(Reuters) - There’s a landmine buried in a footnote on the last page of Digital Realty’s newly filed reply brief in the U.S. Supreme Court case that will determine the scope of Dodd-Frank anti-retaliation protections for corporate whistleblowers. And if the justices step on it, they could blow up administrative law as it’s currently practiced.
Digital Realty v. Somers presents the question of whether Dodd-Frank’s generous whistleblower protections cover employees who report their concerns internally rather than to the government. In the section of the statute that establishes the Securities and Exchange Commission’s whistleblower bounty program, the law defines whistleblowers as those to report fraud to the government. The anti-retaliation provisions do not explicitly define the term. The SEC, after a notice-and-comment rulemaking process, interpreted the statute to give whistleblowers a right to sue under Dodd-Frank even if they’ve reported internally.
A critical consideration for the justices, as you can probably guess from my description of the case, will be how much deference to give the SEC’s interpretation. Lawyers for the whistleblower suing Digital Realty – Paul Somers, an ex-employee of the real estate investment trust who claims he was fired after reporting alleged securities violations to his bosses – told the Supreme Court in their brief that this is a simple case: Under precedent from 1984’s Chevron v. Natural Resources Defense Council, the court must defer to the SEC’s interpretation of Dodd-Frank.
Chevron, as you know, requires courts to defer to executive branch interpretations of the laws Congress has empowered them to enforce, as long as the statutes are ambiguous and the agency interpretation is reasonable. “This is a Chevron case,” wrote Somers’ lawyers at Stris & Maher. “The question is not simply a matter of construing the statute; Congress specifically tasked the SEC with enforcing these provisions, and the SEC has construed Dodd-Frank’s anti-retaliation provision in a manner that advances Congress’s objectives.”
The SEC and the Justice Department, which filed an amicus brief backing Somers (2017 WL 4676666), primarily argued that the justices should not import a cramped definition of a whistleblower from one section of Dodd-Frank to contradict the word’s well-understood meaning in a different section of the law. Alternatively, the government said, the Supreme Court should defer under Chevron to the SEC’s definition of a Dodd-Frank whistleblower because the SEC provided a reasonable interpretation of an ambiguous statute.
In Thursday’s reply, Digital Realty’s lawyers at Williams & Connolly mounted a two-stage attack on those Chevron deference arguments. First, they said, Dodd-Frank is not ambiguous: The statute provides a clear definition of a whistleblower – and that definition is limited to people who report allegations to the SEC. “The plain text compels the conclusion that the anti-retaliation provision applies only to a ‘whistleblower,’ as the statute defines the term,” the brief said. “Where, as here, Congress has ‘directly spoken to the precise question at issue,’ the court should not proceed past the first step of the Chevron inquiry.”
And even if the justices deem the statute to be unclear, Digital Realty said, they should not defer to an interpretation that was the product of a flawed rulemaking process. The SEC’s final rule on the scope of Dodd-Frank’s anti-retaliation provisions was at odds with the agency’s proposed rule, Digital Realty argued, so commenters didn’t have fair notice. The brief cited last year’s Supreme Court decision in Encino Motorcars v. Navarro, which held that “procedurally defective” agency regulations are not entitled to Chevron deference.
Those are both good, strong arguments – but not landmines that could explode administrative law. The potentially gigantic development in Digital Realty’s brief is in the final footnote, which offers a suggestion to the justices if they don’t buy either of Digital Realty’s reasons not to defer to the SEC under Chevron: “Should the court somehow conclude both that the statutory text is ambiguous and that the procedural defects in the SEC’s rulemaking can be excused, it should order supplemental briefing to consider whether Chevron should be overruled.”
Boom! Digital Realty is inviting the justices to use the whistleblower case to reconsider the 30-year-old premise that courts owe deference to executive agencies in statutory interpretation.
As you know, Justice Neil Gorsuch elegantly argued in his previous job as a judge on the 10th U.S. Circuit Court of Appeals that Chevron deference is an unconstitutional abdication of judicial and congressional power under separation-of-powers doctrine. Justice Clarence Thomas was mulling the same constitutional concerns about Chevron even earlier. In his 2015 concurrence in Michigan v. Environmental Protection Agency, Justice Thomas said that Chevron deference vests the executive branch with power the Constitution has granted only to Congress. “Statutory ambiguity thus becomes an implicit delegation of rulemaking authority, and that authority is used not to find the best meaning of the text, but to formulate legally binding rules to fill in gaps based on policy judgments made by the agency,” Justice Thomas wrote.
So at least two justices are interested in exploring the constitutionality of Chevron deference. Will Digital Realty be their opportunity? The case is scheduled to be argued in less than three weeks, on Nov. 28. Digital Realty’s footnote seems to suggest that if the justices believe after that hearing that Chevron precedent calls for deference to the SEC’s interpretation of Dodd-Frank that it should then reopen the case to consider the much bigger question of whether such deference invests the executive branch with unconstitutional authority.
It’s unusual but certainly not unprecedented for the Supreme Court to broaden its consideration of cases that present important questions. In Citizens United v. Federal Election Commission, for instance, the justices ordered post-argument briefing and eventually scheduled a second oral argument to expand the scope of the case to consider the constitutionality of campaign finance restrictions. Similarly, in Kiobel v. Royal Dutch Petroleum, the Supreme Court put aside the question it originally agreed to hear, corporate liability under the Alien Tort Statute, and asked both sides to rebrief and re-argue the bigger issue of the extraterritorial reach of the law.
The court can easily sidestep Digital Realty’s landmine. The company’s lawyers at Williams & Connolly don’t even want the justices to think about the constitutionality of Chevron deference unless Digital Realty loses on its other arguments.
But as best as I can tell, Digital Realty is the first Supreme Court litigant since Justice Gorsuch joined the court to invite the justices to reconsider their Chevron precedent. This could be the start of something huge.
I emailed Daniel Geyser of Stris & Maher, who represents whistleblower Somers, to ask about Digital Realty’s brief. He didn’t immediately get back to me.