An sales executive who said he was fired by a San Francisco company after reporting financial improprieties to a manager can sue the company as a whistle-blower even though he never contacted the government, a federal appeals court ruled Wednesday.

Federal securities law “bars retaliation against an employee of a public company who reports violations to the boss,” the Ninth U.S. Circuit Court of Appeals in San Francisco said in a 2-1 ruling. The issue has divided other federal courts, a situation that often prompts the Supreme Court to step in and resolve the conflict.

The case involves Paul Somers, a vice president of Digital Realty Trust from 2010 to 2014, who worked in Singapore marketing high-tech real estate for the San Francisco data-center services company.

Somers said he was fired after telling management about financial misconduct by a supervisor and the company’s lack of internal controls. The company said it fired him for unrelated reasons, but sought to dismiss his lawsuit on the grounds that federal whistle-blower laws protect only those who report potential securities violations to the Securities and Exchange Commission.

SEC regulations interpret the law more broadly, covering those who report suspected wrongdoing to higher-ups in their company or organization. U.S. District Judge Edward Chen of San Francisco deferred to the SEC’s view and refused to dismiss Somers’ lawsuit, and the appeals court upheld his ruling Wednesday.

The majority opinion by Judge Mary Schroeder cited a provision of the most recent regulatory law, the Dodd-Frank Act, prohibiting retaliation against employees who make disclosures protected by an earlier securities law, the Sarbanes-Oxley Act of 2002. That law required would-be whistle-blowers to report suspected financial misdeeds to their supervisors before turning to a government agency, and barred companies from punishing them for in-house reports.

“Leaving employees without protection for that required preliminary step would result in early retaliation before the information would reach the regulators,” said Schroeder, joined by Judge Kim Wardlaw. “The SEC’s rule in our view accurately reflects Congress’ intent to provide broad whistle-blower protections” under Dodd-Frank.

Judge John Owens dissented, agreeing with another court – the Fifth U.S. Circuit Court of Appeals – that interpreted the law more narrowly in 2013. Stephen Henry, a lawyer for Somers, said the ruling “expands the ability of whistle-blowers to internally report and then be protected.”

President Trump and some congressional Republican leaders have proposed narrowing the regulatory scope of Dodd-Frank. Henry said any changes would not affect Somers’ suit, which was filed under the current version of the law.

The company’s lawyer could not be reached for comment.
Bob Egelko is a San Francisco Chronicle staff writer. Email: begelko@sfchronicle.com Twitter: @egelko