To read the Ninth Circuit’s
decision in Digital Realty
Trust, Inc. v. Somers, pleaseclick here.

Report from Washington
Supreme Court Considers Who Counts as a
“Whistleblower” Under the Dodd-Frank Act’s
Anti-Retaliation Protections
November 29, 2017

Introduction
On November 28, 2017, the U.S. Supreme Court heard oral arguments in Digital Realty
Trust, Inc. v. Somers, No. 16-1276. Digital Realty asks the Court to consider if the antiretaliation protections created by the Dodd-Frank Act (“Dodd-Frank”) apply to an employee
who makes internal disclosures of allegedly wrongful activity, but does not report the activity
to the Securities and Exchange Commission (“SEC”), a question which has split the circuitcourts.
Dodd-Frank was enacted by Congress in 2010 to “promote the financial stability of theUnited States by improving accountability and transparency in the financial system.” To thisend, Section 922 of Dodd-Frank, codified as Section 21F of the Securities Exchange Act of1934, defined the term “whistleblower” and created new rewards and employment
protections for securities whistleblowers.
Section 21F(a) defines a whistleblower as “any individual who provides…information relating
to a violation of the securities laws to the Commission, in a manner established, by rule orregulation, by the Commission.” 15 U.S.C. 78u-6(a)(6) (emphasis added). Section 21F’s antiretaliation provision goes on to prohibit employers from firing or penalizing employees who,among other things, “mak[e] disclosures that are required or protected under the SarbanesOxley Act of 2002.” In certain situations, Sarbanes-Oxley requires internal reporting before
external reporting (e.g., auditors must inform management of any potentially illegal acts andmay only bring their concerns to the SEC after this internal reporting has occurred). In 2011,
the SEC promulgated a rule construing Section 21F, which interpreted the term
“whistleblower” to include employees who make only internal disclosures of potentiallywrongful activity.

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Report from Washington – November 29, 2017

2Background
Paul Somers was employed by Digital Realty as a Vice President from 2010 to 2014. Digital
Realty is a real estate investment trust that owns, develops, and manages technology-related
real estate, such as data centers. Somers alleges that he made several reports to the firm’s
senior management about possible securities law violations and that, in response, he wasfired by the company. Somers did not report his concerns to the SEC before he wasterminated. He sued Digital Realty, arguing that the firm violated the anti-retaliation
protections created by Dodd-Frank when it fired him.
Digital Realty moved to dismiss the case, asserting that because Somers only reported thealleged violations internally and not to the SEC, he was not a “whistleblower” per Dodd“The ordinary
whistleblower is protectedunder Sarbanes-Oxley. He
just has to have someexhaustion. And it’s ashorter statute oflimitations. And if you
want to make it tougher,
which [Congress does], itmakes sense in a statutethat’s mostly about awards
for reporting to the SEC tosay it’s where the SEC isdirectly involved.”— Justice Breyer

Frank and thus was not entitled to the Act’s protections. The District Court for the Northern
District of California denied Digital Realty’s motion, concluding that tension between DoddFrank’s “whistleblower” definition and its anti-retaliation provisions rendered the statutesufficiently ambiguous so as to require deference to the SEC’s interpretation.
The District Court found that a “large majority” of courts that have considered Dodd-Frank’s
whistleblower provisions “have found ambiguity in the interplay between [the definitionsection and the anti-retaliation provisions].” The court then analyzed the statutory text, andconcluded that Dodd-Frank’s “narrow definition of whistleblower cannot easily be reconciledwith [Section 21F’s] seemingly expansive scope.” The court therefore held that the SEC’sregulation was entitled to Chevron deference. The Chevron doctrine requires courts to deferto an agency’s interpretation of ambiguous language in a statute which the agency is charged
with enforcing, unless the agency’s interpretation is unreasonable. Following the denial ofthe motion to dismiss, Digital Realty was permitted to bring an interlocutory appeal.
Two circuit courts had previously considered the appropriate scope of Dodd-Frank’s
whistleblower protections before this case reached the appellate level. In Asadi v. G.E.
Energy (USA), L.L.C., the Fifth Circuit found for GE, holding that Dodd-Frank’s definition ofwhistleblower “expressly and unambiguously requires that an individual provide information
to the SEC to qualify as a ‘whistleblower’ for purposes of [Section 21F].” 720 F.3d 620, 623(5th Cir. 2013). By contrast, two years later in Berman v. Neo@Ogilvy LLC, the Second
Circuit concluded that the “tension” between Section 21F’s definition of whistleblower andthe anti-retaliation provisions is “as a whole sufficiently ambiguous to oblige us to give
Chevron deference to the reasonable interpretation of the agency charged with administering
the statute [i.e. the SEC].” 801 F.3d 145, 155 (2d Cir. 2015).

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Report from Washington – November 29, 2017

3In Digital Realty, the Ninth Circuit agreed with the Second Circuit and affirmed, noting that
the SEC regulation is “consistent with Congress’s overall purpose to protect those who reportviolations internally as well as those who report to the government.” 850 F.3d 1045, 1047
(9th Cir. 2017). Further, the court disagreed with the contention, raised by Digital Realty
and in Asadi, that if Dodd-Frank is held to protect the same conduct that Sarbanes-Oxley
does, this renders the Sarbanes-Oxley enforcement scheme moot. The court reasoned thatthe two schemes are sufficiently different, noting that “Sarbanes-Oxley lacks Dodd-Frank’s
double damage provision, has a shorter statute of limitations, and has more extensive
administrative requirements.” The court went on to describe circumstances in which theSarbanes-Oxley protections “may be more attractive to the whistleblowing employee” than“It’s quite possible…
[Congress] forgot about thisdefinitional provision, andthey were meaning it morein the ordinary-language
sense. But…it says what itsays. And it says that it
applies to this section. And
you have to have a really,
really severe anomaly to getover that.”— Justice Kagan

those offered by Dodd-Frank.
To resolve the circuit split and determine the applicable scope of Dodd-Frank’s whistleblower
protections, the Supreme Court granted Digital Realty’s petition for a writ of certiorari onJune 26, 2017.

Oral Argument Highlights
Oral argument focused primarily on two issues. First, the Court considered whether to apply
Dodd-Frank’s definition to both the Act’s rewards and anti-retaliation provisions, as opposed
to just the Act’s rewards provisions. Second, the Court evaluated the extent to which it ought
to defer to the SEC’s promulgated regulation if the statutory language is indeed determined
to be ambiguous.
Which Definition of “Whistleblower” Applies?
Digital Realty contended that the statutory definition applied, “by its plain terms,” to theentirety of Dodd-Frank’s whistleblower provisions. This reading, counsel for the company
claimed, is “entirely consistent” with Congress’s intent to increase the incentives forreporting violations of securities laws to the SEC. Moreover, the legislative history supports
this view, as an earlier version of the anti-retaliation provisions “reached all employees,” butwas revised to apply just to “whistleblowers.” Digital Realty noted that the Sarbanes-Oxley
regime offers protections to employees who only make internal disclosures of potentiallywrongful activity, and that Congress did not intend to render these protections superfluouswith the enactment of Dodd-Frank. Citing the “elephant-in-a-mousehole” doctrine, Digital
Realty argued that Congress would not have intended to create an “all-purpose antiretaliation” regime through the use of ancillary provisions.

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Report from Washington – November 29, 20174

The United States, participating as amicus curiae to defend the SEC’s regulatory definition,
disagreed with Digital Realty, asserting that the statutory definition applied to Dodd-Frank’srewards provisions, while the ordinary meaning of “whistleblower” applied to the retaliation
provisions. Further, there is a “unity of interest” among employees, employers, and the SEC
in protecting and strengthening internal reporting and compliance. Counsel for Somers
emphasized that Dodd-Frank must be read as being consistent with the entire securities law
framework, which is designed to respond to the conduct of employers rather than themechanism through which an employee discloses potentially wrongful conduct. Finally,
Somers’ advocate noted that Dodd-Frank was designed to strengthen, not contradict, theSarbanes-Oxley regime, and that adopting petitioner’s reading of the statute would frustrate
this purpose.
The Justices evaluated the circumstances under which the Court should or could depart from
Dodd-Frank’s definition of “whistleblower.” Justice Sotomayor noted she was “not surethere’s a natural reading [or ordinary meaning]” of the word “whistleblower.” JusticeGorsuch exclaimed that he was “just stuck on the plain language” of the text, wondering “howmuch clearer could Congress have been?” Chief Justice Roberts noted that, even if Congress
inadvertently created an anomalous situation, the Court could not move beyond a clearly
defined term unless a failure to do so would “make a mess of the whole thing.” Justice
Breyer questioned if Dodd-Frank creates an anomaly at all, noting that internal
whistleblowers still get Sarbanes-Oxley protections. Based on the questions posed, many of
the Justices appeared wary of setting aside the Dodd-Frank definition based on thesupposedly anomalous situations described by Somers and the government.
How Much Deference Should the SEC’s Opinion Receive?
The Justices also questioned the parties about why the SEC’s promulgated rule defining
whistleblower should be accorded Chevron deference. Justice Gorsuch, agreeing with DigitalRealty, noted that when seeking public comment on its proposed rule, the SEC suggested it
would be issuing a rule-making “with respect to whistleblowers who report to theCommission.” However, the agency’s final rule suggested, without any explanation, thatreporting to the Commission would not be required for Dodd-Frank’s anti-retaliation
provisions to apply.
Counsel for Somers contended that the SEC “specifically asked for comments about whether
to broaden or change the definition of whistleblower for the purposes of the anti-retaliation[provisions].” Respondent further noted that, in a public comment in response to theproposed rule, the Association of Corporate Counsel noted their assumption that internal

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Report from Washington – November 29, 20175whistleblowers would also be covered by Dodd-Frank. The government added that under the“logical outgrowth test” adopted by the Supreme Court, an agency “proposing ‘X’ and getting‘not-X’ is enough to satisfy” the requirements of the test.
However, some of the Justices seemed unconvinced by these arguments. Justice Breyer
suggested that receiving notice that the SEC will be defining what counts as having provided“I’m just stuck with theabsence of any fair notice,an ipse dixit decision,
without any reasons thatwouldn’t normally passmuster under the APA.”— Justice Gorsuch

information to the Commission “does not put people on notice that [the SEC is] going toapply [the definition] to people who don’t provide information to the Commission,” adding “Imean, that’s English, I would think.” After the government’s logical outgrowth assertion,
Justice Sotomayor asked, “Bottom line…how much are you relying just on Chevron deference
here?” Given the skepticism expressed by the Justices, it is unclear that a majority of theCourt believes the SEC’s definition of “whistleblower” should be accorded deference in thiscase.

Implications
The Court’s decision in Digital Realty could have significant implications for corporate
compliance and internal whistleblowers. In its 2017 Annual Whistleblower Report toCongress, the SEC indicated that over 80% of whistleblowers who received SEC awards
under Dodd-Frank since 2012 first reported the alleged wrongdoing internally, and thenmade disclosures to the SEC. A holding that Dodd-Frank does not protect employees who
only make internal reports could lead to an increase in the number of direct reports to theSEC, or could have a chilling effect on whistleblowing more broadly. Additionally, theCourt’s decision may also help clarify the extent to which the SEC’s interpretations of DoddFrank, Sarbanes-Oxley, and other securities laws will receive deference from the courts.

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Report from Washington – November 29, 20176For further information about this decision, please contact one of the following members of
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