Everything you need to know about ranked-choice voting in one spot. Click to learn more!

Digital Realty Trust v. Somers

From Ballotpedia
Jump to: navigation, search

Supreme Court of the United States
Digital Realty Trust v. Somers
Term: 2017
Important Dates
Argument: November 28, 2017
Decided: February 21, 2018
Outcome
Ninth Circuit reversed
Vote
9 - 0 to reverse
Majority
Chief Justice John G. Roberts • Anthony Kennedy • Clarence Thomas • Ruth Bader Ginsburg • Stephen Breyer • Samuel Alito • Sonia Sotomayor • Elena Kagan • Neil Gorsuch
Concurring
Clarence Thomas • Samuel Alito • Neil Gorsuch • Sonia Sotomayor • Stephen Breyer


Digital Realty Trust Inc. v. Somers is a case argued during the October 2017 term of the U.S. Supreme Court. Argument in the case was held on November 28, 2017. The case came on a writ of certiorari to the United States Court of Appeals for the 9th Circuit.

The issue in this case was about whether employees who submit internal reports of possible securities violations to senior management are afforded the same whistleblower protections under federal law as those who submit reports externally to the Securities and Exchange Commission (hereafter, SEC). The case had generated a split among federal appeals courts, and the U.S. Supreme Court will often hear an appeal in order to address differences in interpretation among federal courts under Rule 10 of the court's rules of procedure.

HIGHLIGHTS
  • The case: Paul Somers was fired by Digital Realty Trust after internally reporting potential securities violations to senior management, but not externally to the Securities and Exchange Commission (SEC). Though the operative federal law defined a whistleblower solely in the context of someone providing possible securities violations to the SEC, a subsequent SEC regulation expanded protection to those who reported internally as well. Digital Realty, relying on the statutory definition, moved to dismiss the case. Applying Chevron deference to the SEC regulation, a federal district court and a divided three-judge panel of the Ninth Circuit denied Digital Realty's motion.
  • The issue: Do the whistleblower protections afforded under federal law to those who report possible securities violations externally to the Securities and Exchange Commission also apply to those who report possible securities violations internally to the senior management of publicly traded companies?
  • The outcome: Ninth Circuit reversed.


    • In brief: In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which expanded existing protections for whistleblowers under Section 21F of the Securities Exchange Act of 1934. Under Section 21F, whistleblowers were defined as employees who reported possible securities violations to the Securities and Exchange Commission (SEC). A subsequent SEC regulation expanded protection to those who reported potential violations to senior management internally as well. Such internal disclosures were mandated by the Sarbanes-Oxley Act of 2002 and, in many instances, were required prior to an employee externally reporting to the SEC or another federal agency. Paul Somers was fired by Digital Realty Trust after internally reporting potential securities violations to senior management, but not to the Securities and Exchange Commission (SEC). Somers filed a lawsuit in a federal district court. Digital Realty, relying on Section 21F's statutory definition, moved to dismiss the case, arguing that Somers did not report externally to the SEC and, therefore, he was not afforded whistleblower protections. Such a view was consistent with a 2013 ruling of the Fifth Circuit. On appeal, a divided three-judge panel of the Ninth Circuit upheld the district court's denial of dismissal. Citing a 2015 precedent of the Second Circuit, the panel majority held that the SEC regulation was to be afforded Chevron deference and held that Section 21F's whistleblower protections must be extended to those who report possible securities violations internally to senior management as well as externally to the SEC. Argument in the case was held on November 28, 2017. On February 21, 2018, the United States Supreme Court reversed the decision of the Ninth Circuit.[1]

    You can review the lower court's opinion here.[2]

    Background

    This was a case about whether employees who submit internal reports of possible securities violations to senior management are afforded the same whistleblower protections under federal law as those who submit reports externally to the Securities and Exchange Commission (hereafter, SEC).

    Legal background

    Prior to 2010, two federal laws mandated internal reporting of possible securities violations to senior management in publicly traded companies. The Securities Exchange Act of 1934 required internal reporting to management by a company's auditors and the Sarbanes-Oxley Act of 2002 required internal reporting to management by a company's lawyers. Sarbanes-Oxley further required companies to maintain internal compliance systems for anonymous reporting and provided whistleblower protection against corporate retaliation. Additionally, Sarbanes-Oxley provided express protection to "those who lawfully provide information to federal agencies, Congress, or 'a person with supervisory authority over the employee.'"[2]

    In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (hereafter, DFA). DFA added a new section to the Securities Exchange Act of 1934, Section 21F. Section 21F provided incentives and protection for whistleblowers. Under Section 21F, a whistleblower was defined as "any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission." The Commission in this definition referred to the SEC.[2]

    A specific provision in Section 21F, subsection iii, stated,[2]

    “

    No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower ... (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 ... and any other law, rule, or regulation subject to the jurisdiction of the Commission.[3]

    		”

    Case background

    Paul Somers served as a vice president of Digital Realty Trust from 2010 to 2014. According to a complaint filed in federal district court, Somers internally reported potential securities law violations to senior management at the company, after which he was fired. Somers did not report the company's potential violations to the SEC prior to his termination. Digital Realty moved to dismiss Somers' case, arguing that, because Dodd-Frank only put explicit provisions in place under Section 21F to protect those who reported possible violations to the SEC and not to those who reported possible violations internally, DFA's whistleblower protections were inapplicable to Somers.[2]

    Such a view was consistent with an interpretation of Section 21F used by the Fifth Circuit Court of Appeals in a 2013 case, Asadi v. G.E. Energy (USA). In that case, the Fifth Circuit held that if DFA "protected the same conduct that Sarbanes-Oxley did, then the Sarbanes-Oxley enforcement scheme would be rendered moot or superfluous, on the theory that no one would use it." Based on this understanding, the Fifth Circuit held that DFA limited whistleblower protection only to those who reported externally to the SEC and not to those who reported internally.[2]

    In this case, the district court adhered to the reasoning of the Second Circuit Court of Appeals in extending DFA's whistleblower protections to those who reported internally to senior management as well as externally to the SEC. In a 2015 case, Berman v. Neo@Ogilvy LLC, the Second Circuit afforded Chevron deference to a SEC [1] that interpreted Dodd-Frank's protections as being applicable to those who report suspected violations either internally or to the SEC.[2]

    Digital Realty appealed the district court's denial of its motion to dismiss the case to the United States Court of Appeals for the 9th Circuit. A three-judge panel of the Ninth Circuit composed of Judges Mary Schroeder, Kim McLane Wardlaw, and John B. Owens heard the appeal. In a divided 2-1 decision, the panel affirmed the district court's judgment. Writing for the panel, Judge Schroeder noted that the panel majority's decision adhered to the Second Circuit's reasoning regarding section 21F, subsection (iii). Relying in part on the U.S. Supreme Court's determination in King v. Burwell that "the use of a term in one part of a statute 'may mean [a] different thing []' in a different part, depending on context," Judge Schroeder held that DFA's definition of whistleblower as an employee who reports to the SEC "should not be dispositive of the scope of DFA's later anti-retaliation provision."[2]

    In upholding the district court's judgment, Judge Schroeder wrote,[2]

    “

    We conclude that subdivision (iii) of section 21F should be read to provide protections to those who report internally as well as to those who report to the SEC. We also agree with the Second Circuit that, even if the use of the word 'whistleblower' in the anti-retaliation provision creates uncertainty because of the earlier narrow definition of the term, the agency responsible for enforcing the securities laws has resolved any ambiguity and its regulation is entitled to deference ... The regulation accurately reflects congressional intent that DFA protect employees whether they blow the whistle internally, as in many instances, or they report directly to the SEC.[3]

    		”

    Dissenting opinion

    Judge John B. Owens wrote a dissenting opinion for himself in the case. He wrote, "I agree with the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C., ... and Judge Jacobs’ dissent in Berman v. Neo@Ogilvy LLC, ... and therefore respectfully dissent. Both the majority here and the Second Circuit in Berman rely in part on King v. Burwell, ... to read the relevant statutes in favor of the government’s position. 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."[2]

    Petitioner's challenge

    Digital Realty Trust, the petitioner, challenged the holding of the Ninth Circuit. Digital Realty Trust argued that the Ninth and Second Circuits erroneously interpreted the intent of Congress' protections for whistleblowers under the Dodd-Frank Act in extending whistleblower protections to employees who internally report potential securities violations to senior management.

    Certiorari granted

    On April 25, 2017, Digital Realty Trust, the petitioner, initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the United States Court of Appeals for the 9th Circuit. The U.S. Supreme Court granted Digital Realty Trust's request for certiorari on June 26, 2017. Argument in the case was held on November 28, 2017.[4]

    Question presented

    Question presented:

    "Whether the anti-retaliation provision for 'whistleblowers' in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 extends to individuals who have not reported alleged misconduct to the Securities and Exchange Commission and thus fall outside the act’s definition of 'whistleblower.'"[4]

    Audio

    • Audio of oral argument:[5]



    Transcript

    • Transcript of oral argument:[6]

    Outcome

    In a 9 -0 ruling, the United States Supreme Court reversed the decision of the Ninth Circuit.[1]

    Opinion of the court

    Writing for the court, Justice Ruth Bader Ginsburg ruled that the statute clearly limited the type of protection at issue to employees who reported violations to the SEC. Quoting an earlier Supreme Court case, Ginsburg wrote, "When a statute includes an explicit definition, we must follow that definition, even if it varies from a term’s ordinary meaning. This principle resolves the question before us."[1] She continued:

    “ The definition section of the statute supplies an unequivocal answer: A 'whistleblower' is 'any individual who provides . . . information relating to a violation of the securities laws to the Commission.' §78u–6(a)(6) (emphasis added). Leaving no doubt as to the definition’s reach, the statute instructs that the 'definitio[n] shall apply' '[i]n this section,' that is, throughout §78u–6. §78u–6(a)(6).


    The whistleblower definition operates in conjunction with the three clauses of §78u–6(h)(1)(A) to spell out the provision’s scope. The definition first describes who is eligible for protection—namely, a whistleblower who provides pertinent information 'to the Commission.' §78u–6(a)(6). The three clauses of §78u–6(h)(1)(A) then describe what conduct, when engaged in by a whistleblower, is shielded from employment discrimination. See §78u–6(h)(1)(A)(i)–(iii). An individual who meets both measures may invoke Dodd-Frank’s protections. But an 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.[1][3]

    		”

    Ginsburg also considered the legislative history of the Dodd-Frank Act, particularly a Senate Report. Based on the legislative history, she concluded that the "core objective' of Dodd-Frank’s robust whistleblower program" was "to motivate people who know of securities law violations to tell the SEC." That history, she wrote, further supported the court's reading of the statute's language.[1]

    Concurrence by Justice Thomas

    Justice Clarence Thomas concurred in the court's judgment and in the part of the court's opinion focused on the language of the statute. Justices Samuel Alito and Neil Gorsuch joined Thomas' concurrence. Thomas objected to the Court's consideration of legislative history. Quoting an opinion by the late Justice Antonin Scalia, Thomas wrote:

    “ Even assuming a majority of Congress read the Senate Report, agreed with it, and voted for Dodd-Frank with the same intent, 'we are a government of laws, not of men, and are governed by what Congress enacted rather than by what it intended.'...And 'it would be a strange canon of statutory construction that would require Congress to state in committee reports...that which is obvious on the face of a statute.'[1][3] ”

    Thomas concluded, "For these reasons, I am unable to join the portions of the Court’s opinion that venture beyond the statutory text."[7]

    Concurrence by Justice Sotomayor

    Justice Sonia Sotomayor concurred in the court's judgment and opinion in full. She wrote separately, joined by Justice Stephen Breyer, "to note my disagreement with the suggestion in [Justice Thomas'] concurrence that a Senate Report is not an appropriate source for this Court to consider when interpreting a statute." She continued:

    “ Legislative history is of course not the law, 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...[C]onfirming our construction of a statute by considering reliable legislative history shows respect for and promotes comity with a coequal branch of Government...I do not think it wise for judges to close their eyes to reliable legislative history—and the realities of how Members of Congress create and enact laws—when it is available.[1][3] ”

    Text of the opinion

    See also

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 United States Supreme Court, "Digital Realty Trust v. Somers" Opinion, February 21, 2018
    2. ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 U.S. Court of Appeals for the Ninth Circuit, Paul Somers v. Digital Realty Trust Inc. and Ellen Jacobs, March 8, 2017
    3. ↑ 3.0 3.1 3.2 3.3 3.4 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    4. ↑ 4.0 4.1 Supreme Court of the United States, Digital Realty Trust, Inc. v. Somers, June 26, 2017
    5. ↑ Supreme Court of the United States, Digital Realty Trust v. Somers, argued November 28, 2017
    6. ↑ Supreme Court of the United States, Digital Realty Trust, Inc., v. Paul Somers, argued November 28, 2017
    7. ↑ Cite error: Invalid <ref> tag; no text was provided for refs named SCOUTS
    Retrieved from "https://ballotpedia.org/wiki/index.php?title=Digital_Realty_Trust_v._Somers&oldid=8891772"