High Court Could Take on Whistle-Blower Retaliation Issue

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By Antoinette Gartrell

The U.S. Supreme Court could change the game for whistle-blowers who complain to management about corporate misconduct, but never seek outside assistance ( Digital Realty Trust, Inc. v. Somers, U.S., No. 16-1276, conference 6/15/17 ).

The justices are about to decide whether to review a Ninth Circuit decision that whistle-blowers who don’t report their concerns to the Securities and Exchange Commission are still protected from retaliation under Dodd-Frank.

The federal appeals courts are divided on the so-called reporting out question, increasing the likelihood that the high court will intervene. The U.S. Courts of Appeal for the Ninth and Second Circuits have said reporting out isn’t required, but the Fifth Circuit has held otherwise.

Digital Realty

In the case, Digital Realty Trust Inc. v. Somers, real estate investment trust official Paul Somers claimed he was fired for telling upper management that a supervisor was violating Sarbanes-Oxley Act internal-control requirements. The REIT moved to dismiss, saying Somers wasn’t protected by Dodd-Frank anti-retaliation provisions because he didn’t bring his concerns to the SEC. The district court disagreed and in March, the Ninth Circuit affirmed.

In its petition for high court review, Digital Realty argued that “standing alone,” the act’s whistle-blower definition “expressly and unambiguously requires that an individual provide information to the SEC.” The justices are slated to consider the petition June 15.

The SEC has taken the position that reporting out isn’t required, but the justices may disagree. Justice Neil Gorsuch in particular is said to take a dim view of agency deference.

Among those with a stake in the outcome is former Bio-Rad Laboratories Inc. general counsel Sanford Wadler, who—in an unrelated whistle-blower anti-retaliation case—also didn’t bring his concerns to the commission. Wadler is ahead almost $8 million so far—his award in a lawsuit claiming he was fired for reporting the company’s anti-bribery violations. Bio-Rad has appealed the award to the Ninth Circuit, but the high court, depending on its action in Digital Realty, could dictate the outcome of the controversy.

Digital Realty is represented by Kannon K. Shanmugam of Williams & Connolly LLP, Washington. Somers is represented by Daniel L. Geyser of Stris & Maher LLP, Los Angeles.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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