LAWSON AND ZANG v. FMR, LLC
The plaintiffs, Jackie Lawson and Jonathan Zang, brought a lawsuit against their former employer, FMR LLC, a subcontractor of Fidelity Investments (Fidelity), alleging that the company unlawfully fired them in retaliation for filing complaints. Both Lawson and Zang told the Occupational Health and Safety Administration (OSHA) that they believed that Fidelity had violated certain rules and regulations set forth by both the Security and Exchange Commission (SEC) and federal laws relating to fraud against shareholders. Sometime after filing these complaints, Zang was terminated for unsatisfactory performance. Lawson filed several retaliation claims against her employer with OSHA, and resigned in 2007, claiming that she had been constructively discharged.
Zang and Lawson each filed separate actions against their former employers in district court. They alleged that the defendants violated “whistleblower” protection sections of the Sarbanes-Oakley Act by taking retaliatory actions against them. The district court found in favor of the plaintiffs and held that the whistleblower provisions extended to employees of private agents, contractors, and subcontractors to public companies and that the plaintiffs had engaged in protected activity under the statute. The defendants appealed to the U.S. Court of Appeals for the First Circuit, which reversed the decision. Looking at both Congressional intent and the plain meaning of the statute, the Court of Appeals held that the plaintiffs were not protected employees under the act.
Is an employee of a privately held contractor or subcontractor of a public company protected from retaliation under the whistleblower-protection provision of the Sarbanes-Oxley Act?
Legal provision: Sarbanes-Oxley Act of 2002
Yes. Justice Ruth Bader Ginsburg delivered the opinion of the 6-3 majority. The Supreme Court held that whistleblower-protection provision of the Sarbanes-Oxley Act protects employees of private contractors and subcontractors just as it does employees of the public company served by the private contractors and subcontractors. Because there was no language in the Act that specifically limited the covered employees to those working for the public company, the Court held that Congress must not have intended the Act to have such a limited scope. The legislative record supports the view that Congress was aware of the role that outside contractors can play in recognizing and reporting fraud, and that fear of retaliation can prevent them from fulfilling that role.
In his opinion concurring in principal part and concurring in the judgment, Justice Antonin Scalia wrote that, while he agreed with the judgment of the majority opinion, the majority opinion’s reliance on legislative history is an ineffective measure of proof because it cannot accurately reflect Congressional intent. Justice Clarence Thomas joined in the concurrence in principal part and in the judgment.
Justice Sonia Sotomayor wrote a dissent in which she argued that the majority opinion was an over-broad interpretation of the Sarbanes-Oxley Act. There are several key indicators that support a narrower reading of that Act, not the least of which is the fact that the relevant section is entitled “Protection for Employees of Publically Traded Companies Who Provide Evidence of Fraud.” Beyond the evidence of the Act’s context that support a narrow reading, Justice Sotomayor also argued that the majority opinion’s interpretation would result in opportunities for litigation any time any employee claims to be harassed for providing information regarding any offense; it is not plausible that Congress would have intended to place such burdens on the courts. Justice Anthony M. Kennedy and Justice Samuel A. Alito, Jr. joined in the dissent.
ORAL ARGUMENT OF ERIC SCHNAPPER ON BEHALF OF THE PETITIONERS
Chief Justice John G. Roberts: We will hear argument next in Case 12-3, Lawson and Zang v. FMR LLC.
Eric Schnapper: Mr. Chief Justice, and may it please the Court:
Section 1514A is written in the classic language which Congress utilizes to regulate relationships between employees and their employers.
Legislation regarding how an entity is to treat an employee is understood to refer to the entity's own employees.
And that is particularly true here where the phrase ″ terms and conditions ″ of employment is used in the statute.
If Section 1514A forbade only contractors to retaliate against employees under the terms and conditions of their employment, I don't think there'd be any question that the courts would understand it was referring to the contractor's own employees.
The statute has the same -- that language has the same meaning, even though it's combined in this instance with prohibitions against retaliation by other types of actors.
The First Circuit's decision interpreting 1514A to permit a contractor to retaliate against its own employees is inconsistent with its general usage and it leads to four implausible consequences.
First, it renders the statutory language regarding contractors virtually meaningless.
Secondly, it renders that language with regard to contractors in the mutual fund industry literally meaningless.
Third, it has the implausible consequence of permitting the very type of retaliation that we know Congress was concerned about.
Retaliation by an accountant such as Arthur Andersen.
And finally, it renders incoherent the provisions in 1514A and the related remedial provision regarding scienter, the burden of proof and an affirmative defense.
Justice Samuel Alito: Is it your position that employees of any officer, employee, contractor, subcontractor or agent of a public company are covered?
They're all covered?
Eric Schnapper: I'm not -- it's our position that employees of contractors and subcontractors are covered.
Justice Ruth Bader Ginsburg: All employees or would you limit it--
Eric Schnapper: We--
Justice Ruth Bader Ginsburg: --to the ones that had a hand in executing the contract?
Eric Schnapper: --We -- if I understand the question correctly, we -- we have not taken a position and the standard we advanced does not address the question of a -- of a personal employee of an employer, such as Ken Lay--
Justice Samuel Alito: Well, if doesn't--
Eric Schnapper: --It doesn't raise distinct issues--
Justice Samuel Alito: --If it doesn't include that, then -- then how do you avoid that with your reading of the text?
Eric Schnapper: --Your Honor, our view of this is that the -- the meaning of the term 〝 employee ″ depends on the context in which it's used and it ought to be assessed separately for each of the actors.
So when it says no publicly-traded company may retaliate against an employee, it means an employee of the publicly-traded company.
But -- and the same thing with contractor and subcontractor.
But if we had a statute which by itself said no employee of -- personal -- no employee of an officer shall do something, the -- the normal reading of that would be to refer to an employee of the officer's company.
And we have statutes that impose personal liability on officials for things they're doing in their companies and that's the way they read.
Justice Antonin Scalia: Well, that's sort of peculiar.
I mean, really, I don't see how you can piece it out like that, that it includes employees of contractors, subcontractors, but not -- not of any officer.
But let me ask you this: If it does include employees of -- of an officer, is it -- is it as much of a disaster as -- as your opponent suggests?
That is to say, would -- would a firing for something that had nothing to do with the securities laws be swept in?
Eric Schnapper: --The -- the statute forbids retaliation for protected activity related either to the securities law or to certain criminal fraud provisions.
And that's quite deliberate.
The statute -- Sarbanes-Oxley is not limited to corporate misdeeds and related things.
Title VIII and Title IX also deal specifically -- deal much more broadly with criminal fraud.
Title IX increases the penalty for wire fraud and mail fraud without regard to whether it has -- it was by a corporation or an individual.
Justice Antonin Scalia: But it is--
Eric Schnapper: So this is also an antifraud statute.
Justice Antonin Scalia: --It is limited to those subjects.
And is -- is the personal employee of an officer likely to be involved with any of those subjects?
Eric Schnapper: No, Your Honor.
They're unlikely to know of such things.
But -- but the Congress deliberately wrote the statute to deal with ordinary wire and mail fraud, not just corporate public company related fraud.
The statute is broader in that regard.
Justice Stephen G. Breyer: So what's the limitation?
That is, if the argument against throwing the contractors in the way you want, I think is, well, then there is no limitation.
So a company that let's say is a publicly traded company, they have a building and they hire a gardener.
And the gardener is a gardening company and it has three employees and it works one day a week cutting their lawn and it works four days a week cutting somebody else's lawn.
Is the mail fraud -- and then they fire one of the three employees, or two.
And he gets annoyed and says it was because of fraud.
Now, the fraud has nothing to do with the company that they're cutting the lawn for.
It has to do with some other customers.
So what -- how -- I don't think the statute intends to get that.
Does it want to make every mom and pop shop in the country, when they have one employee, suddenly subject to the whistleblower protection for any fraud, even those frauds that have nothing to do with any publicly traded company?
This is not really this case.
Eric Schnapper: Yes, I understand, I understand.
Justice Stephen G. Breyer: But I'm trying to foresee is are you arguing for no limitation or--
Eric Schnapper: I think there are two relevant limitations here, one of them statutory and one of them practical.
The statutory one is that, although it wouldn't deal with, I think, the situation you hypothesized, that the counterparty, so to speak, of the public company is described as a contractor.
And we think that is not anyone who has ever had a contract with a public company.
〝 Contractor ″ in the ordinary parlance refers to an ongoing relationship.
The paradigm is someone providing services on an ongoing basis, which of course fits lawyers and accountants perfectly.
Justice Stephen G. Breyer: --Yes.
Eric Schnapper: And so if someone from a private firm goes down to Walmart, buys a box of rubber bands, that in ordinary parlance wouldn't be referred to as a contractor.
So we think that as a practical matter that rules out most mom and pop stores.
They don't have that kind of relationship.
Justice Antonin Scalia: Of course, it also rules out the accounting firm that is only used once, right?
Eric Schnapper: Well, it would have to be very fast.
I mean, I think an audit takes some time.
But if you have someone come in for--
Justice Antonin Scalia: Well, you just hire them for this one audit; are they a contractor?
Eric Schnapper: --I think an audit takes long enough that they would be.
It's not like the moment that it takes to buy something at the gift shop downstairs.
I think it typically takes weeks if not months, and I think in ordinary parlance you would call someone a contractor in those circumstances.
Justice Stephen G. Breyer: Could you limit it as also ruling out frauds by companies that are not publicly traded themselves of course, but where the fraud has nothing to do with the contract?
That is, the whole activity just has nothing to do with the contract.
It's just chance that they happen to have a contract.
Eric Schnapper: That's the way the Congress wrote the statute, and we think for two kinds of reasons.
First of all, that -- the statute is also about, as you put it, garden variety fraud.
It's increased the penalty for wire fraud, for mail fraud.
For the first time there is a provision for attempts and conspiracy.
It is an antifraud statute in addition to dealing with the Enron issues.
So we think that's deliberate.
Secondly, Your Honor, although--
Justice Antonin Scalia: I'm not sure.
Does that mean yes or no to his question?
Eric Schnapper: --I'd have to remember the exact question.
Justice Stephen G. Breyer: Can you rule out frauds where the fraud at issue--
Eric Schnapper: No.
Justice Stephen G. Breyer: --has absolutely nothing to do with the contract?
Eric Schnapper: The statute isn't written that way.
Justice Stephen G. Breyer: It isn't written that way.
Justice Elena Kagan: Mr. Schnapper, that's the position that the SEC took in its amicus brief to the First Circuit.
It said Section 806 applies where employees of the contractor are reporting possible violations of law by the public company for which the contractor is performing work.
So it did put a limitation on the kinds that Justice Breyer has suggested.
In other words, yes, employees of the contractor, but only when the employees are engaged, you know, only when the violations of law that the employee is reporting relates to the work that the contractor is doing for the publicly held company.
Do you think that that's a possible reading of the statute or not?
Eric Schnapper: Well, it's certainly possible.
We think it's not the correct reading.
And there's a--
Justice Sonia Sotomayor: I didn't hear you.
Eric Schnapper: --It's a possible reading, but we think it's not the correct reading.
Justice Sonia Sotomayor: So you are rejecting the district court's limitation as well.
Eric Schnapper: Yes.
Yes, we are.
Justice Antonin Scalia: Why?
Why is it a possible reading?
It makes a lot of sense, I agree with that.
Eric Schnapper: I'm not sure I want to go down the road.
That's not -- that's not our view.
I don't want to pick a fight with the government.
Justice Sonia Sotomayor: Suppose that the -- I suppose the--
Chief Justice John G. Roberts: Justice Breyer.
Justice Stephen G. Breyer: The road is when you see a statute that says 〝 any policeman ″, they don't mean a policeman on Mars, nor are they likely to mean a policeman in Europe.
The 〝 any policeman ″ is likely, although it says 〝 any policeman ″, to mean a policeman in the United States.
And similarly where they talk about this, the contractors, they don't mean frauds related to -- you have to use some kind of scope for the word -- for the kinds of frauds that are included in the statute, and you have to read that into language that says nothing about it.
And that's -- I don't say that that is necessarily easy to do and that's why I started with my first question.
Eric Schnapper: As I said, we think that's -- we think that's not the correct reading of the statute, for a couple of reasons.
Another one that we think it unlikely, over and above the fact that Congress was concerned with fraud generally, was that I think Congress would have been reluctant to try to define what was sufficiently related to the corporation.
Justice Samuel Alito: Well, to go back to Justice Breyer's hypothetical which gets at this point where you have the gardening -- the gardening company, privately held, that's working for a public company, and there's some kind of employee of the contractor is fired and claims that the company is engaging in some kind of fraud that has nothing to do with the public company.
So you have that situation.
Now you have the identical, another privately held gardening company, exactly the same thing is going on, except they don't have a contract with a public company.
Why would Congress have wanted to cover the former and not the latter?
Eric Schnapper: Justice Alito, I think that's just the way they wrote the statute.
They were concerned with all fraud, but they didn't extend the whistleblowers to all fraud.
Justice Samuel Alito: But why?
If they are concerned with all fraud, why not cover them both?
Eric Schnapper: Well, this is sort of a hybrid piece of legislation dealing with corporate problems and fraud, and they kind of melded the two here.
But I think there are -- it's also important in this situation to bear in mind the following: I think Congress would have -- was reluctant -- it didn't itself draw a line because the experience of the Enron scandal was that all sorts of terribly complicated arrangements had been drawn up between Enron and these hundreds of off-the-books entities, Jedi, Raptors, LJM, and the like.
I think Congress correctly concluded that if it tried to write out a description of what else it was covering, someone would think of a way to get around it.
And I think it certainly wouldn't have contemplated that Federal courts were to try to untangle these relationships to the point where they could figure out whether, for example, if Andrew Fastow was skimming off money from Chewco, whether that would be sufficiently related to Enron.
It's just, it's enormously complicated and I think Congress didn't mean to open the door to that.
And that's brought home by the fact that the statute is written more broadly than AIR-21.
It's essentially modeled on AIR-21, which is a statute adopted a couple years earlier about whistleblowing in the airline industry, particularly with regard to safety work.
In that statute, 〝 contractor ″ is specifically defined to mean an airline contractor dealing with safety.
They did not put that kind of limitation here, and I think it, in part, because it simply would have been very difficult to do.
And I don't think they meant to give the courts a commission to try to sort that sort of thing out.
The core problem with the interpretation of the court of appeals is that it really renders almost meaningless the decision of Congress to prohibit retaliation by contractors and subcontractors.
Contractors and subcontractors would rarely be in a position to engage in retaliation, but particularly to engage in the very specific kind of retaliation specified in the statute, retaliation in the terms and conditions of employment.
Justice Anthony Kennedy: Is one of the limitations in the statute where it says, in sub (1),
"to provide information relating to fraud against shareholders? "
Do you think 〝 shareholders ″ means just the shareholders of the public company or does it mean shareholders of the -- suppose you have an accountant which has shareholders in it.
And there is a fraud with the accounting firm and it hurts the shareholders of the accounting firm, but not the company that's registered.
Eric Schnapper: It's a--
Justice Anthony Kennedy: --The shareholders -- in other words, does 〝 shareholder ″ apply just to the publicly registered company?
Eric Schnapper: --I would think so, Your Honor, but that--
Justice Anthony Kennedy: You would think so.
Eric Schnapper: --I think so.
But this clause in the alternative, it -- it's -- a report would be protected if it involves a violation of 1341 or 1334 and 8, which aren't limited to shareholders.
Justice Anthony Kennedy: So 〝 fraud against shareholders ″ just modifies the last clause or any provision of Federal law?
Eric Schnapper: --Yes, it modifies the last clause, exactly.
With the Court's permission, I'd like to reserve the balance of my time.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF NICOLE A. SAHARSKY, FOR UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS
Nicole A. Saharsky: Mr. Chief Justice, and may it please the Court:
The statute protects an employee of a contractor from retaliation.
That's what the text says.
That's what Congress intended to cover, these accountants, lawyers, and outside auditors who were so central to the fall of Enron.
I'd like to go right to some of the questions that the Court had about the limits of the statute and how it would be applied.
Now, of course, what we're talking about here is really the core of the statute, a contractor retaliating against its own employees.
And we think that when the First Circuit said that that is unambiguously not covered by the statute, that it's wrong.
But moving beyond that, assuming that that is covered and asking some of these -- or answering some of these questions about the limit.
First of all, as Justice Scalia suggested, the statute applies to individuals who are in a position who have information about fraud or securities law violations are in a position to report it.
So it is very unlikely that that would be the gardener.
It's incredibly likely that it would be an accountant or auditor, like a person who worked for Arthur Andersen.
Justice Samuel Alito: It's not -- it's not unlikely that an employee of a subcontractor will have information about something that can be -- that can be alleged to be mail fraud by that -- by the contractor, that's not at all unlikely.
If you see -- you know, if you see some civil RICO complaints, you see the kind of things that are alleged as mail fraud.
Nicole A. Saharsky: --Right.
Justice Samuel Alito: Do you disagree with that?
Nicole A. Saharsky: No.
But I think it raises -- your question raises a -- another limitation on the statute, which is when the statute talks about contractors and subcontractors, it's contractor of a public company.
So that it's talking about the contractor working in its capacity for the public company, not the contractor doing some other type of work.
So if the contractor's work is for the public company and there is fraud being committed by the contractor, yes, that is something that Congress was concerned about.
It was concerned about the fact that Arthur Andersen was committing fraud, not against Enron.
Justice Samuel Alito: Yes.
But you think this is limited to -- to fraud by the contractor relating to the public company, not -- not fraud that has nothing to do with the public company.
Nicole A. Saharsky: I think that it can be fraud by the contractor while the contractor is fulfilling its role as a contractor for the public company, not the contractor in some other capacity.
Justice Samuel Alito: What do you mean while?
Temporal -- during the same period of time or in relation to?
Nicole A. Saharsky: In that capacity.
In that capacity.
Justice Samuel Alito: And where do you see that in the statute?
Nicole A. Saharsky: 〝 Of such company ″.
"contractor and subcontractor of such company. "
Now, it says--
Justice Samuel Alito: It says, 〝 The contractor of such company ″, not 〝 the fraud of such company ″.
Nicole A. Saharsky: --Right.
But we think that when you're reading the statute holistically, that that's the most natural reading.
Now, I point out here that these are not questions that the courts of appeals or the Board, which is entitled--
Justice Stephen G. Breyer: The argument about this, the reason that we're -- that I've brought this up is -- is because I think that the strongest argument in those courts of appeals that kind of held against you is that they fear that otherwise this statute would create any fraud by any gardener, any cook, anybody that had one employee in the entire United States and engaged in any alleged fraud would be covered.
But it seems to me there are many ways to skin that cat.
And -- and one way that I suggested and now Mr. Schnapper said, no, that's -- that kind of thing related to the contract isn't going to work very well because it's too complicated to try to figure out.
So maybe we don't have to figure it out in this case.
I mean that's possible.
I -- I just wanted a universe of possibilities.
Nicole A. Saharsky: --Yes.
I think this is a completely understandable concern that was raised by the First Circuit.
I have several responses to it.
First of all, I don't think you don't need to decide it in this case.
It's -- this is a fairly mainstream application.
Second of all, this is the kind of thing that the expert agency should consider in the first instance.
There have not been cases, except for the Spinner case, that really has -- that really have considered these questions about contractors and subcontractors.
In the history of this statute, there are only about 20 published cases that have ever reached the courts of appeals.
Justice Anthony Kennedy: Well, you say -- you say this is -- this is a mainstream application.
We still have to give a rule.
Do we write in the opinion, this is a mainstream application case and therefore it is so confined?
That -- that doesn't make any sense.
Nicole A. Saharsky: No, Justice Kennedy.
My suggestion was, because the Court doesn't have to decide some of these more far-fetched applications of the statute in this case, that it should leave it to the expert agency in the first instance.
The rule that we would--
Justice Anthony Kennedy: Well, that -- that was your second point.
Your first point was just talk about the mainstream in this case and leave other cases.
But I don't see how you can do that and interpret the statute.
That's what I'm asking.
Your statutory interpretation rule to keep this the mainstream is what?
Nicole A. Saharsky: --I'm sorry.
I should be more clear.
What we think that this Court should say is that the natural reading of this provision covers, protects employees of contractors.
The First Circuit said that employees of contractors are not protected at all from retaliation.
And we think that that is wrong.
So that would be step one.
Justice Anthony Kennedy: I understand that and I -- I think that's a plausible reading.
I don't see how it's confined to so-called mainstream, which is what we were talking about.
Nicole A. Saharsky: What I was trying to suggest, Justice Kennedy, is that this is a contractor retaliating against its own employees and it's within the work that the contractor is doing for the mutual fund.
This is investment advising.
This is the heart of what contractors of mutual funds do for mutual funds.
Justice Antonin Scalia: I understand that, but -- but I think you're -- I don't agree with you that -- that we don't have to get into these -- these other situations, because to my mind, the principal argument made by the Respondent is if you read the statute literally the way you like, it covers a wide range of things that -- that one would have no reason to believe Congress wanted to cover.
And unless you come up with some -- with some limiting principle that -- that eliminates that argument, I'm not inclined to go along with your -- your broad interpretation of the statute.
So, I at least do have to grapple with -- with whether there are limitations, with -- with what is -- what is the central mainstream of the statute and -- and what is outside the statute.
Nicole A. Saharsky: Right.
And what we're saying is that there are -- there are several limitations.
The first is that it has to be a person who is in a position to detect and report the types of fraud and securities violations that are included in the statute.
Second, we think that 〝 the contractor of such company ″ refers to the contractor in that role, working for the public company.
Third, the expert agency that has considered this question has looked at whether there would be a floodgates open and has concluded -- and this is on page 166 of the petition appendix -- that there are built-in limits so that there would not be those floodgates.
And fourth, I can tell you as an empirical matter, that no floodgates have been opened.
The Department of Labor has consistently interpreted the statute this way since the beginning of SOX and you'll find on OSHA's website that it's only 150 or maybe 200 complaints per year that are filed with the agency.
Justice Elena Kagan: Ms. Saharsky, if I could take you back to second.
〝 Contractor of such company ″, you're saying we can read that to impose a limitation, that it's -- it's not anything that the contractor does in any capacity for anybody, whether relating to the contract or not.
We could instead read it as, you know, 〝 the contractor ″ means the -- the entity doing a particular contract for a particular public company; is that correct?
Do I get that?
Nicole A. Saharsky: Yes.
Justice Elena Kagan: In other words, inherent in the -- in the word〝 contractor ″ or in the phrase 〝 contractor of such company ″ is a sort of status of a company, and that one should not read this statute as applying outside that particular status.
Nicole A. Saharsky: I think that that's right.
And the only thing that I would add to that is that it could be fraud that's being reported that the contractor is engaging in fraud in that contract or that the public company is engaging in fraud.
But Congress would have wanted both those covered.
It was Arthur Andersen and Enron that were involved in the fraud that led--
Justice Antonin Scalia: This is not the Petitioner's position, however.
The Petitioner takes a broader -- a broader interpretation as I understood him.
Nicole A. Saharsky: --That -- that is my understanding as well.
But I think on the main question that's raised by this case, which is whether contractors can ever be covered, and the First Circuit said that they can't, we're in complete agreement.
I also want to point this Court to the Board's opinion in this case, which we think is entitled to Chevron deference.
It's an exceptionally thorough opinion when the Board went--
Justice Ruth Bader Ginsburg: But it came up.
I mean, we are reviewing a decision of the Court of Appeals for the Fourth Circuit.
And this Spinner case from the ARB postdates.
We have a district court, a court of appeals.
Chevron didn't raise its head until after the First Circuit was through with the case.
So how does Chevron come into this particular case?
Nicole A. Saharsky: --It's because the agency has been given this authority.
And the Court has faced cases before where it has afforded Chevron deference even though that was not an issue considered by the court of appeals.
I point the Court to INS v. Agere.
It's the -- Congress has entrusted this expert agency with making decisions through formal adjudication.
Chief Justice John G. Roberts: Well, even though it delegated rulemaking authority to a different agency, right?
Nicole A. Saharsky: No.
There is no rulemaking authority for this provision under 1514A delegated to a different--
Justice Stephen G. Breyer: Then why isn't the SEC -- sorry.
Chief Justice John G. Roberts: And the SEC has no rulemaking authority that would cover this provision?
Nicole A. Saharsky: --Not for this provision.
For other parts of SOX, yes.
But the anti-retaliation provision in SOX, like about 20 other anti-retaliation provisions, is entirely handled by the Department of Labor and it's entirely handled through formal adjudication.
Chief Justice John G. Roberts: As I understand the ARB's decisions, they said that they were bound by OSHA's interpretation, right?
Nicole A. Saharsky: They said that, but then they also cited several of their--
Chief Justice John G. Roberts: And OSHA made it quite clear in its interpretation that it -- and its rule that it had no authority to issue statutory interpretations.
Nicole A. Saharsky: --It said that it was not providing an interpretation, but I want to make sure the Court realizes that there are many other things that the Spinner decision relied on.
I point the Court to footnote 8 at page 143 of the board's decision where it says:
"In addition to this regulation, we're relying on several of our prior decisions. "
--many of which do not even cite the regulation --
"and our decades of experience in looking at similar statutes like AIR-21. "
So to think that--
Chief Justice John G. Roberts: So we should ignore the part where it said it's bound by OSHA's interpretation?
Nicole A. Saharsky: --I don't think that the agency -- may I finish?
Chief Justice John G. Roberts: Go ahead.
Nicole A. Saharsky: --should be worse off because everyone who has considered this question within the agency has come to the same conclusion over a period of a decade.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF MARK A. PERRY ON BEHALF OF THE RESPONDENTS
Mark A. Perry: Mr. Chief Justice, and may it please the Court:
Justice Alito asked why didn't Congress say all employers or no employers?
There are approximate 40 whistleblower statutes on the books as of today, Your Honors.
And more than 30 of them, in fact, 36 of them, are phrased exactly that way.
They say 〝 No employer may retaliate ″ or
"Any employer is prohibited from retaliating. "
This statute is not phrased that way.
This statute, which Congress could have written that way, and Dodd-Frank 922 is written that way, this statute is written quite differently.
This statute says, 〝 No public company may retaliate ″, and then it has a subordinate clause and the subordinate clause is what's at issue here, that references officers, employees, contractors, subcontractors and agents.
Justice Alito also asked my friend, Mr. Schnapper, do you contend that the same construction should be given to officers and to contractors, and he acknowledged they have to say no, because the ARB has also said no.
In other words, an employee, the phrase that we are construing at the bottom of all of this, these turtles, is different they say for officers and employees and agents, presumably, than for contractors and subcontractors.
But that doesn't fit with the statute.
It doesn't fit with the tools of statutory construction, and it doesn't fit with what Congress was trying to do here.
This was the -- the failure of Enron.
This was a bankruptcy situation.
Congress was acutely aware that corporate bankruptcies, failures, left victims high and dry.
One of the other provisions in this title, Section 803, specifically deals with the dischargeability of shareholder fraud debts in bankruptcy.
And what these sub -- the subordinate clause that added these corporate representatives does is make sure that if the employer, the public company, goes out of business, the way Enron had just done, somebody is on the hook for the money damages that Congress authorized for these employees like Sharon Watkins.
It's a very simple regime to make sure that the victim, the whistleblower, is not left high and dry if the company that is, by hypothesis, riddled with fraud goes out of business.
Justice Samuel Alito: What happens if another Enron situation comes along and the corporation's accounting firm retaliates against an employee of the accounting firm because that employee wants to report illegal activity by the corporation?
Mark A. Perry: Justice Alito, the accounting firms are not covered by 806, and let me explain that.
Accountants, accounting firms, and auditors are referenced by name 153 times in the Sarbanes-Oxley Act, including in Section 802 in this title.
It says, 〝 No accountant shall shred documents ″.
806 doesn't refer to accountants anywhere.
It refers to contractors.
Justice Ruth Bader Ginsburg: Can an accountant be a contractor?
Mark A. Perry: --No, Your Honor, because the -- the contractor that's being referred to here -- there's nothing in the statute, nothing in the legislative history, that suggests that an accountant is a contractor.
And more importantly, the reason for this is--
Justice Ruth Bader Ginsburg: But then -- but the bottom line of your argument Mr. Perry, is that the whistleblower who is working for the accountant -- you say there are separate provisions that deal with the accounting firm and the law firm.
But the whistleblower who wants to disclose what nefarious thing is going on would have no protection against retaliation by the accounting firm or, if it's a law firm, the law firm?
Mark A. Perry: --Justice Ginsburg, that is the matter that the Congress left to the expert agencies.
The accounting firms are regulation by Section 105 and the PCAOB.
Justice Ruth Bader Ginsburg: But the answer to my question is right, they wouldn't have--
Mark A. Perry: Your Honor, if the--
Justice Ruth Bader Ginsburg: --a whistleblower claim against the accounting firm or the law firm?
Mark A. Perry: --To this day, the agencies have not written rules requiring that.
And -- and I would refer the Court respectfully to Section 501 dealing with securities analysts, where Congress required the SEC to write a rule protecting whistleblowers at the investment banks that are securities analysts.
So when Congress wanted to protect those people--
What Congress did for the accountants and lawyers was not to protect whistleblowers.
It imposed a mandate.
Justice Ruth Bader Ginsburg: I'm sorry.
You told me that Congress didn't provide for the whistleblower, but it allowed the agency to do so.
Mark A. Perry: --Correct, Your Honor.
Justice Ruth Bader Ginsburg: Which agency?
Mark A. Perry: The SEC for the lawyers.
That's Section 307.
And the PCAOB for the accountants.
That's Section 105.
And Section 10(a) of the Exchange Act, which is incorporated by reference, Your Honor.
Chief Justice John G. Roberts: What about the ARB?
Mark A. Perry: The ARB is nowhere involved with lawyers or accountants, as this Court made clear in the -- in the PCAOB case.
The Congress decided to put the entire accounting profession under the thumb of that new board.
That is a -- a purpose-built regulatory agency that regulates birth to death of the accounting industry.
And if they want to protect whistleblowers or not protect whistleblowers, that is the board's business.
Congress didn't do anything there.
What Congress did in 806 was regulate the public companies and their employees.
But we can see this.
This -- this tracks very clearly through the legislative history.
Justice Stephen G. Breyer: When you're ready to go through this, I'd appreciate your telling in your opinion -- what the statute says, taking the extraneous words out, is that no contractor of a publicly-traded company may discharge, demote, et cetera, any employee because of his lawful act in reporting a fraud.
That's what it says.
So, what did they have in mind if they didn't have in mind forbidding any contractor of a publicly-traded company from a contractor -- and, you know, maybe there are limitations there -- but a contractor from demoting an employee because of his lawful act reporting a fraud?
Mark A. Perry: Let me answer that in two steps, Justice Breyer.
First, with due respect, the Court inverted the statute.
It actually says, 〝 No public company ″, comma, 〝 or ″--
Justice Stephen G. Breyer: Or any -- I just eliminated the extraneous words and instead of the not the word 〝 such ″, I put in what 〝 such ″ refers.
Mark A. Perry: --It's not extraneous here because it is -- it is subordinating the contractors to the public employees.
And what -- more importantly, second, what Congress is doing -- and this is in response to my friend's question was this a meaningless act?
If I could point the Court to the Kalkunte case.
The Kalkunte case is an ARB decision from 2009.
It's cited at page 16 of the government's brief.
Here is a bankrupt company and the estate brings in a workout firm, a privately-held contractor to wind down the affairs of the company.
And this private contractor decides that there's a squeaky wheel employee within the legal department and fires her.
And she sues under Section 806 both the estate of the bankrupt company, that is the public company employer in the first primary clause of this statute, and the workout firm, the contractor.
Justice Stephen G. Breyer: All right.
So all they're interested in here, you say, is this workout contractor, but not for example where you have a fund which has virtually no employees and does all its work really through investment advisors such as here, and you think Congress didn't want to include the investment advisor firing its whistleblower even if it's directly related to the fraud, hot fund and everything else, but it did just want to include the people who -- who are there because the contractor is a workout firm, and -- and not the investment advisor.
Mark A. Perry: Your Honor--
Justice Stephen G. Breyer: Now, all that's a conceivable reading, I agree.
Mark A. Perry: --We--
Justice Stephen G. Breyer: But what is it that leads you to that conclusion other than--
Mark A. Perry: --Three points here, Your Honor.
First, when Congress wishes to reach investment advisors, in SOX and elsewhere it amends the Investment Company Act of 1940 and the Investment Advisors Act of 1940.
And for this I can point you to Dodd-Frank 922, the parallel whistleblower's provision that my friends haven't talked about, but is very important here because it does cover all employers.
And when Congress covered all employers in Dodd-Frank, it amended the 1940 Acts to make clear that investment advisors were included.
And the SEC has issued its Form TCR that applies to investment advisors.
Congress didn't do any of that in Sarbanes-Oxley.
Second, we know the very next Congress after Sarbanes-Oxley, took up the Mutual Reform -- Mutual Fund Reform Act, which would have amended Section 806 to include investment advisors, to do exactly what the Petitioners in this case say the statute did.
Why would Congress have taken up, the very next Congress -- all the same members are still there; Senator Sarbanes was still there -- taken up a bill to do that?
Justice Antonin Scalia: It's sort of post-legislative history, which we usually don't pay attention to.
The -- the problem that I have is if -- if the statute does not cover contractors', subcontractors', firing of their own people, what -- what coverage does it have?
A subcontractor usually cannot fire somebody from the principal company that's traded on the exchange.
Mark A. Perry: Justice Scalia, it's not just firing.
It's also harassing.
It's also threatening.
These are contractors who may be working--
Justice Antonin Scalia: I don't -- I don't see how it can harass or threaten either if it's -- if it's an employee of another company--
Mark A. Perry: --Sure, Your Honor.
Justice Antonin Scalia: --that it has no power to fire.
Mark A. Perry: Your Honor, it can -- there have contractors that are in the operation, management consultants and others that are working side by side with public company employees who can make their lives difficult, who can make their lives intolerable, who can lead to a constructive discharge if it's bad enough.
And this Court has said in the Title VII context, that that kind of discrimination does not require a supervisory relationship, and these contractors, just like agents and officers, employees, may have that ability to affect the terms and conditions of the public company's employees.
Justice Antonin Scalia: But you -- you're -- you're eliminating the -- the principal contractors who might have that kind of power.
You say they're not covered.
Mark A. Perry: The accountants and lawyers.
Justice Antonin Scalia: Yes, yes, yes.
Mark A. Perry: Absolutely.
But, you know, if there are -- I mean, they are not covered by -- for their own employees.
If they were to discriminate against a public company employee -- the public company's employees are always protected.
That is the subject of this statute, the employees of the public company.
Let's look at the title.
We know Congress didn't leave a big mystery about who they were protecting here: Whistleblower protection for employees of publicly-traded companies.
That's what the Congress told us--
Justice Antonin Scalia: Including by accountants and lawyers.
Mark A. Perry: --Against the public company's employees, I -- I absolutely agree.
Justice Antonin Scalia: How so if -- if accountants and lawyers are not -- are not contractors?
Mark A. Perry: If I said that, I -- I misspoke, Your Honor.
I didn't say they weren't contractors.
I said they weren't regulated as contractors here because they were specifically regulated as accountants elsewhere.
If they fit within the statute--
Justice Antonin Scalia: What does it mean that they're not regulated as contractors here?
Unless it means that contractor here does not include them.
Mark A. Perry: --Let me -- let me try to be much clearer.
The government makes the point that this statute is written to cover Arthur Andersen.
I can't agree with that.
Arthur Andersen appears all over this statute, and there's two titles of this statute that deal with accountants.
Arthur Andersen might be included here if it -- if it discriminates against a client, an audit client's employee.
That -- that's just a normal contracting or agency relationship.
That's what Congress was dealing with.
What's not covered is Arthur Andersen retaliating against its own employees.
That is what Congress gave to the Board to decide or for the lawyers to the SEC to decide.
And, again, I would have to point the Court to Section 501, which ordered the SEC to make a rule protecting securities analysts.
Justice Ruth Bader Ginsburg: Apparently, that's not the view of the SEC because I think they are -- they are represented by the government.
And the SEC apparently takes the view that this provision does cover contractors.
It covers lawyers who couldn't be contractors and accountants.
Mark A. Perry: Your Honor, they -- they are defending the ARB's decision.
I agree with that.
The ARB's decision, however, is -- all comes back to this procedural regulation that OSHA promulgated that they agree is not entitled to deference.
So it's not a reasoned articulation of the government's position.
It is, rather, a post hoc rationalization of what the OSHA said a long time ago.
Justice Ruth Bader Ginsburg: It's a lot like the dissent in the First Circuit.
Mark A. Perry: Your Honor, the dissent in the First Circuit, like the ARB, I agree, disassociates the statute, the language 〝 an employee ″ from its context, from its grammar, from its syntax, from the title of the statute, from the legislative history.
I mean, the Senate report, Your Honor, goes through six times to explain what is the problem being addressed.
And Congress says,
"There is no current protection for employees of publicly-traded companies. "
That's at page 18.
So what does this legislation do, Section 806?
It provides protection for employees of publicly-traded companies.
That's at page 19.
Justice Stephen G. Breyer: --You're right on that.
I mean, it is correct that that's what they talk about.
And so that sends us on a search for limitation.
You have one limitation.
Your limitation says the person who is dismissed has to be an employee of the publicly-traded company.
Now, the government, and -- and even your -- Mr. Schnapper has come up with accepting some limitations.
There are possibly others.
One would be on the nature of the contractor, which you want to do, but it would be somewhat broader than yours.
Another, possibly, is on the nature of the fraud.
Is it related to the contract?
Another might be the one the district court proposed, and there could be others.
So I think if you want to say anything about this, it seems to me that taking as given -- I will for argument's sake anyway -- say all the legislative history is about publicly-traded companies.
And I do look at it.
But nonetheless, they did use this language in their other possible limitations that would serve the same purpose.
Then you say to that, saying yours is the best, what?
Mark A. Perry: Your Honor, first, the very need for this discussion about limitations, which is found nowhere in the statute and nowhere in the legislative history, is eliminated if the Court were to construe the statute as Chief Judge Lynch and the majority did below for--
Justice Stephen G. Breyer: Oh, that itself is a big limitation.
Mark A. Perry: --That's exactly right.
Well, it's the limitation that Congress put in the statute, Your Honor.
If we go beyond that, it seems to me universally accepted by my friends on this side that some limitation is needed.
It can't be every company with a contract to the public company, except that is what the ARB said a contractor is.
And it can't be every kind of misconduct, except that's what the ARB has said this statute covers.
And I point to the Lockheed case, which has nothing to do with fraud against shareholders.
This is a run-of-the-mill adulterous affair by a -- by a gossip -- by an office gossip and a supervisor that the person brings a lawsuit under Section 806 saying that is fraud because she submitted her expense accounts.
So what we have is--
Justice Anthony Kennedy: That was fraud under 1343?
Mark A. Perry: --As wire fraud, Your Honor, correct.
Justice Anthony Kennedy: Well, was that what the fraud was in this--
Mark A. Perry: In the Lockheed case, correct.
So, Justice Breyer, your gardener, your three-person gardener, there's a couple of problems with it.
First, if the same gardening company works for Ken Lay and for Enron -- this goes back to Justice Alito's question -- my friend's argument is they're covered when they work for Enron but not covered when they work for Ken Lay.
That's a bizarre reading of the statute.
Second, they're covered under the -- all of the so-called limitations they've been offered if the junior gardener thinks -- hears gossip that the senior gardener is having an affair and submitting false expense reports regarding the hotel receipts -- that's the facts of the Lockheed case -- and reports that to the middle gardener, and nothing happens, and then the junior gardener gets fired because the economy downturns or something.
Chief Justice John G. Roberts: Well, those -- that's an easy hypothetical.
What about the butler who does, in fact, hear all this information about a conspiracy and wire fraud?
Mark A. Perry: Your Honor, there are still the state law protections, of course, for public policy and other protections.
There is the Dodd-Frank Act.
We haven't talked about it enough.
Dodd-Frank 922 came in eight years later and said -- Congress said we think we need to do more.
We think we need to cover all employers, but we're going to provide more limitations.
We're going to require a written submission to the SEC under penalty of perjury, and we're going to limit it to securities fraud.
So if the butler learns that the boss is doing something untoward, the butler then can go to the SEC and make a complaint.
If it pans out, he can even get a bounty under that program.
And if he gets fired, he's completely protected and has reinstatement and back pay.
Congress dealt with that.
There -- there is a gap of eight years.
We definitely acknowledge that.
But Congress moves incrementally in this area.
The -- the Sarbanes-Oxley Act was the first major widespread corporate governance reform at the Federal level, and Congress didn't purport to do everything at once.
It went a long way.
It subjected every public company to these new things.
But for my friends to suggest that they covered not just the 5,000 public companies, but all 6 million private companies without ever mentioning the fact, without ever discussing it, without debating it, without acknowledging that that would be the consequence is a dramatic -- a dramatic expansion of this statute that was already pretty dramatic to begin with, that barely passed, as the Court may remember.
Justice Sonia Sotomayor: So doesn't that drama reduce itself if we accept the government's limitation that it has to do only with the fraud related to the public company?
Mark A. Perry: Your Honor--
Justice Sonia Sotomayor: Because that was the center of this bill -- what motivated this bill.
Mark A. Perry: --Your Honor, I agree that would be a -- a limitation.
I don't agree that it's found in the language of the statute.
I mean, as a -- as a defense lawyer, I would like that down the road.
But -- and the ARB in the Lockheed case didn't seem to suggest that there is any such limitation.
The ARB simply said fraud.
And Mr. Schnapper, Petitioners here certainly took that position today.
So it's every fraud of any sort by any company that has a contract--
Justice Sonia Sotomayor: But we're not being asked to give deference to the Petitioner.
We're being asked to give deference to the government.
Mark A. Perry: --That's why I pointed to the ARB's decision in Lockheed, Your Honor.
And the language there is exceedingly sweeping.
It rejected all limitations that were offered in that case.
The government's so-called limitation is no limitation at all.
It is simply anything that is fraudulent is covered according--
Justice Stephen G. Breyer: They didn't say that today.
And -- and if, in fact, the fraud is related to the contract or by certain kinds of contractors who do investment work, who do all kinds of important work for the company, why shouldn't it be covered?
I mean, and the language, of course, does say what I read, as you agreed.
It says a contractor.
Mark A. Perry: --Justice -- Justice Breyer, if I could return to the point of this discussion of limitations, which is fascinating, but we are having it for the first time in the Supreme Court of the United States.
Congress never had this discussion.
Congress never discussed limitations because Congress never contemplated covering private companies.
Justice Samuel Alito: What the statute says is 〝 any conduct ″,
"any conduct which the employee reasonably believes constitutes a violation of Section 1341, '43, '44, or '48. "
Do you see in there any limitation that says that the conduct has to be fraudulent conduct relating to the activities of a publicly held company.
Mark A. Perry: It is not in the terms of the statute, Your Honor, and, as I just said, that was the holding of the Lockheed case in ARB.
Justice Antonin Scalia: It's a very sensible limitation.
Unfortunately, it's not there.
Mark A. Perry: Your Honor, that's the danger of moving beyond the text of the statute.
They won't admit, my friends won't admit, that every contractor and every fraud is covered.
But that is the import of their argument.
We submit that that's not right, or at least that that decision, if it is right, should be made by the Congress or by an agency with rulemaking authority on the public record to take public responsibility for it.
Justice Stephen G. Breyer: So it may be that you have a good point, that it's the SEC we should defer to and not the Labor Department.
But then, as was pointed out, fine, then you're going to have that rulemaking and given their position here, it looks as if they will hold something you don't like.
But -- so what are we supposed to do about that, in your opinion?
Mark A. Perry: --Your Honor, they have not had that rulemaking since this statute was enacted in 2002, and we don't know whether they will have that rulemaking.
The Court's opportunity and I would submit obligation, respectfully, is to read the statute as it was passed by Congress.
Justice Antonin Scalia: I assume you would say that that rulemaking would be ultra vires, if it took the position that the government's taking here, right?
Mark A. Perry: Your Honor, Ms. Saharsky said that the SEC has no power to make rules under Section 806.
I -- I am not going to quarrel with her on that.
Justice Antonin Scalia: But even if they did and they came out with a rule that reads just the way the government presented it today, you would say that that is an unreasonable reading of the statute, wouldn't you?
Mark A. Perry: We would, but we would also have a rulemaking record and a cost-benefit analysis of the impact on private companies and the impact on employment and all of the things that agencies have to take into account when they make these determinations, none of which exists on this record.
We simply have the ARB deciding 5,000, 6 million, good enough, let's move forward.
And that is not, we submit, what Congress intended here.
Congress did not intend for the ARB to be able to make that decision.
Both of my friends here agree that our reading, the First Circuit's reading, is a plausible construction of the statute.
There is no argument that it is unambiguous on their side.
So their argument must be that Congress intended not to be able to answer this question, not to know whether it's 5,000 public companies or 6 million private companies, and so they punted that to an unelected board of lawyers within the Labor Department.
That is not plausible.
Justice Stephen G. Breyer: Why is it -- we may have to get to this.
I thought Section 3(a) of Sarbanes-Oxley -- that's what we found here.
"The Securities and Exchange Commission shall promulgate such rules and regulations as may be necessary and appropriate in the public interest or for the protection of investors and in furtherance of this Act. "
So why doesn't that delegate right to the SEC the power to interpret the general provisions of the Section 802?
Mark A. Perry: To be quite blunt, Justice Breyer, before the government's concession 20 minutes ago, I would have thought the same thing.
Justice Stephen G. Breyer: Well, so I mean, I don't know that we should interpret that provision since no one has briefed, given -- on that basis.
Mark A. Perry: We can certainly say this, though.
What we know is the SEC has not exercised its power under 3(a) or under 307 or under 501, also dealing with contractors of sorts, to provide for whistleblower protections.
If it chooses to do so in the future, then we would have a different lawsuit.
What we have now, however, is the unadorned statute passed by Congress, which deals with public companies.
We have the First Circuit in an exhaustive opinion construing it, again using all the ordinary tools of statutory construction, which this Court has directed the lower courts to do, to determine plausibly, as everyone agrees, plausibly that it only covers public companies.
We have a reading, then, that gives meaning to every single meaning to every single word in the statute, that is comprehensible, that fits the purpose of the statute.
Remember the overall purpose of the statute is disclosure by public companies.
It is not protection of investors, as some at times have said.
It is disclosures by public companies.
Private companies make no disclosures.
They are not governed by the securities laws.
So excluding private company employees makes perfect sense in that respect.
Mutual funds, Mr. Schnapper at page 13 of his reply brief says: Well, the advisors make all the disclosures for the mutual funds.
We had that argument, Your Honor, two years ago.
Justice Thomas wrote the opinion for the Court in the Janus case, which rejected that very argument and said the mutual fund and the advisor are separate companies; the mutual fund makes the disclosures.
Congress has set up the mutual fund industry that way.
The ICI's brief in this case explains very cogently, I believe, all of the separate protections, including the independent board of directors and the chief compliance officer mandated by the SEC's '40 Act recommendations, that protect the investors in mutual funds.
So we have a coherent, on the First Circuit side, a coherent reading of the statute that my friends admit is plausible, that gives meaning to every word in the statute, that fits exactly the title that Congress used.
And the title is legislative language passed by Congress signed by the President.
It fits every word of the legislative history.
It makes perfect sense and it doesn't have any untoward results.
We submit that--
Justice Samuel Alito: It gives the reference to the subcontractors or to contractors and the subcontractors such a narrow meaning.
And except for this concept of the axe-wielding specialist, those provisions mean nothing under that.
That's what gives me pause about your interpretation.
Mark A. Perry: --Justice Alito, it gives employees two things.
They give another defendant, which means another insurance policy.
So for example, if you sue the company you get the E&O policy.
If you sue the president at the same time, you get the D&O policy.
So you get two separate insurance companies, which is more money, more availability.
You get the personal liability.
Officers hate to be sued; so do contractors.
And if the public company goes out of business, you get that protection of monetary relief.
Justice Samuel Alito: My question wasn't clear.
If you say that the employees, only the employee of the publicly held company and not the employee of the private -- privately held subcontractor, then that -- the only situation is covered with respect to the contractor is this so-called axe-wielding specialist.
Mark A. Perry: You have the axe-wielding specialist.
The real world is Kalkunte.
I gave you that case where that actually happened.
Justice Samuel Alito: Yes, it can happen, but it's really very small, isn't it?
Mark A. Perry: Well, Your Honor, that was one of six cases the ARB decided under this statute in 2009.
So that year that was one-sixth of the cases.
That's not -- I mean, it happens, okay?
And it is a -- it is a conceivable scenario in many more things because, again, it's not limited to discharge.
It's also threats and harassment, and we certainly can see situations where contractors, particularly those kinds of contractors like management consultants, photocopy vendors, and so forth, are in the facility with the public company employees, can make their life miserable.
And remember, I am going to agree with my friend Mr. Schnapper on something.
Congress recognized that Enron was structured in a way to try to get the liability out of headquarters.
They had all these subsidiaries, they had Chewco and Ponderosa and all this.
And Congress recognized that corporations might try to avoid their liability, so that by picking up officers, employees, contractors, subcontractors and agents, they were trying to make sure that if the company tried to lay off the responsibility on somebody else, they would still get captured because their employees were doing it.
They could have done that just under agency.
Many employment laws, of course, speak only of officers, employees, and agents.
But many contracts disclaim agency, disclaim--
Justice Stephen G. Breyer: Where did it come from?
That is, where did the words 〝 contractor ″?
Some human being wrote them for the first time.
You probably know who did and where and under what circumstances.
What, you know?
Mark A. Perry: --Justice Breyer--
Justice Antonin Scalia: Who was it, counsel?
Justice Stephen G. Breyer: Some of us are interested in that.
At least I am.
Mark A. Perry: --Justice Breyer, it appears -- that formulation appears for the first time in the history of the United States Code in this law.
Justice Stephen G. Breyer: I know.
So who is the human being who wrote them and what did he have in mind, or she?
Mark A. Perry: We know -- we don't know the -- I don't know the individual.
We know, however, that there is a Senate report that accompanied that language when it was introduced.
Justice Stephen G. Breyer: Let's go back to the hearings.
I mean, there might have been hearings.
Mark A. Perry: The only hearing testimony was, for example, the National Whistleblowers Center, one of the amici here, said corporate insiders, publicly traded companies.
There is nothing -- the word 〝 contractor ″ specifically appears nowhere in the legislative history.
In the entire legislative history of the Sarbanes-Oxley Act, every hearing, every floor statement, every report, it nowhere appears.
It came, the word 〝 contractor ″ came from the AIR-21 Act, but, of course, the AIR-21 Act doesn't have 〝 officers, employees or agents ″.
That is language from Title VII.
Justice Anthony Kennedy: --But the language did talk about Arthur Andersen and Enron.
Mark A. Perry: It did, Your Honor.
And as I said, 150 times 〝 accountants ″ appear.
If I could just finish with this point.
The Senate report lists four examples of the so-called corporate code of silence: The Andersen partner, the Vinson and Elkins lawyers, the UBS securities analyst, and Sharon Watkins at Enron.
Congress dealt with them in four different provisions: Section 105 for the accountants, section 307 for the lawyers, Section 501 for the securities analysts, and Section 806 for the public company employee.
And then -- we haven't talked about this yet, either -- it added, for good measure, Section 1107, which says whoever shall retaliate against anybody who provides information to a law enforcement officer, which includes the SEC, is subject to a criminal offense under Title 18.
So we have this interlocking, connected, nested series of provisions that deals with each of the concerns identified by Congress in an industry-specific fashion.
And at no point did Congress suggest, intimate, hint, that, oh, by regulating these things, the lawyers, the accountants, the securities analysts and the public companies, that they also were going to sweep in 6 million private employers.
And if a member of Congress, I would submit, had stood up on the floor and suggested that, it would have been met with debate, derision, and defeat.
The First Circuit's judgment, Your Honors, should be affirmed.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Schnapper, you have five minutes left.
REBUTTAL ARGUMENT OF ERIC SCHNAPPER ON BEHALF OF THE PETITIONERS
Eric Schnapper: Thank you, Your Honor.
Let me begin by just referring the Court to some materials that might be relevant to some of the questions you asked.
With regard to the SEC's view prior to this case coming to this Court, those views were expressed in a separate brief the SEC filed in the First Circuit, which is consistent with the government's approach here.
Chief Justice John G. Roberts: But we know they don't have rulemaking authority in this area.
Eric Schnapper: I agree with that, but -- but the question came up about what their views were.
With regard to the suggestion earlier that the ARB has taken the position that every contract -- every firm that has a contract with a public company is a contractor.
Actually, in the Fleszar case, which is mentioned in both the Respondent's brief and our yellow brief, the -- the ARB is for the opposite position and -- and took a position, I think, consistent with the view we've advanced, which is not every contract renders you a contractor.
With regard to Arthur Andersen, the discussion in the Senate Report about why there's a need to deal with retaliation is repeatedly about Arthur Andersen.
Many of the people who actually understood what was going on at -- at Enron were Arthur Andersen employees, not most of the run-of-the-mill employees at Enron, and they were the ones who remained silent in the face of this very, very serious problem.
With regard to the origins of this phrase contractor, my brother, Mr. Perry, was right, it comes from AIR-21.
The preliminary AIR-21 regulations regarding what it means were issued prior to the adoption of SOX and they said it included employers -- employees of employers, which has remained the view of the agency throughout.
My colleague -- with regard to AIR-21, the history here is, I think, important.
This statute referred to air carriers and contractors and subcontractors, and the court below assumed that that meant that employees of subcontractors and contractors were covered.
The First Circuit's theory was that Congress meant to narrow the meaning of contractor employees because it added retaliation by officers and employees.
And it seems to me that that is precisely the wrong conclusion.
When Congress added to the entities that could not retaliate, when it rewrote AIR-21 to add some other people that couldn't retaliate, it didn't mean to tacitly then eliminate the employees of contractors who were governed under AIR-21.
Finally, with regard to the question the Court has raised about whether it should explore the possibility of a limitation based on whether a contractor was acting as a contractor, we think it would probably not be prudent to take that on at this time for a couple of reasons.
First of all, a fair amount of work that was done by Arthur Andersen was not -- that was relevant wasn't done for Enron.
It was done for the off-the-books enterprises.
They did $5.7 million of accounting work for Jedi, where the debts -- one of the places where the debts were being hidden.
So you -- you'd get into that problem.
Secondly, this provision is adopted against the background of a series of executive orders, most important which is Executive Order 11246, about racial discrimination by Federal contractors.
That executive order has always been understood to cover all the employees of the contractor, not just the employees who are working on the government project.
And I think that's an important part of the background.
Congress has not tried to -- the Executive Branch hasn't limited it to that.
And in the Civil Rights Restoration Act of about 1986, Congress rewrote Title 6 and Title 9 to have institution-wide application rather than to do little parts of it.
This issue about what a contractor might be doing as a contractor hasn't been vetted in lower courts and we think it would be not prudent to try to -- to take that on here.
Thank you very much.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Chief Justice John G. Roberts: Justice Ginsburg has our opinion this morning in case 12-3 Lawson v. FMR, LLC.
In 2002 after the collapse of the Enron Corporation, Congress passed the Sarbanes-Oxley Act, a law design to safeguard investors in public companies and restore trust in the financial markets.
At issue in this case the Act's protection for whistleblowers.
The relevant provision 18 U.S.C. Section 1514A prohibits public companies as well as their contractors, subcontractors, agents, employees and officers from retaliating against an employee who engages and protected whistle blowing activity.
The question presented are the employees who are shielded by the retaliation prohibition confined to persons on a public companies payroll or does the prohibition also shield employees of privately held contractors who perform work for the public company.
Plaintiffs below petitioners here are former employees of private companies that contract to advise or manage mutual funds.
We refer to those employers collectively as FMR.
As is common in the industry, the mutual funds served by FMR are public companies with no employees of their own.
Both plaintiffs alleged that after they blew the whistle on fraud regarding the mutual funds they suffered retaliation by FMR.
Each commenced suit in federal court.
FMR moved to dismiss the suits, the plaintiffs could state no claim under Section 1514A, FMR argued, for that provision protects only employees of public companies not employees of private companies that contract to serve public companies.
Although the United States District Court for the District of Massachusetts denied FMR's motions, the Court of Appeals for the First Circuit held as FMR had argued that the term and the employee in Section 1514A refers only to employees of public companies and does not cover persons on a private contractor's payroll.
We reverse the First Circuit's judgment based on the statutory text and the mischief to which Congress was responding.
We hold that Section 1514A shelters employees of private contractors that served public companies just as it shelters the public companies own employees.
Reduced to its relevant elements Section 1514A provides that no contract that may discharge an employee for whistle blowing activity.
That seems to say a contractor may not fire its own whistle blowing employees.
Beyond this ordinary meaning of the term an employee Section 1514A as a whole supports our reading.
The retaliatory measures prohibited by Section 1514A include discharge demotion, suspension, harassment or discrimination in employment terms and conditions.
But those are most obviously adverse actions an employer takes against its own, not another's employees.
Contractors generally are not positioned to discharge, or demote, or take other listed adverse actions against employees of the public company they serve.
FRM's interpretation of Section 1514A to cover only public company employees with the strength to insignificance Section 1514A spend on retaliation by contractors.
A reading of Section 1514A's text aligns with the provision's purpose.
Congress, the legislative record bears out understood that outside professionals, accountants, lawyers, fund managers for example are responsible for reporting forward involving public companies, the public companies they served.
Congress further learns that fear of retaliation was the primary reason why the employees of Enron and its contractors kept quiet about the fraudulent practices they witnessed.
A reading of Section 1514A that did not reach employees of contractors like FMR would have an extreme consequence in the mutual fund industry.
It will give the mutual fund industry a blanket exemption from Sarbanes-Oxley's ban or retaliation against whistleblowers.
As earlier, I mentioned mutual funds ordinarily have no employees of their own.
They are managed instead by independent investment advisers.
Onto our reading of the statute these investment advisers or contractors prohibited from retaliating against their own employees for blowing the whistle on fraud affecting investors and mutual funds.
As the industry is structured, the contractor's employees are likely to be the only first-hand witnesses to the shareholder fraud of concern to Congress.
In short, we decline to attribute to the Congress that passed Sarbanes-Oxley, a design that would leave mutual funds unchecked by the retaliation ban.
For these and other reasons developed in the opinion, the judgment of the Court of Appeals for the First Circuit is reversed.
Justice Scalia has filed an opinion concurring in the Court's opinion in principle part joined by Justice Thomas.
Justice Sotomayor has filed a dissenting opinion joined by Justice Kennedy and Justice Alito.