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Lawson v. FMR LLC

Supreme Court of the United States
2014 U.S. LEXIS 1783, 134 S. Ct. 1158, 188 L. Ed. 2d 158 (2014)
ELI5:

Rule of Law:

The whistleblower protection provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, which prohibits retaliation against 'an employee,' extends protection to employees of privately held contractors and subcontractors that perform work for public companies.


Facts:

  • FMR LLC and its subsidiaries (collectively FMR) are privately held companies that provide investment advisory and management services to the Fidelity family of mutual funds.
  • The Fidelity mutual funds are public companies subject to SEC reporting requirements, but they have no employees of their own.
  • Jackie Hosang Lawson, a Senior Director of Finance at an FMR subsidiary, raised internal concerns about certain cost accounting methodologies she believed overstated expenses for the mutual funds.
  • After raising these concerns, Lawson alleged she suffered a series of adverse employment actions, amounting to a constructive discharge.
  • Jonathan M. Zang, a portfolio manager at an FMR subsidiary, raised concerns about inaccuracies in a draft SEC registration statement FMR was preparing for certain Fidelity funds.
  • Zang alleged that he was subsequently fired in retaliation for raising these concerns.

Procedural Posture:

  • Jackie Lawson and Jonathan Zang separately filed administrative complaints with the Department of Labor against their employer, FMR.
  • After 180 days elapsed without a final agency decision, Lawson and Zang each filed a lawsuit in the U.S. District Court for the District of Massachusetts.
  • FMR, the defendant, filed motions to dismiss the lawsuits, arguing that § 1514A does not cover employees of private contractors.
  • The District Court, a court of first instance, denied FMR's motions to dismiss.
  • FMR, as the appellant, filed an interlocutory appeal to the U.S. Court of Appeals for the First Circuit.
  • A divided panel of the First Circuit, an intermediate appellate court, reversed the District Court, holding that § 1514A protects only employees of public companies.
  • Lawson and Zang, as petitioners, were granted a writ of certiorari by the U.S. Supreme Court.

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Issue:

Does the whistleblower protection provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, protect employees of privately held contractors and subcontractors who provide services to public companies?


Opinions:

Majority - Justice Ginsburg

Yes, the whistleblower protection provision of the Sarbanes-Oxley Act protects employees of privately held contractors. The plain text of § 1514A(a) states that 'no ... contractor ... may discharge ... an employee,' and the ordinary meaning of 'an employee' in this context is the contractor's own employee. This reading is supported by the statute's purpose, which was to prevent another Enron-like scandal where outside contractors like accounting and law firms were complicit in fraud. A narrow interpretation would create a massive loophole, particularly in the mutual fund industry where public companies often have no employees and rely entirely on contractors. Furthermore, Congress modeled § 1514A on the whistleblower provision of the AIR 21 Act, which has been consistently interpreted to protect contractor employees.


Concurring - Justice Scalia

The judgment is correct based on the statute's text and broader context. However, the majority's reliance on legislative history is improper, as the sole object of interpretation is what the law says, not what Congress intended. Legislative history is a 'swamp' and often contains contradictory statements. The Court should also not rely on an administrative tribunal's interpretation of a different statute (AIR 21) or entertain a 'limiting principle' that has no basis in the statute's text.


Dissenting - Justice Sotomayor

No, the whistleblower protection provision of the Sarbanes-Oxley Act does not protect employees of contractors. The statutory text is ambiguous and can be read more narrowly to protect only a public company's employees from retaliation by the company or its contractors. This narrower reading is supported by the statute's headings, which refer to 'Employees of Publicly Traded Companies.' The majority's interpretation gives the statute a 'stunning reach,' potentially extending to the household employees of anyone who works for a public company, which would produce absurd results Congress did not intend. Congress addressed concerns about outside professionals like accountants and lawyers through other, more specific provisions of the Act.



Analysis:

This decision significantly expands the scope of individuals protected by the Sarbanes-Oxley Act's whistleblower provisions. By extending protection to employees of private contractors, the Court prevents public companies from circumventing the law by outsourcing functions to third parties, a structure common in industries like mutual funds. This ruling puts private law firms, accounting firms, and other contractors on notice that they are subject to § 1514A and may face federal litigation for retaliating against their own employees who report fraud at the public companies they serve. The decision reinforces the 'gatekeeper' role of these outside professionals by ensuring they have legal recourse if they suffer retaliation for reporting client misconduct.

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