WASHINGTON: The U.S. Supreme Court on Wednesday refused to broaden protections for corporate insiders who call out misconduct, throwing out a lawsuit brought against a real estate trust by a former employee who had reported alleged wrongdoing internally but not to the Securities and Exchange Commission.
The justices ruled 9-0 in favor of Digital Realty Trust Inc, deciding that the 2010 Wall Street reform law known as the Dodd-Frank Act protects whistleblowers from retaliation only if they have brought their claims of securities law violations directly to the SEC.
“The plain-text reading of the statute undoubtedly shields fewer individuals from retaliation than the alternative,” said Justice Ruth Bader Ginsburg, writing for the court.
The ruling could inhibit employees from trying to resolve complaints of wrongdoing in-house without involving the SEC, and also could impede retaliation suits by workers who accuse businesses of firing them for reporting such conduct.
The case required the justices to decide who should be considered a whistleblower deserving of protection from corporate retaliation under federal law. The Dodd-Frank law explicitly defines whistleblowers as any individual or group of employees who provide “information relating to a violation of the securities laws” to the SEC.
Digital Realty, a publicly traded San Francisco-based company that owns and develops data centers, had appealed a lower court ruling in favor of a fired executive, Paul Somers, after he informed senior management about alleged violations by his supervisor but never reported the matter to the SEC.
Ginsburg wrote that the text of the Dodd-Frank law clearly excludes people who do not provide information to the SEC.
“Somers did not provide information ‘to the Commission’ before his termination … so he did not qualify as a ‘whistleblower,’” Ginsburg added.
Somers, a Digital Realty portfolio-management vice president from 2010 to 2014, sued the company, saying he was dismissed because he reported internally that his supervisor had hidden major cost overruns, eliminated internal controls and granted unsubstantiated payments to friends, according to court filings.
The SEC adopted rules in 2011 to prohibit corporate employers from retaliating against whistleblowers who try to report allegations of securities law violations or fraud. The rules allow the SEC to offer monetary awards to whistleblowers whose tips lead to successful enforcement actions.
Backed by President Donald Trump’s administration, Somers argued that whistleblower protections must extend to those who speak up internally in order to encourage people to report misconduct without fear of being fired.
The San Francisco-based 9th U.S. Circuit Court of Appeals last year upheld a federal judge’s decision that the law covered a wide array of disclosures by whistleblowers, not just those who report to the SEC. Digital Realty appealed that ruling to the high court.—Reuters