WASHINGTON (CN) – A securities whistleblower must alert regulators to benefit from federal anti-retaliation protections, the Supreme Court ruled Wednesday, dealing a blow to a man who reported issues internally.
Paul Somers brought the underlying lawsuit in California after he accused a supervisor at Digital Realty Trust of illegally axing certain internal controls at the real estate investment company.
Though the District Court advanced the action, and the Ninth Circuit affirmed last year, Wednesday’s reversal by the Supreme Court says Somers would have needed to report his supervisor to the Securities and Exchange Commission to qualify for protections under the Dodd-Frank Act.
“Courts are not at liberty to dispense with the condition — tell the SEC — Congress imposed,” Justice Ruth Bader Ginsburg wrote for the mostly unanimous court.
With the U.S. solicitor general supporting his position, Somers argued that Digital Realty Trust’s reading of the the anti-retaliation provision would gut “much of the [law’s] protection.”
“The plain-text reading of the statute undoubtedly shields fewer individuals from retaliation than the alternative proffered by Somers and the solicitor general,” Ginsburg conceded. “But we do not agree that this consequence ‘vitiate[s]’ clause (iii)’s protection, or ranks as ‘absur[d].’ In fact, our reading leaves the third clause with ‘substantial meaning.’”
Ginsburg emphasized that the court’s reading “protects a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure.”
“While the solicitor general asserts that limiting the protections of clause (iii) to dual reporters would ‘shrink to insignificance the [clause’s] ban on retaliation,’ he offers scant evidence to support that assertion,” Ginsburg added. “Tugging in the opposite direction, he reports that approximately 80 percent of the whistleblowers who received awards in 2016 ‘reported internally before reporting to the commission.’
What Somers and the solicitor general are overlooking, Ginsburg said, is that retaliation not prompted by SEC disclosures is likely commonplace in dual-reporting cases.
“The SEC is required to protect the identity of whistleblowers, so employers will often be unaware that an employee has reported to the commission,” the opinion states. “In any event, even if the number of individuals qualifying for protection under clause (iii) is relatively limited, ‘[i]t is our function to give the statute the effect its language suggests, however modest that may be.’”
Ginsburg also undercut Somers’ claim that lawyers and auditors will face retaliation before they have a chance to report to the SEC.
“He offers nothing to show that Congress had this concern in mind when it enacted [the relevant statute],” Ginsburg wrote. “Indeed, Congress may well have considered adequate the safeguards already afforded by Sarbanes-Oxley, protections specifically designed to shield lawyers, accountants, and similar professionals.”
Chief Justice John Roberts joined Ginsburg’s opinion in full, as did Justices Anthony Kennedy, Stephen Breyer, Sonia Sotomayor and Elena Kagan.
Justices Samuel Alito and Neil Gorsuch joined an opinion concurring in part and concurring in judgment by Justice Clarence Thomas.
This paragraph-long opinion takes issue with Ginsburg’s reliance on a Senate report about the purpose of Dodd-Frank.
Quoting 1980 precedent, Thomas said, “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.”
Sotomayor took issue with this point in a separate concurring opinion joined by Breyer.
“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,” Sotomayor’s concurrence says.