Securities Regulation Daily Digital Realty seeks Fifth Circuit interpretation on whistleblower protections
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Monday, August 28, 2017

Digital Realty seeks Fifth Circuit interpretation on whistleblower protections

By R. Jason Howard, J.D.

In a case of statutory interpretation, Digital Realty Trust, Inc., has filed its opening brief with the Supreme Court, arguing that the Ninth Circuit’s interpretation of Dodd-Frank’s whistleblower protections is incorrect and that those protections are available only to those who report misconduct to the SEC, as held by the Fifth Circuit (Digital Realty Trust, Inc., v. Somers, August 24, 2017).

Whistleblower. The case centers on an employee who alleged that he internally reported to senior management actions by his supervisor that eliminated internal controls over certain corporate actions in violation of the Sarbanes-Oxley Act. He was fired shortly after and brought action under Dodd-Frank’s anti-retaliation provision alleging that he was fired for making internal complaints protected by the Sarbanes-Oxley Act. The district court held that Dodd-Frank is ambiguous and gave Chevron deference to the SEC’s interpretation, under which "an individual who makes only an internal disclosure is a ‘whistleblower’ for purposes of the anti-retaliation provision of the Dodd-Frank Act."

Circuit interpretations. The Fifth Circuit held in Asadi v. G.E. Energy that the plain language of Dodd-Frank unambiguously requires SEC reporting as a prerequisite to protection from retaliation. The Second Circuit created a split by holding in Berman v. Neo@Ogilvy LLC that the statute is sufficiently ambiguous to warrant Chevron deference to the SEC’s rulemaking.

The Ninth Circuit's decision, highlighted in Digital's brief, also took a more deferential approach and, while not invoking Chevron, held that the Dodd-Frank provision "unambiguously protects from retaliation all those who report to the SEC and who report internally."

Digital’s argument. Digital’s brief argues that because the respondent did not report securities-law violations to the SEC, he was not a "whistleblower" within the meaning of the statutory definition and, therefore, the anti-retaliation provision does not apply.

According to the brief, the Ninth Circuit’s interpretation of the Dodd-Frank Act’s anti-retaliation provision substantially diminishes the role of the Sarbanes-Oxley Act’s anti-retaliation regime, "because it authorizes any employee who made a protected disclosure to proceed directly in federal court under the Dodd-Frank Act, regardless of whether the employee reported a securities-law violation to the SEC," despite there being "no indication in the text or history of the Dodd-Frank Act that Congress intended to effect such a sweeping change in the existing regime."

The brief states that there is "simply no good reason here to deviate from the plain text of the statute," and that the Court should faithfully apply the law that Congress has written and "adopt an interpretation of the anti-retaliation provision that requires a plaintiff to satisfy the statutory definition of ‘whistleblower’ by reporting a securities-law violation to the SEC."

The case is No. 16-1276.

Attorneys: Kannon K. Shanmugam (Williams & Connolly LLP) for Digital Realty Trust, Inc. Daniel L. Geyser (Stris & Maher LLP) for Paul Somers.

Companies: Digital Realty Trust, Inc.

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