Source: http://www.paulhastings.com/publication-items/details/?id=57ec186a-2334-6428-811c-ff00004cbded
Timestamp: 2019-04-25 23:55:31+00:00

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The Dodd-Frank Act’s whistleblower protections cannot be expanded beyond the statute’s explicit language, notwithstanding Securities and Exchange Commission (“SEC”) guidance to the contrary, a unanimous Supreme Court has held. Digital Realty Trust v. Somers, No. 16–1276, 2018 U.S. LEXIS 1377 (Feb. 21, 2018). Rejecting Chevron[i] deference to the agency’s expansive interpretation of the term “whistleblower,” the unanimous Court has held that the Act’s plain language limits its protections to instances in which the individual seeking protection has reported perceived securities law violations directly to the SEC. Complaints directed elsewhere may trigger protections under other statutes (such as the Sarbanes-Oxley Act of 2002), but the extensive and less cumbersome whistleblower remedies available under Dodd-Frank apply only to those who contact the SEC. By taking this plain-language approach to the case, the Digital Reality decision avoids, or at least delays, a confrontation over the continuing vitality of Chevron deference, a confrontation many had expected to see in the case with the confirmation of Justice Neil Gorsuch.
In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to bolster the SEC’s ability to regulate the securities industry. One “core objective” of the Act was “to motivate people who know of securities law violations to tell the SEC.”[ii] Dodd-Frank accomplished this goal by providing these individuals—defined as “whistleblowers” under the statute—with monetary awards and by protecting them from retaliation by their employer. Until Digital Realty, doubt existed as to who qualified as a Dodd-Frank “whistleblower” and therefore qualified for this employment protection.
Paul Somers was a Vice President of Portfolio Management for Digital Realty, a real estate investment trust, from 2010 to 2014. While in that role, Somers came to believe that his supervisor Kris Kumar was committing a number of securities transgressions including “hiding seven million dollars in cost overruns.”[iii] Although Somers did not alert the SEC to these actions, he did voice his concerns to the company’s officers and directors. Shortly after raising these complaints, Somers was terminated.
The Ninth Circuit’s conclusion—that Dodd-Frank’s anti-retaliation provision protects those who raise either internal or external complaints—was consistent with a prior ruling out of the Second Circuit.[vi] The Fifth Circuit, however, had held that only a report to the SEC qualified one as a Dodd-Frank whistleblower.[vii] The Supreme Court granted review to resolve the conflict.
Although Digital Realty delivers much needed clarity on the scope of Dodd-Frank’s anti-retaliation protections, its practical impact will be relatively limited. Employers must still refrain from retaliatory actions based on internal complaints, in part because those complaints can still trigger liability under another federal or state law, or a state common-law doctrine.[xv] Moreover, if and when employers receive an internal complaint, they should assume that the SEC has already been informed. In all cases, employers should consider retaining outside counsel to determine next steps, including a timely investigation and response.
Indeed, Digital Realty may well increase employer compliance risks by encouraging employees to report suspected wrongdoing directly to the SEC instead of voicing those concerns internally with their employer. Employers should revisit their policies, procedures, and protocols (including complaint procedures and whistleblower hotlines) to ensure that employees can raise concerns—and that the employer can respond to them—regardless of what laws might be implicated by the allegations. As always, Paul Hastings will keep its clients apprised as circumstances change.
[i] Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
[ii] 2018 U.S. LEXIS 1377, at *19.
[iii] Somers v. Digital Realty Trust, Inc., 119 F.Supp.3d 1088, 1092 (N.D. Cal. 2015), aff’d 850 F.3d 1045 (9th Cir. 2017).
[v] See 17 C.F.R. § 240.21F-2(b) (2017).
[vi] Berman v. NEO@OGILVY LLC, 801 F. 3d 145 (2d Cir. 2015).
[vii] Asadi v. G.E. Energy, 720 F. 3d 620 (5th Cir. 2013).
[viii] Digital Realty, 2018 U.S. LEXIS 1377.
[ix] 15 U.S.C. § 78u-6(a)(6) (emphasis added).
[x] Digital Realty, 2018 U.S. LEXIS 1377, at *18-19.
[xii] Id. at *30 (citations omitted).
[xv] See, e.g., Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A (prohibiting certain employers from discriminating against employees who report misconduct to the SEC).

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