The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), 12 U.S.C. §§ 5301, et seq., prohibits an employer from retaliating against a person who provides information to the Securities and Exchange Commission ("SEC") consistent with Dodd-Frank, the Sarbanes-Oxley Act ("Sarbanes-Oxley"), 15 U.S.C. §§ 7201, et seq., or any other statute, regulation, or rule within the SEC’s authority. The part added by Dodd-Frank to the legal regime, Section 21F, describes whistleblowing conduct as giving information to the SEC.
Based on its authority to interpret and enforce Dodd-Frank, the SEC promulgated a regulation, 17 C.F.R. § 240.21F-2(b)(ii), that incorporated the Sarbanes-Oxley definition of whistleblowing conduct such that protected activity under Dodd-Frank includes an internal disclosure to a whistleblower's employer by a whistleblower. More recently, the SEC issued an interpretive rule, 80 Fed. Reg. 47,829 (Aug. 4, 2015), to reiterate that whistleblowing conduct under Dodd-Frank includes an internal disclosure to a whistleblower's employer in addition to an external disclosure to the SEC. Consistent with the rationale underlying the United States Supreme Court's liberal application of anti-retaliation protection generally, the SEC reasoned that a broad definition of protected activity under Dodd-Frank enhances enforcement efforts against corporate fraud and, thus, promotes the public interest.
The Ninth Circuit Court of Appeals, in the case just now decided by the United States Supreme Court, (Digital Realty Trust, Inc. v. Somers, 850 F. 3d 1045 (9th Cir. 2017)), and the Second Circuit Court of Appeals, in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2nd Cir. 2015), followed the SEC's interpretation of Dodd-Frank. The Fifth Circuit Court of Appeals, in Asadi v. G.E. United States LLC, 720 F.3d 620 (5th Cir. 2013), did not follow the SEC’s interpretation. Importantly, the rulings by the Ninth Circuit and Second Circuit Courts of Appeals follow a long line of Supreme Court cases that take a pro-plaintiff – and, therefore, pro-enforcement – approach to whistleblower and other retaliation claims. Such cases involving whistleblowing or otherwise retaliating employers include Dep’t of Homeland Security v. MacLean, 135 S.Ct. 913, 920-24 (2015) (in an opinion authored by Chief Justice John Roberts, ruling that the whistleblowing conduct at issue was protected activity even though the whistleblowing conduct violated a Federal regulation), Kasten v. Saint-Gobain Perform. Plastics Corp., 563 U.S. 1, 4-5 (2011) (holding that the anti-retaliation provision of the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq., protects employees who merely make an oral rather than a written complaint about unpaid wages), and Thompson v. North Amer. Stainless, LP, 562 U.S. 170, 173-75 (2011) (in a unanimous opinion announced by Justice Antonin Scalia, concluding that adverse action against a third party can support a retaliation claim asserted by a plaintiff).
Against the well established trend in whistleblower and other retaliation cases, the Supreme Court in Digital Realty adopted a narrow definition of protected activity that can support whistleblower claims under Dodd-Frank regarding corporate fraud. Specifically, a unanimous Supreme Court ruled that the anti-retaliation protections under Dodd-Frank only apply to whistleblowers if they report apparent legal violations to the SEC rather than to their employers, to Federal agencies besides the SEC, or to Congress. This unfortunate decision will likely embolden those intent on committing fraud and underscores the importance of whistleblowers reporting potential violations directly and immediately to the SEC with the help of private counsel.