On February 21, 2018, in the case of Digital Realty Trust, Inc. v. Somers, No. 16-1276, the United States Supreme Court ruled that the anti-retaliation protections of the Dodd-Frank Wall Street Reform and Consumer Protection Act are only available to whistleblowers who report violations to the Securities and Exchange Commission.

Congress passed the Sarbanes-Oxley and Dodd-Frank Acts to root out corporate fraud. To do so each statute protects whistleblowers from retaliation by their employers. Dodd-Frank, however, provides greater protections.
 
Sarbanes-Oxley’s anti-retaliation provisions clearly extend to individuals who report violations of securities laws internally or to authorities besides the SEC. Whether Dodd-Frank’s whistleblower protections extended to people who did not report to the SEC had been less clear.
 
The circuit courts were split on the issue. The Fifth Circuit, which was the first to address the issue, ruled that Dodd-Frank only protected whistleblowers who report to the SEC. However, the Second and Ninth Circuits then ruled otherwise.
 
The U.S. Supreme Court agreed to review the Ninth Circuit’s decision to resolve the split. And in Digital Realty Trust v. Somers, the Court unanimously held that Dodd-Frank’s anti-retaliation provisions did not extend to the respondent—who reported suspected securities law violations to senior management but did not report them to the SEC.
 
The Court based its holding on both the text and purpose of the Dodd-Frank Act. Justice Ginsburg, writing for the Court, pointed out that Dodd-Frank defines a whistleblower as “any individual who provides…information relating to a violation of securities law to the Commission.” This definition, according to Justice Ginsburg, resolved the question before the Court.
 
Justice Ginsburg also stated that Dodd-Frank’s purpose and design corroborated the Court’s holding. The core objective of Dodd-Frank’s whistleblower program was to motivate people who know of securities law violations to tell the SEC. She contrasted Dodd-Frank’s purpose with that of Sarbanes-Oxley. Sarbanes-Oxley had a more far-reaching objective—to disturb the corporate code of silence that discouraged employees from reporting fraudulent behavior not only to authorities but internally. Thus, Sarbanes-Oxley covers internal whistleblowers.
 
The Court also addressed an issue of particular concern for lawyers and other employees who may be required to report violations internally. In-house counsel, for example, are required by Sarbanes-Oxley to report possible violations up-the-ladder within the company. The Court’s response was that they could still be shielded by Dodd-Frank if they report violations to the SEC after reporting internally. While acknowledging this could leave certain individuals vulnerable, the Court pointed out that this result was consistent with Congress’ aim to encourage SEC disclosures.
 
The Court also dismissed what had been a main rationale for the Second and Ninth Circuits in holding that Dodd-Frank protected internal whistleblowers – namely, that Dodd-Frank was ambiguous and that in such a case the courts should defer to the SEC’s interpretive rule, which extended protections to employees who did not report to the SEC. But, according to the Court, there was no ambiguity in Dodd-Frank’s definition of a whistleblower and thus, no need to defer to the SEC’s contrary interpretation of the term.
 
Corporate officials and lawyers who advise corporations or employees should become familiar with this important decision. It clarifies certain steps that both companies and their employees should take when concerns arise about possible securities law violations.