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New SCOTUS brief in Dodd-Frank whistleblower case: SEC doesn’t deserve deference
August 25, 2017 / 7:12 PM / 4 months ago

New SCOTUS brief in Dodd-Frank whistleblower case: SEC doesn’t deserve deference

(Reuters) - The Senate confirmation hearings for U.S. Supreme Court Justice Neil Gorsuch provided a rare moment in the spotlight for the Chevron doctrine, the Supreme Court’s holding that when laws are ambiguous, courts must defer to statutory interpretations from the executive-branch agencies Congress has empowered to enforce those laws. Justice Gorsuch, as you probably recall, argued as a judge on the 10th U.S. Circuit Court of Appeals that the Chevron doctrine may well be an unconstitutional encroachment on the power of the judicial branch. His controversial musings on Chevron deference thrust the obscure administrative law doctrine into headlines.

Chevron deference has since retreated from broad public attention, but it’s now squarely before the Supreme Court in Digital Realty Trust v. Somers, in which the justices will resolve a circuit split on whether Dodd-Frank’s expansive anti-retaliation protection for whistleblowers extends to employees who reported concerns internally, rather than to the Securities and Exchange Commission. (Dodd-Frank gives whistleblowers much more robust protection than Sarbanes-Oxley, the 2002 law that shields employees who tell their bosses about possible corporate wrongdoing.) The Supreme Court agreed in June to review a 9th Circuit decision that allowed a former Digital Realty employee to sue under Dodd-Frank even though he did not report a securities violation to the SEC and thus doesn’t meet Dodd-Frank’s statutory definition of a whistleblower.

In part, the 9th Circuit relied on the SEC’s published interpretation of the law, which says that for the purposes of anti-retaliation protection, whistleblowers qualify to sue under Dodd-Frank regardless of whether they reported violations to the SEC. The appeals court said the SEC’s interpretation is entitled to deference because Dodd-Frank’s whistleblower provisions are ambiguous and the SEC is in charge of enforcing them.

Digital Realty’s lawyers at Williams & Connolly contend that’s bosh. In the real estate trust’s opening brief, filed Thursday, Williams & Connolly argued there’s actually no ambiguity in Dodd-Frank’s text. The provisions establishing the SEC’s whistleblower bounty program clearly define whistleblowers as people who provide the SEC with information about securities law violations. The anti-retaliation provision is equally clear that “whistleblowers” are protected if they’re fired for disclosures under the Sarbanes Oxley Act or federal securities laws. So according to Digital Realty, there’s no mystery in the statute: Employees must first meet the law’s definition of a whistleblower – someone who provides the SEC with information – before they’re entitled to Dodd-Frank’s broad protection.

“Courts do not defer to an agency interpretation when the underlying statute is unambiguous, and there is no ambiguity in the Dodd-Frank Act’s whistleblower provisions,” the brief said. “This case turns on a principle of statutory interpretation so self-evident that it hardly needs stating: Where a statute includes an express definition of a term, courts and agencies may not invent a different definition. In adopting a definition of ‘whistleblower’ that is more expansive than the one Congress actually provided in the Dodd-Frank Act, the 9th Circuit and the SEC violated that unimpeachable principle.”

And even if the statute were ambiguous, the brief said, the SEC is not entitled to Chevron deference because agency flouted administrative rules when it came up with its interpretation of the anti-retaliation provision. When the SEC first proposed Dodd-Frank whistleblower rules, it used a consistent definition of a whistleblower in interpreting both the bounty and anti-retaliation provisions, the brief said. But when the agency adopted a final rule six months later, according to Digital Realty, it abruptly redefined the term to extend the scope of anti-retaliation protection.

“That change was as unheralded as it was drastic,” the brief said. “In its notice of proposed rulemaking, the SEC gave no hint that it was considering expanding the definition of ‘whistleblower’ beyond the statutory definition.” Under those circumstances, in which the SEC allegedly sought no comment and provided no substantial explanation, the agency’s rule is invalid, according to Digital Realty.

The first big question raised by Digital Realty’s aggressive deference argument is whether it will provoke a response from the federal government. The SEC and the Justice Department did not submit a brief last spring, when the Supreme Court was deciding whether to grant review of this question. Obviously, it was the Obama administration’s SEC that formulated the agency’s original interpretation of the scope of Dodd-Frank whistleblower protections.

The Trump administration has shown itself to be perfectly willing to abandon Obama agency positions on critical employment issues. Will it use an amicus brief at the Supreme Court to back away from whistleblower protection? What if that means undermining the executive branch’s institutional interest in preserving Chevron deference?

I emailed SEC and Justice Department spokespeople to ask whether the government intended to file a brief in the case – and, in particular, whether the executive branch would respond to Digital Realty’s argument that the SEC is not entitled to deference. Both the SEC and DOJ declined to comment.

The whistleblower in the Digital Realty case, Paul Somers, is represented by Daniel Geyser of Stris & Maher. Geyser said in an email that he can’t speculate about what position the government will take, but added, “it would be fairly extraordinary to disavow a formal regulation that the SEC has consistently defended in the lower courts.”

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