The Supreme Court of the United States has ruled that the whistleblower protections of the Dodd-Frank Act (the “Act”) only apply to individuals who report problems to the U.S. Securities and Exchange Commission (the “SEC”).
Background: The Act
Passed in the wake of the 2008 financial crisis, the Act aims to promote the financial stability of the U.S. by improving accountability and transparency in the financial system. To assist the SEC in identifying securities law violations, the Act established a robust whistleblower program designed to motivate individuals who know of securities law violations to inform the SEC. Recognizing that whistleblowers often face the difficult choice between telling the truth and “committing career suicide,” Congress sought to protect whistleblowers from employment discrimination and retaliatory actions.
Thus, the Act permits a whistleblower to sue a current or former employer for such alleged acts directly in federal district court, with a default statute of limitations period of six (6) years. If successful, a qualifying whistleblower is entitled to a cash award of ten to thirty percent of the monetary sanctions collected in the enforcement action.
The Case: Digital Realty Trust Inc. v. Somers
Digital Realty involved Paul Somers (“Somers”), who worked for San Francisco-based Digital Realty Inc., a real-estate investment trust that owns data centers all over the world. Somers served as vice president when he made accusations to senior managers that his boss had hidden millions of dollars in cost over-runs, granted no-bid contracts and made payments to friends, among other claims. Somers was fired as a result. He sued, arguing that his firing was a retaliation that violated the Act.
The issue presented to the Supreme Court was whether the anti-retaliation provisions of the Act extend to an individual who had not reported a violation of securities law to the SEC.
Despite the SEC’s broad interpretation of the term “whistleblower” and Somers’ initial success in the lower courts, the Supreme Court unanimously held that the whistleblower protection in the Act only covers those individuals who report securities law violations to the SEC. Writing for the Court, Justice Ginsburg stated, “Dodd-Frank’s text and purpose leave no doubt about who the term ‘whistleblower’ applies.” In other words, because Somers failed to report his boss’s securities violations to the SEC, the Court determined that Somers was not entitled to the protections provided by the Act’s anti-retaliation provisions.
The Impact
For individuals like Somers, the Digital Realty case highlights the importance of the need for competent legal counsel. Had Somers informed the SEC of his boss’s securities violations before filing suit in federal district court, then he would not have been rendered ineligible for relief under the Act.
For corporations and other business entities, the Digital Realty case represents an additional protections that limit their potential liability from an already expansive whistleblower protection scheme.
About the Authors
Brian P. Williams, a Co-Managing Partner at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Indiana, has practiced business litigation, economic development, contract and employment litigation, real estate, estate planning and trust litigation for over 30 years. He brings a keen understanding of people and organizations to his legal practice. Brian is an effective advocate for his clients in the court room or at the mediation table, as well as an effective advocate for a new business seeking to locate in this community. Honed from service as a private practitioner, federal magistrate, industrial foundation officer, federal law clerk, and civic leader, Brian’s analytical skills empower clients to more swiftly reach durable solutions.
J.R. Trockman, an attorney at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, is a proactive attorney who often serves clients in the business, construction, healthcare, insurance and real estate industries with matters including contract review, business formation, public design-build contracts, debt collection and subrogation. His strong research and time management skills benefit clients, as do his responsiveness, consistency and fair-mindedness.
