Federal courts in 2015 were frequently at odds regarding the correct interpretation of the Dodd-Frank Act’s whistleblower protection provision. The dispute arises from an apparent conflict in the statutory language. On the one hand, the Dodd-Frank Act provides protection from retaliation for “whistleblowers,” a term defined in the Act as persons who report violations of securities laws to the U.S. Securities and Exchange Commission (SEC). On the other hand, the Act purports to extend protections to employees who make reports protected by the Sarbanes-Oxley Act, which includes protections for employees who make internal reports of fraud and securities violations.
While the SEC has interpreted the statute broadly to protect whistleblowers who make reports internally, federal courts continued their fissure over the issue into 2015. This post will review a few of the key developments in this area in 2015 and outline what we may expect for Dodd-Frank regulations in 2016.
In August, we wrote about a request made by the SEC to a federal district court in California to allow the agency to file a “friend of the court” brief on behalf of a whistleblower who reported suspected bribery concerns within the company. Via this amicus curiae brief, the SEC urged the California court to interpret the Dodd-Frank’s whistleblower protection provision broadly—that is, to include employees who reported suspected violations of securities laws internally under the umbrella of protected whistleblowers.
This September post discussed the groundbreaking decision by the U.S. Court of Appeals for the 2nd Circuit in Berman v. Neo@Ogilvy LLC, in which the court held that internal complaints could constitute protected whistleblowing under the Dodd-Frank Act. The court found that the conflict in the statutory language was sufficiently ambiguous to warrant deference to the SEC’s interpretation, and therefore reversed a district court decision dismissing the Dodd-Frank retaliation claim. The court’s decision made it the first appellate court that had so ruled and created a circuit split with the 5th and 3rd Circuits, setting the stage for a possible showdown at the Supreme Court.
This November post reported on unfortunate whistleblower news from a federal court in California, with that court siding with the 5th and 3rd Circuits and finding that the Dodd-Frank Act did not protect whistleblowers who report internally rather than to the SEC. This narrow interpretation of the definition of a “whistleblower” under the Act is disputed by the 2nd Circuit and several other federal district courts, as well as by the SEC itself.
Will There Be Clarity in 2016?
In 2016, we can expect—at least for a time—a continuation of divergent holdings on whether internal reporting is protected whistleblowing under Dodd-Frank. While district courts in a few federal circuits have now adopted (conflicting) interpretations of the statute, district courts in other circuits are not bound by these decisions, and there are currently splits even among courts in the same federal district.
Many commentators expect that the Supreme Court will eventually resolve the question, but that may not happen in the immediate future. The defendant in Berman v. Neo@Ogilvy LLC, discussed above, declined to pursue a planned appeal for Supreme Court review. Whistleblowing cases pending in other appellate courts—including the 8th Circuit—may deepen the circuit split, and the losing party may choose to seek Supreme Court review. For now, however, the question remains an open one, and the decisions will almost certainly reflect the stark disagreement.