Paul Somers v. Digital Realty Trust, Inc.
850 F.3d 1045
| 9th Cir. | 2017Background
- Plaintiff Paul Somers, a former VP at Digital Realty, alleges he was fired after making internal reports to senior management about possible securities-law violations and sued under Dodd-Frank Act (Section 21F) anti-retaliation provisions.
- Section 21F defines a "whistleblower" as an individual who provides information relating to securities-law violations to the SEC, but subsection (h)(1)(A)(iii) extends protection for "making disclosures" required or protected by Sarbanes-Oxley and other laws.
- Somers did not report to the SEC before his termination; District Court denied Digital Realty’s motion to dismiss the Dodd-Frank claim and certified an interlocutory appeal under 28 U.S.C. § 1292(b).
- Central statutory question: whether the term "whistleblower" in the anti-retaliation provision is limited by the Section 21F definitional provision (narrow: SEC-reporting only) or instead also protects internal disclosures under Sarbanes-Oxley.
- The SEC promulgated Rule 21F-2 interpreting Section 21F(h)(1) to protect internal reporters; circuits are split — Fifth Circuit applied the narrow definition (Asadi), Second Circuit deferred to the SEC (Berman).
- Ninth Circuit (majority) affirms the district court: reads subsection (iii) to protect internal reporting and upholds SEC regulation as consistent with congressional intent and entitled to deference.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dodd-Frank’s anti-retaliation protection extends to employees who only make internal disclosures (not to the SEC) | Somers: subsection (h)(1)(A)(iii) incorporates Sarbanes-Oxley and thus protects internal reporters who are retaliated against | Digital Realty: "whistleblower" is defined earlier in §21F to mean only those who report to the SEC, so Dodd-Frank protection does not cover purely internal reports | Court: subdivision (iii) protects internal reporting; SEC regulation adopting that view is consistent with Congress’s intent and entitled to deference |
| Whether the SEC’s Rule 21F-2 interpreting §21F(h)(1) should receive deference | Somers: agency interpretation reflects statutory purpose and harmonizes the scheme; deference is appropriate | Digital Realty: regulation conflicts with §21F definitional provision and exceeds agency authority | Court: even if ambiguous, SEC rule is reasonable and entitled to Chevron-style deference; Rule 21F-2 stands |
| Whether reading §21F’s definitional provision to limit subsection (h)(1) would render subsection (iii) superfluous or illogical | Somers: limiting reading would nullify protections for auditors and lawyers who must report internally first | Digital Realty: Congress could have intended different scopes; overlap with Sarbanes-Oxley enforcement is not dispositive | Court: narrow reading would produce absurd results and undermine statutory structure; give effect to subdivision (iii) |
| Whether allowing Dodd-Frank to cover internal reports would swallow Sarbanes-Oxley’s remedial scheme | Somers: Sarbanes-Oxley remains a viable, alternative enforcement path with different procedures and remedies | Digital Realty: overlap undermines SOX enforcement incentives and procedures | Court: statutes offer alternative mechanisms; Dodd-Frank protection for internal reports does not render Sarbanes-Oxley superfluous |
Key Cases Cited
- Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) (applied §21F definitional provision to limit anti-retaliation protection to SEC reporting)
- Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015) (found §21F ambiguous and deferred to SEC rule protecting internal reporters)
- King v. Burwell, 135 S. Ct. 2480 (U.S. 2015) (textual-context can allow different meanings of a term in different statutory provisions)
- Duncan v. Walker, 533 U.S. 167 (U.S. 2001) (canon against reading statutes so as to render provisions superfluous)
- Jones v. SouthPeak Interactive Corp., 777 F.3d 658 (4th Cir. 2015) (discussing availability of emotional-distress damages under Sarbanes-Oxley)
- Nat. Res. Def. Council, Inc. v. Pritzker, 828 F.3d 1125 (9th Cir. 2016) (statutory-text and purpose guide interpretation)