To be protected from retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act, whistleblowers must make reports to the Securities and Exchange Commission, according to a recent Supreme Court decision.  In Digital Realty Trust Inc. v. Somers, the United States Supreme Court held that anti-retaliation provisions of the Dodd Frank Act do not apply to internal reports of possible security violations.  The decision reversed a Ninth Circuit holding in Somers v. Digital Realty Trust Inc., wherein the court found that Dodd Frank whistleblower protections did in fact apply to internal company complaints regarding suspected securities violations.

The Dodd-Frank Act prohibits employers from taking adverse action against or discharging a whistleblower who (1) reports information to the government, (2) provides testimony or otherwise assists in an investigation that is related to the information provided, or (3) makes disclosures required under Sarbanes-Oxley, the Securities Exchange Act, or other laws subject to SEC jurisdiction.  See 15 U.S.C. § 78u-6(h)(1)(A).  The statute also states that an individual is considered a “whistleblower” if s/he provides information relating to a violation of the securities laws to the SEC, see 15 U.S.C. § 78u-6(a)(6). 

In its decision, the Supreme Court resolved a conflict among circuit courts regarding whether the Act’s anti-retaliation protections only apply to whistleblowers who make reports to the SEC.  The Ninth Circuit and Second Circuit had interpreted the statutory text and legislative history of the Act as intending application of the anti-retaliation prohibitions to a broader scope of individuals, including those that only make internal complaints.  Somers v. Digital Realty Trust Inc.; Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015).  The Fifth Circuit took a different approach, interpreting the Act’s anti-retaliation prohibitions as applying only to those individuals who make reports to the SEC.  Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 20 (5th Cir. 2013).

In agreeing with the Fifth Circuit’s conclusion, the Supreme Court reasoned as follows: 

• The explicit definitions provided in a statute must be followed, and the Act’s clear language protects whistleblowers who report suspected violations to the SEC.
• The Court’s interpretation is supported by the statute’s purpose and design, which include the establishment of a whistleblower program to encourage individuals who know of securities law violations to report them to the SEC.
• The employee’s and government’s attempts to limit the applicability of the statute’s clear language to provisions other than those related to anti-retaliation fail in light of the plain language of the Act. The Supreme Court reasoned that its interpretation of the statutory language does not limit the meaning of other statutory provisions, including those protecting whistleblowers who make reports to the SEC and other entities, but suffer retaliation related to the non-SEC disclosure.  The Supreme Court’s interpretation also does not eliminate protections available to auditors and attorneys that must make internal reports before reporting to the SEC, as Dodd-Frank protections would still apply as soon as an SEC report is made.  Noting that “Dodd-Frank’s core objective [as being] to prompt reporting to the SEC,” the Supreme Court concluded that “it is understandable that the statute’s retaliation protections … would be reserved for employees who have done what Dodd-Frank seeks to achieve, e., they have placed information about unlawful activity before the Commission to aid enforcement efforts.”  Digital Realty Trust Inc. v. Somers, slip op. at 16.