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Dodd-Frank Provides Broad Whistleblower Protection, 9th Cir. Rules

By Casey C. Sullivan, Esq. | Last updated on

The Ninth Circuit has weighed in on a growing circuit split over Dodd-Frank's whistleblower protections, reading the statute broadly to encompass internal whistleblowers as well as those who work with the SEC.

The case stems from a lawsuit brought by Paul Somers, former VP of Digital Realty Trust, Inc., a data center company. Somers suit alleges that he was fired after reporting potential securities law violations to the company's senior management. He accused the company of violating Section 21F of the Exchange Act, which includes the whistleblower protections established by Dodd-Frank.

Law's Whistleblower Protections Not Limited by Definition of Whistleblower

Section 21F provides explicit protections to whistleblowers who disclose potential violations to the SEC and to those who qualify as whistleblowers under the Sarbanes-Oxley Act. But Sarbanes-Oxley also protects internal whistleblowers, and in fact requires internal reporting in several cases. The other anti-retaliation provisions of the Dodd-Frank Act do not apply to internal whistleblowers, though, and Dodd-Frank specifically defines whistleblowers as employees who report "to the Commission."

Does that mean that the Dodd-Frank Act limits its whistleblower protections to those who meet its formal definition?

No, the Ninth ruled. Such a "narrow" interpretation "would make little practical sense and undercut congressional intent," the court explained.

"We agree with the district court that the regulation is consistent with Congress's overall purpose to protect those who report violations internally as well as those who report to the government," Judge Mary M. Schroeder wrote.

The ruling puts the Ninth in line with the Second Circuit, as well as the SEC's interpretation of the law. "We agree with the Second Circuit," the court explained, that "the agency responsible for enforcing the securities laws has resolved any ambiguity and its regulation is entitled to deference."

The Fifth Circuit, however, has taken a different interpretation, noting that Sarbanes-Oxley lacks Dodd-Frank's double damage provision and has broader administrative requirements.

From Whistleblowers to Parasitic Aliens

The ruling was not unanimous, however. Judge John B. Owens issued a brief dissent. He noted that the Second Circuit and the majority here had both relied on King v. Burwell, the 2015 Supreme Court case upholding Obamacare's tax credit system, for the proposition that "the use of a term in one part of a statute 'may mean a different thing' in a different part".

In my view, we should quarantine King and its potentially dangerous shapeshifting nature to the specific facts of that case to avoid jurisprudential disruption on a cellular level. Cf. John Carpenter's The Thing (Universal Pictures 1982).

For those of you who haven't seen "The Thing" in awhile, here's a quick refresher:

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