled that the anti-retaliation provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act does not extend to an individual who has not reported a violation of the securities laws to the Securities and Exchange Commission (SEC). According to the Court, the language of the law requires that “[t]o sue under Dodd-Frank’s anti-retaliation provision, a person must first ‘provid[e] . . . information relating to a violation of the securities laws to the Commission.’” As Justice Kagan noted in oral argument in November, Dodd-Frank has “this definitional provision, and it says what it says.” Digital Realty Trust, Inc. v. Somers, No. 16-1276, Supreme Court of the United States (February 21, 2018).
Justice Ginsburg, writing for the majority (and, as a result, joined by all of the justices), reasoned that this interpretation of Dodd-Frank comports with the law’s “core objective,” namely “to prompt reporting to the SEC.” “In view of that precise aim,” Justice Ginsburg continued, “it is understandable that the statute’s retaliation protections, like its financial rewards, would be reserved for employees who have done what Dodd-Frank seeks to achieve, i.e., they have placed information about unlawful activity before the Commission to aid its enforcement efforts.”
Paul Somers, a vice president at Digital Realty Trust, Inc., claimed that Digital Realty fired him after he reported—to the company’s management, not the SEC—that he suspected that the company had violated securities laws. As a result, Somers sued Digital Realty for whistleblower retaliation under Dodd-Frank. The company argued that Somers did not qualify as a whistleblower under Dodd-Frank because he had not reported any alleged violations to the SEC. The district judge denied Digital Realty’s motion to dismiss, consistent with the SEC’s position, and the Ninth Circuit Court of Appeals affirmed.
The Ninth Circuit acknowledged that Dodd-Frank specifically defines a “whistleblower” as an individual who has provided information to the SEC, but reasoned that applying that definition to the statute’s anti-retaliation provision, thereby requiring employees to report possible securities violations “both internally and to the SEC” to be afforded protection, would be “illogical” because “[e]mployees are not likely to report in both ways.”
The Ninth Circuit’s decision conflicted with the Fifth Circuit’s 2013 ruling in Asadi that employees must provide information to the SEC to be protected by Dodd-Frank’s anti-retaliation provision. The Supreme Court agreed to review Somers to resolve the conflict. While Somers was on appeal to the Supreme Court, the Second Circuit issued a decision consistent with Somers. The split in authority is now resolved.
The Supreme Court’s Decision
Justice Ginsburg reviewed and compared the statutory language of both Dodd-Frank and the Sarbanes-Oxley Act of 2002 and examined the legislative purpose of the laws to conclude that to qualify as a whistleblower under Dodd-Frank, an individual must have provided information to the SEC. Consequently, the Court concluded, “[t]he disposition of this case is therefore evident: Somers did not provide information ‘to the Commission’ before his termination . . . so he did not qualify as a ‘whistleblower’ at the time of the alleged retaliation.”
The law does not protect employees who report only internally but, Justice Ginsburg noted, “shields employees . . . as soon as they also provide relevant information to the Commission. True, such employees will remain ineligible for Dodd-Frank’s protection until they tell the SEC, but this result is consistent with Congress’ aim to encourage SEC disclosures.” [Emphasis in original.]
All of the justices agreed with the result of Justice Ginsburg’s opinion and with the holding that the language of the statute was clear that employees who do not report to the SEC are not protected. Two justices wrote concurring opinions, addressing whether the Court, when interpreting a statute, may appropriately consider a Senate Report (as the majority opinion did). Justice Sotomayor, with Justice Breyer joining, wrote that Senate Reports “are a particularly reliable source to which we can look to ensure our fidelity to Congress’ intended meaning.” Justice Thomas, joined by Justice Alito and Justice Gorsuch, disagreed on that point, opining that the Court ought not to look at legislative history.
The Decision’s Effect on Employers
Although the Somers decision provides important clarity on Dodd-Frank’s coverage, and thus on the litigation claims and exposure an employer might face in the event of reports of suspected securities violations, there is no impact on employers’ policies, processes, and procedures regarding maintaining and improving a robust culture of compliance. The decision does provide an opportunity for employers to focus on the entirety of their compliance efforts.