New York Times

Justices Seem Ready to Limit Whistle-Blower Protections

November 29, 2017

by Adam Liptak

WASHINGTON — The Supreme Court seemed ready on Tuesday to interpret a federal law protecting whistle-blowers narrowly, barring many retaliation suits from people who say they were fired for reporting wrongdoing. The plain words of the law, part of the Dodd-Frank Act, required that conclusion, justices across the ideological spectrum said.

“How much clearer could Congress have been?” Justice Neil M. Gorsuch asked.

The question for the justices was who qualified as a whistle-blower entitled to protection from retaliation. Most of the justices seemed ready to rely on the definition in the law itself, which defines “whistle-blower” to mean “an individual who provides information relating to a violation of the securities laws” to the Securities and Exchange Commission.

The definition seemed to exclude people who merely reported wrongdoing to their employers, and some justices said that could have been a drafting oversight.

“It’s odd,” Justice Elena Kagan said of the statute’s structure and language. “It’s peculiar. It’s probably not what Congress meant. But what makes it the kind of thing where we can just say we’re going to ignore it?”

The case, Digital Realty Trust v. Somers, No. 16-1276, started when Paul Somers, then an executive at the company, a real estate investment trust, told his superiors — but not the S.E.C. — about what he said were securities law violations. Mr. Somers was fired, and he sued under the Dodd-Frank Act.

A divided three-judge panel of the United States Court of Appeals for the Ninth Circuit, in San Francisco, allowed the case to proceed, saying that a literal application of the law “would make little practical sense and undercut congressional intent.”

Daniel L. Geyser, a lawyer for Mr. Somers, said employees should be encouraged to make internal reports. He also pointed to what he said was an odd feature of a literal reading of the law.

“If anyone reports to the S.E.C. at any time, it could be half a decade or a decade earlier on a completely unrelated issue; they’re a whistle-blower for life,” Mr. Geyser said. “So any report they make at a later time is protected, even if the information doesn’t get to the S.E.C.”

Justice Kagan agreed that the law’s definition of who qualifies as a whistle-blower could lead to curious results.

“There are two employees,” she said, “and they both internally report and they’re both fired. And one of them, tough luck, but the other one is going to get protection because he’s filed a report with the S.E.C. about some different matter entirely years earlier.”

Kannon K. Shanmugam, a lawyer for the real estate trust, said the statute meant what it said.

“It’s entirely possible,” he said, “that Congress might very well have made the judgment that it wanted to provide protection, that it wanted to provide a broad incentive to employees who suffer retaliation over time and for a wide variety of disclosures.”

The justices allowed Mr. Shanmugam to talk for long stretches without interruption, which was unusual and a sign that the lawyer’s advocacy was succeeding. Studies, including one from Chief Justice John G. Roberts Jr. while he was a federal appeals court judge, have demonstrated that the side that receives more questions is likely to lose.

Christopher G. Michel, a lawyer for the federal government arguing in support of Mr. Somers, said a literal reading of the law could lead to a second anomaly, as reports to the S.E.C. were often confidential. Allowing retaliation suits after such reports, he said, “would make employers liable for conduct that they don’t know about. Now, that in our view would be a one-of-a-kind retaliation provision in the U.S. Code.”

Justice Gorsuch said the text of the Dodd-Frank Act must govern. “I’m just stuck on the plain language here,” he said.

Justice Stephen G. Breyer said a second federal law, the Sarbanes-Oxley Act, provided protection to whistle-blowers who reported wrongdoing to their employers. “The ordinary whistle-blower is protected under Sarbanes-Oxley,” he said. If the court adopted Mr. Somers’s reading of the Dodd-Frank Act, he added, “we’ve basically eliminated Sarbanes-Oxley.”

That law, though, requires plaintiffs to go through an administrative process and to satisfy a short statute of limitations. Mr. Somers did not sue in time to take advantage of the Sarbanes-Oxley Act.