Ninth Cir. Holds that Dodd-Frank Act Also Grants Whistleblower Protection to Those Who Make Internal Complaints

Somers v. Digital Realty Trust, 3/8/17, 9th Cir

Does the Dodd-Frank Act (DFA) protect whistleblowers who report potential illegal behavior internally and not to the SEC?  District and circuit courts are divided on this issue — for example, the Fifth Cir. says, No; and the Second says, Yes.  Plaintiff was fired after he complained internally to his employer that it was engaging in possible securities violations. He sued his former employer for wrongful termination, claiming the company had violated the anti-retaliation section of the Dodd-Frank Act. The company filed a motion to dismiss.  The district court denied the motion and certified the issue for interlocutory appeal.  Held: Affirmed.

Congress enacted the Sarbanes-Oxley Act in 2002 to curb securities abuses (think Enron).  As part of that, Sarbanes-Oxley grants whistleblower protection to those who lawfully provide information to federal agencies, Congress, or “a person with supervisory authority over the employee.”  Dodd-Frank was enacted six years later after the 2008 economic meltdown, and is meant to “protect consumers from abusive financial services practices.”  The DFA added additional whistleblower protection to the Securities Exchange Act, in what is called section 21F.  

And so to the nub: In the definitions contained in section 21F, the DFA defines a whistleblower and someone who complains to the SEC.  Because making a complaint with the SEC is integral to the DFA’s definition of “whistleblower,” courts like the Fifth Cir. hold that a mere internal complaint is not enough to create a private right of action for people who are terminated after making an internal complaint.

But later in section 21F, protection is not only given to those who provide information to the SEC, but to those who make disclosures that are protected under Sarbanes-Oxley.  Sarbanes-Oxley protects people who make internal complaints as well as those who complain to the SEC.  It is hard to discount this explicit reference to Sarbanes-Oxley.  And as Ninth Cir. says, the approach adopted by Fifth would read the later section out of the statute.  

Where does the SEC — the agency charged with enforcing securities laws — stand?  It adopted a rule in 2011 that supports the broader construction, and therefore sides with Second and Ninth Cir.