9th Circuit: Internal SEC Whistleblowers Can Sue Under Dodd-Frank Anti-Retaliation Provision

On a 2-1 decision, the Ninth Circuit has affirmed the right of internal whistleblowers to sue under the Dodd-Frank Act after they are retaliated against for informing their company of suspected violations of federal securities laws. The circuit split on anti-retaliation protections for internal SEC whistleblowers now consists of the Second and Ninth Circuits in favor and the Fifth Circuit against.

In the Ninth Circuit case, the employee reported several possible securities law violations to senior management and was terminated shortly thereafter. The Ninth Circuit opinion said that he was not able to report his concerns to the SEC before he was fired. After suing for retaliation, the defendant sought to dismiss, arguing that he did not meet the definition of “whistleblower” under the Dodd-Frank Act.

The opinion in Somers v. Digital Realty Trust Inc., Case No. 15-17352, 2017 WL 908245 (9th Cir. March 8, 2017) sides with the Second Circuit in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2015) and disagrees with the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013).

The majority opinion in Somers notes the ambiguity in the statute on the definition of whistleblower as well the limited scope of protections provided by a strict interpretation of the text which would contravene the Congressional intent. Moreover, it notes that the explicit reference to internal reporting provisions of the Sarbanes-Oxley Act meant that Congress could not have been applying the previous definition of whistleblower to this subsection. It then defers to the SEC regulation as a reasonable agency interpretation of the ambiguity pursuant to the Chevron doctrine.

Since Asadi, the SEC has waged war against companies arguing that internal whistleblowers are not protected under Dodd-Frank. It has submitted amicus briefs in support of its position in several cases, including Berman and Somers. It looked close for a while there as a few courts sided with the defendants following Asadi. Now, it has hopefully been firmly resolved in favor of protecting internal whistleblowers.