On March 8, 2017, the United States Court of Appeals for the Ninth Circuit ruled that the Dodd-Frank Wall Street Reform and Consumer Protection Act’s anti-retaliation protections extend to whistleblowers who report employers’ SEC violations internally, regardless of whether they report the violations to the SEC.  In Somers v. Digital Realty Trust, Inc., No15-17352, slip op. (9th CirMar. 8, 2017), a divided panel of the Ninth Circuit sided with the Second Circuit in an emerging split among the federal courts of appeals.  The circuit courts’ dissension stems from the proper interpretation of the word “whistleblower” under Section 21F of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h)(1)(A)(iii), which prohibits employers from discriminating against whistleblowers in the terms and conditions of their employment because of their lawful disclosures under the Sarbanes-Oxley Act of 2002 or another SEC rule or regulation.

In Somers, the Ninth Circuit followed the reasoning of the Second Circuit in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015), and construed the provision broadly, to afford protection to internal whistleblowers.  The Somers Court emphasized the remedial purposes of the Dodd-Frank Act and “Congress’s overall purpose to protect those who report violations internally as well as those who report to the government.”  No. 15-17352, slip op. at *4.  “Reading the use of the word ‘whistleblower’ in the antiretaliation provision to incorporate the earlier, narrow definition would make little practical sense and undercut congressional intent.”  Id. at *10.  The Ninth and Second Circuits’ decisions stand in stark contrast to the Fourth Circuit’s decision on this issue in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), wherein the Fourth Circuit ruled that protection extends only to individuals who report employer violations outside their organizations, directly to the SEC.

The SEC, the agency charged with enforcing the provision, issued guidance at 17 C.F.R. § 240.21F-2, clarifying its position that a whistleblower need not report information to the SEC to qualify for protection under the Dodd-Frank Act.  Generally, an agency’s interpretation of a statute it is charged with enforcing is due heightened deference.  However, given the current administration’s promise to dismantle the Dodd-Frank Act, the SEC may change its position.  The deepening circuit split and looming changes in SEC guidance make this issue a likely candidate for Supreme Court review.

Click here to read the Ninth Circuit’s full opinion.

 

Article written by Bernabei & Kabat Associate, Kristen Sinisi