SCOTUS Extends Whistleblower Protection Under Sarbanes-Oxley

It is rare for us to be able to celebrate a decision in the U.S. Supreme Court that is in favor of Whistleblowers. Rarer still for a victory which affirms the rights of whistleblowers over the larger corporate and financial interests of the country.  The court, however, has done just that as it upheld the rights of employees of private contractors working for public companies to be able to sue for retaliation under the Sarbanes-Oxley Act protections at 18 U.S.C. Section 1514A. 

The National Whistleblowers Center referred to the victory in Lawson v. FMR LLC  “a big win…,” adding “the Supreme Court closed a potentially devastating loophole in corporate whistleblower protection. By ruling that contractors and subcontractors of publicly traded companies are fully protected under the corporate whistleblower provisions, the court has put an end to the popular shell game which large companies use to try to silence whistleblowers.”

So we need to pause and be a little bit thankful when something like this happens. The decision by Justice Ruth Bader Ginsburg on a 6-3 ruling upholds the rights of contractors to public companies to sue under Sarbanes-Oxley for retaliation. With thanks to the SCOTUS blog, here is the opinion of the Court.

Here is the shell game the industry was playing, and it took the Supreme Court to stop:

“As is common in the industry, the mutual funds served by FMR are public companies with no employees. Both plaintiff’s allege that they blew the whistle on putative fraud relating to the mutual funds and, as a consequence, 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 plaintiff’s 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.”

You will find a pdf of the Supreme Court’s syllabus here.

FMR is a company which provides advisory and management services to the Fidelity Family of mutual funds. So saying they would be exempt from Sarbanes-Oxley provisions could effectively shield the entire mutual fund industry, which could also be run in the same manner.

You have to like it when the supposedly liberal Ginsburg can start her argument with a discussion of the ordinary meaning of the law:

“…[§1514A] 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 interpretation of the text requires insertion ‘of a public company’ after ‘an employee,” but where Congress meant “an employee of a public company,’ it said so….”

The point of all this is to fend off another “Enron debacle” as Ginsburg noted, which was why this particular law was enacted in the first place.

Whistleblower protection laws don’t solve everything; they don’t always protect the whistleblower. But ask yourself this; what would happen to whistleblowers in the mutual fund industry if mutual funds — which have no employees usually or very few could contract to private advisers to run the whole thing – were exempt from whistleblower protection? What happens when there is no protection for anyone working on the shareholders issues at all? It seems the majority of the court did not like the answer to that question very much.

The court was split in ways which make it hard to predict what will happen next with regard to whistleblower law, or anything else. Justice Ginsburg was joined by Chief Justice Roberts and Justices Breyer and Kagan in her opinion. Justice Scalia wrote a concurring option joined by Justice Thomas. Justice Sotomayor, wrote the dissent, and was joined by Justices Kennedy and Alito. That’s a line up we do not expect to see in many other cases.

So as I said, when we get a victory for whistleblowers in the Supreme Court we should pause and celebrate.

Anthony C. “Tony” Munter represents the courageous individuals who report fraudulent claims made against federal and state government agencies.  Mr. Munter has extensive experience in using the so called qui tam provisions of state and federal False Claims Acts to protect the rights of whistleblowers who want to stop fraud. For more information, contact Mr. Munter’s DC law office at (202) 600-9400.