Gorsuch Comes Out Swinging in Dodd-Frank Whistleblower Case

WASHINGTON (CN) - Justice Neil Gorsuch used a challenge to federal whistleblower protections before the Supreme Court on Tuesday to take aim at a core legal tenet of which he has long been critical.

The case at issue stems from Digital Realty Trust’s firing of Paul Somers in 2014.

Somers challenged his firing under the Dodd-Frank Wall Street Reform and Consumer Protection Act, but Digital Realty Trust contends that the law’s whistleblower protections are not applicable.

Though Somers was fired after blowing the whistle on a supervisor he accused of illegally axed certain internal controls at the company, Digital Realty Trust claimed that Somers would have needed to report his supervisor to the Securities and Exchange Commission to qualify for Dodd-Frank protections.

Deferring to how the SEC has interpreted the regulation, both the District Court and the Ninth Circuit have rejected this argument from the employer.

Gorsuch questioned this result at oral arguments Tuesday, asking how the agency could get away with such rulemaking when Dodd-Frank's text explicitly mentions only people who come to the government to report wrongdoing.

"How much clearer could they have possibly been?" Gorsuch asked.

In legal parlance, a judicial doctrine known as Chevron deference lets administrative agencies interpret their own ambiguous statutes so long as their interpretation is reasonable.

Gorsuch gained a reputation for his criticism of Chevron deference when he sat on the 10th Circuit, and the Trump nominee’s distaste for the doctrine shone through on Tuesday as he questioned why the SEC should be allowed to change the meaning of whistleblower.

In addition to not indicating that it was considering bringing retaliation protections to people who report wrongdoing internally in its notice of proposed rulemaking, the SEC did not give detailed justification for the change after the fact, Gorsuch said.

"How does all that get you Chevron?" Gorsuch asked.

In the past Gorsuch has referred to Chevron deference as a "behemoth" and "an elephant in the room." Conservatives have grown more vocal in their questioning of the doctrine recently, with the House passing a bill in January that in part aimed to stop judges from relying on Chevron.

When Assistant to the Solicitor General Christopher Michel seemed to bend to Gorsuch's view, Justice Stephen Breyer came to the doctrine's defense toward the end of the hearing.

"Are you wary of the government conceding that point?," Breyer asked. "I would be wary of that because I don't know what implications it has for other cases where, in fact, you start chipping away in an unforeseen way."

Daniel Geyser, an attorney for Somers with the Dallas firm Stris & Maher, argued that Chevron deference is a small part of why his client should be protected from retaliation under Dodd-Frank.

Geyser said it would create a "serious anomaly" if the court were to read Dodd-Frank as protecting only employees fired after reporting misconduct to the SEC.

"The entire securities framework is hinged on internal whistleblowing," Geyser said.

He argued that the Ninth Circuit rightly concluded that Congress meant Dodd-Frank to incorporate the internal whistleblower protections included in the Sarbanes-Oxley Act, a separate law Congress passed in the wake of the Enron scandal.

"It doesn't make any sense to say that people have to engage in internal reporting, yet they're unprotected when they do that," Geyser said.

But the justices seemed skeptical of his arguments, questioning why internal whistleblowers need to have the protections of Dodd-Frank when Sarbanes-Oxley already covers them, even if its rules for filing suit are less generous.

"If you want to make it tougher, which they do, it makes sense in a statute that's mostly about awards for reporting to the SEC to say it's where the SEC is directly involved that we cut out the need to exhaust, while if, in fact, you read it your way we've basically eliminated Sarbanes-Oxley because everybody would bring it under this provision," Breyer said.

Kannon Shanmugam, an attorney for Digital Realty Trust with the Washington firm Williams and Connolly, hammered this point during his arguments, saying the court should leave in place the scheme Congress crafted.

"Far from being absurd, that plain text interpretation is entirely consistent with the history and the structure of the whistleblower provisions and with Congress' overarching objective of promoting reporting to the SEC," Shanmugam said.

The two Obama nominees on the court, Justices Elena Kagan and Sonia Sotomayor, were the most critical of Digital Realty Trust's argument that Congress meant to exclude internal reporters from Dodd-Frank's whistleblower protections.

Kagan noted it is possible that Congress forgot about Dodd-Frank's definition of whistleblower when it added the retaliation section late in the legislative process.

She added Shanmugam's reading of the law could lead to the strange circumstance of someone being protected from firing just because they reported a violation a decade ago.

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