June 28, 2017

June 27, 2017

Subscribe to Latest Legal News and Analysis

June 26, 2017

Subscribe to Latest Legal News and Analysis

Circuit Split Over Protection Afforded By Dodd-Frank Whistleblower Provision Widens

In Somers v. Digital Realty Trust, 15-17352 (9th Cir. March 8, 2017), a split Ninth Circuit Court of Appeals widened an existing circuit court split by ruling that Section 21F of the Dodd-Frank Act (“DFA”) protects individuals who make internal disclosures as well as those who make disclosures to the Securities and Exchange Commission (“SEC”).

Paul Somers, a former Digital Realty Trust, Inc. executive, alleged his employment was terminated after he reported possible securities law violations to senior management. Although Somers never provided any information to the SEC, he claimed protection under Section 21 of the DFA’s anti-retaliation provision.

Digital Realty sought dismissal of Somers’ DFA claim based on the fact that the DFA defines a “whistleblower” as an employee who makes a report “to the Commission.” Under this definition of “whistleblower,” Digital Realty argued, Somers did not qualify for protection under Section 21F. Somers countered that his actions were protected under subsection 21F(h)(1)(A)(iii), which extends anti-retaliation protection to individuals who make internal disclosures of alleged unlawful activity. The district court agreed with Somers and the split three-judge panel affirmed this decision.

The tension between the anti-retaliation provision in 21F(h)(1)(A)(iii) and the whistleblower definition articulated in  21F(a)(6) has resulted in uncertainty and division across the federal judiciary.

A majority of courts have adopted an inclusive definition of “whistleblower.” In Berman v. Neo@Ogilvy LLC, 14-4626 (2d Cir. Sept. 10, 2015), the Second Circuit held that an individual’s internal complaint was sufficient to support a claim of retaliation under the DFA.  In Berman, and subsequently in Somers, the court relied on the SEC’s implementing regulations that resolved the ambiguity in favor of individuals who only made internal disclosures of alleged unlawful activity.

Somers and Berman conflict with the Fifth Circuit Court’s decision in Asadi v. G.E. Energy, No. 12-20522 (5th Cir. July 17, 2013). This court the first federal appeals court to decide this issue, held the DFA’s definitional provision limited protection to individuals who in fact make a disclosure of information to the SEC.  The dissent in Somers followed the same reasoning as Asadi: language that is expressly defined must have a fixed definition. The Sixth Circuit considered similar issues but determined the employee’s claims were too vague to afford him whistleblower protections.  The Third Circuit is currently weighing this issue.

The Somers decision reflects a concern that a narrower reading of the DFA will undercut Congressional intent to protect consumers from abusive financial services practices.  President Trump has proposed narrowing the scope of the DFA, but it is unclear what effect, if any, new legislation will have on the statute’s whistleblower provisions.  In the interim, the DFA will remain an appealing option for internal whistleblowers and the widening split may prompt attention from the Supreme Court.

Jackson Lewis P.C. © 2017

TRENDING LEGAL ANALYSIS


About this Author

Joseph C. Toris, Confidentiality, non-competition agreement, restrictive covenants, Jackson LEwis Law Firm
Of Counsel

Joseph C. Toris is Of Counsel in the Morristown, New Jersey, office of Jackson Lewis P.C. He is experienced with complex issues surrounding employee disloyalty, enforceability of confidentiality and non-competition agreements, and other restrictive covenants. Mr. Toris regularly participates in emergent matters seeking to impose or defend against the imposition of restraints in the state courts of New Jersey.

He is also experienced with Sarbanes-Oxley issues including the defense of whistleblower claims under the Act. Mr. Toris also assists clients in the...

973-451-6347
Associate

Benjamin L. Rouder is an Associate in the Monmouth County, New Jersey, office of Jackson Lewis P.C. His practice focuses on representing management in employment litigation matters.

While attending law school, Mr. Rouder was an Associate Editor of the Fordham Journal of Corporate & Financial Law and received the Archibald R. Murray Public Service Award, magna cum laude, for his volunteer work. During his undergraduate studies, Mr. Rouder was selected for the Scholar Honors Program and received the Tony Kornheiser Journalism Scholarship for his contributions to the school newspaper.

Prior to joining Jackson Lewis, Mr. Rouder was a law clerk for the Honorable Yolanda Ciccone, A.J.S.C.

732-945-6025