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.”

Justice Ginsburg might have stopped there, on the tenth leaf of her 19-page opinion. But she went on to offer further evidence that the strict, report-to-the-SEC understanding of “whistleblower” was what Congress had in mind when passing Dodd-Frank in 2010. Quoting a Senate committee report—a plain-English document circulated to legislators several days before they vote that summarises and explains the purpose of a bill under consideration—Justice Ginsburg noted that the “‘core objective’ of Dodd-Frank’s robust whistleblower program...is ‘to motivate people who know of securities law violations to tell the SEC’”. With that additional piece of evidence, the majority opinion concluded, “Dodd-Frank’s text and purpose leave no doubt” that Mr Somers is “ineligible to seek relief” under its umbrella.

Though every member of the court signed on to the judgment, Justice Ginsburg’s final move citing the committee report ignited a small but telling tiff between two subsets of jurists. Justice Clarence Thomas, joined by Justices Samuel Alito and Neil Gorsuch, wrote separately to explain their disdain for the majority’s turn to legislative history. “Even assuming a majority of Congress read the Senate report, agreed with it, and voted for Dodd-Frank with the same intent”, Justice Thomas wrote, “‘we are a government of laws, not of men, and are governed by what Congress enacted rather than by what it intended”. Dubious of the strategy of divining a law’s purpose from extra-legislative sources, Justice Thomas noted he was “unable to join the portions of the court’s opinion that venture beyond the statutory text”.

In response, Justice Sonia Sotomayor, joined by Justice Stephen Breyer—who has written extensively on the merits of gleaning meaning from the legislative record—refuted the three conservative justices’ just-the-text-ma’am approach. “Legislative history is of course not the law”, she wrote, “but that does not mean it cannot aid us in our understanding of a law. Just as courts are capable of assessing the reliability and utility of evidence generally, they are capable of assessing the reliability and utility of legislative-history materials.” She then called committee reports “particularly reliable source[s]” for rounding out a sense of what Congress had in mind when it voted for a bill. The inquiry may be particularly useful when a “statute is ambiguous or deals with especially complex matters”, but even a more cut-and-dried case like Digital Realty Trust benefits from “consulting reliable legislative history...as it enables us to corroborate and fortify our understanding of the text”.

The spirit of Justice Antonin Scalia, who died two years ago this month, lingers in this sparring over the wisdom of looking to legislative history. A strict textualist, Justice Scalia would have had choice words for the citations of committee reports. Taking up that mantle, Justice Thomas cited his former colleague’s cheeky opinion in 1985 of a circuit-court judge quoting a senator who announced that a committee report “is not the law...and we should discipline ourselves to the task of expressing congressional intent in the statute.” He also quoted a former Senate staffer for whom drafting committee reports was “like being a teenager at home while your parents are away for the weekend: there was no supervision”. Not to be outdone, Justice Sotomayor looked back to Republican Senator Charles Grassley’s comment at Mr Scalia’s confirmation hearings in 1986: “Legislative history is very important to those of us here who want further detailed expression of that legislative intent”. These duelling references to decades-old remarks suggest the court’s divide over extra-statutory sources for understanding statutes isn’t likely to bridged any time soon—even in cases where the outcome is clear to all.