Lawson v. FMR LLC
571 U.S. ___ (2014)

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Justia Opinion Summary
To safeguard investors and restore trust in financial markets after the Enron collapse, Congress passed the Sarbanes-Oxley Act of 2002, which provides that no public company nor any contractor or subcontractor of such a 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 are former employees of FMR, private companies that contract to advise or manage mutual funds. As is common in the industry, those mutual funds are public companies with no employees. Plaintiffs allege that they blew the whistle on putative fraud relating to the mutual funds and suffered retaliation by FMR. FMR argued that the Act protects only employees of public companies, and not employees of private companies that contract with public companies. The district court denied FMR’s motion to dismiss. The First Circuit reversed, concluding that the term “an employee” refers only to employees of public companies. The Supreme Court reversed and remanded, concluding that section 1514A’s whistleblower protection includes employees of a public company’s private contractors and subcontractors. FMR’s interpretation would shrink the protection against retaliation by contractors to insignificance. The Court stated that its reading fits the goal of warding off another Enron debacle; fear of retaliation was the primary deterrent to reporting by the employees of Enron’s contractors. FMR’s reading would insulate the entire mutual fund industry from section 1514A. Virtually all mutual funds are structured to have no employees of their own and are managed, instead, by independent investment advisors.

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .

SUPREME COURT OF THE UNITED STATES

Syllabus

LAWSON et al. v. FMR LLC et al.

certiorari to the united states court of appeals for the first circuit

No. 12–3. Argued November 12, 2013—Decided March 4, 2014

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 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. 9–29.

     (a) This reading of §1514A is supported by the provision’s text. Pp. 9–16.

          (1) The Court looks first to the ordinary meaning of the provision’s language. See Moskal v. United States, 498 U. S. 103 . 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. 9–14.

          (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.” Trainmen v. Baltimore & Ohio R. Co., 331 U. S. 519 . Pp. 14–16.

     (b) Other considerations support the Court’s textual analysis. Pp. 16–27.

          (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. 16–20.

          (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. 20–22.

          (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. 22–24.

          (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. 24–27.

     (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. 27–29.

     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. 1–3.

     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.

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