Supreme Court To Decide Whether Dodd-Frank Protects Internal
Whistleblowers

Do the Dodd-Frank Act’s anti-retaliation provisions protect
whistleblowers who report securities frauds or violations to
their employers, if they do not also report them to the SEC? 
This question is of particular concern to an
SEC whistleblower lawyer, who may be faced with a client who has been retaliated
against or fired by his or her employer for blowing the
whistle internally to the company.

Since at least 2013, this may be the most often-litigated
question arising under the
SEC whistleblower program.  It is a question that has split and divided many U.S.
District Courts and U.S. Courts of Appeals.

Last week, the
U.S. Supreme Court
agreed to hear and decide a case involving this very question.

Dodd-Frank’s Anti Retaliation Provisions

The actual title of the statute that codifies the SEC
whistleblower program is “Securities Whistleblower Incentives
and Protection”.  (15 U.S.C. § 78u-6.)

One subsection of the SEC whistleblower statute provides that:

No employer may discharge, demote, suspend, threaten,
harass, directly or indirectly, or in any other manner
discriminate against, a whistleblower in the terms and
conditions of employment because of any lawful act done by
the whistleblower —

• in providing information to the Commission in accordance
  with this section;
• in initiating, testifying in, or assisting in any
  investigation or judicial or administrative action of the
  Commission based upon or related to such information; or
• in making disclosures that are required or protected under
  the Sarbanes-Oxley Act of 2002, this chapter .. and any
  other law, rule, or regulation subject to the jurisdiction
  of the Commission.  (Citations omitted.)

(15 U.S.C. § 78u-6(h)(1)(A).)

An employee who believes that he or she was retaliated against
in violation of the above provisions has the right to bring a
private lawsuit in an appropriate U.S. District Court.  (15
U.S.C. § 78u-6(h)(1)(B).)

The relief available in the private lawsuit “shall include”:

• reinstatement with the same seniority status that the
  individual would have had, but for the discrimination;
• 2 times the amount of back pay otherwise owed to the
  individual, with interest; and
• compensation for litigation costs, expert witness fees, and
  reasonable attorneys’ fees.

(15 U.S.C. § 78u-6(h)(1)(C).)

The Split Among The Courts

The reason why federal courts have disagreed over the answer
to this question has to do with the language in the statute
itself.

In addition to the sections cited above, some of the
provisions in the Dodd-Frank Act and the SEC whistleblower
statute specifically mention reporting to the SEC.  Other
sections do not.

Some courts have interpreted the various sections of the
statute to mean literally what they say.  Other courts have
said that the wording, or the differences in wording from
section to section, create ambiguities with regard to what the
U.S. Congress really intended.

The SEC has written amicus briefs in several court cases
brought by employees — what are sometimes called “friend of
the court” briefs.  In those briefs, the SEC has taken the
position that the SEC whistleblower protections do apply to
employees who only blow the whistle internally to their
employers.  (See, e.g., the Brief of the Securities
and Exchange Commission Amicus Curiae in
Liu Meng Lin v. Siemens AG, 13-4385, Dkt. No. 50 (2d
Cir.), filed on Feb. 20, 2014.)

Some courts that have found the statute to be ambiguous have
deferred to the SEC’s interpretation, under what is known as
the Chevron doctrine.  Other courts have refused to
adopt the SEC’s position, and have instead made their own
interpretations.

Both the U.S. Court of Appeals for the Second Circuit and the
U.S. Court of Appeals for the Ninth Circuit have ruled that
the SEC whistleblower protections do apply to employees who
blow the whistle internally, even if the employees do not
report to the SEC.

The U.S. Court of Appeals for the Fifth Circuit took the
opposite view.  According to the Fifth Circuit, if an employee
only reports the violations internally and does not blow the
whistle to the SEC, then the Dodd-Frank anti-retaliation
provisions will not protect that employee.  As interpreted by
the Fifth Circuit, the anti-retaliation provisions only
protect employees who blow the whistle to the SEC.

The Supreme Court Case

The case from the Ninth Circuit was
Somers v. Digital Realty Trust, Inc.  In that case,
the Ninth Circuit agreed with the Second Circuit that the SEC
whistleblower protections apply even if the employee only
reported internally to his or her employer.

The Ninth Circuit specifically disagreed with and refused to
follow the Fifth Circuit.

Digital Realty petitioned the U.S. Supreme Court to hear its
appeal of the case.  The question presented by Digital Realty
to the Supreme Court was:

Whether the anti-retaliation provision for “whistle-blowers”
in the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 extends to individuals who have not reported
alleged misconduct to the Securities and Exchange Commission
and thus fall outside the Act’s definition of a
“whistleblower.”

To resolve the question dividing the federal courts, on June
26, 2017, the
Supreme Court granted
Digital Realty’s petition.

The Supreme Court will hear arguments in the case sometime
during the Court Term that begins in October 2017.

Needless to say, this is a case that will be watched closely
by employees, SEC whistleblower attorneys, and employers
alike.

* * *

About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on
representing clients involved with investigations conducted by
the U.S. Securities and Exchange Commission, FINRA, and other
securities regulators.

The Pickholz Law Offices has represented employees, officers,
and others in SEC whistleblower cases involving financial
institutions and public companies listed in the Fortune Top
10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global
2000. We were the first law firm ever to win an SEC
whistleblower award for a client on appeal to the full
Commission in Washington. Inside Counsel magazine named this
achievement one of the five key events of the SEC
whistleblower program. Examples of the
Firm’s SEC whistleblower cases are available here.

In addition to representing SEC whistleblowers, since 1995 the
Firm’s founder, Jason R. Pickholz, has also represented many
clients in securities enforcement investigations conducted by
the SEC, FINRA, the U.S. Department of Justice and US
Attorney’s Offices, State authorities, and more. Examples of
some of the many
securities enforcement cases that Mr. Pickholz has been
involved with are available here.

You can see what actual clients have had to say about The
Pickholz Law Offices by going to the
Client Reviews page on our website or by clicking here.

How to Contact the Pickholz Law Offices LLC

If you would like to speak with a securities lawyer or SEC
whistleblower attorney, please feel free to call Jason R.
Pickholz at 347-746-1222.

The Pickholz Law Offices remains open and will be fully
operational through teleworking while we all grapple with this
terrible pandemic. We hope that all of our clients,
colleagues, friends, and their families remain safe and
healthy. Our thoughts and prayers go out to everyone who has
been affected by COVID-19.