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Supreme Court Hands Corporate America A “Win” in Dodd-Frank Retaliation Matter, but It May Be a Loss in the Long Run

February 23, 2018

On February 21, 2018, the Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers __ U.S. __, No. 16-1267 (February 21, 2018), a retaliation case brought by a former employee of Digital under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Somers claimed his former employer terminated him in retaliation for reporting suspected securities law violations to his employer. It was undisputed that Somers never reported the alleged violations to the Securities and Exchange Commission (“SEC”). Digital Realty moved to dismiss the action, contending that, unlike other whistleblower protections statutes, such as the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), Dodd-Frank requires the whistleblower to report the alleged violations to the Commission in order to receive the “whistleblower” protections. Both the federal district court and the Ninth Circuit refused to dismiss Somers’ complaint. In order to address a split in the circuits on the issue, the Court reviewed the issue.

In a plainly, but strongly written opinion, Justice Ginsburg held that Dodd-Frank’s explicit definition of “whistleblower” unequivocally requires the individual to provide information relating to a violation to the SEC. 15 U.S.C. §78u-6. Finding the language to be clear, the Court refused to defer to the SEC’s interpretation of the statute and as well as their rules (issued under rulemaking authority granted by Congress) and was dismissive of their amicus brief arguing that the Court’s interpretation was inconsistent with the rule and would eviscerate the intent of the Act. Writing for the majority, Justice Ginsburg states “we find the statute’s definition of “whistleblower” clear and conclusive” __ U.S. __, No. 16-1267 (February 21, 2018) at p. 18. Accordingly, the Court reversed the decision of the Ninth Circuit plainly stating that to be a “whistleblower” under Dodd-Frank, one must report alleged wrongdoing directly to the SEC.

While a win for Digital in that this case will be dismissed, and, at first glance, a win for corporate America, the longer term ramifications are likely to be less friendly. In response to this decision, potential whistleblowers under Dodd-Frank will almost certainly be far more willing to report issues directly to the SEC rather than first going to management. As a consequence, companies will likely lose the opportunity to address with an employee what may be perfectly legal conduct and/or correct what may be correctable. Instead, companies are far more likely to hear first directly from the SEC, which is likely to create issues that require much more time and expense to address.

If you have any questions about the information in this alert, please contact Jonathan Feld (312-627-5680 or jfeld@dykema.com), Butch Hulse (210-554-5280 or whulse@dykema.com), or your Dykema relationship attorney.

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