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Lawson v. FMR LLC

United States Supreme Court

March 4, 2014

JACKIE HOSANG LAWSON AND JONATHAN M. ZANG, PETITIONERS
v.
FMR LLC ET AL.

Argued November 12, 2013

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT

Syllabus [*]

To safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation, Congress passed the Sarbanes-Oxley Act of 2002. One of the Act's provisions protects whistleblowers; at the [134 S.Ct. 1159] time relevant here, that provision instructed: "No [public] company . . ., or any . . . contractor [or] subcontractor .. of such company, may discharge, demote, suspend, threaten, harass, or . . . discriminate against an employee in the terms and conditions of employment because of [whistleblowing activity]." 18 U.S.C. §1514A(a).

Plaintiffs below, petitioners here, are former employees of respondents (collectively FMR), private companies that contract to advise or manage mutual funds. As is common in the industry, the mutual funds served by FMR are public companies with no employees. Both plaintiffs allege that they blew the whistle on putative fraud relating to the mutual funds and, as a consequence, suffered retaliation by FMR. Each commenced suit in federal court. Moving to dismiss the suits, FMR argued that the plaintiffs could state no claim under §1514A, for that provision protects only employees of public companies, and not employees of private companies that contract with public companies. On interlocutory appeal from the District Court's denial of FMR's motion to dismiss, the First Circuit reversed, concluding that the term "an employee" in §1514A(a) refers only to employees of public companies.

Held:

The judgment is reversed and the case is remanded.

670 F.3d 61, reversed and remanded.

JUSTICE Ginsburg delivered the opinion of the Court, concluding that §1514A's whistleblower protection includes employees of a public company's private contractors and subcontractors. Pp. 1165-1176, 188 L.Ed.2d, at 174-186.

(a) This reading of §1514A is supported by the provision's text. Pp. 1165-1169, 188 L.Ed.2d, at 174-179.

(1) The Court looks first to the ordinary meaning of the provision's language. See Moskal v. United States, 498 U.S. 103, 108, 111 S.Ct. 461, 112 L.Ed.2d 449. As relevant here, §1514A(a) provides that "no . . . contractor . . . may discharge .. an employee." The ordinary meaning of "an employee" in this proscription is the contractor's own employee. FMR's "narrower construction" requires inserting "of a public company" after "an employee, " but where Congress meant "an employee of a public company, " it said so.

The provision as a whole supports this reading. The prohibited retaliatory measures enumerated in §1514A(a)-discharge, demotion, suspension, threats, harassment, or discrimination in employment terms and conditions-are actions an employer takes against its own employees. Contractors are not ordinarily positioned to take adverse actions against employees of the public company with whom they contract. FMR's interpretation of §1514A, therefore, would shrink to insignificance the provision's ban on retaliation by contractors. The protected activity covered by §1514A, and the provision's enforcement procedures and remedies, also indicate that Congress presumed an employer-employee relationship between the retaliator and the whistleblowing employee. Pp. 1165-1168, 188 L.Ed.2d, at 174-177.

(2) FMR's textual arguments are unpersuasive. It urges that "an employee" must be read to refer exclusively to public company employees to avoid the absurd result of extending protection to the personal employees of company officers and employees, e.g., their housekeepers or gardeners. This concern appears more theoretical than real and, in any event, is outweighed by the compelling arguments opposing FMR's reading of §1514A. FMR also urges that its reading is supported by the provision's statutory headings, but those headings are "not meant to take the place of the detailed provisions of the text." [134 S.Ct. 1160] Trainmen v. Baltimore & Ohio R. Co., 331 U.S. 519, 528, 67 S.Ct. 1387, 91 L.Ed. 1646. Pp. 1168-1169, 188 L.Ed.2d, at 177-179.

(b) Other considerations support the Court's textual analysis. Pp. 1169-1175, 188 L.Ed.2d, at 179-185.

(1) The Court's reading fits §1514A's aim to ward off another Enron debacle. The legislative record shows Congress' understanding that outside professionals bear significant responsibility for reporting fraud by the public companies with whom they contract, and that fear of retaliation was the primary deterrent to such reporting by the employees of Enron's contractors. Sarbanes-Oxley contains numerous provisions designed to control the conduct of accountants, auditors, and lawyers who work with public companies, but only §1514A affords such employees protection from retaliation by their employers for complying with the Act's reporting requirements. Pp. 1169-1171, 188 L.Ed.2d, at 179-181.

(2) This Court's reading of §1514A avoids insulating the entire mutual fund industry from §1514A. Virtually all mutual funds are structured so that they have no employees of their own; they are managed, instead, by independent investment advisors. Accordingly, the "narrower construction" endorsed by FMR would leave §1514A with no application to mutual funds. The Court's reading of §1514A, in contrast, protects the employees of investment advisors, who are often the only firsthand witnesses to shareholder fraud involving mutual funds. Pp. 1171 - 1172, 188 L.Ed.2d, at 181-182.

(3) There is scant evidence that today's decision will open any floodgates for whistleblowing suits outside §1514A's purposes. The Department of Labor's regulations have interpreted §1514A as protecting contractor employees for almost a decade, yet FMR is unable to identify a single case in which the employee of a private contractor has asserted a §1514A claim based on allegations unrelated to shareholder fraud. Plaintiffs and the Solicitor General suggest various limiting principles to dispel any overbreadth problems. This Court need not determine §1514A's bounds here, however, because, if plaintiffs' allegations prove true, plaintiffs are precisely the "firsthand witnesses to [the shareholder] fraud" Congress anticipated §1514A would protect. S. Rep. No. 107-146, p. 10. Pp. 1172-1174, 188 L.Ed.2d, at 182-183.

(4) The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act does not affect this Court's task of determining whether Congress in 2002 afforded protection to whistleblowing contractor employees. Pp. 1173 - 1175, 188 L.Ed.2d, at 183-185.

(c) AIR 21's whistleblower protection provision has been read to cover, in addition to employees of air carriers, employees of contractors and subcontractors of the carriers. Given the parallel statutory texts and whistleblower protective aims, the Court reads the words "an employee" in AIR 21 and in §1514A to have similar import. Pp. 1175-1176, 188 L.Ed.2d, at 185-186.

Justice Scalia, joined by Justice Thomas, relying only on 18 U.S.C. §1514A's text and broader context, agreed that §1514A protects employees of private contractors from retaliation when they report covered forms of fraud. Pp. 1176-1177, 188 L.Ed.2d, at 186-188.

GINSBURG, J., delivered the opinion of the Court, in which ROBERTS, C. J., and BREYER and KAGAN, JJ., joined, and in which SCALIA and THOMAS, JJ., joined in principal part. SCALIA, J., filed an opinion concurring in principal part and concurring in the judgment, in which THOMAS, J., joined. SOTOMAYOR, J., filed a dissenting opinion, in which Kennedy and Alito, JJ., joined.

Eric Schnapper, Seattle, WA, for the petitioners.

[134 S.Ct. 1161] Nicole A. Saharsky, for the United States as amicus curiae, by special leave of the Court, supporting the petitioners.

Mark A. Perry, Washington, DC, for the respondents.

Eric Schnapper, Counsel of Record, Seattle, WA, Indira Talwani, Segal Roitman, LLP, Boston, MA, Kevin G. Powers, Rodgers, Powers & Schwartz, LLP, Boston, MA, Counsel for Petitioners.

Stephen M. Shapiro, Timothy S. Bishop, Mayer Brown LLP, Chicago, IL, Mark A. Perry, Counsel of Record, Porter N. Wilkinson, Geoffrey C. Weien, Gibson, Dunn & Crutcher LLP, Washington, DC, Rachel S. Brass, Gibson, Dunn & Crutcher LLP, San Francisco, CA, Counsel for Respondents.

OPINION

GINSBURG, JUSTICE.

To safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation, Congress enacted the Sarbanes-Oxley Act of 2002, 116 Stat. 745. See S. Rep. No. 107-146, pp. 2-11 (2002). A provision of the Act, 18 U.S.C. §1514A, protects whistleblowers. Section 1514A, at the time here relevant, instructed:

"No [public] company . . ., or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity]." §1514A(a)(2006ed.).

This case concerns the definition of the protected class: Does §1514A shield only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors-for example, investment advisers, law firms, accounting enterprises- who perform work for the public company?

We hold, based on the text of §1514A, the mischief to which Congress was responding, and earlier legislation Congress drew upon, that the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors. We first summarize our principal reasons, then describe this controversy and explain our decision more comprehensively.

Plaintiffs below, petitioners here, are former employees of private companies that contract to advise or manage mutual funds. The mutual funds themselves are public companies that have no employees. Hence, if the whistle is to be blown on fraud detrimental to mutual fund investors, the whistleblowing employee must be on another company's payroll, most likely, the payroll of the mutual fund's investment adviser or manager.

Taking the allegations of the complaint as true, both plaintiffs blew the whistle on putative fraud relating to the mutual funds and, as a consequence, suffered adverse action by their employers. Plaintiffs read §1514A to convey that "[n]o . . . contractor . . . may . . . discriminate against [its own] employee [for whistleblowing]." We find that reading consistent with the text of the statute and with common sense. Contractors are in control of their own employees, but are not ordinarily positioned to control someone else's workers. Moreover, we resist attributing to Congress a purpose to stop a contractor from retaliating against whistleblowers [134 S.Ct. 1162] employed by the public company the contractor serves, while leaving the contractor free to retaliate against its own employees when they reveal corporate fraud.

In the Enron scandal that prompted the Sarbanes-Oxley Act, contractors and subcontractors, including the accounting firm Arthur Andersen, participated in Enron's fraud and its coverup. When employees of those contractors attempted to bring misconduct to light, they encountered retaliation by their employers. The Sarbanes-Oxley Act contains numerous provisions aimed at controlling the conduct of accountants, auditors, and lawyers who work with public companies. See, e.g., 116 Stat. 750-765. 778-774, 784, §§101-107, 208-206, 307. Given Congress' concern about contractor conduct of the kind that contributed to Enron's collapse, we regard with suspicion construction of §1514A to protect whistleblowers only when they are employed by a public company, and not when they work for the public company's contractor.

Congress borrowed §1514A's prohibition against retaliation from the wording of the 2000 Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21), 49 U.S.C. §42121. That Act provides: "No air carrier or contractor or subcontractor of an air carrier may discharge an employee or otherwise discriminate against an employee with respect to compensation, terms, conditions, or privileges of employment" when the employee provides information regarding violations "relating to air carrier safety" to his or her employer or federal authorities. §42121(a)(1). AIR 21 has been read to cover, in addition to employees of air carriers, employees of contractors and subcontractors of the carriers. Given the parallel statutory texts and whistleblower protective aims, we read the words "an employee" in AIR 21 and in §1514A to have similar import.

I

A

The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley or Act) aims to "prevent and punish corporate and criminal fraud, protect the victims of such fraud, preserve evidence of such fraud, and hold wrongdoers accountable for their actions." S. Rep. No. 107-146, p. 2 (2002) (hereinafter S. Rep.).[1] Of particular concern to Congress was abundant evidence that Enron had succeeded in perpetuating its massive shareholder fraud in large part due to a "corporate code of silence"; that code, Congress found, "discourage[d] employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally." Id., at 4-5 (internal quotation marks omitted). When employees of Enron and its accounting firm, Arthur Andersen, attempted to report corporate misconduct, Congress learned, they faced retaliation, including discharge. As outside counsel advised company officials at the time, Enron's efforts to "quiet" whistleblowers generally were not proscribed under then-existing law. Id., at 5, 10. Congress identified the lack of whistleblower protection [134 S.Ct. 1163] as "a significant deficiency" in the law, for in complex securities fraud investigations, employees "are [often] the only firsthand witnesses to the fraud." Id., at 10.

Section 806 of Sarbanes-Oxley addresses this concern. Titled "Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud, " §806 added a new provision to Title 18 of the United States Code, 18 U.S.C. §1514A, which reads in relevant part:

"Civil action to protect against retaliation in fraud cases

"(a) Whistleblower Protection for Employees of Publicly Traded Companies.-No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. § 781), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee-

"(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities or commodities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by [a federal agency, Congress, or supervisor] . . . ." §806, 116 Stat. 802.[2]

Congress has assigned whistleblower protection largely to the Department of Labor (DOL), which administers some 20 United States Code incorporated whistleblower protection provisions. See 78 Fed. Reg. 3918 (2013). The Secretary has delegated investigatory and initial adjudicatory responsibility over claims under a number of these provisions, including §1514A, to DOL's Occupational Safety and Health Administration (OSHA). Ibid. OSHA's order may be appealed to an administrative law judge, and then to DOL's Administrative Review Board (ARB). 29 CFR §§1980.104 to 1980.110 (2011).

In common with other whistleblower protection provisions enforced by DOL, see 77 Fed. Reg. 3912 (2012), the ARB's determination on a §1514A claim constitutes the agency's final decision and is reviewable in federal court under the standards stated in the Administrative Procedure Act, 5 U.S.C. §706. If, however, the ARB does not issue a final decision within 180 days of the filing of the complaint, and the delay is not due to bad faith on the claimant's part, the claimant may proceed to federal district court for de novo review. 18 U.S.C. §1514A(b). An employee prevailing in a proceeding under §1514A is entitled to "all relief necessary to make the employee whole, " including "reinstatement with the same seniority status that the employee would have had, but for the discrimination, " backpay with interest, and [134 S.Ct. 1164] compensation for litigation costs. §1514A(c).

Congress modeled §1514A on the anti-retaliation provision of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21), 49 U.S.C. §42121, a measure enacted two years earlier. See S. Rep., at 30 (corporate whistleblower protections "track [AIR 21's] protections as closely as possible"). Section 1514A incorporates by cross-reference AIR 21's administrative enforcement procedures. 18 U.S.C. §1514A(b)(2).

B

Petitioners Jackie Hosang Lawson and Jonathan M. Zang (plaintiffs) separately initiated proceedings under §1514A against their former employers, privately held companies that provide advisory and management services to the Fidelity family of mutual funds. The Fidelity funds are not parties to either case; as is common in the mutual fund industry, the Fidelity funds themselves have no employees. Instead, they contract with investment advisers like respondents to handle their day-to-day operations, which include making investment decisions, preparing reports for shareholders, and filing reports with the Securities and Exchange Commission (SEC). Lawson was employed by Fidelity Brokerage Services, LLC, a subsidiary of FMR Corp., which was succeeded by FMR LLC. Zang was employed by a different FMR LLC subsidiary, Fidelity Management & Research Co., and later by one of that company's subsidiaries, FMR Co., Inc. For convenience, we refer to respondents collectively as FMR.

Lawson worked for FMR for 14 years, eventually serving as a Senior Director of Finance. She alleges that, after she raised concerns about certain cost accounting methodologies, believing that they overstated expenses associated with operating the mutual funds, she suffered a series of adverse actions, ultimately amounting to constructive discharge. Zang was employed by FMR for eight years, most recently as a portfolio manager for several of the funds. He alleges that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds. Lawson and Zang separately filed administrative complaints alleging retaliation proscribed by §1514A. After expiration of the 180-day period specified in §1514A(b)(1), Lawson and Zang each filed suit in the U.S. District Court for the District of Massachusetts.

FMR moved to dismiss the suits, arguing, as relevant, that neither plaintiff has a claim for relief under §1514A. FMR is privately held, and maintained that §1514A protects only employees of public companies-i.e., companies that either have "a class of securities registered under section 12 of the Securities Exchange Act of 1934, " or that are "required to file reports under section 15(d)" of that Act. §1514A(a).[3] In a joint order, the District Court rejected FMR's interpretation of §1514A and denied the dismissal motions in both suits. 724 F.Supp.2d 141 (Mass. 2010).

On interlocutory appeal, a divided panel of the First Circuit reversed. 670 F.3d 61 (2012). The Court of Appeals majority acknowledged that FMR is a "contractor"[4]within the meaning of §1514A(a), and thus among the actors prohibited from retaliating [134 S.Ct. 1165] against "an employee" who engages in protected activity. The majority agreed with FMR, however, that "an employee" refers only to employees of public companies and does not cover a contractor's own employees. Id., at 68-80. Judge Thompson dissented. In her view, the majority had "impose[d] an unwarranted restriction on the intentionally broad language of the Sarbanes-Oxley Act" and "bar[red] a significant class of potential securities-fraud whistleblowers from any legal protection." Id., at 83.

Several months later, the ARB issued a decision in an unrelated case, Spinner v. David Landau & Assoc, LLC, No. 10-111 etc., ALJ No. 2010-SOX-029 (May 31, 2012), [5]disagreeing with the Court of Appeals' interpretation of §1514A. In a comprehensive opinion, the ARB explained its position that §1514A affords whistleblower protection to employees of privately held contractors that render services to public companies. Ibid. [6]

We granted certiorari, 569 U.S. __, 133 S.Ct. 2387, 185 L.Ed.2d 1103 (2013), to resolve the division of opinion on whether §1514A extends whistleblower protection to employees of privately held contractors who perform work for public companies.

II


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