Tuesday, March 21, 2017

High court won’t resolve circuit split on SEC whistleblowing

By Anne Sherry, J.D.

The Supreme Court declined to resolve a circuit split regarding whether Dodd-Frank protects whistleblowers who do not report misconduct to the SEC. The case came to the Court on an unusual posture, seeking to appeal a Sixth Circuit decision that sidestepped the SEC-reporting question entirely. The first question presented in the petition for certiorari was whether the Sixth Circuit erred by avoiding the issue; next, the petitioner asked the Court to settle the circuit split (Verble v. Morgan Stanley Smith Barney, LLC, cert denied March 20, 2017).

The petitioner alleged that he was fired by Morgan Stanley after acting as a confidential source to the FBI. The district court acknowledged a split between the Fifth Circuit (holding in Asadi that Dodd-Frank protects only whistleblowers who report misconduct to the SEC) and the Second (holding in Berman that Dodd-Frank is ambiguous and deferring to the SEC’s rule under Chevron). The district court sided with Asadi and dismissed the petitioner’s Dodd-Frank claims. But rather than enter the fray, the Sixth Circuit affirmed the dismissal on the basis that the complaint suffered from a “fundamental defect” of pleading.

While the petition for certiorari was pending, the Ninth Circuit became the third court of appeals to rule on the central question, holding that whistleblowers need not report to the SEC to be protected. Unlike Berman, the Ninth Circuit decision does not rely on Chevron deference. Rather, the court held that the Dodd-Frank provision “unambiguously protects from retaliation all those who report to the SEC and who report internally.”

The question will likely come up before the Supreme Court again, perhaps on a cleaner record (the defendants in Berman contemplated seeking certiorari, but opted not to). Supreme Court nominee Neil Gorsuch has been an outspoken critic of Chevron.

The case is No. 16-946.

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