Alert
Ninth Circuit rules that Dodd-Frank protects whistleblowers who report up internally, not just those who report out to the SEC.
Alert
By Bruce A. Ericson,
03.09.17
Joining the Second Circuit, and deepening a circuit split with the Fifth Circuit, the United States Court of Appeals for the Ninth Circuit has held, 2-1, that the Dodd-Frank Act’s whistleblower anti-retaliation protections and remedies do not apply just to those who disclose putative wrongdoing to the U.S. Securities and Exchange Commission, but also to those who disclose putative wrongdoing only to their bosses. The circuit split sets up a possible appeal to the Supreme Court.
Background
The Sarbanes-Oxley Act of 2002 protects both those who “report up” and those who “report out.” Indeed, in some instances, Sarbanes-Oxley encourages or requires people to report up first, before reporting out.
The Dodd-Frank Act of 2010 also protects whistleblowers, offering them different and in some circumstances potentially more attractive protections and remedies. But while Dodd-Frank purports to cover anyone covered by Sarbanes-Oxley (15 U.S.C. § 78u-6(h)(1)(A)(iii)), its definition of “whistleblower” speaks only of those who report “to the Commission” (15 U.S.C. § 78u-6(a)(6)). So if an employee reports up to her boss, but not out to the Commission, does Dodd-Frank cover her, or not?
The SEC, recognizing the issue, wrote a regulation extending Dodd-Frank’s protection to all whistleblowers—both those who report up and those who report out. 17 C.F.R. § 240.21F-2 (2011). Not surprisingly, the SEC argues that courts should grant its interpretation deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).
The Circuit Split
The Fifth Circuit says Dodd-Frank does not cover an employee who reports up, but not out. Asadi v. G.E. Energy (USA) L.L.C., 720 F.3d 620, 621 (5th Cir. 2013). The Second Circuit (2-1) says it does. Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015). Now the Ninth Circuit (also 2-1) has joined the Second Circuit. Somers v. Digital Realty Trust, ___ F.3d ___, No. 15-17352, 2017 WL 908245 (9th Cir. Mar. 8, 2017).
In a nutshell: The Fifth Circuit, and the dissenters in the Second and Ninth Circuits, say the definition of “whistleblower” is controlling and covers only those who report out. The Second and the Ninth Circuits say that denying whistleblower protection to those who report up would both nullify Section 78u-6(h)(1)(A)(iii) and violate Chevron deference.
The two circuits, relying in part on King v. Burwell, 135 S. Ct. 2480, 2489 (2015), also say that the same word can mean different things in different contexts. (King v. Burwell is the case where the Supreme Court held that the tax credits created by the Affordable Care Act are allowed to those who enroll in health care plans through either a state’s insurance exchange or a federal insurance exchange even though the statute allows the credit only to plans from “an Exchange established by the State....”) For his part, Judge Owen, dissenting in the Ninth Circuit, says “we should quarantine King and its potentially dangerous shapeshifting nature to the specific facts of that case to avoid jurisprudential disruption on a cellular level. Cf. John Carpenter’s The Thing (Universal Pictures 1982).” Somers, 2017 WL 908245, at *5. (For those who missed the movie, The Thing was a parasitic extraterrestrial lifeform that assimilated other organisms and then imitated them, making it difficult to determine who’s human and who’s not before it’s too late.)
What’s Next
For in-house counsel and advisors, especially those who reside in the Second and Ninth Circuits, the answer is easy: assume that Dodd-Frank applies and don’t retaliate against those who report up. For Supreme Court watchers, Somers offers a variety of attractions: a circuit split, a chance to extend or cabin the jurisprudence of King v. Burwell, and a chance to reconsider Chevron deference–the last being something that Supreme Court nominee Judge Neil Gorsuch reportedly is eager to do. Stay tuned.