The first briefs are now filed in the first Sarbanes-Oxley Act (SOX) whistleblower case ever accepted by the Supreme Court. The case is Lawson v. FMR. The Court is reviewing last year’s terrible decision by the First Circuit Court of Appeals.
In that decision, the two-judge majority of the First Circuit held that SOX does not protect the employees of contractors, even though SOX says that the anti-retaliation provision applies to “any officer, employee, contractor, subcontractor, or agent.” Despite this plain language, and a vigorous dissent that pointed to the obvious purpose of SOX, the two judges were determined to protect contractors from liability. They held that Congress only meant to prohibit contractors from firing employees of publicly traded companies. In their eyes, there was no reason to protect the employees of Arthur Anderson during the scandal at Enron.
When Lawson appealed to the U.S. Supreme Court, I wrote an amicus brief urging the Supreme Court to accept the case and reverse the First Circuit. My work on this brief was easier because the Department of Labor’s Administrative Review Board (ARB) thoroughly rejected the Lawsondecision in a case I handled, Spinner v. David Landau and Associates, LLC, ARB Nos. 10-111 and -115, ALJ No. 2010-SOX-29, 2012 WL 2073374 (May 31, 2012).
In Lawson, the Supreme Court asked the U.S. Solicitor General to comment on behalf of the U.S. Government. Consequently, in April of this year, the Solicitor General filed a brief that conceded the obvious, that the First Circuit majority failed to follow the plain text of SOX, but then argued that this case did not deserve the Supreme Court’s attention, at least not yet. Thankfully, the Supreme Court disagreed and accepted the case for full briefing.
Last week, law professor Eric Schnapper filed the merits brief for Jackie Lawson and Jonathan Zang.
It is a brilliant brief that parses the statutory language just the way certain Supreme Court justices like to do. It explains how unnecessary and illogical it would be for Congress to add the words “contractor” and “subcontractor” unless it meant to prohibit them from firing the whistleblowers in their own staffs. The brief also draws on the statutory context of SOX among other whistleblower laws, the regulations of the Department of Labor, and the Spinnerdecision.
Yesterday, the National Employment Lawyers Association (NELA) and the Government Accountability Project (GAP) filed another brilliant brief.
R. Scott Oswald, with assistance from attorneys Michael T. Anderson, Rebecca Hamburg Cappy, Kellee Kruse and me, of Kalijarvi, Chuzi, Newman & Fitch, wrote the brief for NELA. Attorney Tom Devine participated on behalf of GAP. While this brief agrees with Eric Schnapper’s brief about the clear meaning of the plain text of SOX, it also emphasizes the remedial purpose of SOX: to restore investor confidence in the nation’s financial markets. This purpose utterly fails if big companies merely outsource their compliance work, and legally maintain a “corporate code of silence” by threatening to fire anyone who blows the whistle on fraud. The amicus brief also explains the public benefit of assuring corporate employees that if they speak up to prevent accounting violations, they will have the law on their side to protect their careers.
I am particularly pleased with two other arguments in this amicus brief. One raises this question: if SOX was meant to protect the financial markets from a crisis of fraud, such as the one Enron and WorldCom created, why didn’t it prevent the mortgage fraud that caused the 2008 fiscal crisis? The brief points to a law review article by Professor Richard Moberly of the University of Nebraska. There, he explains how narrow interpretations of the SOX whistleblower protection under the prior administration prevented corporate employees from getting the protection Congress intended.
The other argument draws on an argument the U.S. Chamber of Commerce made to the Securities and Exchange Commission (SEC) when it was trying to get the SEC to require employees to report their concerns to company management. The Chamber told the SEC, “Effective compliance programs rely heavily on internal reporting of potential violations of law,” and “identifying potential wrongdoing” depends on “promotion of a culture of compliance . . ..” My hunch is that the Chamber of Commerce will soon file its own brief, and that brief will say something different to the Supreme Court. I also suspect that the Chamber’s brief will ignore altogether what it told the SEC.
The Supreme Court might schedule oral argument in Lawson as soon as November. I expect we will receive a decision sometime in the first half of next year. If the Supreme Court takes the opportunity to explain the importance of the SOX whistleblower protection, and the value of encouraging employees to speak up about wrongdoing, that could be a benefit to whistleblowers everywhere.
Written by Richard Renner, Kalijarvi, Chuzi, Newman & Fitch