Dodd-Frank Anti-Retaliation Protections Apply to Internal Reports, Ninth Circuit Holds

An individual qualifies as a whistleblower and may be protected by the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or Act) regardless of whether s/he provides information to the Securities and Exchange Commission (SEC).  In Somers v. Digital Realty Trust Inc., the United States Court of Appeals for the Ninth Circuit affirmed a lower court decision holding that even though Plaintiff-Appellee, Paul Somers, only made internal complaints of possible securities violations, such actions nonetheless qualified him as a “whistleblower” under Dodd-Frank.
While working as Vice President of Defendant-Appellant Digital Realty Trust Inc., Somers made internal reports of possible securities law violations to senior management on several occasions.  He was terminated shortly thereafter, before he had the chance to report any suspected violations to the SEC.  He filed suit in a federal court alleging that his termination was barred by Dodd-Frank’s anti-retaliation protections.  The employer filed a motion for summary judgment, arguing that Somers did not qualify as a whistleblower under the Act because he failed to make any reports to the SEC.  The district court disagreed, and denied the employer’s motion, reasoning that it should defer to the SEC’s interpretation that Dodd Frank protections apply to individuals who only make internal complaints as well as those who make reports to the SEC.  In rendering its decision, the district court also certified the question on interlocutory appeal to the Ninth Circuit, which granted Defendant-Appellant’s Petition for Permission to Appeal.
The Dodd-Frank Act prohibits employers from discharging or taking other adverse action against a whistleblower who (1) provides information to the government, (2) testifies or 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).  While the statute also provides 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), a question has arisen regarding whether the Act’s anti-retaliation protections only apply to whistleblowers who make reports to the SEC.  Circuit courts are split on the issue.  The Second Circuit has 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.  Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015).  The Fifth Circuit has interpreted 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 affirming the lower court’s holding, the Ninth Circuit agreed with the Second Circuit’s interpretation of the Act’s provisions.  In so doing, the court reasoned that:
“Reading the use of the word "whistleblower" in the anti-retaliation provision to incorporate the earlier, narrow definition would make little practical sense and undercut congressional intent. As the Second Circuit pointed out, subdivision (iii) would be narrowed to the point of absurdity; the only class of employees protected would be those who had reported possible securities violations both internally and to the SEC, when the employer—unaware of the report to the SEC—fires the employee solely on the basis of the employee's internal report. This reading is illogical. Employees are not likely to report in both ways, but are far more likely to choose reporting either to the SEC or reporting internally. Reporting to the SEC brings a higher likelihood of a problem being addressed, along with an increased risk of employer retaliation, whereas internal reporting may be less efficient but safer.  As we have seen, Sarbanes-Oxley and the Exchange Act prohibit potential whistleblowers—auditors and lawyers—from reporting to the SEC until after they have reported internally.  The anti-retaliation provision would do nothing to protect these employees from immediate retaliation in response to their initial internal report. A strict application of DFA's definition of whistleblower would, in effect, all but read subdivision (iii) out of the statute.”  (Citation omitted.)
To avoid this outcome, the court affirmed the lower court’s holding that Dodd-Frank’s anti-retaliation protections apply to individuals who make internal reports of suspected securities violations.  Somers v. Digital Realty Trust Inc.