September 24, 2018

September 24, 2018

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U.S. Supreme Court Settles Circuit Split: Dodd-Frank’s Anti-Whistleblower Retaliation Protections Do Not Extend To Employees Who Do Not Report To The SEC

On February 21, 2018, the U.S. Supreme Court resolved a circuit split and ruled in Digital Realty Trust, Inc. v. Somers that Dodd-Frank’s anti-whistleblower retaliation provision (15 U.S.C. § 78u–6(h)) does not protect employees who report alleged securities violations only to their employers, and not to the SEC.

Paul Somers (“Somers”), a former Vice President of Portfolio Management for Digital Realty Trust, claimed that his employer violated the whistleblower protections of Dodd-Frank by terminating him in retaliation for complaining to management about suspected securities violations, including the elimination of required internal controls and financial misconduct by his supervisor. Somers never reported the alleged violations to the SEC. Digital Realty Trust therefore moved to dismiss the claim on the ground that Somers was not a “whistleblower” under Dodd-Frank because the statute’s definition of “whistleblower” only covers individuals “who provide . . . information . . . to the [SEC].”

The District Court denied the motion. It held that whether an employee who reports an alleged violation internally, but not to the SEC, qualifies as a whistleblower is ambiguous under Dodd-Frank. Given the apparent ambiguity, the Court deferred to the SEC’s interpretation of the statute set forth in SEC Rule 21F-2, which provides that an individual is a Dodd-Frank “whistleblower” even if he or she only reports internally. The Ninth Circuit Court of Appeals affirmed, joining the Second Circuit’s position on the issue (previously discussed here) and adding to a split with the Fifth Circuit, which had reached the opposite conclusion and held that Dodd-Frank does not protect employees who only report suspected violations internally.

The Supreme Court reversed the Ninth Circuit, however, and finally resolved the split in authority, holding that “Dodd-Frank’s text and purpose leave no doubt that the term ‘whistleblower’ . . . carries the meaning set forth in the section’s definitional provision.” The Supreme Court ruled that because Somers did not provide information to the SEC before his termination, he did not qualify as a “whis­tleblower” at the time of the alleged retaliation and is ineligible to seek relief under Dodd-Frank’s anti-retaliation provision.

The impact of this ruling on the whistleblower landscape remains to be seen. It may reduce the number of frivolous whistleblowers and whistleblower lawsuits since employees might be reluctant to pursue baseless allegations of securities violations if they have to first report them to the SEC before they can invoke Dodd-Frank’s protections against retaliation. Further, employers should take note that the Supreme Court made clear in its decision that an employee who reports misconduct both to the SEC and internally is a protected whistleblower, and can recover under Dodd-Frank’s anti-retaliation provision by proving that the retaliation was the result of the internal whistleblowing, without demonstrating that the retaliation was motivated by the SEC disclosure.

©2018 Epstein Becker & Green, P.C. All rights reserved.

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About this Author

john f fullerton III, epstein becker green, new york, financial services
Member

JOHN F. FULLERTON III is a Member of the Firm in the Labor and Employment practice in the New York office of Epstein Becker Green, where he co-leads the Financial Services strategic industry group.

Mr. Fullerton's practice currently focuses on representing employers in whistleblower compliance and litigation defense in retaliation cases brought pursuant to the Sarbanes-Oxley Act, Dodd-Frank Act, the False Claims Act, as well as state law whistleblower statutes. In this capacity, he has represented a variety of publicly traded...

212-351-4580
Jason Kaufman, Epstein Becker Green, Labor Lawyer, Employment Litigator
Associate

JASON KAUFMAN is an Associate in the Labor and Employment practice, in the New York office of Epstein Becker Green.

Mr. Kaufman:

  • Represents clients in employment-related litigation on a broad array of matters, including claims of discrimination, harassment, retaliation, failure to accommodate disabilities, and breach of employment contracts and restrictive covenants, in state and federal courts and before various administrative agencies

  • Represents employers in wage and hour individual and class action lawsuits alleging Fair Labor Standards Act violations, especially with regard to the classification of workers

Prior to joining Epstein Becker Green, Mr. Kaufman worked as a complex commercial and mass tort litigation associate at a boutique law firm in New York City, where he participated in all aspects of trial and alternative dispute resolution proceedings.

212-351-4738