Supreme Court Interprets Dodd-Frank Whistleblower Protections: Implications for Securities Law and Beyond

Legal Sidebari

Supreme Court Interprets Dodd-Frank
Whistleblower Protections: Implications for
Securities Law and Beyond
March 8, 2018
On February 21, 2018, the Supreme Court decided in Digital Realty Trust, Inc. v. Somers that the anti-
retaliation protections in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(Dodd-Frank) apply only to whistleblowers who report suspected securities law violations to the
Securities and Exchange Commission (SEC or Commission). In so doing, the Court rejected a more
expansive reading of Dodd-Frank that would have extended its whistleblower protections to those who
report securities violations internally within their organization and suffer retaliation, even if they did not
take the additional step of reporting to the SEC. The ruling not only has potentially important implications
for the nature and quantity of potential whistleblower actions brought under federal securities law, but
Digital Realty also provides broader insights into the Supreme Court’s current approach toward statutory
interpretation.
The details of the Digital Realty case and the circuit court split leading up to the Court’s review are
discussed in a prior Sidebar. In short, the respondent Somers argued that Dodd-Frank whistleblower
protections applied to his reports of suspected securities law violations to upper management at Digital
Realty, even though he only reported internally and not to the SEC. While the Sarbanes-Oxley Act of
2002 (SOX) already affords employees certain anti-retaliation protections for internal reporting, Dodd-
Frank provides more generous protections for “whistleblowers,” including the ability to file suit directly
in federal district court without first exhausting an administrative process, a longer statute of limitations,
and recovery of double back-pay with interest. Digital Realty hinged on whether Dodd-Frank protects a
narrower class of individuals than SOX based on Dodd-Frank’s definition of the term “whistleblower.”
The relevant section of Dodd-Frank defines a “whistleblower” as “any individual who provides . . .
information relating to a violation of the securities laws to the Commission.” However, setting up the
parties’ dispute, Dodd-Frank’s anti-retaliation provision also prohibits an employer from discriminating
against a “whistleblower” who, among other things, makes “disclosures that are required or protected
under” SOX. Because SOX, in turn, protects internal reporting, Somers argued that the Dodd-Frank
provision encompassed internal reporters as well.
Congressional Research Service
https://crsreports.congress.gov
LSB10093
CRS INSIGHT
Prepared for Members and
Committees of Congress

---

Congressional Research Service
2
The Supreme Court unanimously held that the definition of “whistleblower” provided “an unequivocal
answer” that resolved the case, affirming the principle that “[w]hen a statute includes an explicit
definition, we must follow that definition.” The Court distinguished the case from prior instances in
which it did not hold a statutory definition to control because, unlike those cases, the results here would
not be incongruous with Congress’s regulatory scheme. Namely, the Court emphasized several times
throughout its opinion that the purpose of the enhanced whistleblower provision was “to motivate people
who know of securities law violations to tell the SEC,” quoting a Senate Report regarding Dodd-Frank.
Moreover, the Court rejected Somers’s arguments that requiring reporting to the SEC to qualify as a
“whistleblower” would lead to results incompatible with Congress’s intent. For example, the Court
reasoned that the Dodd-Frank anti-retaliation provision’s reference to SOX would still be meaningful
under the narrower definition because it would protect those who report both internally and to the SEC,
but incur retaliation for the internal report. The Court observed that such a scenario may in fact be
commonplace because, as data from the SEC presented to the Court showed, approximately 80% of those
receiving SEC whistleblower awards in 2016 had indeed reported internally before making their
complaints to the SEC.
The ultimate impact of Digital Realty’s more narrow scope for Dodd-Frank’s whistleblower provisions is
unclear. In supporting the petitioner’s arguments in Digital Realty, notable amici like the U.S. Chamber of
Commerce favored the narrower whistleblower definition because, in their view, an expansive definition
encompassing internal reporters would have allowed for a greater quantity of costly whistleblower suits to
be filed against companies in federal court, while spurning internal and administrative processes set up by
SOX. However, commentators have also noted that the Court’s ruling may have the practical effect of
incentivizing whistleblowers to report complaints directly to the SEC instead of attempting resolutions to
complaints internally, potentially leading to increased regulatory action and greater costs for companies.
Digital Realty also provides several statutory interpretation takeaways. In addition to affirming the
importance of a statute’s definitions section, as noted above, the Digital Realty decision also presented an
opportunity for the Supreme Court to revisit—and differ on—the propriety of considering legislative
history when interpreting statutory language. While concurring that the “whistleblower” definition
controlled the outcome of the case, Justice Thomas, joined by Justices Alito and Gorsuch, wrote
separately regarding their disagreement with the Court opinion’s reliance on the Senate Report in
interpreting the definition of whistleblower. Rather, they “join[ed] the Court’s opinion only to the extent it
relies on the text of Dodd-Frank,” elaborating that the language of a statute enacted by Congress should
ultimately control, rather than potentially unreliable documents explaining congressional intent. Justice
Sotomayor, on the other hand, authored another concurring opinion, joined by Justice Breyer, in which
she stressed that it is appropriate to look to legislative history as an interpretive aid, “even when, as here,
a statute’s meaning can clearly be discerned from its text,” in order to confirm and enhance the Court’s
understanding of the language. In these respects, the Digital Realty case has potentially broad import for
Congress in considering how courts may view statutory definitions and legislative history.


Author Information

Nicole Vanatko

Legislative Attorney

---

Congressional Research Service
3


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
LSB10093 · VERSION 2 · NEW

---