Securities Litigation

In a triumph of positive statutory law over Chevron deference to the administrative state, the unanimous Supreme Court held this week that Dodd-Frank whistleblower protections require SEC reporting, because the statute defines "whistleblower" as someone who reports "to the Commission."

I'm relieved to know the Court agrees that "'When a statute includes an explicit definition, we must follow that definition,' even if it varies from a term's ordinary meaning. This principle resolves the question before us." Slip Op. § II at 9. The Ninth Circuit and the U.S. Solicitor General, however, didn't think so.

The Sarbanes-Oxley Act of 2002 was concerned with corporate wrong-doing broadly and covers all employees who report misconduct to the SEC, any other federal agency, Congress or an internal supervisor. 18 U.S.C. § 1514A(a)(1). SarbOx anti-retaliation remedies require administrative exhaustion and a 180-day administrative complaint deadline. Slip Op. § I(A) at 2-3.

Dodd-Frank's 2010 whistleblower provisions, however, were specifically about securities violations and SEC enforcement. Dodd-Frank defines a whistleblower as someone "who provides … information relating to a violation of the securities laws to the Commission." 15 U.S.C. § 78u-6(a)(6). Its anti-retaliation remedies allow direct actions in federal court with six-year limitations.

So the issue arose, because the third clause of Dodd-Frank's anti-retaliation provisions, "by cross-referencing Sarbanes Oxley and other laws, protects disclosures made to a variety of individuals and entities in addition to the SEC." 15 U.S.C. §78u- 6(h)(1)(A)(iii). Slip Op. § I(B) at 3-6. What's more, the SEC's implementing regulations required SEC reporting for bounties, 17 CFR § 240.21F-2(a)(1), but beyond the statutory text, not for anti-retaliation, id. at 21F-2(b)(1)(i)-(ii). Slip Op. § I(B)(2) at 6-7.

The Court held that no Chevron deference is due an SEC regulation that differs from statute that "directly [speaks] to the precise question at issue." Slip Op. § IV at 18-19.

Justice Thomas (with Alito and Gorsuch, JJ.) concurred to say that the Court shouldn't consult Senate Reports when the question is resolved by the statutory text. His opinion quotes a colloquy between Senators Dole and Armstrong on Senate Floor that's a "Who's on First" routine illustrating the lack of accountability for legislative history, in which Armstrong concludes: "[L]et me just make the point that this is not the law, it was not voted on, it is not subject to amendment, and we should discipline ourselves to the task of expressing congressional intent in the statute." Concurrence at 2.

Justice Sotomayor (Breyer, joining) concurred separately just to disagree with Thomas.

The opinion in Digital Realty Trust, Inc. v. Somers, No. 16-1276 (U.S. Feb. 21, 2018) is here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 32 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2018 by Thomas K. Potter, III (all rights reserved).