Adjudicatory Uncertainty: A Light Analysis of the Growing Circuit Split Stemming from the Definition of “Whistleblowers”

By: Chris Theodorou

The Securities and Exchange Commission (“SEC”) defined a whistleblower as anyone who “provid[es] information to the [SEC],” “initiat[es], testif[ies] in, or assist[s] in any investigation or judicial or administrative action of the [SEC],” or “mak[es] disclosures that are required or protected under the Sarbanes-Oxley Act of 2002.”[1] The SEC reached this conclusion in its 2011, regulation 17 C.F.R. section 240.21F–2, which clarified the Dodd-Frank Act.[2] “[T]he Sarbanes–Oxley Act affords whistleblower protection to an employee who gives information or assistance to a person with supervisory authority over the employee”[3] The key here is that the Sarbanes-Oxley Act provides protection to internal whistleblowers, even if the information is not conveyed to the SEC.[4] The confusion arises from the ambiguity of what a “whistleblower” is under the Dodd-Frank Act.

Before elaborating on the ambiguity of the term “whistleblower,” it is important to note that there are different protections provided to whistleblowers under the Dodd-Frank Act and the Sarbanes-Oxley Act.[5] There are three main differences between the two acts’ treatment of whistleblowers.[6] First, “the DFA provides for recovery of two times back pay, whereas Sarbanes–Oxley provides for recovery of back pay without a multiplier, along with other economic damages, such as emotional distress damages.”[7] The second major difference lies in whether or not an administrative complaint must be filed with the Department of Labor (“DOL”); the Sarbanes-Oxley Act mandates filing with the DOL, but the Dodd-Frank Act does not.[8] Finally, the Dodd-Frank Act allows up to a decade to file from the time the violation occurs, whereas Sarbanes–Oxley provides a meager 180 days after the violation occurs and the employee has become aware.[9]

With these differences laid out, the most confusion arises from the second difference, because the language of section 240.21F–2 interconnects the language of the two acts.[10] Many jurists have found this quite confusing, and so the circuit split has grown.[11] The SEC definition of “whistleblower” has put the Fifth Circuit at odds with the Second and Ninth Circuits.[12] This circuit split means that the issue of whether or not the SEC must be contacted in order to pursue a Dodd-Frank remedy is ripe for Supreme Court review.[13]

Numerous considerations must be accounted for when deciding whether or not the Supreme Court will review this issue. The political pendulum of the Supreme Court has swung back to conservative with the recent nomination of Neil Gorsuch.[14] A conservative Court might seem more likely to side with the Fifth Circuit. Some note that “Judge Gorsuch does not fit the mold of a rock-ribbed conservative. He is a smart, free-thinking, literary, independent who will be a good, and unpredictable justice.”[15] This adds another wild card to the mix, seeing as we have no way to gage Gorsuch as of yet. Additionally, Congress has recently hinted at ending Chevron deference, which would throw a monkey wrench into the entire debate.[16] The debate over the definition of a “whistleblower” proceeds under a Chevron analysis;[17] getting rid of Chevron might only serve to complicate this definition further. As for the answer, only time will tell.

[1] 17 C.F.R. § 240.21F–2(b)(1)(ii).

[2] See 17 C.F.R. § 240.21F–2.

[3] Somers v. Digital Realty Trust, Inc., 119 F. Supp. 3d 1088, 1095 (N.D. Cal. 2015) (internal citations omitted).

[4] See Connoly v. Remkes, No. 5:14-cv-1344, WL 5473144, at *4 (N.D. Cal. Oct. 28, 2014).

[5] See Somers, 119 F. Supp. 3d at 1095.

[6] See id.

[7] Compare 15 U.S.C. § 78u–6(h)(1)(C) with 18 U.S.C. § 1514A(c)(2).

[8] See 18 U.S.C. § 1514A(b)(1).

[9] See 15 U.S.C. § 78u–6(h)(1)(B)(iii); 18 U.S.C. § 1514A(b)(2)(D).

[10] See 17 C.F.R. § 240.21F–2(b)(1)(ii); See 17 C.F.R. § 240.21F–2.

[11] Steven J. Pearlman, Does Dodd-Frank Protect Internal Whistleblowing? (Sept. 11, 2015), https://www.law360.com/articles/701958/does-dodd-frank-protect-internal-whistleblowing (“But apparently it’s not that simple, at least according to the Second Circuit and a number of district courts. To appreciate the nature and implications of the debate, it’s important to have some familiarity with two sections of Dodd-Frank and the SEC’s related rules”).

[12] See Asadi v. G.E. Energy, 720 F.3d 620, 629 (5th Cir. 2013); Berman v. Neo@Ogilvy, LLC, 801 F.3d 145, 155 (2d Cir. 2015); Somers, 119 F. Supp. 3d at 1105-06.

[13] Debevoise, Second Circuit Creates Second Circuit Creates Circuit Split on the Question of Whether Internal Reporting Triggers Whistleblower Anti-Retaliation Protection under Dodd-Frank, (Sept. 11, 2015), http://www.debevoise.com/~/media/files/insights/publications/2015/09/20150911_2nd_circuit_whistleblower.pdf.

[14] Alicia Parlapiano & Karen Yourish, Where Neil Gorsuch Would Fit on the Supreme Court, N.Y. TIMES (Feb. 1, 2017), https://www.nytimes.com/interactive/2017/01/31/us/politics/trump-supreme-court-nominee.html?_r=0.

[15] Joel D. Joseph, Is Gorsuch a secret liberal? Trump, GOP have reason to wonder., The Hiil (Feb. 08, 2017, 5:20 PM), http://thehill.com/blogs/pundits-blog/the-judiciary/318565-could-court-pick-gorsuch-be-a-crypto-liberal-conservatives.

[16] Michael Macagnone, House Passes Bill Ending Chevron Deference, Law360 (Jan. 11, 2017, 8:55 PM), https://www.law360.com/articles/879235/house-passes-bill-ending-chevron-deference.

[17] See Asadi, 720 F.3d at 630; Berman, LLC, 801 F.3d 145 at 150; Somers, 119 F. Supp. 3d at 1096.

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