Supreme Court Takes a SOX Case — But What’s Its Agenda?

The U.S. Supreme Court has agreed to hear its first retaliation case brought under the whistleblower provisions of the Sarbanes-Oxley Act (SOX).

The Court put Lawson v. FMR LLC on its docket for the term that begins in October 2013.

At a minimum, the justices will decide whether SOX protects only whistleblowers employed directly by a public company that is suspected of wrongdoing—or whether the law also shields whistleblowers who work for privately held contractors of the suspected company.

But might they decide more?

The Court surprised many by accepting Lawson, and so the speculation began: Did some justices see the case as a vehicle for tackling a broader controversy? And if so, what controversy?

Passed in 2002 in the wake of the Enron scandal, SOX sets strict standards for financial behavior by public companies and, as codified in Section 1514A of the U.S. Code, protects “employees” against retaliation for blowing the whistle on a number of specific violations.

Lawson asks the question: Which “employees,” exactly, are protected?

The case was dismissed by the U.S. Court of Appeals for the First Circuit, which held that SOX doesn’t protect its two plaintiffs because they worked for private contractors. Among its reasons was the heading of 1514A, which reads: “Whistleblower Protection for Employees of Publicly Traded Companies.”

Critics—including the government agencies affected by the law—said such an interpretation defied common sense: By the First Circuit’s standard, would-be whistleblowers at Enron’s accounting firm still could be silenced today, even though encouraging such revelations was a major goal of SOX.

The Lawson plaintiffs worked for different parts of privately held FMR, the financial giant behind Fidelity’s mutual funds; each had raised flags about possible wrongdoing at publicly traded Fidelity funds. One plaintiff was later fired, while the other says she was effectively forced to resign.

But since neither plaintiff worked directly at a fund—Fidelity’s funds are standalone corporations with no direct employees—FMR claimed it was free to retaliate against them for reporting their concerns: SOX did not protect them.

(FMR didn’t admit the retaliation; the case has not gotten that far yet.)

In October the Supreme Court asked the U.S. Solicitor General whether it should hear the case. The SG advised against it: While the Obama administration bluntly rejected the First Circuit’s decision, it felt the issue needed to ripen in lower courts.

The justices took the case anyway. And as always, they didn’t reveal their logic—leaving others to speculate.

The Court could rule narrowly on Lawson; the issue is clearly defined and worthy of its attention.

But it could also use the case to address at least two broader issues:

• Whether the retaliation provisions of a whistleblower law, if they may be interpreted several ways, should be read permissively (to encourage disclosure) or restrictively (to protect defendants).

• To what degree federal courts must defer to the interpretations of administrative bodies such as—in this case—the Administrative Review Board (ARB) at the U.S. Department of Labor, which enforces the retaliation provisions of SOX.

Both issues illustrate a clash not just between the Lawson parties, but between the First Circuit and the ARB.

On the issue of statutory interpretation, both sides claimed the SOX provisions were plain—but the ARB and other government agencies also looked to the purpose of SOX, which bolstered a broad reading of Section 1514A.

If the Court were to side with the ARB, it could solidify an emerging era of whistleblower lawsuits.

On the issue of deference, the First Circuit essentially argued that the ARB’s opinion on SOX was irrelevant—flirting with a rejection of the Chevron deference doctrine. Some commentators speculated that at least four Supreme Court justices might be sympathetic, and would use Lawson to curb the power of administrative courts, which recently have sided with whistleblowers.

Wishful thinking on either side? Or on both?

Until the Court hears arguments, only the justices know.

Tagged: Administrative Review Board (ARB), Enforcement Bodies, Sarbanes-Oxley Act (SOX), Whistleblower Laws (Federal)