Supreme Court Hears Whistle-Blower Appeal Oral Arguments

Supreme Court Hears Whistle-Blower Appeal Oral Arguments

 WASHINGTON, D.C. — (Mealey’s) The whistle-blower protection provision of the Sarbanes-Oxley Act protects both contractors and subcontractors working for private companies employed by public companies, the attorney representing two workers told the U.S. Supreme Court in oral arguments Nov. 12 (Jackie Hosang Lawson, et al. v. FMR LLC, et al., No. 12-3, U.S. Sup.; See June 2013, Page 43).

“If [18 U.S. Code] Section 1514 forbade only contractors to retaliate against employees under the terms and conditions of their employment, I don’t think there’d be any question that the courts would understand it was referring to the contractor’s own employees.  The statute has the same — that language has the same meaning, even though it’s combined in this instance with prohibitions against retaliation by other types of actors.  The First Circuit’s decision interpreting 1514(a) to permit a contractor to retaliate against its own employees is inconsistent with its general usage and it leads to four implausible consequences,” argued Eric Schnapper of the University of Washington School of Law in Seattle, representing the petitioners.  “First, it renders the statutory language regarding contractors virtually meaningless.  Secondly, it renders that language with regard to contractors in the mutual fund industry literally meaningless.  Third, it has the implausible consequence of permitting the very type of retaliation that we know Congress was concerned about.  Retaliation by an accountant such as Arthur Andersen.  And finally, it renders incoherent the provisions in 1514(a) and the related remedial provision regarding scienter, the burden of proof and an affirmative defense.”

Under Contract

Plaintiffs Jackie Hosang Lawson and Jonathan M. Zang brought separate suits in the U.S. District Court for the District of Massachusetts, alleging unlawful retaliation by their corporate employers, which are private companies that act under contract as advisers to and managers of mutual funds organized under the Investment Company Act of 1940.

The District Court issued a single order ruling on both cases, finding that the whistle-blower protection provision of Section 806 of the Sarbanes-Oxley Act (SOX), 18 U.S. Code Section 1514(a), extends its coverage beyond “employees” of “public” companies to encompass also the employees of private companies that are contractors or subcontractors to those public companies.

The District Court also added a limitation on such claims, ruling that employees must be reporting violations “relating to fraud against shareholders.”

The defendants, FMR LLC, FMR Co. Inc., FMR Corp., Fidelity Brokerage Services LLC and Fidelity Management & Research Co., petitioned the First Circuit U.S. Court of Appeals for interlocutory appeal, and the plaintiffs cross-petitioned, urging the First Circuit to grant the appeal.

A split First Circuit panel held that the statutory construction of SOX does not support the plaintiffs’ contention that they are protected as contractors under the whistle-blower provision of the act.

The workers petitioned the U.S. Supreme Court on June 29, 2012.

United States’ View

Assistant to the Solicitor General Nicole A. Saharsky of Washington presented oral arguments on behalf of the United States, in support of the workers.  “The statute protects an employee of a contractor from retaliation.  That’s what the text says.  That’s what Congress intended to cover, these accountants, lawyers, and outside auditors who were so central to the fall of Enron,” she argued.  Turning to questions by the justices about the limits of the statute, Saharsky opined that the statute is applicable to individuals in a position where they have access to information about fraud or security law violations.  “So it is very unlikely that that would be the gardener,” she said.  In addition, Saharsky said, the statute is applicable to a “contractor working in its capacity for the public company, not the contractor doing some other type of work.” 

Specific Wording

Mark A. Perry of Gibson, Dunn & Crutcher in Washington, representing the respondents, argued that the justices must closely examine the wording chosen.  “There are approximately 40 whistleblower statutes on the books as of today, Your Honors,” he stated.  “And more than 30 of them, in fact, 36 of them, are phrased exactly that way.  They say ‘No employer may retaliate’ or ‘Any employer is prohibited from retaliating.’  This statute is not phrased that way.  This statute, which Congress could have written that way, and Dodd-Frank 922 is written that way, this statute is written quite differently.  This statute says, ‘No public company may retaliate,’ and then it has a subordinate clause and the subordinate clause is what’s at issue here.  That references officers, employees, contractors, subcontractors and agents.”

In addition, Perry argued that the government’s statement that the statute in question was written to cover Arthur Andersen was incorrect.  “Arthur Anderson might be included here if it . . . discriminates against a client, an audit client’s employee.  That’s just a normal contracting or agency relationship.  That’s what Congress was dealing with.  What’s not covered is Arthur Andersen retaliating against its own employees.  That is what Congress gave to the Board to decide or for the lawyers to the SEC to decide,” Perry claimed. 


G. Eric Brunstad Jr. of Dechert in Hartford, Conn., filed an amicus brief on behalf of Investment Company Institute.  Scott A. Coffina of Drinker, Biddle & Reath in Philadelphia filed an amicus brief on behalf of National Federation of Independent Business Small Business Legal Center.  Michael Delikat of Orrick, Herrington & Sutcliffe in New York filed an amicus brief on behalf of Securities Industry and Financial Markets Association.  Willis J. Goldsmith of Jones Day in New York filed an amicus brief on behalf of The Chamber of Commerce of the United States of America.  Gregory C. Keating of Littler Mendelson in Boston filed an amicus brief on behalf of the Society for Human Resource Management.

Stephen M. Kohn and David K. Colapinto of Kohn, John & Colapinto in Washington filed an amicus brief on behalf of the National Whistleblower Center.  Rae T. Vann and Ann E. Reesman of Norris, Tysse, Lampley & Lakis in Washington filed an amicus brief on behalf of the Equal Employment Advisory Council.  R. Scott Oswald of Washington filed an amicus brief on behalf of the National Employment Lawyers Association and Government Accountability Project.  T. Peter R. Pound of Boston filed an amicus brief on behalf of former SEC officials.  Benjamin G. Robbins of the New England Legal Foundation in Boston filed an amicus brief on behalf of the New England Legal Foundation and Associated Industries of Massachusetts.  Solicitor General Donald B. Verrilli Jr. in Washington filed an amicus brief on behalf of the United States.

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