The Supreme Court limits whistleblower protections under Dodd-Frank

By S.M. | OJAI, CALIFORNIA

WHEN Paul Somers realised that Digital Realty Trust, the real-estate investment company where he was vice-president, was playing fast and loose with securities rules, including hiding $7m in cost overruns, he alerted senior management. Shortly afterwards he was sacked from his $200,000-a-year job. In 2014, Mr Somers sued the company, arguing that he should have been immune from retaliation by whistleblower protections in the Dodd-Frank Act, a 2010 package of Wall Street reforms passed in the wake of the 2008 financial crisis. The company countered that Dodd-Frank defines “whistleblower” as someone reporting misdeeds to the Securities and Exchange Commission (SEC), not to internal compliance departments. The Ninth Circuit Court of Appeals saw the law differently, but on February 21st, the Supreme Court unanimously sided with the company in Digital Realty Trust v Somers. If Mr Somers wanted his good deed to go unpunished, the nine justices agreed, he would have had to follow the rules himself.

Dodd-Frank, Justice Ruth Bader Ginsburg wrote, was not ambiguous about who qualified for whistleblower protection. “To sue under Dodd-Frank’s anti-retaliation provision”, she wrote, quoting the law, “a person must first ‘provid[e]...information relating to a violation of the securities laws to the Commission”. The reasoning was crisp. Quoting another unanimous opinion she penned in a 2008 case exploring the meaning of the phrase “federal drug offence” in the Controlled Substances Act, Justice Ginsburg noted that “‘[w]hen a statute includes an explicit definition, we must follow that definition’, even if it varies from a term’s ordinary meaning”. This guideline, she wrote, “resolves the question before us”. Mr Somers may have blown the whistle, but he was not a whistleblower under Dodd-Frank: “[A]n individual who falls outside the protected category of ‘whistleblowers’ is ineligible to seek redress under the statute, regardless of the conduct in which that individual engages.”