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Ninth Circuit Ruling on Whistleblower Protections in Dodd-Frank Headed to Supreme Court

ambiguityCongress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010. The statute amended existing statutes like the Securities Exchange Act of 1934, and it referenced other major financial reform laws like the Sarbanes-Oxley Act of 2002. Dodd-Frank requires businesses to make a wide variety of disclosures about their financial activities, and it offers incentives to company insiders, or “whistleblowers,” to report violations. It penalizes employers that retaliate against whistleblowers. The Ninth Circuit Court of Appeals recently ruled in favor of a whistleblower in a retaliation claim that is relevant to future California employment cases. Somers v. Digital Realty Trust, Inc., 850 F.3d 1045 (9th Cir. 2017). The case depended on Dodd-Frank’s ambiguous use of the word “whistleblower.” The ruling conflicts with at least one other appellate court’s interpretation of the statute. As a result, the U.S. Supreme Court has agreed to hear the case in November 2017.

Dodd-Frank’s language regarding whistleblower retaliation is ambiguous. It prohibits employers from retaliating against whistleblowers who make reports to the Securities and Exchange Commission (SEC) as required by Dodd-Frank or other statutes, including but not limited to Sarbanes-Oxley. 15 U.S.C. § 78u-6(h)(1)(A). This would seem to include reports to other agencies besides the SEC, as well as internal reports to company management. The ambiguity is due to the word “whistleblower,” which is defined in an earlier subsection specifically as anyone “who provide[s] information relating to a violation of the securities laws to the [SEC].” Id. at § 78u-6(a)(6). The statute does not make it clear whether the anti-retaliation provision refers to the statute’s narrow definition of a whistleblower or uses a broader plain-language meaning.

The SEC’s regulation implementing the anti-retaliation provision, first promulgated in 2011, appears similarly ambiguous by repeating much of the language of the statute. 17 C.F.R. § 240.12F-2. The agency clarified, however, that it did not interpret “whistleblower” broadly to “include[] individuals who report to persons or governmental authorities other than the [SEC].” 76 Fed. Reg. 34299, 34304 (Jun. 13, 2011); see also 80 Fed. Reg. 47829 (Aug. 10, 2015). In court disputes over the ambiguity in the statute, how the court will rule depends on whether it follows the Chevron doctrine, which holds that courts should give deference to agency interpretations of statutes. See Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984).

Prior to the Ninth Circuit’s ruling in Somers, two federal appellate courts had considered this issue. The Fifth Circuit applied a narrow reading of the statute, finding that Dodd-Frank’s anti-retaliation provision only applies to people who reported violations to the SEC. Asadi v. GE Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013). The Second Circuit applied Chevron deference, however, ruling that “whistleblower” was not limited to the statute’s narrow definition. Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015). That decision also cited King v. Burwell, 576 U.S. ___ (2015), in which the Supreme Court interpreted ambiguous statutory terms in a way that allowed the statute to work as Congress intended.

The plaintiff in Somers was fired after reporting suspected Dodd-Frank violations to management. The Ninth Circuit followed Berman instead of Asadi, ruling that the plaintiff was a whistleblower entitled to relief under the statute. The Supreme Court granted certiorari in June 2017.

For more than 40 years, employment attorney James G. Schwartz has advocated for Bay Area businesses and business owners in litigation and transactional matters. To schedule a free and confidential consultation, contact us today online or at (925) 463-1073.

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Photo credit: Lori Greig [CC BY-SA 2.0], via Flickr.