Supreme Court Decides Scope of Dodd-Frank Whistleblower Protection
On February 21, 2018, the Supreme Court of the United States reversed the Ninth Circuit and federal district court rulings in a unanimous 9-0 decision in Digital Realty Trust v. Somers. The issue presented before the Court was whether the anti-retaliation provision of the Dodd-Frank Act extends to a whistleblower who does not report a violation of securities laws to the Securities and Exchange Commission (SEC). Discussed in a previous blog post, the Dodd-Frank Act requires that the SEC pay monetary awards to whistleblowers who provide the SEC voluntary information regarding potential securities laws violations.
In the unanimous opinion, the Court did not stray beyond the actual text of the Dodd-Frank Act in holding that whistleblower recovery under the statute requires an individual to actually report suspected securities violations to the SEC. The Court noted that the “core objective” of the Dodd-Frank Act’s whistleblower protection is “to motivate people who know of securities law violations to tell the SEC.” In rejecting the plaintiff’s contention that Dodd-Frank should be read broadly to protect ordinary whistleblowers who do not report violations to the SEC, the Court emphasized that the plain reading of the statute provides a clear Congressional purpose to protect “a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC disclosure.”
Accordingly, the Court found the text of Dodd-Frank “clear and conclusive.” The decision in Digital Realty resolved a split in the circuit Court of Appeals’ application of the anti-retaliation provision of Dodd-Frank. It is now clear that in order to be afforded the heightened whistleblower protection under Dodd-Frank, individuals must report potential securities violations directly to the SEC.
Implications For Whistleblowers
The Court’s narrow definition of whistleblower under Dodd-Frank differs from the ordinary definition of whistleblower under the Sarbanes-Oxley Act of 2002. While Dodd-Frank protection is limited to those who report misconduct directly to the SEC, someone who reports misconduct internally will still be afforded protection under Sarbanes-Oxley. However, the protections differ substantially. Under Dodd-Frank, a whistleblower is afforded greater protection, which includes immediate access to federal courts, a six year statute of limitations, and the recovery of double back pay. Conversely, under Sarbanes-Oxley, a whistleblower is required to file an administrative complaint within 180-days of termination, must exhaust all administrative remedies, and is limited only to the recovery of backpay with interest.
Thomas & Solomon represents whistleblowers. Contact us for a confidential evaluation of your situation.