Digital Realty Trust, Inc. v. Somers

WHAT IS THE SCOPE OF “WHISTLEBLOWER” UNDER A TEXTUAL INTERPRETATION OF THE DODD-FRANK ACT?

DRT claims that the definition of a protected whistleblower is unambiguous when looking at the text of the anti-retaliation provision of the Dodd-Frank Act. DRT claims that the statute—which defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [Securities and Exchange] Commission” —“unambiguously” protects only individuals who have reported a violation to the SEC. DRT argues that precedent requires the Court to follow any definition contained within a statute, even if it varies from a word’s regular usage. DRT relies on Lamie v. United States Trustee in asserting that even “awkward” or “ungrammatical” definitions must be followed when unambiguous.

Somers contends that DRT’s reliance on the statute is misplaced, as Congress directed the Securities and Exchange Commission (“SEC”) to interpret the statute. Somers argues that the statute itself does not foreclose a broad definition of “whistleblower.” Additionally, Somers claims that the statutory definition relied on by DRT does not necessarily apply to the separate anti-retaliation provision. To support his assertion, Somers relies on the lack of capitalization of the term “whistleblower” in the anti-retaliation provision, as well as the lack of reference to the general definitional provision of the statute. Somers argues that the anti-retaliation provision’s reference to the Sarbanes-Oxley Act—which does not require reporting to the SEC as part of its whistleblower definition—indicates Congress intended a plain-meaning definition. Somers also points to Congress’s repeated use of “whistleblower,” “individual,” and “employee” interchangeably within the Dodd-Frank Act in arguing that the anti-retaliation provision was not using DRT’s claimed definition because Congress used the plain language meaning of “individual” and “employee” in the statute.

WHAT IS THE SCOPE OF “WHISTLEBLOWER” ACCORDING TO THE LEGISLATIVE HISTORY OF THE DODD-FRANK ACT?

DRT asserts that the legislative history of the Dodd-Frank Act requires a narrow definition of “whistleblower” under the anti-retaliation provision. DRT argues that Congress intended the Dodd-Frank Act to help direct information about securities laws violations specifically to the SEC. DRT rejects the argument that Congress intended to protect a broad class of people by relying on Congress’s change in the language from an early draft of the statute which protected “an employee, contractor, or agent” to the final statute which protects “whistleblower[(s)].” DRT contends that a broad interpretation of whistleblower would be the restoration of already rejected statutory language.

Somers argues that the legislative history of the Dodd-Frank Act supports a common-definition reading of “whistleblower.” Somers contends that the provision at issue is intended to protect “a vulnerable class,” while preventing unlawful conduct. Somers maintains that the late insertion of the anti-retaliation provision was not meant to limit this protection. Somers suggests that the change in language from “employers, contractors, and agents” to “whistleblower” is not dispositive because the statute would cover the same class of persons under either language. Somers claims that DRT’s reliance on the legislative record is misplaced because the comments of which DRT relies were made prior to the addition of the anti-retaliation provision.

WHAT IS THE SCOPE OF “WHISTLEBLOWER” ACCORDING TO THE UNDERLYING STATUTORY SCHEME?

DRT argues that the statutory scheme surrounding the anti-retaliatory provision supports a narrow definition of “whistleblower.” DRT contends that the award and protection components of the Dodd-Frank Act work in conjunction, and that the award provision’s focus on information provided to the SEC should extend to the anti-retaliation provision of the Act. DRT asserts that providing protection for reports other than to the SEC would unnecessarily separate the award and protection schemes. DRT also argues that the use of broader language in other provisions of the Act supports a narrowed interpretation of “whistleblower” in the anti-retaliation provision. In support, DRT cites to Loughrin v. United States, which held that the Court is to presume a difference in meaning when the particular language between provisions of the same statute differ. DRT also maintains that the narrow definition of “whistleblower” better compliments another whistleblowing statute, the Sarbanes-Oxley Act. DRT argues that the Sarbanes-Oxley Act applies to non-SEC-directed whistleblowing, and that Congress intentionally limited the remedy for such whistleblowing in the Dodd-Frank Act. DRT contends that should the Court read the Dodd-Frank Act—which lacks many of the limits found in the Sarbanes-Oxley Act—as applying to whistleblowing beyond SEC reporting, it would render the Sarbanes-Oxley limitations toothless, thereby destroying the complimentary nature of the two Acts.

Somers argues that a narrow definition of whistleblower within the anti-retaliation statute is irreconcilable with the statutory scheme. Somers contends that providing protection under Dodd-Frank solely to SEC whistleblowing would frustrate the internal whistleblowing objective of the Sarbanes-Oxley Act. Somers also asserts that the lack of protection for internal whistleblowing is inconsistent with federal laws requiring internal disclosure prior to external disclosure; to hold otherwise, Somers suggests, would force an employee to risk retaliation as a precondition to receiving protection as an external whistleblower. Additionally, Somers contends that a broad reading of “whistleblower” would not render Sarbanes-Oxley obsolete, as claimed by DRT. In support, Somers points to several reasons why a whistleblower might prefer the protections of the Sarbanes-Oxley Act, including the reduced stress and costs of having the SEC pursue the claim (rather than the whistleblower under Dodd-Frank) and the availability of special damages (not permitted under Dodd-Frank).

DOES THE SEC’S INTERPRETATION OF “WHISTLEBLOWER” DESERVE DEFERENCE?

DRT claims that the Ninth Circuit erred in deferring to the SEC’s interpretation of the anti-retaliation provision. DRT argues that deference was not proper because, in addition to the provision’s unambiguity, there were procedural defects in the adoption of the SEC’s interpretation. DRT maintains that under Chevron v. Natural Resources Defense Council, an agency is only allowed to choose between competing, reasonable interpretations of ambiguous statutes and is not permitted to rewrite unambiguous statutes. Here, DRT asserts that the statute unambiguously defines whistleblowers as those who have reported potential violations to the SEC. Even if the statute was ambiguous, DRT contends that the SEC failed to give the required fair notice when it changed its interpretation of the word “whistleblower.” DRT argues that by not giving notice that the definition of “whistleblower” was up for consideration, the change from a narrow to broad definition did not meet the requirements of the Administrative Procedure Act (“APA”). DRT argues that because the two interpretations are incompatible, the logical-outgrowth exception to the notice requirement does not apply. DRT also claims that explanations for decisions made during rulemaking are required under the APA and that the SEC failed to provide any explanation for choosing the broader the definition when they promulgated the regulation at issue. In support, DRT points to the SEC’s later clarification of their rationale and notes the Court may only consider what the SEC relied upon at the time of the rulemaking. DRT contends that given these procedural defects, the SEC regulation is entitled to deference as much as it has the “power to persuade.” DRT argues that given the lack of explanation for the initial regulation, the SEC rule has no “power to persuade” and is therefore not entitled to deference.

Somers counters that the Court should give deference to the SEC’s interpretation. The Court should not review DRT’s procedural defect claims, Somers argues, because DRT did not raise the issue in a lower court. Somers asserts that because DRT’s APA claims are not being used defensively and are not related to arguments raised in the lower courts, they are not reviewable per Chaidez v. United States. Somers contends that even should the Court consider DRT’s APA claims, they are time-barred and also fail on the merits. Somers argues that there was sufficient notice during the SEC’s rulemaking because the final regulation was a logical outgrowth of the proposed regulation. Somers, relying on precedent upholding similar changes from initial to final rules in other cases, argues that such a change in direction does not violate the requirement of fair notice, especially as the SEC received comments pertaining the definition of “whistleblower.” Somers also believes that reading the SEC’s rule in its entirety makes the agency’s rationale discernible, satisfying the explanation requirement. According to Somers, even should the Court find a procedural defect, the interpretation is still entitled to Chevron deference, which favors the SEC definition.