The Supreme Court is scheduled to hear oral arguments in Digital Realty Trust v. Somers on Tuesday, November 28th. The case concerns the whistleblower provisions of the Dodd-Frank Act and will have a significant impact on the legal rights of whistleblowers.
Paul Somers was a vice president and portfolio manager in the Singapore office of Digital Realty Trust, a San Francisco-based realty trust. Mr. Somers reported his supervisor to upper-level executives due to his concerns about his supervisor hiding cost overruns on a real estate project in Hong Kong in violation of the Sarbanes-Oxley Act. The firm terminated his employment a few weeks after he made his report. Mr. Somers sued for wrongful termination in the Northern District of California, citing the whistleblower protection provisions of the Dodd-Frank Act. The firm filed a motion to dismiss, arguing that Dodd-Frank only protects whistleblowers who report their companies to the SEC. The trial court denied the motion to dismiss, and the Ninth Circuit Court of Appeals upheld that decision.
The crux of the case concerns the definition of a whistleblower under the statute. The statute broadly protects employees who are discharged or demoted for reporting potential violations of securities laws. However, Dodd-Frank specifically defines a whistleblower as one who reports misconduct to the SEC. After the law was passed, the SEC passed a regulation expanding the definition to protect internal whistleblowers. The decision will hinge on whether the justices prefer a textual approach to interpreting Dodd-Frank or defer to the SEC’s interpretation pursuant to the Chevron doctrine. Lawyers and amicus writers on behalf of Digital Realty argue that Mr. Somers’ position takes the Chevron doctrine of deferring to administrative agencies too far, given the existence of a clear definition of a whistleblower under the statute. Lawyers and amicus writers on behalf of Mr. Somers argue that such a narrow definition of whistleblower was not Congress’s intention when it passed the law. They also argue that it would hurt both whistleblowers and their companies, noting that it is better for both groups to report things internally so that problems can be addressed quickly and efficiently.
The Fifth Circuit has previously held that the plain language of the statute only applies to whistleblowers who directly report misconduct to the SEC. The Ninth Circuit declined to follow that position and instead took the position of the Second Circuit, which previously ruled that the statute was ambiguous and applied Chevron deference to uphold the SEC’s interpretation of the definition. The Supreme Court’s decision should resolve this circuit split and clarify the rights of securities law whistleblowers.