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Petitioner Files Brief in Supreme Court Whistleblower Case

anne.tompkins@cwt.com's picture
Commentary by Anne Tompkins

On August 24, 2017, petitioner Digital Realty Trust, Inc. ("Digital Realty") filed its brief on the merits in Digital Realty Trust, Inc. v. Somers. The Supreme Court took up Digital Realty's petition for certiorari in late June, following the Ninth Circuit's ruling that employees who report securities violations internally, but not to the SEC, are nonetheless protected by the anti-retaliation provision in Dodd-Frank. Somers v. Digital Realty Tr. Inc., 850 F.3d 1045 (9th Cir. 2017). The Supreme Court will now resolve a two-year old circuit split in determining whether Dodd-Frank protections apply to internal whistleblowing (a position adopted by the Ninth Circuit, Second Circuit, and the SEC itself), or whether such protections apply only to whistleblowers who report violations directly to the SEC, as was found by the Fifth Circuit in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620, 621 (5th Cir. 2013).

In its brief, Digital Realty's chief argument centers around Dodd-Frank's statutory language defining a whistleblower as an "individual who provides . . . information relating to a violation of the securities laws to the [Securities and Exchange] Commission" (15 USC 78u-6). Digital Realty argues that this definition excludes employees, such as Digital Realty Trust Vice President Paul Somers, who did not make any reports to the SEC and, thus, are not whistleblowers entitled to protection under the statute. Digital Realty contrasted the Dodd-Frank provision with the broader statutory language of the Sarbanes-Oxley whistleblower protections, which cover all employees who engage in whistleblowing internally and to the SEC. Digital Realty also argued that the SEC, which has adopted a broad whistleblower rule protecting internal employee reporting, should not be given deference where the statutory language is clear and the SEC's rulemaking process was flawed.

Mr. Somers has until October 10, 2017 to file a brief.

Commentary

Publicly traded companies have been working hard for years to develop strong internal compliance programs. This case highlights corporate concerns regarding the significant added protections provided under Dodd-Frank for the internal whistleblower. These include fighting the expansion of protections for internal whistleblowers such as the longer statute of limitations (three years versus 180 days) and the potential for higher damages (double back pay upon a finding of retaliation). However, a win in the Supreme Court for the whistleblower could have advantages for companies as well. If Somers prevails, employees would be further incentivized to report wrongdoing internally, given the additional protections under Dodd-Frank. The benefit of having an employee report internally rather than be incentivized to go directly to the SEC should not be underestimated. A company's ability to retain the control to independently learn of misconduct through an internal whistleblower program and remediate it, while keeping the ability to self-report when necessary, may outweigh any downside under the additional Dodd-Frank protections. Should they prevail in the U.S. Supreme Court, Digital Realty Trust's win may be a mere Pyrrhic victory.

This comment was co-authored by Alexander Hokenson.

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