Digital Reality Trust, Inc. v. Somers

138 S.Ct. 767 (2018)

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Nature of the Case

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Facts

Congress passed the Sarbanes-Oxley Act of 2002, and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Both Acts shield whistleblowers from retaliation. Sarbanes-Oxley applies to all “employees” who report misconduct to the SEC, any other federal agency, Congress, or an internal supervisor. Dodd-Frank defines “whistleblower” to mean a person who provides “information relating to a violation of the securities laws to the SEC.” Sarbanes-Oxley applies to all “employees” who report misconduct to the SEC, any other federal agency, Congress, or an internal supervisor. 18 U. S. C. §1514A(a)(1). A whistleblower is eligible for an award if the original information he or she provides to the SEC leads to a successful enforcement action. The whistleblower is protected from retaliation for “making disclosures that are required or protected under” Sarbanes-Oxley, the Securities Exchange Act of 1934, the criminal anti-retaliation proscription at 18 U. S. C. §1513(e), or any other law subject to the SEC’s jurisdiction. 15 U. S. C. §78u-6(h)(1)(A)(iii). Congress authorized the SEC “to issue such rules and regulations as may be necessary or appropriate to implement the provisions of [§78u-6] consistent with the purposes of this section.” The SEC issued final rules. Rule 21F-2 contains two discrete “whistleblower” definitions. See 17 CFR §240.21F-2(a)-(b) (2017). For rewards “you are a whistleblower if . . . you provide the Commission with information . . . relating to a possible violation of the Federal securities laws.” The information must be provided to the SEC through its website or by mailing or faxing a specified form to the SEC Office of the Whistleblower. “For purposes of the anti-retaliation protections,” “you are a whistleblower if . . . you possess a reasonable belief that the information you are providing relates to a possible securities law violation” and “you provide that information in a manner described in” clauses (i) through (iii) of §78u-6(h)(1)(A). 17 CFR §240.21F-2(b)(1)(i)-(ii). “The anti-retaliation protections apply, whether or not you satisfy the requirements, procedures, and conditions to qualify for an award.” §240.21F-2(b)(1)(iii). An individual may therefore gain anti-retaliation protection as a “whistleblower” under Rule 21F-2 without providing information to the SEC, so long as he or she provides information in a manner shielded by one of the anti-retaliation provision’s three clauses. Digital (D) is a real estate investment trust that owns, acquires, and develops data centers. D employed Somers (P) as a Vice President from 2010 to 2014. P alleges that D terminated him shortly after he reported to senior management suspected securities-law violations by the company. P did not alert the SEC prior to his termination. P did he file an administrative complaint within 180 days of his termination. This rendered him ineligible for relief under Sarbanes-Oxley. P sued D claiming whistleblower retaliation under Dodd-Frank. D moved to dismiss that claim, arguing that “P does not qualify as a ‘whistleblower’ under [§78u-6(h)] because he did not report any alleged law violations to the SEC.” The District Court denied the motion. Rule 21F-2, the court observed, does not necessitate recourse to the SEC prior to gaining “whistleblower” status under Dodd-Frank. Finding the statutory scheme ambiguous, the court accorded deference to the SEC’s Rule under Chevron. A divided panel of the Court of Appeals for the Ninth Circuit affirmed. The majority acknowledged that Dodd-Frank’s definitional provision describes a “whistleblower” as an individual who provides information to the SEC itself. But it applied the anti-retaliation provision. It reasoned, that the statute would protect employees only if they “reported possible securities violations both internally and to the SEC. Such dual reporting, the majority believed, was unlikely to occur. The majority concluded, the statute should be read to protect employees who make disclosures privileged by clause (iii) of §78u-6(h)(1)(A), whether or not those employees also provide information to the SEC. Thus, the SEC’s resolution of any statutory ambiguity warranted deference. I