Ninth Circuit Joins Second Circuit in Expanding Dodd-Frank Whistleblower Protections

Skadden, Arps, Slate, Meagher & Flom LLP

Somers v. Dig. Realty Trust Inc., No. 15-17352 (9th Cir. Mar. 8, 2017)

A divided Ninth Circuit panel joined the Second Circuit in expanding Dodd-Frank whistleblower protections to apply not only to those who disclose potential violations to the SEC but also to employees who report internally. The Ninth Circuit’s decision deepens a circuit split, after the Fifth Circuit in 2013 held that the Dodd-Frank anti-retaliation provisions protect only whistleblowers who report to the SEC.

The plaintiff allegedly made several complaints to senior management at his employer, the defendant, regarding possible securities law violations. The plaintiff did not report any of his concerns to the SEC. He was subsequently fired.

The plaintiff brought suit against his former employer, alleging violation of Section 21F of the Exchange Act, the anti-retaliation provision of the Dodd-Frank Act. The defendant moved to dismiss on the grounds that, under Dodd-Frank, a “whistleblower” is defined only as someone who reports to the SEC. The district court denied the defendant’s motion to dismiss, and the Ninth Circuit affirmed.

The court reasoned that the definition of “whistleblower” found in Dodd-Frank — which includes only those employees who report potential wrongdoing “to the Commission” — is not dispositive. Rather, as the U.S. Supreme Court stated in King v. Burwell, 135 S. Ct. 2480 (2015), “[t]he use of a term in one part of a statute ‘may mean a different thing’ in a different part, depending on context.” That is so even where the statute contains a “definitional provision” specifically defining the term. On this point, the court also relied on a 2011 regulation issued by the SEC interpreting Section 21F, which defines the term “whistleblower” to include those who report potential wrongdoing internally. That regulation and interpretation, the court stated, was “entitled to deference.”

Finally, the court explained that provisions of “Sarbanes-Oxley and the Exchange Act mandate internal reporting before external reporting,” and “[l]eaving employees without protection for that required preliminary step would result in early retaliation before information could reach the regulators.” Such a result would cut against legislative intent to safeguard investors in public companies and the whistleblowers themselves.

The defendant has filed a writ of certiorari with the Supreme Court.

This summary can be found in the June 2017 issue of Inside the Courts.