A textual analysis of whistleblower protections under the Dodd-Frank Act.

• Author: Murphy, Brent T.

INTRODUCTION

In the aftermath of the 2008 financial crisis, Congress enacted and President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). (1) The purpose of Dodd-Frank was "[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system." (2) One mechanism Dodd-Frank's drafters crafted for improving accountability in the financial system was a comprehensive whistleblower incentives and protections program. (3) Dodd-Frank's whistleblower program followed in the footsteps of previous remedial legislation--namely the Sarbanes-Oxley Act ("SOX") (4)--with the intention that Dodd-Frank would "build on existing legislation to remedy the aftermath of the 2008 financial crisis, and provide strong compliance and reporting incentive structures to prevent future market failures." (5)

Since its enactment, Dodd-Frank has avoided the main difficulties in application that whistleblowers under SOX experienced--i.e., questions of "who" within an organization may be classified as a whistleblower. (6) However, circuits have split on the question of "what" a whistleblower must do in order to receive Dodd-Frank's antiretaliation protections. The controversy has turned on the interaction between two specific provisions of Dodd-Frank. The first provision is the section that defines the term "whistleblower" for the purposes of the whistleblower provisions--15 U.S.C. [section] 78u-6(a)(6). (7) The definitional section states: "In this section the following definitions shall apply: ... The term 'whistleblower' means any individual who provides ... information relating to a violation of the securities laws to the Commission." (8) The second provision is the section that outlines the Act's antiretaliation protections for whistleblowers--15 U.S.C. [section] 78u-6(h) (1) (A). (9) It provides:

No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower--

(i) in providing information to the Commission in accordance with this section;

(ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or

(iii) in making disclosures that are required or protected under the Sarbanes- Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission. (10)

In Asadi v. G.E. Energy (USA), L.L.C., the Fifth Circuit held that the plain language of Dodd-Frank's whistleblower definition and antiretaliation provision restricted the law's protections "to those individuals who provide 'information relating to a violation of the securities laws' to the SEC." (11) In contrast, the Second Circuit held in Berman v. Neo@Ogilvy LLC that the tension between Dodd-Frank's whistleblower definition and its antiretaliation provision "renders [the whistleblower provisions] as a whole sufficiently ambiguous to oblige us to give Chevron deference to" the SEC's interpretation that internal reporting is sufficient to invoke the statute's protections. (12)

This Note endorses the reasoning of the Fifth Circuit, and argues that the plain language of Dodd-Frank limits its whistleblower protections to individuals who provide information to the SEC. This Note argues that the reasoning of the Second Circuit relying on the Supreme Court's decision in King v. Burwell is inapposite, and that the Second Circuit introduced ambiguity where no ambiguity previously existed and improperly extended Chevron deference to the SEC. (13) Part 1 briefly describes the interpretive rule adopted by the SEC, as well as the reasoning of the Fifth Circuit in Asadi and the Second Circuit in Berman. Part II analyzes the plain language of the statute using judicial canons of construction to show that the text of Dodd-Frank is not ambiguous, and is clearly limited to those making external reports to the SEC.

1. ASADI, BERMAN, AND THE SEC

   This Part first explains the SEC regulation interpreting Dodd-Frank's language, which in the SEC's opinion is ambiguous. Next, it explains the Fifth Circuit's decision in Asadi v. G.E. Energy (USA), L.L.C., rejecting the SEC's interpretation because it did not consider the text to be ambiguous. And finally, it explains the Second Circuit's subsequent decision in Berman v. Neo@Ogilvy LLC, deferring to the SEC and creating a circuit split.

   1. The SEC's Interpretation

      The SEC has taken the position that Dodd-Frank's whistleblower provisions are ambiguous. (14) Namely, the SEC believes that Dodd-Frank's definition of "whistleblower" creates a tension with the statute's language defining the scope of the antiretaliation protections. (15) Accordingly, the SEC has promulgated regulations and interpretive rules that seek to reconcile the purported ambiguities. Relevant to the circuit split at hand, the SEC issued Exchange Act Rule 21-F2, pursuant to its rulemaking authority under Dodd-Frank, which states, in relevant part:

      (1) For purposes of the anti-retaliation protections afforded by [Dodd-Frank], you are a whistleblower if:

      (i) You possess a reasonable belief that the information you are providing relates to a possible securities law violation (or, where applicable, to a possible violation of the provisions set forth in 18 U.S.C. 1514A(a)) that has occurred, is ongoing, or is about to occur, and;

      (ii) You provide that information in a manner described in Section 21F(h) (1) (A) of the Exchange Act (15 U.S.C. 78u-6(h) (1) (A)).

      (iii) The anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award. (16)

      In enacting its rule, the SEC stated that it understood its regulations to create two definitions of "whistleblower": one that mirrored Dodd-Frank's definition, for the purposes of receiving the whistleblower monetary incentives and heightened confidentiality protections, and a second, broader than the first, for the purposes of receiving antiretaliation protections. (17) Accordingly, under the SEC's reading of the statute, "the availability of employment retaliation protection is not conditioned on an individual's adherence to the Rule 21F-9(a) procedures [requiring reporting to the SEC]," and an individual who only made a report internally would receive protections. (18)

   2. The Fifth Circuit's Decision in Asadi

      Khaled Asadi served from 2006 until 2011 as G.E. Energy's Iraq Country Executive. (19) In that position, he worked from Amman, Jordan, to coordinate on behalf of G.E. Energy with Iraq's governing bodies in order to secure and manage energy service contracts. (20) In 2010, Asadi was informed by Iraqi officials that G.E. Energy had hired a close associate of a senior Iraqi official in order to "curry favor" with that official and receive preferential treatment in contract negotiations. (21) Asadi reported the issue to his supervisors at G.E. Energy due to his concern that G.E. Energy may have violated the Foreign Corrupt Practices Act (FCPA). (22) A year later, Asadi was terminated by G.E. Energy, and he filed his suit alleging that G.E. Energy had violated Dodd- Frank's whistleblower protections by terminating him following his internal report of the possible FCPA violation. (23)

      As the first court of appeals to address Dodd-Frank's whistleblower provisions, (24) the Fifth Circuit faced two questions: (1) Was Asadi a whistleblower within the meaning of Dodd-Frank, and (2) if he was a whistleblower, does Dodd-Frank apply extraterritorially? Because the court answered the first question in the negative, it did not reach the second. (25)

      The Fifth Circuit set out to "start and end [its] analysis with the text of the relevant statute." (26) The primary ground for its decision was a point conceded by the plaintiff himself: "[H]e is not a 'whistleblower' as that term is defined [in the definitional section] because he did not provide any information to the SEC." (27) Asadi did not claim that Dodd-Frank's definition of whistleblower was ambiguous; instead, he based his ambiguity argument on the perceived tension between the definition and the scope of the antiretaliation protections. (28) Under Asadi's reading (and the SEC's reading), the antiretaliation provision is ambiguous because an individual could take actions that fall within the third category of activity protected by the antiretaliation provision--activity that does not necessarily require reporting to the SEC--while failing to qualify as a whistleblower, and thus losing out on the Act's antiretaliation protections. (29) To Asadi, the SEC, and others, this outcome would undermine the very purpose for which the antiretaliation provisions were put in place. (30)

      The Fifth Circuit rejected these concerns. The court's opinion placed particular emphasis on the fact that "whistleblower" was a defined term. "[T]he placement of the three categories of protected activity in subsection (h) follows the phrase '[n]o employer may discharge ... or in any other manner discriminate against, a whistleblower ... because of any lawful act done by the whistleblower.'" (31) The court explained that" [t]he use of the term 'whistleblower,' as compared with terms such as 'individual' or 'employee,' is significant" (32) because "the text of [section] 78u-6 clearly and unambiguously provides a single definition of 'whistleblower.'" (33)

      Asadi also argued that under the straightforward application of the whistleblower definition, the third category of activity in the antiretaliation provision was rendered superfluous--an outcome that weighed in favor of the broader interpretation. (34) The court rejected this argument, and in...