On November 28, the U.S. Supreme Court heard oral argument regarding the scope of whistle-blower protections created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Oral argument suggested that the justices are unlikely to uphold a Ninth Circuit ruling that reads the Dodd-Frank Act broadly to protect employees who blow the whistle internally and experience retaliation before reporting suspected wrongdoing to the Securities and Exchange Commission. Somers v. Dig. Realty Tr., Inc., 41 IER Cases 1691 (9th Cir. 2017).
What’s at stake?
The case matters because Dodd-Frank includes inconsistent language on whether reporting to the SEC is necessary to qualify for its protections against employer retaliation, the federal circuit courts are split on the question, and the SEC issued a rule finding that internal reporting is sufficient.
Oral argument in the case was also a window on how newly-seated Justice Neil Gorsuch might influence the Court regarding the perennial issue of how much deference courts should give to federal agency interpretations of their governing statutes. Though the case may well be resolved without directly addressing that issue, Justice Gorsuch asked a number of questions that reveal his interest in more searching judicial review of agency actions.
The case on appeal
The respondent in the case, Paul Somers, was employed as a Vice President of Digital Realty Trust, Inc. from 2010 to 2014. He made several reports to senior management about possible securities law violations but wasn’t able to report his concerns to the SEC before he was fired.
Somers sued the employer in federal district court, alleging violations of various state and federal laws, including Section 21F of the Securities Exchange Act of 1934, the whistle-blower protections added by Dodd-Frank.
The employer moved to dismiss the claim, arguing that Somers wasn’t a “whistle-blower” entitled to Dodd-Frank’s protections because he only reported the possible violations internally.
The district court declined to dismiss, the Ninth Circuit affirmed on appeal, and the Supreme Court granted certiorari. The SEC appeared as amicus curiae in support of Somers.
Searching questions from Justice Gorsuch
Though both Somers and the SEC argued that the case can be decided based on the language of Dodd-Frank alone, Justice Gorsuch directed multiple questions to the validity of the SEC’s interpretation of the act’s whistle-blower protections and to perceived irregularities in an SEC rule-making process that resulted in the broader protections the agency ultimately adopted.
“How much clearer could Congress have been,” Gorsuch asked Somers’ counsel, “than to say in this section the following definitions shall apply, and whistle-blower is defined as including a report to the Commission?”
Agencies behaving badly?
Examining the process the SEC used to issue its rule protecting internal reporting, Gorsuch expressed concern that the SEC gave notice it was going to issue a rule about whistle-blowers who report to the Commission but ultimately issued one that also protects those who haven’t reported to it. “The agency acts without the benefit of the notice and comment and is unable to issue a reasoned decision-making,” Justice Gorsuch asked, “and then we’re supposed to defer to that to resolve this ambiguity?”
Justice Breyer, also very active in parsing statutory language, seemed content to resolve the question based on a reading of Dodd-Frank itself, as urged by counsel for both Somers and the SEC. His position seemed likely to disappoint both, however, at least in the present case. “[T]he ordinary whistle-blower,” Breyer told Somers’ counsel, “is protected under Sarbanes-Oxley. He just has to have some exhaustion. And it's a shorter statute of limitations… [Y]ou read it your way, we -- we’ve basically eliminated Sarbanes-Oxley because everybody would bring it under this provision.”
A decision in the case, which is expected by the end of the Court’s term in June, could in any event reshape the way the SEC and multiple federal courts currently give effect to Dodd-Frank’s stated purpose of “improving transparency and accountability in the financial system.”
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