February 22, 2018- Dodd Frank Anti-Retaliation Protection only applies to Employees who tell the SEC

On February 21, 2018, the U. S. Supreme Court in it decision Digital Realty Trust Inc. v. Somers (1), answered the question does the anti-retaliation provisions of the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) extend to a discharged employee who reported a potential securities violation to his employer but did not report the violation to the U. S. Securities Exchange Commission (“SEC”). The Court answered that the Dodd Frank provisions does not apply to the employer because no reports were made to the SEC.

Somers alleged that he was fired by Digital Realty Trust shortly after reporting to senior management suspected securities law violations by the company. Somers subsequently sued Digital in federal court for retaliation. Digital motion to dismiss that Somers was not a whistleblower under Section 78u-6(h) of Dodd Frank because he failed to notify the SEC about the securities law violations was denied by the district court. The Ninth Circuit Court of Appeals, affirming the district court, concluded that Dodd Frank does not require that a notification to the SEC prior to gaining “whistleblower” status, and it deferred to the SEC’s Rule 21F 1-17, under Chevron USA v. National Resources Defense Council, Inc. (2)

Two other Circuit had previously addressed the same issue. The Fifth Circuit in Asadi v. GE Energy LLC (3), decided that the employee must provide information to the SEC to prevail in a retaliation action. The Second Circuit held the opposite that notification to the SEC was not necessary to assert the protections of the SEC whistleblower protections.(4)

The Court relied Dodd Frank Section 78u–6 that defines a “whistleblower” as “any individual who provides . . . in¬formation relating to a violation of the securities laws to the Commission, in a manner established, by rule or regu¬lation, by the Commission.” The Court rejected Somers’ argument the whistleblower definition applies only to the statute’s award program, not to its anti-retaliation provision. However, the Court said that if a statute provides a definition, courts must follow the statutory definition, even if, the definition is different from the term’s ordinary meaning. The Court felt that Somers’ position varied from the core objective of Dodd Frank’s robust whistleblower program as to motivate people to report securities law violations to the SEC.

In practice, Digital now forces an employee to report a potential securities law violation to the SEC before or at least at the same time the employee informs his employer. The employer must be careful how it treats the employee who may be followed the proper procedure to ensure that the anti-whistleblower protections are applicable. Very careful attention must be paid by both the employee and employer in these circumstances. Companies will be more at risk from a SEC inquiry that most likely will increase Company costs.

(1) Digital Realty Trust Inc. v. Somers, No. 16-1276, decided February 21, 2018.
(2) 467 U.S. 837
(3) 720 F.3rd 620 (2013)
(4) Berman v. NEO@OGILVY LLC, 801 F. 3rd

This document has been prepared by Despo Law Group for informational purposes only and is not offered as legal advice. The information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. This information is not intended to be a source for legal advice, and thus the reader should not rely on any information provided as such.

William A. Despo, Esq.
Despo Law Group
36 Bingham Avenue
Rumson, NJ 07760

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