Supreme Court to Review SEC Internal Whistleblower Retaliation Protections

The Supreme Court will next term review a whistleblower retaliation lawsuit, Somers v. Digital Realty Trust, Inc., to determine whether the anti-retaliation protections of the Dodd-Frank Act protects employees who report misconduct internally. The Ninth Circuit, in a split decision, determined that the Dodd-Frank Act protected the employee from retaliation as a whistleblower in spite of the fact that he did not file a Form TCR with the U.S. Securities and Exchange Commission.

We were pleased to see the Ninth Circuit’s decision in March upholding the SEC interpretation of the anti-retaliation provisions and hope that the Supreme Court settles this issue once and for all in favor of protecting whistleblowers. It agreed with the Second Circuit, which has previously reversed a contrary district court decision in Berman v. Neo@Ogilvy, LLC, concluding that Dodd-Frank was ambiguous on the definition of whistleblower and that the SEC’s resolution of that ambiguity was entitled to deference under Chevron.

Internal reporting has been a controversial area of the whistleblower law since Congress passed Dodd-Frank. Companies initially petitioned the SEC to require all whistleblowers report internally first before filing a Form TCR. They argued that providing a monetary incentive for SEC whistleblowers without requiring internal reporting would undermine their compliance processes. The SEC nevertheless decided to allow most whistleblowers the option to file a Form TCR without internal reporting.

The SEC then issued a regulation defining the term whistleblower with respect to the retaliation provisions of the Dodd-Frank Act. Rule 21F-2 adopts a different definition of whistleblower for the anti-retaliation section than Congress specified in the definition section of the bill.

The SEC has justified this position in numerous court filings as necessary because the bill’s definition of whistleblower otherwise makes meaningless the anti-retaliation provision set forth by Congress. The SEC filed an amicus brief with the SEC in Somers defending its position and supporting its position that the anti-retaliation protections of Dodd-Frank apply to internal whistleblower.

The Fifth Circuit was the first court of appeals to take up this question in Asadi v. G.E. Energy (USA) L.L.C., and it sided with the company. This decision setup the circuit split which will be resolved by the Supreme Court next year.