Securities Litigation

A camel (so the saying goes) is a horse designed by committee. It seems the Supreme Court may think the same of the whistleblower provisions in § 806 of the Sarbanes-Oxley Act of 2002. Section 806 prohibits retaliatory employment action against a whistleblower by any public company, "or any …contractor [or] subcontractor … of such company…." 18 U.S.C. § 1514A(a). The Act also provides an EEOC-like private administrative action administered by Labor's OSHA and its administrative review board. Recall that Sarbanes-Oxley was a response to the notorious Enron experience in which, among others, Arthur Andersen employees were cowed into silence about Enron's activities by threats of adverse employment action. Respondents "FMR" were two subsidiaries of the privately-held Fidelity fund-management companies that provide contractor services to Fidelity's publicly-held mutual funds. Petitioners Lawson and Zang each had raised concerns about alleged accounting or SEC filing irregularities, and each suffered adverse employment actions. Each filed administrative complaints with OSHA and, after no action within 180 days, filed suit in federal court. So did Congress really mean what the Act says? Justice Ginsburg thought so (with Roberts, Breyer and Kagan, JJ.), holding the literal language of the Act encompassed not just public-companies and their employees, but also extended fully downstream to contractors and outside professionals (and their employees). That, she wrote, found support in the Act's purpose of reaching outside professionals (the Enron example) and avoided a de facto exemption for the entire mutual-fund industry (and any others similarly structured). Finally, the plurality pooh-poohed the dissent's "parade of horribles" about unintended and overly-broad consequences (though not so much rebutting it, as saying "we're not worried about that"). Justice Scalia concurred in the judgment (with Thomas, J.), hewing only to the text: "Because we are a government of laws, not of men, and are governed by what Congress enacted rather than by what it intended, the sole object … is to determine what a law says." Slip Op. at 1 (concurring). First, what it says is the intent. Second, Congress cannot have had an "intent" on the particular details of a question coming to the Court many years later ("no views… -- indeed, were unaware of the issues entirely"). Third, committee reports and other legislative history necessarily are under-inclusive of "Congress's" views. Justice Sotomayor (with Kennedy and Alito, JJ.), used the "less-than-clear" textual premise to reach "ambiguity" and then depend upon legislative objective (overcoming Chevron deference along the way) to avoid what she viewed as an absurd result:

The Court's interpretation gives § 1514A a stunning reach. As interpreted today, the Sarbanes-Oxley Act authorizes a babysitter to bring a federal case against his employer - a parent who happens to work at the local Walmart (a public company) - if the parent stops employing the babysitter after he expresses concern that the parent's teenage son may have participated in an Internet purchase fraud. And it opens the door to a cause of action against a small business that contracts to clean the local Starbucks (a public company) if an employee is demoted after reporting that another nonpublic company client has mailed the cleaning company a fraudulent invoice.

Slip Op. at 2 (dissenting). So until Congress has the chance to botch-up another grammatical fix, you'd better watch your baby-sitter, yard-man and barista. And don't forget to paper the file. Lawson v. FMR, LLC, 571 U.S. ___ (2014)(No. 12-3, decided March 4, 2014). For more information on securities litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.