STATEMENT OF INTEREST OF THE NATIONAL WHISTLEBLOWER CENTER[1] The National Whistleblower Center (Center) is a nonprofit, tax-exempt, non-partisan, charitable, and educational organization dedicated to the protection of employees who “blow the whistle” and report misconduct in the workplace. In both the public and private sector, the Center assists employees who have suffered retaliation due to reporting violations of law or disclosing matters in the interest of public health and safety. The Center aids employee whistleblowers who have been involved in environmental protection, nuclear safety, government accountability, and the advocacy of important public policy. In addition to its involvement in whistleblower litigation, the Center remains active in the education and advocacy of whistleblower protection. The Center sponsors and participates in public education programs and training seminars throughout the country. Furthermore, the Center operates an Attorney Referral Service for whistleblowers (with attorney members in 36 states) and maintains an in-depth and informative Internet web site at www.whistleblowers.org. Since 1990, the Center has participated before this Court as amicus curiae in a number of cases that directly impact the rights of whistleblowers, including, English v. General Electric, 496 U.S. 72 (1990); Haddle v. Garrison, 525 U.S. 121 (1999); Vermont Agency of Nat. Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (2000); Beck v. Prupis, 529 U.S. 494 (2000); EEOC v. Waffle House, Inc., 534 U.S. 279 (2002), and Doe v. Chao, 540 U.S. 614 (2004). Persons assisted by the Center have a direct interest in the outcome of this case. The Privacy Act is a key piece of legislation to ensure that the privacy rights of citizens are protected. Whistleblowers who report wrongdoing by Federal agencies and government officials frequently are subject to violations of privacy. It cannot be over-stated how vital avenues of legal redress, including rights available under the Privacy Act, are to those courageous employee-whistleblowers, both actual and potential, who put the public good before their own careers and who face violations of their privacy as a result of taking unpopular positions. Protecting the privacy of these individuals is an essential component in encouraging employees to reveal severe abuses of power and dangerous industrial practices. It is surely an incontrovertible fact that, even under the best of circumstances, whistleblowers run enormous risks and suffer retaliation for reporting wrongdoing. If the Privacy Act does not provide remedies for actual non-pecuniary harms (such as for emotional distress and humiliation), then whistleblowers face even greater disincentives to expose misconduct or violations of law. SUMMARY OF THE ARGUMENT In order to combat the widespread government abuse of power and misuse of personal information that existed in the years preceding 1974, Congress created a remedy through the Privacy Act to compensate individuals who fell victim to such “intentional or willful” governmental abuses and deprivation of personal privacy rights. Congress intended to encourage the widest possible citizen enforcement of civil remedies to effectuate the legislative purposes for passing the Privacy Act. The doctrine of sovereign immunity or other cannons of statutory construction do not limit the reach of “actual damages” to preclude recovery of non-pecuniary compensatory damages that are actually incurred when the Privacy Act is violated. In the preamble to the Act, Congress expressly required all Federal agencies to be subject to suit for “any damages” resulting from “intentional or willful” violations of the Privacy Act. Congress also expressly stated, inter alia, in the Act’s preamble that the “right to privacy is a personal and fundamental right protected by the Constitution.” Permitting recovery of non-pecuniary damages is necessary to effectuate the stated congressional purpose to provide for recovery of “any damages” for violations of these personal and fundamental rights, because victims whose privacy has been violated most commonly suffer non-pecuniary harm in the form of mental anguish, humiliation and reputational harm, which is actually incurred and well documented. Whistleblowers, like other Privacy Act plaintiffs, actually suffer emotional distress or embarrassment as a direct result of intentional or willful Privacy Act violations committed by Federal agencies. To prevent such further widespread abuses by the Federal government Congress enacted the Privacy Act damages provision to permit the recovery of damages actually incurred when they suffer an “adverse effect” resulting from a “willful or intentional” violation of the Act. Congress expressly waived sovereign immunity to provide for the recovery of any damages actually resulting from such violations. Congress did not delegate to the Privacy Protection Commission its authority to define the term “actual damages” in the Privacy Act or to decide whether the Act provides for the recovery of non-pecuniary compensatory damages. The Commission’s recommendations were flawed and never acted upon or adopted by Congress. Additionally, this Court owes no deference to the Commission. Rather, when the Privacy Act was enacted in 1974, Congress was fully aware that the term “actual damages” included recovery for non-pecuniary compensatory damages and the text of the statute makes clear the intent to provide for recovery of damages that are actually incurred as a result of intentional or willful violations. To construe the statute narrowly, and to limit damages to out of pocket losses, not only conflicts with Act’s stated legislative purpose, but it would also eviscerate the Act’s remedial purpose and leave victims of intentional or willful violations without a remedy. ARGUMENT I. DENYING RECOVERY OF EMOTIONAL DISTRESS DAMAGES ACTUALLY The Congressional purpose for enacting the Privacy Act of 1974 was both to encourage “the widest possible citizen enforcement” of the Act's remedial protections, see S. Rep. No. 1183, 93rd Cong., 2d Sess. at 1, 83, reprinted in U.S. Code Cong. & Ad. News at 6916 & 6997 (hereinafter “USCAN”), and Legislative History of the Privacy Act of 1974, at 154, 236 (1976) (hereinafter “Sourcebook”); and, by so doing, to redress and prevent serious governmental abuses resulting in the violation of the privacy rights of citizens. Id., USCAN at 6916, 6917; Sourcebook at 154-55 (remarks of Sen. Ervin) (“It is designed to prevent the kind of illegal, unwise, overbroad, investigation and record surveillance of law-abiding citizens produced in recent years from actions of some over-zealous investigators, and the curiosity of some government administrators, or the wrongful disclosure and use, in some cases, of personal files held by Federal agencies.”). Obviously, Congress considered the government abuse of power and misuse of personal information that existed in the years preceding 1974 when it created a remedy through the Privacy Act to compensate individuals who fell victim to such “intentional or willful” governmental abuses and deprivation of personal privacy rights. Among the many concerns cited by members of Congress for enacting the Privacy Act included the “creation of the ‘Plumbers,’ a White House unit, and “secret” and illegal “wire-taps” and selective disclosure or misuse of private information for “political purposes,” see Sourcebook at 795-798 (remarks of Sen. Nelson), and “Watergate and related scandals” that “have brought to light a callous disregard for the law and for the sanctity of individual rights . . . ” Sourcebook at 800 (remarks of Sen. Jackson). Congressional findings set forth in the preamble of the Act also expressly provide, inter alia, that the “right to privacy is a personal and fundamental right protected by the Constitution.” See P.L. 93-579, 88 Stat. 1896, the Privacy Act of 1974, Congressional Findings and Purpose § 2(a) (reprinted at 5 U.S.C. § 552a Note).[2] Due to the nature of the privacy rights at issue, Congress created the damages remedy in 5 U.S.C. § 552a(g)(4) “with reference to the nature of the interests protected by” the Act. See Carey v. Piphus, 435 U.S. 247, 265 (1978). Permitting the award of “actual damages” for non-pecuniary harm and emotional distress under 5 U.S.C. § 552a(g)(4) is fully consistent with the purposes and other provisions of the Privacy Act. Significantly, the Privacy Act's preamble specifically waives sovereign immunity “by requiring Federal agencies” to “be subject to civil suit for any damages which occur as a result of willful or intentional action which violates any individual's rights under this Act.” See P.L. 93-579, 88 Stat. 1896, Congressional Findings and Purpose § 2(b)(6) (reprinted in 5 U.S.C. § 552a Note) (emphasis added). Also see, Johnson v. Dept. of Treasury, Internal Revenue Serv., 700 F.2d 971, 975 (5th Cir. 1983) (noting preamble), modified in part on other grnds by Doe v. Chao, 540 U.S. 614 (2004). Surely, damages for non-pecuniary harm actually incurred are a type of “any damages” for which suit has been expressly consented as stated in the Act's preamble. The Privacy Act, the preamble to the Act, and the legislative history of the Act, repeatedly emphasize the importance of protecting personal privacy as a fundamental and constitutional right, and reflect a strong intent that the civil remedies and enforcement provisions further the Act's compensatory and deterrent goals. In order to avoid the absurd result of Privacy Act plaintiffs meeting the injury-in-fact and causation requirements and proving an intentional violation but having no remedy, Congress created a remedy that permits recovery of damages that are actually incurred by the plaintiff. To be eligible to bring a damages claim under the Privacy Act, a plaintiff must show there was an “adverse effect” resulting from the violation. 5 U.S.C. §§ 552a(g)(1)(C) and (g)(1)(D).[3] The most common “adverse effect” demonstrated by victims of Privacy Act violations is the personal effects that are suffered (such as non-pecuniary and non-physical effects like emotional distress, emotional distress or trauma) when personal or embarrassing information is improperly disclosed by a Federal agency without their consent. See, e.g., Jacobs v. National Drug Intelligence Center, 548 F.3d 375, 377-378 (5th Cir. 2008). Whistleblowers and other unpopular critics of Federal agencies often confront the intentional public disclosure of their personal and embarrassing information that is supposed to be held in confidence by Federal agencies. The unauthorized release of such information by Federal agencies violates of Privacy Act’s no disclosure without consent rule. 5 U.S.C. § 552a(b). For example, the Federal Bureau of Investigation made unauthorized public releases of personal, embarrassing and confidential information about the FBI laboratory scientist and agent who reported very serious allegations that called into question the scientific integrity of the FBI crime lab and high profile prosecutions that relied on the lab’s evidence, while at the same time, the FBI refused to provide that whistleblower with access to the information that the agency had released to others. See Whitehurst v. FBI, C.A. No. 96-572, slip op. (Feb. 5, 1997, D.D.C.). The Justice Department later agreed to settle that Privacy Act case where the whistleblower sought non-pecuniary emotional damages for the alleged violation of his privacy rights by the FBI to discredit him.[4] The Department of Defense’s unauthorized release of information from its security and personnel files about Linda Tripp is another example of the type of government abuse the Privacy Act was intended to combat. Tripp v. Dep't. of Defense, 219 F.Supp.2d 85, 87 (D.D.C. 2002) (The Defense Department “conceded liability for the particular disclosure to The New Yorker journalist as a violation of the anti-disclosure provision of the Privacy Act, 5 U.S.C. § 552a(b).”). The government's admitted violation of the Privacy Act as a means to discredit Ms. Tripp demonstrates how the government can misuse information in reprisal against unpopular whistleblowers and for political purposes. Ms. Tripp sought non-pecuniary damages under the Privacy Act and the Defense Department later entered into a settlement.[5] It is only by the recovery of damages for any harms that qualify as an “adverse effect” under 5 U.S.C. §§ 552a(g)(1)(C) and (g)(1)(D), and are proven to be actually incurred resulting from intentional or willful violations, such as intentional disclosure of embarrassing personal information by Federal agencies in violation of 5 U.S.C. § 552a(b), that the Privacy Act's statutory purposes can be fulfilled. However, a restrictive interpretation of the Act, as Petitioners urge, that narrows the scope of actual damages “would frustrate the purposes of the civil remedy” and enforcement provisions because litigants who prove intentional or willful violations of the Act would frequently be left without any remedy, and “an inadequate recovery would reduce both the deterrent impact on the government and the incentives for citizen enforcement.” See Frederick Z. Lodge, Damages Under the Privacy Act of 1974: Compensation and Deterrence, 52 Fordham L. Rev. 611, 622 (1984). Also see, Johnson, 700 F.2d at 977. To interpret the phrase “actual damages” in 5 U.S.C. § 552a(g)(4) to exclude damages for non-pecuniary losses for emotional distress (a harm that provides standing to sue) will frustrate the purposes of the Act and leave Privacy Act plaintiffs without any remedy at all. II. THE PRIVACY ACT DOES NOT PRECLUDE RECOVERY OF EMOTIONAL DISTRESS DAMAGES A narrow construction of the term “actual damages” is not reasonable under the applicable standards of statutory construction, nor does the doctrine of sovereign immunity apply. Accordingly, it is not appropriate to construe the Privacy Act to preclude an award of emotional distress damages actually incurred by the Respondent. Petitioners’ argument in support of a narrow construction relies, in part, on the report of the Privacy Protection Commission in 1977. Pet. Br., pp. 19-22. However, Congress did not delegate to the Privacy Commission congressional authority to define the term “actual damages” in the Privacy Act or to decide whether the Act provides for the recovery of non-pecuniary compensatory damages. Rather, the Commission was asked to review a much more narrow question, whether the Federal government should be liable for general damages for violations of the two provisions of the Act which confer standing to sue. See Doe v. Chao, 540 U.S. 614, 622 (2004). Specifically, Congress asked the Commission to study “whether the Federal Government should be liable for general damages incurred by an individual as the result of a willful or intentional violation of the provisions of sections 552a (g)(1)(C) or (D) of title 5, United States Code.” P.L. 93-579, § 5(c)(2)(B)(iii), 88 Stat. 1907.
The Commission’s recommendations were flawed. In its report, the Commission relied only on the Act’s legislative history and the statute to conclude that the term “actual damages” was intended to be synonymous with “special damages” in defamation cases. Personal Privacy in an Information Society: The Report of the Privacy Protection Commission, Chapter 13 (July 1977). However, the Commission’s report in this respect is incomplete and does not analyze the case law that was in effect prior to passage of the Privacy Act that defined “actual damages” to include emotional distress damages. Nor does the Commission construe the Act in accordance with its purpose or evaluate whether precluding monetary recovery for emotional distress as “actual damages” would frustrate the Privacy Act’s purpose. Congress never acted upon or adopted the Commission’s recommendations or unsupported opinions. Petitioners cite no authority to support according deference to a post-enactment Commission report that was unsupported by any citations to relevant legal authorities or legislative history, and that was never adopted by Congress. There is no basis at all for this Court to accord any deference or weight to the Privacy Commission’s post-enactment report when construing the meaning of the Privacy Act’s damages provision. See Bruesewitz v. Wyeth LLC, 131 S. Ct. 1068, 1081-82 & n.72 (2011) (Scalia, J.) (post-enactment remarks and reports by members of Congress are not a "legislative history" in any sense or a "legitimate tool of statutory interpretation); see also id. at 1092 (Sotomayor, J. dissenting) (describing such materials as a hazardous basis from which to infer the intent of the enacting Congress"). By contrast, the term “actual damages” was understood in the general law and by Congress in 1974 to include recovery for non-pecuniary harm, such as for emotional distress, humiliation and damage to reputation, as well as pecuniary harm. Resp. Br., pp. 12-13. When Congress enacted the Privacy Act it expressly stated that the statute’s purpose was to prove a remedy to include redress such non-pecuniary harm. Id. at pp. 14-17. The prevailing common law and dictionary definition of “actual damages” in use at the time the Privacy Act was enacted included awards for proven emotional distress injuries. Id. at pp. 18-25. Additionally, the contemporaneous construction of other federal statutes enacted prior to the Privacy Act shows that Congress had used the terms “actual damages” and “compensatory damages” as synonymous terms to include awards for non-pecuniary harm. Id. at pp. 25-33. To narrowly construe the Privacy Act’s damages provision to preclude recovery of damages for documented emotional distress or humiliation that is actually suffered by a Privacy Act plaintiff, as urged by the Petitioners, would misconstrue the commonly understood meaning of the term “actual damages” when Congress enacted the Privacy Act. This Court should construe the Privacy Act in accordance with Congress’ intent to create a viable remedy to redress the harm most commonly suffered by persons whose privacy rights are violated when both non-pecuniary harm and willful or intentional violations of the Act are actually proven. CONCLUSION For the foregoing reasons, this Court should affirm the decision of the Ninth Circuit Court of Appeals. Respectfully submitted, David K. Colapinto Stephen M. Kohn National Whistleblower Legal Defense and Education Fund 3238 P Street, NW Washington, DC 20007 (202) 342-6980 dc@whistleblowers.org Counsel for Amicus Curiae National Whistleblower Center [1] Pursuant to Rule 37.6, the Center states that no monetary contributions were accepted for the preparation or submission of this amicus curiae brief and that its counsel authored this brief in its entirety. Counsel for all parties have consented to the filing of an amici curiae brief by the Center. [2] See also, Sourcebook at 769 (remarks of Sen. Ervin) (the Act implements “those recognized values of Western jurisprudence and democratic constitutional government” and “they are the principles upon which our own Constitution rests”); id. at 803 (remarks of Sen. Goldwater) (“By privacy, I mean . . . the right to be protected against disclosure of information given by an individual in circumstances of confidence, and against disclosure of irrelevant embarrassing facts relating to one's own private life . . . . ” and “what the U.S. Supreme Court has referred to as the embodiment of ‘our respect for the inviolability of the human personality,’ and as a right which is ‘so rooted in the traditions and conscience of our people as to be ranked as fundamental.’”). [3] The “reference in §552a(g)(1)(D) to ‘adverse effect’ acts as a term of art identifying a potential plaintiff who satisfies the injury-in-fact and causation requirements of Article III standing . . . . ” Doe v. Chao, 540 U.S. 614, 624 (2004). [4] See Justice Dept. to Pay Settlement to FBI Whistle-Blower Whitehurst, Los Angeles Times (March 12, 1998), http://articles.latimes.com/1998/mar/12/news/mn-28216. [5] See “Defense Dept. settles with Linda Tripp,” USA Today (Nov. 3, 2003), http://www.usatoday.com/news/washington |
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Record Nos. 08-1970 (L) and 08-2196 ______________________________________________ UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT ______________________________________________ DAVID STONE, Plaintiff-Appellant, v. INSTRUMENTATION LABORATORY COMPANY; BRIAN DURKIN; ANN DEFRONZO; RAMON BENET Defendants-Appellees. __________________ On Appeal from the United States District Court for the District of Maryland District Court No. 1:07-cv-03191-WDQ _________________________________________________________________ BRIEF OF AMICI CURIAE URGING REVERSAL In Support of Appellant _________________________________________________________________ On the brief: Thomas Devine, Legal Director Kasey Dunton-Dermont Government Accountability Project 1612 K Street, NW, Suite 1100 Washington, DC 20006 202-457-0034, ext. 124 tomd@whsitleblower.org kmdunton@gmail.com Richard R. Renner Attorney for Amici Curiae National Whistleblower Legal Defense and Education Fund 3233 P St., NW Washington, DC 20007-2756 (202) 342-6980 (202) 342-6984 (FAX) rr@kkc.com Interest of the Amici and Source of Authority to File The Government Accountability Project (GAP) and the National Whistleblower Center (NWC) played important roles in securing the enactment of Section 806 of the Sarbanes-Oxley Act (SOX), 18 U.S.C. §1514A, and the passage of other whistleblower statutes administered by the U.S. Department of Labor upon which Section 806 was modeled. Given this involvement, as well as the amici’s extensive experience litigating whistleblower claims, amici are particularly well-placed both to explain the intent of Congress in connection with the SOX whistleblower provisions and to comment upon the law and facts of the case at bar. GAP is a non-partisan, non-profit organization specializing in legal and other advocacy on behalf of whistleblowers. GAP has a 30-year history of working on behalf of government and corporate employees who expose illegality, gross waste and mismanagement, abuse of authority, substantial or specific dangers to public health and safety, or other institutional misconduct undermining the public interest. GAP has substantial expertise in protecting employees’ free speech and whistleblower rights. GAP is often called upon to comment on proposed laws, regulations, policies, and reforms, and GAP attorneys have testified before Congress over the last two decades concerning the effectiveness of existing statutory protection, submitted formal comments on Department of Labor whistleblower regulations and filed numerous amicus curiae briefs on constitutional and statutory issues relevant to whistleblowers. GAP played a leading role in advocating for the Whistleblower Protection Act of 1989, P.L. 101-12, 103 Stat. 16 (April 10, 1989) (WPA), as well as the WPA’s 1994 amendments. Gap was instrumental in passage of the 1992 amendments to the whistleblower provisions of the Energy Reorganization Act, 42 U.S.C. §5851. More recently, GAP played a role in the passage of the whistleblower provisions of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1514A, and is cited in its legislative history. See 148 Cong. Rec. §6439-6440, 107th Congress, 2d Session (2002). Established in 1988, the National Whistleblower Center is a non-profit tax-exempt public interest organization. The Center regularly assists corporate employees throughout the United States who suffer from illegal retribution for lawfully disclosing violations of federal law. In 2002, the Center worked closely with the Senate Judiciary Committee and strongly endorsed its efforts to “prevent recurrences of the Enron debacle and make similar threats to the nation’s financial markets.” 148 Cong. Rec .S. 7420 (daily ed. July 26, 2002) (remarks of Senator Leahy, quoting from letter signed by the Center as well as the Government Accountability Project). Senator Leahy recognized the role of these amici in the enactment of SOX: This “corporate code of silence” not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. The consequences of this corporate code of silence for investors in publicly traded companies, in particular, and for the stock market, in general, are serious and adverse, and they must be remedied. … Unfortunately, as demonstrated in the tobacco industry litigation and the Enron case, efforts to quiet whistleblowers and retaliate against them for being “disloyal” or “litigation risks” transcend state lines. This corporate culture must change, and the law can lead the way. That is why S. 2010 is supported by public interest advocates, such as the National Whistleblower Center, the Government Accountability Project, and Taxpayers Against Fraud, who have called this bill “the single most effective measure possible to prevent recurrences of the Enron debacle and similar threats to the nation's financial markets.” S. Rep. 107-146, at 10. The amici advocate on behalf of whistleblowers because these truth-tellers uncover and rectify grave problems facing our securities markets and our society at large. Whistleblowers are a bulwark against those who would corrupt government or corporations. Therefore aggressive defense of whistleblowers is crucial to any effective policy to address wrongdoing or abuse of power. Conscientious employees who point out illegal or questionable practices should not be forced to choose between their jobs and their silence. Whistleblowers who take an ethical stand against wrongdoing often do so at great risk to their careers, financial stability, and personal and familial relationships. Society should protect and applaud whistleblowers, because they are saving lives, preserving our health and safety, and protecting vital fiscal resources. Amici respectfully submit this brief to assist the Circuit Court in the resolution of this case. Amici’s interest in the case is to reverse the District Court’s erroneous analysis of the standard of review for cases removed to federal court under Section 806 of SOX. Amici have an interest in assuring that the de novo standard established by Section 806 is applied as written so that whistleblowers will have a standard civil process to adjudicate their claims in cases where the Department of Labor's administrative process exceeds the time limit set by Congress. Amici seek application of Section 806 that is consistent with its plain meaning and intent. Pursuant to Fed. R. App. P. 29 (a) and (b), amici are contemporaneously filing with this Court a motion for leave to file this brief. Summary of the Argument Contrary to the district court’s ruling, the right to review de novo in federal district court if the Secretary does not issue a final decision within 180 days of the complaint is clearly and unambiguously stated in 18 U.S.C. §1514A. Congress’ intent in passing this provision is identified plainly in the Congressional Record. The choice not to include any language that would preclude litigation of issues that had been decided by the Administrative Review Board (ARB) or Administrative Law Judge (ALJ) also shows an intent to allow full de novo review. This interpretation is consistent with discrimination cases heard before the Equal Employment Opportunity Commission (EEOC) in which plaintiffs are permitted to bring the claim to district court as if the EEOC proceedings never took place. Because of the clarity of both the statute and the legislative intent, the district court erred in using Allen v. Stewart Enterprises, Inc., No. 05-4033 (E.D.La. Apr. 6, 2006), as the sole basis for its ruling, particularly because the facts in this matter would not have yielded an “absurd result.” The Allen decision not only goes against numerous precedential cases, but elevates a Secretary’s gratuitous, supplemental comment to a Department of Labor regulation to a level of deference higher than that of a Congressionally-passed statute. If Allen remains precedential in the Fourth Circuit, the Department’s executive officers would have unprecedented authority to erase unequivocal statutory language. Untold numbers of whistleblowers will be deprived of their statutorily-conferred right to a full and fair de novo adjudication of their claims because of institutional limits on the claims process within DOL. ARGUMENT
The plain meaning of 18 U.S.C. §1514A could not be clearer. If an individual files a complaint pursuant to the Sarbanes-Oxley Act of 2002, and no final decision is issued by the Secretary within 180 days, the complainant is entitled to file his case in federal district court for de novo proceedings. SOX provides at 18 U.S.C. §1514A(b)(1) as follows: (1) IN GENERAL- A person who alleges discharge or other discrimination by any person in violation of subsection (a) may seek relief under subsection (c), by-- (A) filing a complaint with the Secretary of Labor; or (B) if the Secretary has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy. [Emphasis added.] Statutory analysis begins with the plain language of the statute, “the language used by Congress.” Am. Tobacco Co. v. Patterson, 456 U.S. 63, 68 (1982) (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 337 (1979)). To best give effect to the intent of Congress, those words must be given their “ordinary meaning.” Am. Tobacco Co., 456 U.S. at 68 (quoting United States v. Am. Trucking Ass’n, 310 U.S. 534, 542 (1940)). “By reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole,” a court can determine whether a statute is plain and unambiguous. See Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). The meaning of Section 1514A has been identified clearly by two other courts. See, e.g. JDS Uniphase Corp. v. Jennings, 473 F.Supp.2d 705, 710 (E.D. Va. 2007) (“This much is uncontroversial...[the complainant] must allow the agency at least 180 days to investigate and issue a decision on the merits. At that point, if no decision is issued, the claimant may file a civil action for de novo review in the district court.”); Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365, 1374 (N.D. Ga. 2004) (“When a plaintiff files suit in federal court under Sarbanes-Oxley, the court conducts a de novo review of the plaintiff’s claim.”). This is not the first time that a statutory scheme has given plaintiffs a “second bite at the apple.” The Equal Employment Opportunity Act of 1972 gives plaintiffs the right to appeal an agency decision to federal district court even after a final decision has been issued by the EEOC. The Fourth Circuit has relied on the plain language of the EEOA and noted that de novo review “makes clear” that the trial in district court “proceeds as if no earlier proceedings had been completed at all.” Laber v. Harvey, 438 F.3d 404, 421 (4th Cir. 2006). In fact, as this Court recognized in Laber, it has been long-established that employees “not only had the right to a de novo judicial consideration of their discrimination claims without regard to the EEOC’s finding of reasonable cause, but also that they were unable to use the EEOC’s finding to compel a finding of discrimination in the district court. (Internal citations omitted)” Laber, 438 F.3d at 421 (citing Chandler, 425 U.S. at 844-45). Congress understood well what its language in SOX means.
While legislative history is not the conclusive source for judicial interpretation, courts are authorized to look to the legislative history when questions of statutory construction arise. Despite the apparent clarity of the whistleblower provision of SOX, if this Court were to find that there is any ambiguity in the statute, it is appropriate to refer to the legislative history. See, e.g., Toibb v. Radloff, 501 U.S. 157, 162, 111 S.Ct. 2197 (1991) (“…although a court appropriately may refer to a statute's legislative history to resolve statutory ambiguity, there is no need to do so here [because the statute is not unclear].”); United States v. Gonzales, 520 U.S. 1, 6, 117 S.Ct. 1032, 1035, 137 L.Ed.2d 132 (1997); Blum v. Stevenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1548 (1984) (“Where, as here, the resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear.”); United States v. Rast, 293 F.3d 735, 737 (4th Cir. 2002) (“When the language of a statute is unclear, [we] may look to the legislative history for guidance in interpreting the statute.”). Legislative history is not enough to “override the ‘plain meaning’ rule.” In re Sunterra Corp., 361 F.3d 257, 265 (4th Cir. 2004). However, when legislative history is in agreement with the plain meaning of the statute, it furthers supports the legislative mandate from the unambiguous statutory language.
Congress’ intent in passing and enacting Section 806 of SOX is clear from the legislative history, and the history is consistent with the plain meaning of the statute. During debate over SOX in the Senate, Senator Patrick Leahy stated “Only if there is not a final decision within 180 days of the complaint (and such delay is not shown to be due to the bad faith of the claimant) may he or she bring a de novo case in federal court with a jury trial available. Should such a case be brought in federal court, it is intended that the same burdens of proof which would have governed in the Department of Labor will continue to govern the action.” Legislative History of Title VIII of HR 2673, the Sarbanes-Oxley Act of 2002, Section 806, 148 Cong. Rec. S7418, S7420 (July 26, 2002) (internal citations omitted). Senator Leahy expressed concern over the administrative process and wanted to give complainants the opportunity to litigate their cases fully and fairly in light of the poor record for plaintiffs at DOL. See id. Congress could see DOL’s record of long delays, deferential consideration of employer claims and administrative determinations, and conclude that the interests at stake deserve full civil trials before juries or Article III judges. For these reasons, Congress intended for complainants to be entitled to a trial in federal court that was not limited by the “record” below.
By failing to include language to limit the record that could be reviewed by the federal court or language that would preclude argument of issues “decided” by OSHA or dismissed primarily by ARB, Congress underscored its desire for a full review de novo. In Chandler v. Roudebush, the Supreme Court noted, “In most instances, of course, where Congress intends review to be confined to the administrative record, it so indicates, either expressly or by use of a term like ‘substantial evidence,’ which has ‘become a term of art to describe the basis on which an administrative record is to be judged by a reviewing court.’” Chandler v. Roudebush, 425 U.S. 840, 862 n.37 (1976). With SOX, Congress chose not to indicate that de novo review should be confined to the administrative record, therefore allowing federal courts to conduct a full review of the issues without regard for the preliminary decisions reached at the administrative level. See Jarod S. Gonzales, “SOX, Statutory Interpretation, and the Seventh Amendment: Sarbanes-Oxley Act Whistleblower Claims and Jury Trials,” 9 U.Pa. J. Lab. & Emp. L. 25, 38 (2006).
The district court opinion rests heavily on the unreported, fatally flawed decision in Allen v. Stewart Enterprises, Inc., No. 05-4033 (E.D.La. Apr. 6, 2006). In the Allen case, the judge ruled that “re-litigating” a case where there was no agency or Secretary decision within 180 days would “lead to absurd results.” Allen at 7. According to the court in Allen, it is necessary in the interest of judicial economy not to litigate the case de novo; instead, the whistleblower’s statutorily-conferred right to remove the case to federal district court if the agency has not issued a ruling within 180 days should be interpreted as a right of the district court to issue a writ of mandamus to force the agency to issue a ruling within a particular timeframe. Not only does this interpretation run contrary to the plain meaning of the statutory language, it goes against the clear and express intent of Congress. It also grants a District Court judge authority to erase language that for decades has controlled significant litigation options, such as EEOC rights, based on a subjective judgment (contrary to that of every other court considering the issue) that the congressional model was “absurd.” Any more than the Secretary of Labor, the Allen judge had no authority to cancel statutory language on non-constitutional grounds. This view of the law cannot coexist with longstanding canons of statutory interpretation.
SOX states that, for any claim brought under the whistleblower protection provision, a final decision by DOL shall be made within 180 days of the complaint being filed; if a final decision is not issued within that time, the employee may remove the claim to federal district court for a trial de novo provided there is no showing of “bad faith of the claimant” that caused the delay. 18 U.S.C. §1514(A)(b)(1)(B). DOL has issued regulations that guide parties and DOL staff in processing SOX cases. 29 C.F.R. Part 1980.[1] However, in this case, the district court judge erroneously relied on comments submitted as part of the promulgation process for DOL’s regulations rather than the clear and plain language of the statute. While DOL has the authority to create procedural regulations for the administration of a statute, it does not have the authority to alter the substantive provisions of a statute unless specifically authorized to do so. Compare 29 U.S.C. § 213(a) (authorizing Secretary to define and delimit terms under the Fair Labor Standards Act); 42 U.S.C. § 2000e-16 (conferring upon EEOC the power to issue rules and regulations under Title VII to prevent discrimination against federal employees). Congress elected not to grant DOL such authority in SOX, choosing instead that whistleblower complaints “shall be governed under the rules and procedures set forth in section 42121(b) of Title 49, United States Code (the Aviation Investment and Reform Act for the 21st Century or ‘AIR21’).” AIR21 specifies the burdens of proof for complaints based on whistleblower discrimination and sets forth procedural and temporal requirements, but it does not authorize OSHA or DOL to modify the statute through substantive regulations. Even if DOL had the authority to create regulations dealing with the substance of SOX, a comment to an agency regulation does not trump a statute when the two are in conflict. Particularly when the statute is clear and unambiguous and is not contradicted by the legislative history, there is no basis to reach for contrary authority. Where regulations conflict with the plain meaning of a statute, the Court must refer to the statute as passed by Congress rather than the agency-promulgated regulation. See, e.g. Ragsdale v. Wolverine Worldwide, Inc., 535 U.S. 81, 92, 122 S.Ct. 1155 (2002) , citing FDA v. Brown and Williamson Tobbacco Corp., 529 U.S. 120, 125, 120 S.Ct. 1291 (2000)(“Regardless of how serious the problem and administrative agency seeks to address, it may not exercise its authority in a manner that is inconsistent with the administrative structure that Congress enacted into law.”). Therefore, the district court erred in using a regulatory comment over a clear statute. B. The Allen Case is Fatally Flawed, Goes Against Precedent, and is not Analogous to the Instant Case. The only precedent relied upon by the district court in the instant matter was the Allen case. In Allen, as discussed above, the District Court for the Eastern District of Louisiana declared that litigating cases under 18 U.S.C. §1514A in district court would be “needless duplicitous litigation” and “lead to an absurd result.” JA at 112, 115. Accordingly, the court declined to follow the plain language of SOX and several years of precedent, opting instead to dismiss Allen’s federal claim in the interest of “judicial economy.” The case was decided without regard for precedent, the clear and unambiguous intent of Congress, or even the plain meaning of the statute, and is therefore fatally flawed. The district court below also erred in relying on Allen because it was not applicable to this case. In Allen, the plaintiff had an actual, meaningful opportunity to litigate his case before an administrative law judge (ALJ), including an evidentiary hearing lasting six days. Stone, however, never had the opportunity to conduct discovery and fully present his case to an ALJ. The ALJ assigned by DOL to Stone’s case issued a summary decision, before discovery. This case, therefore, is more closely analogous to the Hanna case. In Hanna v. WCI Communities, Inc., 348 F.Supp.2d 1322, 1324 (S.D. Fla, 2004), the plaintiff gave notice of intent to file in district court while his initial complaint was still pending with OSHA.[2] Hanna had not conducted discovery, and had not appeared before an ALJ to present his case. The court in that case followed the clear language of the statute and ruled that Hanna had a right to bring his case in district court as he had not received a final ruling from DOL within 180 days of filing his complaint. See id. at 1328. Addressing the DOL regulation on which Allen relies, the court in Hanna stated: Mr. Hanna’s case [did] not present the egregious factual scenario contemplated by the DOL [in the regulation]… Therefore, the court holds, as a matter of law, that the plain language of 18 U.S.C. §1514A(b)(1)(B) allows Mr. Hanna to bring his whistleblower complaint in this court because the DOL had not issued a final decision within 180 days of the filing of the complaint. Ibid, internal citations omitted. The instant matter is more analogous to that in Hanna. The amici urge this Court to reject application of the severely flawed Allen precedent. C. Other Employee Protection Statutes give Plaintiffs a “Second Bite at the Apple.” In the Allen case, the judge voiced concern that issues could be relitigated in federal district court after being all but decided below. Congress was well aware of this possibility when it enacted SOX. It does not agree with the Secretary of Labor or District Court’s judgment about whistleblowers’ due process rights. It has repeated the de novo “second bite” court access model five times since 2002 when it enacted SOX. It since reaffirmed its decision to rely on the “second bite” model in the following statutes: Energy Reorganization Act, 42 USC 5851(b)(4); Surface Transportation Assistance Act, 49 USC 31105(c); National Transit Systems Security Act of 2007, 6 USC 1142(c)(7); Federal Rail Safety Act, 49 USC 20109(d)(3); Defense Authorization Act, 10 USC 2409(c)(2); and Consumer Product Safety Improvement Act, 49 USC 2087(b)(4). If allowed to stand, the decision below will allow a court to trump its subjective assessments and Congress’ authority to legislate a judgment about whistleblower rights it has enacted six times in the last six years. D. The decision below cannot coexist with the constitution’s separation of powers. The Secretary did not have constitutional authority to legislate on any grounds, and the district court had none to reject the stastutory language on non-constitutional grounds. It is the proper role of Congress to set out national policy and express that policy in law. By assuring that subordinate courts uphold the law as written, this Court honors the separation of powers established in our Constitution. The Constitution confers on Congress the responsibility to decide the jurisdiction of the district courts. U.S. Constitution, Art. I, Section 8, Clause 9 (“To constitute Tribunals inferior to the supreme Court”). Federal courts have a “virtually unflagging” obligation to adjudicate claims within their jurisdiction. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246-47 (1976); accord Quakenbush v. Allstate Ins. Co., 517 U.S. 706, 716, 116 S.Ct. 1712, 1720-21 (1996); New Orleans Pub. Serv., Inc. (NOPSI) v. Council of New Orleans, 491 U.S. 350, 368, 109 S.Ct. 2506, 2518 (1989) (abstention cases). As one observer has noted, “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” Reich v. Miss Paula's Day Care Center, Inc., 37 F.3d 1191 (6th Cir. 1994), quoting Henry Louis Mencken, A Book of Burlesques (3d ed. 1920). In the absence of unconstitutional provisions in the statute, the court did not have the authority under the Constitution to erase unequivocal statutory language giving plaintiffs a second opportunity to “litigate” their claims. It is not “absurd” to follow the law as Congress wrote it. CONCLUSION If the district court decision is allowed to stand, Section 806 will lose a crucial element and discourage employees from coming forward to speak up against fraud, abuse, mismanagement, and waste of finances. Accordingly, the amici respectfully request that the Court reverse the district court’s erroneous decision. Respectfully Submitted by: _/s/ Richard R. Renner_______ Richard R. Renner Attorney for Amici Curiae On the brief: Thomas Devine, Legal Director Kasey Dunton-Dermont RULE 32(a)(7)(C) CERTIFICATE I HEREBY CERTIFY that the foregoing Brief for Amici Curiae complies with the type-volume limitation of Federal Rule of Appellate Procedure 32(a)(7)(B). The Brief is composed in a 14-point proportional typeface, Times New Roman. As reported by the Microsoft Word 2008 for Mac application, the contents of the Brief (exclusive of those parts permitted to be excluded under FRAP and the local rules of this court) contain 4,060 words. Respectfully submitted by: _/s/ Richard R. Renner_______ Richard R. Renner CERTIFICATE OF SERVICE I HEREBY CERTIFY that on December 17, 2008, I caused two copies (eight to the Clerk) of the foregoing Brief of Amici Curiae Urging Reversal, in Support of Appellant, to be served by U.S. mail service or express delivery, postage prepaid, upon: R. Scott Oswald Adam Augustine Carter The Employment Law Group, P.C. 888 17th Street, NW, Suite 900 Washington, D.C. 20006 Robert M. Shea Scott J. Connolly MORSE, BARNES-BROWN & PENDLETON, P.C. Reservoir Place 1601 Trapelo Road Waltham, Massachusetts 02451 U.S. Court of Appeals for the Fourth Circuit Patricia S. Connor, Clerk 1100 East Main Street, Suite 501 Richmond, Virginia 23219-3517 _/s/ Richard R. Renner_______ Richard R. Renner [1] In one curious regulation, the employee must also file a notice of complaint with the administrative law judge or ARB 15 days before he or she files the case in federal district court, thereby giving the administrative reviewing authority an opportunity to close out the case and issue a final decision prior to the employee’s removal. 29 C.F.R. §1980.114(b). There is no statutory basis for adding this hurdle to access relief in district courts. [2] Thirteen days after Hanna gave OSHA notice of his intent to file in district court, OSHA issued a preliminary determination on his SOX complaint. |
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| Tides v. Boeing |
Appeal No. 10-35238
______________________________________________
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
______________________________________________
NICHOLAS P. TIDES and MATTHEW CRAIG NEUMANN,
Plaintiffs-Appellants,
v.
THE BOEING COMPANY,
Defendant-Appellee.
__________________
On Appeal from the United States District Court
for the Western District of Washington
District Court Nos. C08-1601-JCC, C08-1736-JCC
_____________________________________________________________
BRIEF OF AMICUS CURIAE
NATIONAL WHISTLEBLOWERS CENTER URGING REVERSAL
In Support of Appellant
_____________________________________________________________
Richard R. Renner
Attorney for Amici Curiae
National Whistleblower Legal
Defense and Education Fund
3233 P St., NW
Washington, DC 20007-2756
(202) 342-6980
(202) 342-6984 (FAX)
rr@kkc.com
September 22, 2010
TABLE OF CONTENTS
I. Media disclosures are within SOX’s scope of protection
A. Media disclosures are a recognized means by which employees can “cause” information to be provided or proceedings to commence.
B. SOX’s remedial purpose supports a broad scope of protection.
C. Because disclosures to the media serve an essential function in uncovering financial fraud, it is unreasonable to read Section 806 of the Sarbanes-Oxley Act to exclude protections for media disclosures.
D. Given the absence of case law interpreting 18 U.S.C. 1514A, this Court should look to other federal whistleblower provisions to gain an understanding of how to interpret Sarbanes-Oxley.
E. The First Amendment protects whistleblower disclosures to the media by public employees.
F. Protection under Title VII is determined from a balancing of the reasonableness of the disclosure and the employer interest at stake.
CERTIFICATION OF INTERESTED PARTIES
Cases
Bechtel Constr. Co. v. Secretary of Labor,
50 F.3d 926 (11th Cir. 1995) 16
Beck v. Prupis,
529 U.S. 494 (2000) 1
Blum v. Stevenson,
465 U.S. 886 (1984) 15
Caminetti v. United States,
242 U.S. 470 (1917) 24
Clark v. Riley,
595 F.3d 1258 (11th Cir. 2010) 14
Collins v. Beazer Homes USA, Inc.,
334 F. Supp. 2d 1365 (N.D Ga. 2004) 25, 28
Connick v. Myers,
461 U.S. 138 (1983) 30
County of Wash. V. Gunther,
452 U.S. 161 (1981) 17
Crandon v. United States,
494 U.S. 152 (1990) 13
Donovan v. R.D. Andersen Construction Company, Inc.,
552 F. Supp. 249, 253 (D. Kan. 1982) 28
Dunn v. CTFC,
519 U.S. 465 (1997) 14
English v. General Elec. Co.,
496 U.S. 72 (1990) 1, 16
EEOC v. Waffle House,
534 U.S. 279 (2002) 1
Garcetti v. Ceballos,
547 U.S. 410 (2006) 30
Gutierrez v. Regents of the University of California,
ARB No. 99-116, ALJ No. 1998-ERA-019 (Nov. 13, 2002) 26
Haddle v. Garrison,
525 U.S. 121 (1998) 1
Hochstadt v. Worcester Foundation,
545 F.2d 222 (1st Cir. 1976) 32
Horton v. Dep’t of the Navy,
66 F.3d 279, 282 (Fed. Cir. 1995) 19, 24, 29
Huffman v. Office of Personnel Management,
263 F.3d 1341 (Fed. Cir. 2001) 13, 24, 28
In re Sunterra Corp.
361 F.3d 257 (4th Cir. 2004) 15
Jefferies v. Harris County Community Action Ass’n,
615 F.2d 1025 (5th Cir. 1980) 32
Johnson v. Siemens Building Technologies,
ARB No. 08-032, ALJ No. 2005-SOX-015 2
Klopfenstein v. PCC Flow Technologies Holdings, Inc.,
ARB Case No. 04-149, 2004-SOX-11 (May 31, 2006) 16
Love v. Pullman Co.,
404 U. S. 522 (1972) 14
O’Day v. McDonnell Douglas Helicopter Co.,
79 F.3d 756 (9th Cir. 1996) 32
Phillips v. Interior Bd. of Mine Operations Appeals,
500 F.2d 772 (D.C. Cir. 1974), cert. denied, 420 U.S. 938 (1975) 9
Phillips v. Stanley Smith Security, Inc.,
ARB No. 98-020, ALJ No. 1996-ERA-30 (Jan. 31, 2001) 27, 28
Pickering v. Board of Educ.,
391 U.S. 563 (1968) 30
Silver v. KCA, Inc.,
586 F.2d 138 (9th Cir. 1978) 32
Stone v. Instrumentation Lab. Co.,
591 F.3d 239 (4th Cir. 2009) 1
Sullivan v. Finkelstein,
496 U.S. 617, 631 (1990) 17
Sumner v. United States Postal Service,
899 F.2d 203 (2d Cir. 1990) 32
Van Asdale v. Int’l Game Technology,
577 F.3d 989 (9th Cir. 2009) 16
Vermont Agency Of Natural Resources v. United States ex rel. Stevens,
529 U.S. 765 (2000) 1
Wedderspoon v. City of Cedar Rapids, Iowa,
80-WPC-1 (Dep’t of Labor July 11, 1980) 26
Wrighten v. Metropolitan Hosp., Inc.,
726 F.2d 1346 (9th Cir. 1984) 32
Zipes v. Trans World Airlines, Inc.,
455 U.S. 385 (1982) 14
Statutes
15 U.S.C. § 2622 10
18 U.S.C. § 1514A 4, 25
18 U.S.C. § 1514A(a) 7, 16
29 U.S.C. § 661(c) 28
30 U.S.C. §§ 801, et seq. (1970) 8
33 U.S.C. § 1367 26
42 U.S.C. § 5851 10, 25
42 U.S.C. § 7622 10
42 U.S.C. § 9610 11
49 U.S.C. § 31105 11
49 U.S.C. § 42121 11
49 U.S.C. § 60129 11
Congressional Reports and Record
S. Rep. 107-146 1, 3
148 Cong. Rec. S7418 (July 26, 2002)
Statements of Senator Leahy 6
148 Cong. Rec. S7420 (July 26, 2002)
Statements of Senator Leahy 17, 18, 19
148 Cong. Rec. H5472 (July 25, 2002)
Statements of Representative Jackson-Lee 29
148 Cong. Rec. H5473 (July 25, 2002)
Statements of Representative Jackson-Lee 19
148 Cong. Rec. H5466 (July 25, 2002)
Statements of Representative Kelly 23
Additional Authorities
Blowing the Whistle on Whistleblower Protection: A Tale of Reform Versus Power
Mary Kreiner Ramirez, 76 U. Cin. L. Rev. 183, 205 (2007) 23
EEOC Compliance Manual, Section 8-II(B)(2) 31
Freedom of Speech Denied, Dignity Assaulted: What the Whistleblowers Experience in the US,
Joyce Rothschild, Current Sociology (Virginia Polytechnic Institute and State University) 884 at 896 (2008) 23
On Capital Markets of the H. Comm. on Financial Services,
111th Congress (2009) (statement of Harry Markopolos, Certified Fraud Examiner) 21
S.E.C Opens Investigation into Enron,
Alex Berenson, N.Y. Times, Nov. 1, 2001 21
Unfulfilled Expectations: An Empirical Analysis of Why Sarbanes–Oxley Whistleblowers Rarely Win,
Richard Mobley, 49 Wm. & Mary L. Rev. 65, 155 (2007) 23
Who Blows the Whistle on Corporate Fraud?,
Alexander Dyck, Adair Morse & Luigi Zingales, 40 (University of Chicago 2009) 22
Established in 1988, the National Whistleblowers Center (NWC) is a non-profit tax-exempt public interest organization. The NWC regularly assists corporate employees throughout the United States who suffer from illegal retribution for lawfully disclosing violations of federal law. The NWC was instrumental in urging Congress to enact Section 806 of the Sarbanes-Oxley Act (SOX) to encourage employees to come forward with information about potential frauds and other violations. S. Rep. 107-146, at 10. The NWC has extensive litigation experience with the federal environmental laws on which SOX is modeled, and successfully urged Congress to use the process currently in place with the Department of Labor. The NWC maintains a nationwide attorney referral service for whistleblowers, and provides publications and training for whistleblowers’ advocates.
The NWC has participated as amicus curiae in numerous cases including the following: English v. General Electric, 496 U.S. 72 (1990); EEOC v. Waffle House, 534 U.S. 279 (2002); Haddle v. Garrison, 525 U.S. 121 (1998); Vermont Agency Of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000); Beck v. Prupis, 529 U.S. 494 (2000); Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4th Cir. 2009) (a SOX case). The Department of Labor recently asked the NWC and other groups to submit amicus briefs on the application of SOX to the employees of subsidiaries. Johnson v. Siemens Building Technologies, ARB No. 08-032, ALJ No. 2005-SOX-015.[1]
The amicus advocate on behalf of whistleblowers because these truth-tellers uncover and rectify grave problems. Whistleblowers are a bulwark of accountability against those who would corrupt government or corporations. Aggressive defense of whistleblowers is therefore crucial to any effective policy to address wrongdoing or abuse of power. Conscientious employees who point out illegal or questionable practices should not be forced to choose between their jobs and their conscience.
Whistleblowers who take an ethical stand against wrongdoing often do so at great risk to their careers, financial stability, emotional well-being and familial relationships. Society should protect and applaud whistleblowers, because they are saving lives, preserving our health and safety, and protecting vital fiscal resources.
Senator Leahy recognized the role of these amicus in the enactment of SOX:
This “corporate code of silence” not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. The consequences of this corporate code of silence for investors in publicly traded companies, in particular, and for the stock market, in general, are serious and adverse, and they must be remedied. …
Unfortunately, as demonstrated in the tobacco industry litigation and the Enron case, efforts to quiet whistleblowers and retaliate against them for being “disloyal” or “litigation risks” transcend state lines. This corporate culture must change, and the law can lead the way. That is why S. 2010 is supported by public interest advocates, such as the National Whistleblower Center, the Government Accountability Project, and Taxpayers Against Fraud, who have called this bill “the single most effective measure possible to prevent recurrences of the Enron debacle and similar threats to the nation’s financial markets.”
S. Rep. 107-146, at 10 [emphasis added].
Amicus’ interest in the case is to reverse the district court’s erroneous analysis of the scope of protection for whistleblowers.
The district court erred in creating a per se rule that disclosures to the media are in all circumstances unprotected by the Sarbanes-Oxley Act of 2002 (SOX), 18 U.S.C. § 1514A. Media disclosures serve an important function in bringing fraud to light. The historical power of the media to influence government action against corruption rightly influenced case law under other whistleblower laws. Congress was experienced with the whistleblower protections laws enforced through the Department of Labor (DOL) when it passed SOX. The legislative history of SOX supports a broad scope of protection, broad enough to include media disclosures. Amicus ask this Court to find that SOX can protect media disclosures.
The media play an essential role in urging action against misconduct. The 1968 Supreme Court ruling in Pickering, the collapse of Enron and Bernie Madoff’s Ponzi Scheme are examples. It is impossible to overstate the role that media exposure has played in fueling government intervention into fraud and in exposing abuse to public scrutiny. The media focus attention on problems requiring priority.
SOX’s anti-fraud provisions serve public interests crucial to the security of our financial markets and the economy as a whole. The law is at risk of losing its effectiveness by a district court decision that would allow fraudsters to intimidate their staff into choosing less effective means of making disclosures, or into making no disclosures at all. Reasonable media disclosures must be “protected activity.” Under traditional rules of statutory interpretation, such protection is a natural application of the language and purpose of SOX.
This Court has adopted a balancing test to determine if media disclosures are protected under Title VII and the ADEA. This Court balances “the purpose of the Act to protect persons engaging reasonably in activities opposing . . . discrimination, against Congress’ equally manifest desire not to tie the hands of employers in the objective selection and control of personnel.” Wrighten v. Metropolitan Hosp., Inc., 726 F.2d 1346, 1355 (9th Cir. 1984) (holding a press conference is protected). Amicus urges this Court to use the same balancing test for all whistleblower cases.
Congress was aware of the case law developed under other federal whistleblower protections, and chose to use similar language in the enactment of Sarbanes-Oxley. It is therefore appropriate for this Court to look at that same body of law arising from similar whistleblower statutes in interpreting Section 806. Courts have repeatedly drawn the conclusion that media disclosures are essential components to revealing fraud and misconduct to the federal government. Consistent with this body of case law, this Court should find that media disclosures are protected.
Finally, in recognizing an interest in protecting whistleblowers under SOX, Senator Patrick Leahy intended that whistleblowers have protection when “they take lawful acts to disclose information.” 148 Cong. Rec. S7418 (July 26, 2002) (Statements of Sen. Leahy). This protection is intended to ensure that whistleblowers can safely report waste, fraud and abuse without risking their careers. By forcing potential whistleblowers to choose between their careers and the truth, the district court decision risks losing the 15.5% of corporate fraud cases disclosed through the media.
Given that the intent of Congress in establishing whistleblower protection is clear from the legislative history, the best way to ensure accountability and protection for whistleblowers, and to serve the clear Congressional intent, is to recognize that media disclosures are within the scope of activities protected by SOX.
- Media disclosures are a recognized means by which employees can “cause” information to be provided or proceedings to commence.
Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A(a) (“SOX”), sets out the scope of protected activity as follows:
(a) No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 780(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, 1343, 1344, or 1348, 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) a Federal regulatory or law enforcement agency;
(B) any Member of Congress or any committee of Congress; or
(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or
(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.
The key word in this statute for this case is “cause.” Long before Congress considered creating SOX, Congress used this word to encompass the full range of methods employees might use to raise concerns about a host of dangers to the public interest. In turn, courts readily understood that to “cause” information to be disclosed or proceedings to be filed includes the act of disclosing information to the media.
Congress first used the word “cause” to describe a scope of protected activity in the Federal Coal Mine Health and Safety Act of 1969, Pub. L. No. 91-173, 83 Stat. 742, 30 U.S.C. §§ 801, et seq. (1970). Section 110(b)(1) prohibited discrimination against a miner because that miner, “(A) has notified the Secretary or his authorized representative of any alleged violation or danger, (B) has filed, instituted, or caused to be filed or instituted any proceeding under this chapter, or (C) has testified or is about to testify in any proceeding resulting from the administration or enforcement of the provisions of this chapter.”
In the seminal case on the scope of this language, Judge Wilkey held that a miner’s notification to a foreman of possible dangers was “an essential preliminary stage in both the notification to the Secretary (A) and the institution of proceedings (B), and consequently brings the protection of the Safety Act into play.” Phillips v. Interior Bd. of Mine Operations Appeals, 500 F.2d 772 (D.C. Cir. 1974), cert. denied, 420 U.S. 938 (1975). Judge Wilkey explained as follows:
Safety costs money. The temptation to minimize compliance with safety regulations and thus shave costs is always present. [fn 24] The miners are both the most interested in health and safety protection, and in the best position to observe the compliance or noncompliance with safety laws. Sporadic federal inspections can never be frequent or thorough enough to insure compliance. Miners who insist on health and safety rules being followed, even at the cost of slowing down production, are not likely to be popular with mine foreman or mine top management. Only if the miners are given a realistically effective channel of communication re health and safety, and protection from reprisal after making complaints, can the Mine Safety Act be effectively enforced.
n. 24 Responsible mine operators who comply with health and safety standards have an obvious interest in seeing uniform standards enforced throughout the industry: competitors who get away with cutting costs by cutting safety are really engaged in unfair competition; the temptation to meet it by engaging in similar tactics is ever-present.
***
To hold that Phillips was not protected against discharge because he took the first prescribed step under the Kencar procedure to invoke the Mine Safety Act, to hold that only a miner’s discharge after he reaches the Bureau of Mines with his complaint is protected by the Safety Act, would nullify not only the protection against discharge but also the fundamental purpose of the Act to compel safety in the mines.
After Judge Wilkey made clear that “cause to” would be construed broadly to protect employees making disclosures, Congress used the same, or expanded, wording to protect employees engaged in sensitive environmental or safety areas. In 1976, Congress enacted the Toxic Substances Control Act (TSCA), 15 U.S.C. § 2622, and protected an employee who, “commenced, caused to be commenced, or is about to commence or cause to be commenced a proceeding under this chapter . . . .” In 1977, Congress used the same language when it added 42 U.S.C. § 7622 to the Clean Air Act.
When Congress enacted the Federal Mine Safety and Health Act of 1977, it preserved the phrasing Judge Wilkey relied upon and protected miners who, “instituted or caused to be instituted any proceeding under or related to this Act.” In 1978, Congress enacted the Energy Reorganization Act (ERA), 42 U.S.C. § 5851,[2] and protected an employee who, “caused to be commenced, or is about to commence or cause to be commenced a proceeding under this chapter . . . .” In 1980, Congress enacted the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or “Superfund” Law), 42 U.S.C. § 9610, and protected an employee or representative who, “has provided information to a State or to the Federal Government, filed, instituted, or caused to be filed or instituted any proceeding under this chapter . . . .”
Congress used similar language in the Surface Transportation Assistance Act of 1982, 49 U.S.C. § 31105, the 2000 Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR 21”), 49 U.S.C. § 42121, and the Pipeline Safety Improvement Act of 2002 (PSIA), 49 U.S.C. § 60129. The pattern points to a congressional desire to draw upon the established body of law for a broad scope of protection. For over three decades, whistleblowers enjoyed an unbroken line of precedent, and continued expansion of statutory protections, that recognized media disclosures as a means by which they might “cause” proceedings to be instituted.
In the wake of the Enron scandal, Congress saw that the enforcement of corporate accounting and disclosure rules was also important enough for a whistleblower protection. Congress again turned to the “cause to” language thus assuring broad protection. Congress even increased the number of agencies to whom whistleblowers could “cause” disclosures to be made. Whereas earlier whistleblower law protected disclosures to law enforcement agencies, SOX Section 806 protections are triggered when a whistleblower causes information to be provided to a regulatory agency, a law enforcement agency, a member of Congress or a supervisor, or when the information assists an investigation conducted by these entities. Congress could not have intended to reduce the scope of protection when it increased the number of intended recipients to whom disclosures could be made. Under a reasonable reading of the language, disclosure of wrongdoing to the media that assists in an investigation conducted by a member of Congress or of law enforcement could be covered under the statute.
The phrase “provide information” makes clear that it is the act of disclosure that creates protection. The breadth of protection for disclosures is emphasized in the next phrase which protects any lawful action to “cause information to be provided.” There is no limitation on how a complainant might cause the information to be provided, other than that it must be a lawful act. This provision protects employees when they make disclosures through telephone calls, through written correspondence, through email, through a union safety official, public interest group, or through a newspaper or other media outlet.
The media are a well-known means of communicating concerns to government, and the media serve a historical function in prompting government officials to act. The very nature of the media – a means of communication in which the content is shared with the public – gives the media the power to influence government in a way that private forms of communication do not.
It is a commonly held rule of statutory interpretation that each line in a statute is read in conjunction with the whole. See Huffman v. Office of Personnel Management, 263 F.3d 1341, 1352 (Fed. Cir. 2001) (citing Crandon v. United States, 494 U.S. 152, 158 (1990). In addition, courts must take into account the “design of the statute as a whole”, its “object” and policy. See id. Thus, courts have recognized that when reading statutory language, courts must avoid “unreasonable” or “absurd” results. See Clark v. Riley, 595 F.3d 1258, 1266 (11th Cir. 2010). A result can be considered unreasonable if it is so absurd as to be against the intent of Congress in enacting the provision. See e.g. Dunn v. CTFC, 519 U.S. 465, 480 (1997).
Remedial statutes, however, cannot be read literally when the result is contrary to the purpose of the law. Instead, courts must read it with an eye towards its remedial purpose. In Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 397 (1982), the Court stated:
In Love v. Pullman Co., 404 U. S. 522 (1972), we announced a guiding principle for construing the provisions of Title VII. Declining to read literally another filing provision of Title VII, we explained that a technical reading would be "particularly inappropriate in a statutory scheme in which laymen, unassisted by trained lawyers, initiate the process." Id. at 404 U. S. 527. That principle must be applied here as well.
What better way is there to call the attention of these decision-makers to potential securities law violations than to have them read it in a newspaper? Even as electronic media become more ubiquitous, the traditional media have remained an important means of communicating matters of public interest to inundated policy makers. Line workers who have no access to K Street lobbyists can still reach out to local journalists to deliver a message that has impact. Disclosures to the media are a time-tested and accepted means of making disclosures effective.
One of the key purposes of SOX is to detect and prosecute fraud. The employee protections in Section 806, give life to this purpose by assuring employees that they will be protected from retaliation if they assist in the public purpose of detecting and eradicating frauds. This remedial purpose urges a construction of SOX in a way that will further this objective.
If this Court were to find that there is any ambiguity in the statute, it is appropriate to refer to the legislative history. Blum v. Stevenson, 465 U.S. 886, 896 (1984) (“Where, as here, the resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear.”). Legislative history is not enough to “override the ‘plain meaning’ rule.” In re Sunterra Corp., 361 F.3d 257, 265 (4th Cir. 2004). When legislative history is in agreement with the plain meaning of the statute, it furthers supports the legislative mandate from the unambiguous statutory language.
Courts have traditionally given whistleblower protection laws a broad construction of the scope of protection in line with their remedial purposes. English v. General Elec. Co., 496 U.S. 72 (1990); Bechtel Constr. Co. v. Secretary of Labor, 50 F.3d 926, 932 (11th Cir. 1995) (“it is appropriate to give a broad construction to remedial statutes such as nondiscrimination provisions in federal labor laws”).
“[T]o encourage disclosure, Congress chose statutory language [for SOX] which ensures that an employee’s reasonable but mistaken belief that an employer engaged in conduct that constitutes a violation of one of the six enumerated categories is protected.” Van Asdale v. Int’l Game Technology, 577 F.3d 989 (9th Cir. 2009).
In Klopfenstein v. PCC Flow Technologies Holdings, Inc., ARB Case No. 04-149, 2004-SOX-11 (May 31, 2006), p. 17, the Department of Labor’s Administrative Review Board (ARB) explained:
SOX protection applies to the provision of information regarding not just fraud, but also “violation of … any rule or regulation of the Securities and Exchange Commission.” 18 U.S.C.A. § 1514A(a)(1). . . . A complainant need not express a concern in every possible way or at every possible time in order to receive protection, so long as the complainant’s actual communications “provide information, cause information to be provided, or otherwise assist in an investigation” regarding a covered violation. 18 U.S.C.A. § 1514A(a)(1).
The ARB further explained how the content of the disclosure drives the determination of whether it is protected as follows:
It certainly is possible that Klopfenstein engaged in protected activity. The problems with PACO’s in-transit inventory suggested, at a minimum, incompetence in Flow’s internal controls that could affect the accuracy of its financial statements. See T. 716-717; RX 28. Klopfenstein’s communications thus related to a general subject that was not clearly outside the realm covered by the SOX, and it certainly is possible that Klopfenstein could have believed that the problems were a deficiency amounting to a “violation” — within the Collins zone of SOX protection.
Legislative history is a tool for courts to gauge congressional intent, see County of Wash. V. Gunther, 452 U.S. 161, 182 (1981) (Rehnquist, J., dissenting). Legislative history that a court may rely upon includes language in committee reports, floor speeches or statements submitted in committee, although it is generally accepted that “subsequent legislative history” is not as persuasive as other forms of legislative history. See Sullivan v. Finkelstein, 496 U.S. 617, 631 (1990) (Scalia, J., concurring).
SOX Section 806 was passed to ensure that employees are protected when “they take lawful acts to disclose information or otherwise assist … in detecting and stopping fraud.” 148 Cong. Rec. S7420 (July 26, 2002) (Statements of Sen. Leahy). Senator Leahy implicitly recognizes that some public disclosures should not be protected, “since the only acts protected are ̀‘lawful’ ones, the provision would not protect illegal actions, such as the improper public disclosure of trade secret information.” Id.
Opponents of whistleblower protections may suggest that because the Act “protects employees when they take lawful acts to disclose information or otherwise assist criminal investigators, federal regulators, Congress, their supervisors (or other proper people within a corporation), or parties in a judicial proceeding,” that media disclosures should not be protected under the Act, as they are not listed specifically. Id. Such a construction of the legislative history perverts the purpose of the Act. In regard to this portion of the legislative history, it should be noted that the word or creates a disjunction between “disclose information” and “otherwise assist in criminal investigation.” In keeping with the purpose of the law, the Court should not read any limitation into which disclosures are protected, so long they are “lawful.”
Sen. Leahy understood that corporations are consumed with denying whistleblowing protections to their employees, noting, “Unfortunately, companies with a corporate culture that punishes whistleblowers for being ‘disloyal’ and ‘litigation risks’ often transcend state lines, and most corporate employers, with help from their lawyers, know exactly what they can do to a whistleblowing employee under the law.” Id. Therefore, Sen. Leahy noted, “U.S. laws need to encourage and protect those who report fraudulent activity that can damage innocent investors in publicly traded companies.” Id. By declaring disclosures to the media are protected activity under SOX, this Court will ensure that whistleblowers are encouraged, not forsaken, for courageous efforts to protect investors in publicly traded companies.
Rep. Jackson-Lee announced her support for SOX because it “extends whistleblower protections to corporate employees, thereby protecting them from retaliation in cases of fraud and other acts of corporate misconduct.” 148 Cong. Rec. H5473 (July 25, 2002) (Statements of Rep. Jackson-Lee). Representative Jackson-Lee would not be content with limited protections for corporate whistleblowers, as she supported providing “whistleblowers in the private sector, like Sherron Watkins, the same protections as government whistleblowers.” Id. Senator Leahy echoed Rep. Jackson-Lee’s sentiments. As noted above, the Whistleblower Protection Act, the primary law providing protections to government whistleblowers, includes protections for employee disclosures to the media. See Horton v. Dep’t of the Navy, 66 F.3d 279, 282 (Fed. Cir. 1995). If private sector whistleblowers are to be afforded the same protections as government employee whistleblowers, then it is evident that Congress intended the Sarbanes-Oxley Act to include protections for disclosures to the media.
The district court opinion takes Congress’ expansion of the scope of recipients of information and turns congressional intent on its head by claiming that the list actually narrows the scope of protection when it comes to using the media as a means of making disclosures. The district court errs in failing to see that Congress made no change to the use of the word “cause” such that it would limit the means of disclosure. Tides can reasonably believe that Boeing management reads the newspaper, and can use the media to disclose compliance concerns so long as his actions are reasonable in context. Because the district court acted without consideration of the developed case law and the balancing of interests, but instead adopted a per se exclusion of disclosures to the media from SOX’s zone of protection, this case must be remanded for an application of the correct law to the facts of this case.
Protecting disclosures of accounting violations through the media is consistent with SOX’s remedial purpose of assisting the investing public in understanding the true financial position of publicly traded securities, and further assists in prompting government officials to act on disclosed violations. It is entirely consistent with SOX’s remedial purpose to protect disclosures made through the media.
- Because disclosures to the media serve an essential function in uncovering financial fraud, it is unreasonable to read Section 806 of the Sarbanes-Oxley Act to exclude protections for media disclosures.
Justice Brandeis famously commented that “sunlight is the best disinfectant,” recognizing that exposure, more than any regulation, is the best disincentive against fraud and abuse. It is for this reason that, throughout American history, whistleblowers have consistently and repeatedly relied on media disclosures to effectively disseminate information about fraud and waste, which resulted in increased transparency and investigation into fraud and abuse.
For example, the Securities and Exchange Commission (SEC) did not move to investigate the Enron Corporation’s financial irregularities until newspapers broke the story. See Alex Berenson, “S.E.C Opens Investigation into Enron,” N.Y. Times, Nov. 1, 2001.[3] Despite knowledge of Bernie Madoff’s from whistleblower reports of Harry Markopolos, the SEC did not take enforcement actions until details of the Ponzi scheme were broken to the press. See Assessing the Madoff Ponzi Scheme and Regulatory Failures: Hearing Before the Subcomm. On Capital Markets of the H. Comm. on Financial Services, 111th Congress (2009) (statement of Harry Markopolos, Certified Fraud Examiner).
Empirical analyses of whistleblower cases also note the importance of media disclosures in prosecuting fraud. A study conducted at the Booth School at the University of Chicago noted that 15.5% of corporate fraud is detected by the media, compared to 14.1 % detected by industry regulators, government agencies and self-regulatory organizations. Alexander Dyck, Adair Morse & Luigi Zingales, Who Blows the Whistle on Corporate Fraud?, 40 (University of Chicago 2009). By forcing potential whistleblowers to choose between their careers and the truth, a narrow reading of Section 806 risks losing the 15.5% of corporate fraud cases disclosed through the media.
Evidence suggests that SOX has not lived up to its congressional purpose. Of the 700 whistleblower cases filed with OSHA during the first three years after SOX, only 3.6 percent won relief at the initial administrative stage, and only 6.5 percent won on appeal, suggesting that SOX’s employee protection has failed to protect employee whistleblowers as intended. See Joyce Rothschild, Freedom of Speech Denied, Dignity Assaulted: What the Whistleblowers Experience in the US, Current Sociology (Virginia Polytechnic Institute and State University) 2008, 884 at 896 (citing Richard Mobley, Unfulfilled Expectations: An Empirical Analysis of Why Sarbanes–Oxley Whistleblowers Rarely Win, 49 Wm. & Mary L. Rev. 65–155. As Mary Kreiner Ramirez stated in Blowing the Whistle on Whistleblower Protection: A Tale of Reform Versus Power, “unquestionably, precluding employees from raising significant concerns because of related confidential or sensitive information ignores critical opportunities to gain information to protect against serious criminal acts or threats to public safety.” 76 U. Cin. L. Rev. 183 at 205 (2007).
The issue of protecting whistleblower disclosures to the media boils down to the question of whether or not Congress intended SOX to “to shine a bright light into the shadows of America’s corporate board rooms so the public is not kept in the dark, and when they make an investment, that investment will be sound and based on truth and openness and honesty.” See 148 Cong. Rec. H5466 (July 25, 2002) (Statements of Representative Kelly). Indeed, if SOX is intended to bring Brandeis’s disinfectant of sunlight, then it must protect disclosures to the media.
Courts have recognized that media disclosures are often a method of disclosing information directly to the government. See Huffman v. Office of Personnel Management, 263 F.3d 1341, 1351 (Fed. Cir. 2001) (citing Horton, 66 F.3d at 282 (holding that media disclosures are an indirect way of disclosing information of wrongdoing to a person in a position to provide a remedy)). The Horton court noted that the purpose of the Whistleblower Protection Act, to encourage the disclosure of wrongdoing, was best served by providing different avenues for the disclosure to take place. 66 F.3d at 282.
This Court cannot draw any negative conclusions from the fact that the statute does not spell out protection for media disclosures. While the statute’s plain language is usually the best gauge of Congressional intent, see Caminetti v. United States, 242 U.S. 470, 490 (1917), it is not to be read too narrowly. A reasonable conclusion can be drawn as to why media disclosures were not spelled out. In the statute, Congress was listing agencies that commonly investigate financial fraud. Congress did not choose to list the modes of communication employees might use to make their disclosures. The statute does not distinguish between disclosures sent by mail, or those conveyed by telephone. Indeed, Congress could wisely anticipate that future whistleblowers may use means that are not yet invented. Thus, it is reasonable to see why the media would have been left off, without necessarily leading to the conclusion that media disclosures were not intended to be protected.
In conclusion, it is unreasonable for this Court to read this statute in a manner that does not protect media disclosures. Given the statutory purpose of the law, excluding media disclosures from the scope of the protection would be contrary to the policy behind SOX. As such, the plain language of 1514A should be read to incorporate protections for media disclosures.
- Given the absence of case law interpreting 18 U.S.C. 1514A, this Court should look to other federal whistleblower provisions to gain an understanding of how to interpret Sarbanes-Oxley.
In the absence of case law interpreting 18 U.S.C. § 1514A (“Section 806”), courts “look to case law applying provisions of other federal whistleblower statutes for guidance,” including the Energy Reorganization Act of 1974, 42 U.S.C. § 5851 (“ERA”). Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365, 1374 (N.D Ga. 2004). At the time Congress enacted the Sarbanes-Oxley Act, a wide variety of laws enforced by DOL, in areas as sensitive as nuclear power, had protected public disclosures to the media. In Gutierrez v. Regents of the University of California, ARB No. 99-116, ALJ No. 1998-ERA-019, slip op. at 6 (ARB Nov. 13, 2002), Gutierrez was an employee “who communicated with newspapers, which quoted his health and safety concerns in articles.” The ARB concluded that he engaged in protected activity under ERA. It would be an anomaly to find public disclosures of safety concerns in Gutierrez to be protected while declaring similar public disclosures of fraud or other illegal activity to the media not protected under SOX.
In Wedderspoon v. City of Cedar Rapids, Iowa, 80-WPC-1 (Dep’t of Labor July 11, 1980), the Secretary of Labor adopted the ALJ’s findings that an employee’s disclosure to a reporter about unlawful sludge discharges prohibited under the Water Pollution Control Act (section 507 of 33 U.S.C. 1367) constituted protected activity. The Secretary agreed with the ALJ’s observation that “while complainant did not himself ask either the cognizant federal authorities or DEQ for an investigation, the causal nexus between what he in fact did and the official action which resulted is so close as to the conclusion that complainant ‘caused to be … initiated [a] proceeding under this chapter [i.e. the Act]’” Id. at p.11.
When Tides disclosed information to the Seattle P-I regarding Boeing’s failure to comply with SOX, his disclosure should be protected because the publication of the information should meet the same “causal nexus” found to protect media disclosures under the Water Pollution Control Act in Weddington.[4] Therefore, an employee’s disclosures to the media should be protected activity under SOX because such disclosures, when used in a media publication, “cause information to be provided” to Federal agencies.
In Phillips v. Stanley Smith Security, Inc., ARB No. 98-020, ALJ No. 1996-ERA-30 (ARB Jan. 31, 2001), p. 14, the ARB noted that under the ERA disclosures to the media may be protected activity, even if they violate company policies regarding providing information to unauthorized persons, so long that the whistleblower made the disclosure in a good-faith effort to report security-related concerns. In Phillips, however, the employee who disclosed sensitive information to the media did so out of a selfish desire to protect his job, not to raise genuine security issues. Because the employee’s disclosure was not motivated by concerns for safety, it was not found to be protected whistleblowing activity. Unlike Phillips, Tides and Neuman made their disclosures to the press in a good-faith effort to bring Boeing into compliance with SOX. Such good-faith disclosures to the media should be recognized as protected whistleblowing activity under SOX.
In another federal whistleblower case, the court held that disclosures to the media are protected activity under the Occupational Safety and Health Act. Donovan v. R.D. Andersen Construction Company, Inc., 552 F. Supp. 249, 253 (D. Kan. 1982). The OSH Act cited in Donovan mirrors SOX. 29 U.S.C. § 661(c) (OSH Act, Section 11(c)). The Court in Donovan held that the “broad remedial purpose of [the Occupational Health and Safety] Act mandates that an employee’s communication with the media regarding the conditions are protected by section 11(c).” 552 F. Supp. at 253. SOX, like the OSH Act, was enacted to afford employees in publicly traded companies “a broad remedial purpose” Collins, 334 F. Supp. 1377.
Case law under the federal employee whistleblower statute, the Whistleblower Protection Act, also supports protecting whistleblower disclosures to the media. In Huffman, cited above, the Court recognized that employee disclosures to the media are protected by the Whistleblower Protection Act. In Horton, the Court noted that because the purpose of the WPA “is to encourage disclosure of wrongdoing to persons who may be in a position to act to remedy it, either directly by management authority, or indirectly as in disclosure to the press” 66 F.3d at 282.
Similarly, SOX was passed because “corporate insiders are the key witnesses that need to be encouraged to report fraud.” 148 Cong. Rec. S7358 (July 26, 2002) (Statements of Senator Leahy). SOX was passed because, “whistleblowers in the private sector, like Sharron Watkins, should be afforded the same protections as government whistleblowers.” 148 Cong. Rec. H5472 (July 25, 2002) (Statements of Representative Jackson-Lee). Therefore, employee media disclosures should be viewed as protected whistleblowing activities under SOX, as they are under Whistleblower Protection Act.
In the seminal case enforcing the First Amendment through a cause of action for public employees suffering retaliation for whistleblowing, the Supeme Court protected a public school teacher who disclosed through the media that school management cared more about financing spectator sports than classroom education. Pickering v. Board of Educ., 391 U.S. 563, 568 (1968). Subsequent Supreme Court case law has led to a balancing test to determine if media disclosures by public employees are protected. Connick v. Myers, 461 U.S. 138, 146-54 (1983). The content, form, and context of the speech is considered and balanced with the government employer’s reasonable belief that the protected speech would adversely affect agency operations. The district court below did not employ any balancing test, but made a blanket declaration that disclosures to the media are never protected. That is clearly incorrect.
Still, the balancing test under the First Amendment has no application to statutory whistleblower protections. The Supreme Court made clear in Garcetti v. Ceballos, 547 U.S. 410 (2006) that where its holdings about First Amendment protections are deemed too narrow, Congress is free, and even encouraged, to expand protection through whistleblower statutes. 547 U.S. at 425. The First Amendment sets a floor, not a ceiling, for whistleblower protection law.
- Protection under Title VII is determined from a balancing of the reasonableness of the disclosure and the employer interest at stake.
The EEOC Compliance Manual, Section 8-II(B)(2)[5] lists the following as an example of protected opposition to unlawful discrimination:
Complaining to anyone about alleged discrimination against oneself or others
A complaint or protest about alleged employment discrimination to a manager, union official, co-worker, company EEO official, attorney, newspaper reporter, Congressperson, or anyone else constitutes opposition. Opposition may be nonverbal, such as picketing or engaging in a production slow-down. Furthermore, a complaint on behalf of another, or by an employee’s representative, rather than by the employee herself, constitutes protected opposition by both the person who makes the complaint and the person on behalf of whom the complaint is made.
The EEOC adds that protection depends on a consideration of whether the employee’s conduct is “reasonable”:
The manner in which an individual protests perceived employment discrimination must be reasonable in order for the anti- retaliation provisions to apply. In applying a “reasonableness” standard, courts and the Commission balance the right of individuals to oppose employment discrimination and the public’s interest in enforcement of the EEO laws against an employer’s need for a stable and productive work environment.
Citing Sumner v. United States Postal Service, 899 F.2d 203 (2d Cir. 1990). This Court has made the balancing test explicit for determining whether an employee’s conduct constitutes “protected activity” under Title VII and the ADEA. This Court balances “the purpose of the Act to protect persons engaging reasonably in activities opposing . . . discrimination, against Congress’ equally manifest desire not to tie the hands of employers in the objective selection and control of personnel.” Wrighten v. Metropolitan Hosp., Inc., 726 F.2d 1346, 1355 (9th Cir. 1984) (quoting Hochstadt v. Worcester Foundation, 545 F.2d 222, 231 (1st Cir. 1976)); O’Day v. McDonnell Douglas Helicopter Co., 79 F.3d 756 (9th Cir. 1996) (applied to ADEA). An employee’s opposition activity is protected only if it is “reasonable in view of the employer’s interest in maintaining a harmonious and efficient operation.” Silver v. KCA, Inc., 586 F.2d 138, 141 (9th Cir. 1978); accord Jefferies v. Harris County Community Action Ass’n, 615 F.2d 1025, 1036 (5th Cir. 1980) (activity must be “reasonable in light of the circumstances”). In the circumstances of the Wrighten case, this Court concluded that holding a press conference to oppose discrimination was protected.
Amicus here contend that the same balancing test should apply to protected activity under SOX and other whistleblower protection laws. Here, the information disclosed was damaging to the employer only to the extent that it revealed concerns about the employer’s compliance. These circumstances weigh in favor of protection. In any event, the district court’s per se exclusion is wrong and must be reversed.
For the reasons mentioned above, amicus ask this court to hold that media disclosures can be protected under Section 806 of the Sarbanes-Oxley Act. Amicus ask this Court to reverse and vacate the opinion of the district court and remand this matter for further proceedings consistent with the established law.
Respectfully Submitted by:
/s/ Richard R. Renner
Richard R. Renner
Attorney for Amicus Curiae
National Whistleblower Legal
Defense and Education Fund
3233 P St., NW
Washington, DC 20007-2756
(202) 342-6980
(202) 342-6984 (FAX)
I HEREBY CERTIFY that the foregoing Brief for Amici Curiae complies with the type-volume limitation of Federal Rule of Appellate Procedure 32(a)(7)(B). The Brief is composed in a 14-point proportional typeface, Times New Roman. As reported by the Microsoft Word 2008 for Mac application, the contents of the Brief (exclusive of those parts permitted to be excluded under FRAP and the local rules of this court) contain 6,718 words.
Respectfully submitted by:
/s/ Richard R. Renner
Richard R. Renner
CERTIFICATION OF INTERESTED PARTIES
I HEREBY CERTIFY that the National Whistleblowers Center is a not-for-profit corporation based in Washington, DC, and that there are no corporations that own a 10% share or more of it.
Respectfully submitted by:
/s/ Richard R. Renner
Richard R. Renner
I HEREBY CERTIFY that on September 22, 2010, I caused the foregoing Brief of Amicus Curiae National Whistleblowers Center Urging Reversal, in Support of Appellant, to be served through this Court's electronic filing system upon:
Office of the Clerk
U.S. Court of Appeals
95 Seventh Street
San Francisco, CA 94103-1526
John J. Tollefsen
Tollefsen Law PLLC
2122 164th Ave SW, Suite 300
Lynnwood, WA 98037-4901
Email: john@tollefsenlaw.com
Eric Martin (Jonathan Harman)
McGuire Woods LLP
One James Center, 901 East Cary St
Richmond, VA 23219-4030
Email: JHarmon@McGuireWoods.com
EMartin@McGuireWoods.com
/s/ Richard R. Renner
Richard R. Renner
[1] The NWC’s amicus brief is available at http://www.dol.gov/arb/briefs/08-032/index.htm
[2] Congress amended the ERA in 1992 and clarified that the modes of engaging in protected activity include notifying one’s employer, refusing to engage in illegal activity, and testifying before Congress or in a governmental proceeding. None of these additions could be construed as constricting the protection for disclosures made through the media.
[3] Available at http://www.nytimes.com/2001/11/01/business/sec-opens-investigation-into-enron.html
[4] The whistleblower’s protection should be no different even if the media disclosure results in no enforcement action, or even in no publication. An employee cannot know at the time of disclosure how others will respond to that disclosure. Yet, the public purpose requires that the employee know that he or she will have legal protection at the time the disclosure is made. Otherwise, the protection would fail in its purpose of encouraging the disclosure of potential violations.
[5] Available from: http://www.eeoc.gov/policy/docs/retal.html#IIpartB
| Schroeder v. Greater New Orleans Federal Credit Union |
Appeal No. 10-31169
______________________________________________
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
______________________________________________
MARY SCHROEDER,
Plaintiff-Appellant,
v.
GREATER NEW ORLEANS FEDERAL CREDIT UNION, et al.
Defendants-Appellees.
__________________
On Appeal from the United States District Court
for the Eastern District of Louisiana
District Court No. 09-3647
_____________________________________________________________
BRIEF OF AMICUS CURIAE
NATIONAL WHISTLEBLOWERS CENTER URGING REVERSAL
In Support of Appellant
_____________________________________________________________
Stephen M. Kohn, sk@kkc.com
Richard R. Renner, rr@kkc.com
Attorneys for Amici Curiae
National Whistleblower Legal
Defense and Education Fund
3233 P St., NW
Washington, DC 20007-2756
(202) 342-6980
(202) 342-6984 (FAX)
TABLE OF CONTENTS
Statement of Interest......... 1
Table of Authorities
Cases
Bechtel Constr. Co. v. Secretary of Labor,
50 F.3d 926 (11th Cir. 1995)........ 22
Beck v. Prupis,
529 U.S. 494 (2000)........ 2
Booker v. Brown & Williamson Tobacco Co.,
879 F.2d 1304, 1312 (6th Cir.1989)........ 30
Brower v. Runyon,
178 F.3d 1002, 1006 (8th Cir.1999)........ 30
CBOCS West, Inc. v. Humphries,
553 U.S. 442, 128 S. Ct. 1951 (2008)........ 30
Clark v. Riley,
595 F.3d 1258 (11th Cir. 2010)........ 22
Crawford v. Metropolitan Government of Nashville and Davidson
County, 555 U.S. ___, 129 S.Ct. 846 (2009)........ 31
DeFord v. Secretary of Labor,
700 F.2d 281, 286 (6th Cir. 1983)........ 29
Deravin v. Kerik,
335 F.3d 195, 203 (2d Cir.2003)........ 30
Dunn v. CTFC,
519 U.S. 465 (1997)........ 22
English v. General Elec. Co.,
496 U.S. 72 (1990)........ 1, 22
EEOC v. Waffle House,
534 U.S. 279 (2002)........ 1
Gomez-Perez v. Potter,
553 U.S. 474 (2008)........ 30
Guttman v. Passaic Valley Sewerage Comm.,
85-WPC-2, D&O of SOL, pp. 10-13 (March 13, 1992),
aff’d, Passaic Valley Sewerage Comm. v. U.S.
Department of Labor, 992 F.2d 474, 478-79 (3rd Cir. 1993)........ 28-29
Guiseppi v. Walling,
144 F.2d 608, 623-624 (2d Cir. 1944)........ 23
Haddle v. Garrison,
525 U.S. 121 (1998)........ 1
Haley v. Retsinas,
138 F.3d 1245, 1250 (8th Cir. 1998)........ 21
Hill v. Mr. Money Finance Company & First Citizens Banc Co.,
309 Fed. Appx. 950 (6th Cir., 2009)........ 33
Jackson v. Birmingham Board of Education,
544 U.S. 167 (2005)........ 30
Johnson v. Siemens Building Technologies,
ARB No. 08-032, ALJ No. 2005-SOX-015........ 2
Kansas Gas & Elec. vs Brock,
780 F.2d 1505 (10th Cir. 1985)........ 13, 28, 33
Klopfenstein v. PCC Flow Technologies Holdings, Inc.,
ARB Case No. 04-149, 2004-SOX-11 (May 31, 2006)........ 27
Love v. Pullman Co.,
404 U. S. 522 (1972)........ 22
Munsey v. Federal Mine Safety and Health Review Comm’n,
595 F.2d 735 (D.C. Cir. 1978)........ 8, 12-13, 33-34
NLRB v. Retail Store Employees Union,
570 F.2d 586 (6th Cir.), cert. denied, 439 U.S. 819 (1978)........ 29
NLRB v. Scrivener,
405 U.S. 117, 122 (1972)........ 29
Passaic Valley Sewerage Comm. v. U.S. Department of Labor,
992 F.2d 474, 478-79 (3rd Cir. 1993)........ 28-29
Pettway v. American Cast Iron Pipe Co.,
411 F.2d 998, 1006 n. 18 (5th Cir. 1969)........ 31
Phillips v. Interior Bd. of Mine Operations Appeals,
500 F.2d 772 (D.C. Cir. 1974),
cert. denied, 420 U.S. 938 (1975)........ 8, 11-13, 33-34
Ridenour v. Andrews Fed’l Credit Union,
897 F.2d 715, 721 n.5 (4th Cir. 1990)........ 32-33
Sias v. City Demonstration Agency,
588 F.2d 692, 695 (9th Cir.1978)........ 30-31
Simas v. First Citizens’ Fed. Credit Union,
170 F.3d 37, 43 (1st Cir. 1999)........ 10, 26-27
Stephen v. Greater New Orleans Fed. Credit Union,
2009 U.S. Dist. LEXIS 106913 (E.La. 2009)........ 33
Stone v. Instrumentation Lab. Co.,
591 F.3d 239 (4th Cir. 2009)........ 2
Sylvester v. Parexel International LLC,
ARB No. 07-123, ALJ No. 2007-SOX-39, 42........ 2
Vermont Agency Of Natural Resources v. United States ex rel. Stevens,
529 U.S. 765 (2000)........ 1-2
Willy v. Administrative Review Bd.,
423 F.3d 483, 489, n. 11 (5th Cir. 2005)........ 14, 27, 35
Wyrick v. TWA Credit Union,
804 F. Supp. 1176 (D.C.W.Mo., 1992)........ 33
Zipes v. Trans World Airlines, Inc.,
455 U.S. 385 (1982)........ 22-23
Statutes
12 U.S.C. § 1790b (FCUA)........ 6, 9, 21, 33, 35
12 U.S.C. § 1831j(a)(2)........ 21
15 U.S.C. § 2622 (TSCA)........ 12
15 U.S.C. §§ 7241, 7262 (SOX)........ 6, 14, 17
18 U.S.C. § 1350 (SOX)........ 6, 14, 17
18 U.S.C. § 1514A (SOX)........ 1
29 U.S.C. § 158(a)(4)........ 12
30 U.S.C. §§ 801, et seq. (FCMHSA)(1970)........ 10
42 U.S.C. § 5851 (ERA)........ 13
42 U.S.C. § 7622 (CAA)........ 12
42 U.S.C. § 9610 (Superfund)........ 13
49 U.S.C. § 31105 (STAA)........ 14
49 U.S.C. § 42121 (AIR 21)........ 14
49 U.S.C. § 60129 (PSIA)........ 14
Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law No. 111-203, Section 1057........ 10
Regulations
Federal Acquisition Regulations, FAR 52.203-13(b)(3)(i)
52.203-13(c)(2)(i) Code of Business Ethics and Conduct........ 6-7, 16
Regulatory Comments
75 FR 70,498 (SEC) 34
75 FR 70,493 (SEC) 6-7, 33-34
75 FR 75,730, 75,733 (CFTC) 6-7
Sentencing Guidelines for Organizations
Section 8B2 7, 15
Section 8B2.1(a) 15
Section 8B2.1(b)(4) 15
Section 8B2.1(b)(5)(C) 15
Section 8C2.5(f)(2) 16
Congressional Reports and Record
H.R. Rep. No. 101-54(I), at 308 (1989), reprinted in
1989 U.S.C.C.A.N. 86, 103-04 ........ 9-10
S. Rep. 107-146........ 1
S. Rep. No. 186, 36, 95th Cong. 1st Sess.
1977 U.S.C.C.A.N. 3436 ........ 9, 13
148 Cong. Rec. S7358 (July 26, 2002)
Statements of Senator Leahy........ 31
148 Cong. Rec. H5472 (July 25, 2002)
Statements of Representative Jackson-Lee........ 31-32
Additional Authorities
2010 Report to the Nations on Occupational Fraud
Association of Certified Fraud Examiners........ 25
Assoc. of Corp. Counsel Statement to the Sentencing Commission........ 17, 34
EEOC Compliance Manual, Pt. V(C)(1)(b) at 615-0108 n. 59 (2002)........ 32
Ethics Resource Counsel statement to SEC (12/17/2010)........ 19
Ethics Resource Counsel
Blowing the Whistle on Workplace Misconduct........ 20
United States Chamber of Commerce Statements to the SEC
on enactment of Section 21F of the Securities Exhange
Comission Act, 2010 ........ 18, 20, 25-26, 34
Contractor Business Ethics Compliance Program & Disclosure
Requirements, Joseph D. West, et al......... 16
Who Blows the Whistle on Corporate Fraud?,
Alexander Dyck, Adair Morse & Luigi Zingales, 40 (University of Chicago 2009)........ 24-25
Statement of Interest
The National Whistleblowers Center (NWC) is a non-profit tax-exempt public interest organization. Since 1988, NWC has assisted corporate employees who suffer from illegal retribution for lawfully disclosing violations of federal law. The NWC was instrumental in urging Congress to enact Section 806 of the Sarbanes-Oxley Act (SOX) to encourage employees to come forward with information about potential frauds and other violations. S. Rep. 107-146, at 10. The NWC provides assistance to whistleblowers, helps them obtain legal counsel, provides representation for important precedent-setting cases and urges Congress and administrative agencies to enact laws, rules and regulations that will assist in helping employees report fraud both within their corporate compliance programs and directly to government agencies. The NWC’s programs are set forth on its web page, located at www.whistleblowers.org.
The NWC has participated as amicus curiae in numerous court cases, including: English v. General Electric, 496 U.S. 72 (1990); EEOC v. Waffle House, 534 U.S. 279 (2002); Haddle v. Garrison, 525 U.S. 121 (1998); Vermont Agency Of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000); Beck v. Prupis, 529 U.S. 494 (2000); Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4th Cir. 2009). The Department of Labor recently asked the NWC and other groups to submit amicus briefs in two corporate finance whistleblower cases, Johnson v. Siemens Building Technologies, ARB No. 08-032, ALJ No. 2005-SOX-015;[1] Sylvester v. Parexel International LLC, ARB No. 07-123, ALJ NO. 2007-SOX-39, 42.[2]
The NWC has played an important role in working with Congress to ensure that Congress’ intent to fully protect whistleblowers was fulfilled. For example, Senator Patrick Leahy, the principle sponsor of the whistleblower protection provisions contained in the Sarbanes-Oxley Act, recognized the role of the amicus in the enactment of SOX:
This “corporate code of silence” not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. The consequences of this corporate code of silence for investors in publicly traded companies, in particular, and for the stock market, in general, are serious and adverse, and they must be remedied. …
Unfortunately, as demonstrated in the tobacco industry litigation and the Enron case, efforts to quiet whistleblowers and retaliate against them for being “disloyal” or “litigation risks” transcend state lines. This corporate culture must change, and the law can lead the way. That is why S. 2010 is supported by public interest advocates, such as the National Whistleblower Center, the Government Accountability Project, and Taxpayers Against Fraud, who have called this bill “the single most effective measure possible to prevent recurrences of the Enron debacle and similar threats to the nation’s financial markets.”
S. Rep. 107-146, at 10 [emphasis added].
The role of whistleblowers in detecting and preventing fraud is now well recognized. Organizations as diverse as PricewaterhouseCoopers,[3] the Ethics Resource Center and the Association of Certified Fraud Auditors,[4] have all released scientifically based studies pointing out the critical role employees play in detecting fraud, and the importance of organizations implementing internal whsitleblower programs in order to protect and encourage employee whistlebowing.
Most recently, the Ethics Resource Center, a corporate ethics organization founded in 1922, objectively studied employee reporting behaviors and concluded that building strong internal compliance programs – in which employees were encouraged to report potential frauds internally – was key to the detection of fraud.[5]
Whistleblowers are a bulwark of accountability against those who would corrupt government or corporations. Aggressive defense of whistleblowers is crucial to any effective policy to address wrongdoing or abuse of power. Conscientious employees who point out suspicious activity should not be forced to choose between their jobs and their conscience.
Whistleblowers who take an ethical stand against wrongdoing often do so at great risk to their careers, financial stability, emotional well-being and familial relationships. The laws are intended to protect and applaud whistleblowers, because they are saving lives, preserving our health and safety, and protecting vital fiscal resources.
NWC’s interest in the case is to reverse the district court’s erroneous analysis of the scope of protection for whistleblowers, and ensure that the intent of Congress to protect employees who report waste, fraud and abuse are protected, from the very first steps employees take to report fraud up through and including the participation of such employees in formal civil or criminal proceedings initiated by government regulators. As set forth in this brief, and as fully supported by numerous corporate-sponsored organizations, protecting employees who file their initial concerns within a corporate chain-of-command is absolutely essential for the proper workings of federal whistleblower protection laws. As far back as 1969, Congress clearly intended these internal report to be fully protected.
Summary of the Argument
The district court, at p. 15 of its November 15, 2010, order, erred in holding that internal disclosures are unprotected by the Federal Credit Union Act, 12 U.S.C. § 1790b. Congress was aware of the case law developed under other federal whistleblower protections when it enacted the 1989 amendments that include 12 U.S.C. § 1790b. It is therefore appropriate for this Court to look at that same body of law arising from similar whistleblower statutes in interpreting 12 U.S.C. § 1790b.
Moreover, many American corporations have developed internal compliance programs that encourage their employees to raise concerns through their established channels. These internal programs were developed with the full support of the federal government, and were strongly encouraged by the Federal Sentencing Commission. After the collapses of corporate giants Enron and WorldCom, Congress made such programs mandatory for all publicly traded corporations. See 15 U.S.C. §§ 7241, 7262 (Sections 302 and 404 of SOX) (civil provisions); 18 U.S.C. § 1350 (Section 906) (criminal provision). They have also mandated such programs for all large corporations engaging in government contracting. Federal Acquisition Regulation, FAR 52.203-13(b)(3)(i), 52.203-13(c)(2)(i) Code of Business Ethics and Conduct. Regulatory agencies, such as the Securities Exchange Commission and Commodity Futures Trading Commission, have recently stated on the official public record the importance of these internal corporate programs in advancing the public interest. 75 FR 70,493 (SEC), 75 FR 75,730, 75,733 (CFTC).
The nation’s largest businesses also see these programs as crucial to assure that all operations are conducted lawfully and in compliance with organizational policy. These internal compliance programs have become the standard means through which employees report suspicious activity so that proper attention, including governmental attention, can be applied. Recognition of internal whistleblowing as a protected action would align with the goals of groups representing American corporations such as the United States Chamber of Commerce and the Association of Corporate Counsel. The federal government even recognizes the development of internal programs as a mitigating factor when corporations face criminal liability. Section 8B2 of the Sentencing Guidelines. As such, employee reports through internal channels are now the accepted means of commencing all levels of compliance proceedings.
Finally, as far back as 1969 Congress was addressed this issue, and at every juncture has clarified its intent that internal corporate whistleblowing must be fully protected, and that employees who contact their managers about potential wrongdoing are in fact engaging in a critical “first step” in reporting misconduct. The dispute over internal verus external whistleblowing was first adjudictated in cases arising under the 1969 Mine Health and Safety Act. That law, like the banking law at issue in this case, used langauge that appeared to only cover external whistleblowing to government agencies. However, the first court cases that reviewed that law found that internal whistleblowing was fully protected as the critical “first step” in what may ultimately become a formal complaint with a governmental regulatory authority. Phillips v. Interior Bd. of Mine Operations Appeals, 500 F.2d 772 (D.C. Cir. 1974); Munsey v. Federal Mine Safety and Health Review Comm’n, 595 F.2d 735 (D.C. Cir. 1978). These cases were explicitly endorsed by Congress in 1977, and have remained the controlling guidance on this issue, regardless of the precise language Congress has used in various laws. S. Rep. No. 186, 36, 95th Cong. 1st Sess. 1977, U.S. Code Cong. 2nd Ad. News, 3436.
Argument
I. INTERNAL disclosures are within THE scope of protection.
A. Internal disclosures are a recognized means by which employees can request information to be provided or proceedings to commence.
The Federal Credit Union Act, 12 U.S.C. § 1790b (“FCUA”), sets out the scope of protected activity as follows:
(a) In general.
(1) Employees of credit unions. No insured credit union may discharge or otherwise discriminate against any employee with respect to compensation, terms, conditions, or privileges of employment because the employee (or any person acting pursuant to the request of the employee) provided information to the Board or the Attorney General regarding any possible violation of any law or regulation by the credit union or any director, officer, or employee of the credit union.
Congress added this section to the FCUA as Section 932 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA and other banking laws were intended to “enhance the regulatory enforcement powers of the depository institution’s regulatory agencies to protect against fraud, waste and insider abuse.” H.R. Rep. No. 101-54(I), at 308 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 103-04; cited in Simas v. First Citizens’ Fed. Credit Union, 170 F.3d 37, 43 (1st Cir. 1999). In the wake of the savings and loan scandal, FIRREA presaged how Congress would react to Enron and Worldcom (with SOX), and the present financial crisis (with the Dodd-Frank Wall Street Reform and Consumer Protection Act). In each response, Congress has included whistleblower protections to assure that government agencies, legislators and the public would have the information needed to discover and remedy frauds before they harm consumers, the market and our economy.
Long before Congress considered creating an employee protection in FCUA, Congress used sparse wording to encompass the full range of methods employees might use to raise concerns about a host of dangers to the public interest. It was readily understood that within this protection was the process of internal reporting by employees. The Federal Coal Mine Health and Safety Act of 1969, 30 U.S.C. §§ 801, et seq. (1970), Section 110(b)(1) prohibited discrimination against a miner that:
(A) has notified the Secretary or his authorized representative of any alleged violation or danger, (B) has filed, instituted, or caused to be filed or instituted any proceeding under this chapter, or (C) has testified or is about to testify in any proceeding resulting from the administration or enforcement of the provisions of this chapter.
In this seminal case on the scope of this language, Judge Wilkey held that a miner’s notification to a foreman of possible dangers was “an essential preliminary stage in both the notification to the Secretary (A) and the institution of proceedings (B), and consequently brings the protection of the Safety Act into play.” Phillips v. Interior Bd. of Mine Operations Appeals, 500 F.2d 772 (D.C. Cir. 1974), cert. denied, 420 U.S. 938 (1975). Judge Wilkey explained as follows:
Safety costs money. The temptation to minimize compliance with safety regulations and thus shave costs is always present. The miners are . . . in the best position to observe the compliance or noncompliance with safety laws. Sporadic federal inspections can never be frequent or thorough enough to insure compliance. Miners who insist on health and safety rules being followed, even at the cost of slowing down production, are not likely to be popular with mine foreman or mine top management. Only if the miners are given a realistically effective channel of communication re health and safety, and protection from reprisal after making complaints, can the Mine Safety Act be effectively enforced.
To hold that Phillips was not protected . . . would nullify not only the protection against discharge but also the fundamental purpose of the Act to compel safety in the mines. [Footnote omitted.]
In Munsey v. Federal Mine Safety and Health Review Comm’n, 595 F.2d 735 (D.C. Cir. 1978), the Court reinforced the holding in Phillips. 595 F.2d at 741. The Munsey Court then reviewed this legislative history.
Senator Kennedy stated that the new section would give coal miners the same protection from reprisal that workers already had under other legislation. 115 Cong.Rec. 27948 (1969). Specifically, he referred to section 8(a)(4) of the National Labor Relations Act, 29 U.S.C. § 158(a)(4) (1976).[6] 595 F.2d at 742-43.
After these decisions made clear that whistleblower protection statutes would be construed broadly to protect employees making disclosures, Congress used similar wording to protect employees engaged in environmental or safety areas. In 1976, Congress enacted the Toxic Substances Control Act (TSCA), 15 U.S.C. § 2622, and protected an employee who, “commenced, caused to be commenced, or is about to commence or cause to be commenced a proceeding under this chapter . . . .” See also, 42 U.S.C. § 7622 (1977), the Clean Air Act.
When Congress amended the Federal Mine Safety and Health Act in 1978, it explicitly approved Judge Wilkey’s interpretation of the Act. In 1978, Congress enacted the Energy Reorganization Act (ERA), 42 U.S.C. § 5851,[7] and protected an employee who, “caused to be commenced, or is about to commence or cause to be commenced a proceeding under this chapter . . ..” In Kansas Gas & Elec. Co. v. Brock 780 F.2d 1505, 1511-12 (10th Cir. 1985), the Court stated:
[T]he legislative history of the FMSA amendment shows that Congress did, in fact, intend the older version of the amendment to afford protection to internal complaints and the older version of the amendment is what the ERA provision was modeled after. “The committee intends to insure the continuing vitality of various judicial interpretations of § 110 of the Coal Act which are consistent with the broad protections of the bill’s provisions; see e.g., Phillips v. IBMA, 163 U.S. App. D.C. 104, 500 F.2d 772 (D.C. Cir. 1974); Munsey v. Morton, 165 U.S. App. D.C. 379, 507 F.2d 1202 (D.C. Cir. 1974).” S. Rep. No. 186, 36, 95th Cong. 1st Sess. 1977, U.S. Code Cong. 2nd Ad. News, 3436. (Emphasis added).
In 1980, the “Superfund” Law, 42 U.S.C. § 9610, protected an employee or representative who, “has provided information to a State or to the Federal Government, filed, instituted, or caused to be filed or instituted any proceeding under this chapter . . ..” Congress used similar language in the Surface Transportation Assistance Act of 1982, 49 U.S.C. § 31105, the 2000 Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR 21”), 49 U.S.C. § 42121, and the Pipeline Safety Improvement Act of 2002 (PSIA), 49 U.S.C. § 60129. The pattern points to a congressional desire to draw upon the established body of law for a broad scope of protection, including internal disclosures. Accord, Willy v. Administrative Review Bd. 423 F.3d 483, 489, n. 11 (5th Cir. 2005).
In the wake of the Enron scandal, Congress saw that the enforcement of corporate accounting and disclosure rules was also important enough for a whistleblower protection provision. SOX protects disclosure of wrongdoing that assists in an investigation conducted by a member of Congress or of law enforcement. SOX requires publicly traded companies to maintain internal reporting programs. 15 U.S.C. §§ 7241, 7262 (Sections 302 and 404) (civil provisions); 18 U.S.C. § 1350 (Section 906) (criminal provision). The growth of internal compliance programs now makes internal reporting the primarily means by which suspicious activity is recorded for purposes of transparency and accountability. An employee’s chain-of-command is now a well-known means of raising concerns that eventually go to the government.
In 1991, the U.S. Sentencing Commission (USSC) issued the Federal Sentencing Guidelines for Organizations (FSGO) to recognize as a mitigating factor whether the organization has effective internal compliance programs. The USSC thereby enhanced the federal public policy enshrined by Congress. The USSC amended and strengthened the policy in 2004 and 2010. This change has had far reaching effects on the relationship between internal reporting and government enforcement.
The Introductory Commentary to Chapter 8 of the 2010 Sentencing Guidelines states that, “The two factors that mitigate the ultimate punishment of an organization are: (i) the existence of an effective compliance and ethics program; and (ii) self-reporting, cooperation, or acceptance of responsibility.” Section 8B2 of the Sentencing Guidelines, addresses an organization’s Effective Compliance and Ethics Program. To be effective, the program must (1) exercise due diligence to prevent and detect criminal conduct, and (2) promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. Section 8B2.1(a). Section 8B2.1(b)(4) requires the organization to inform employees about the compliance program and how to make disclosures. Section 8B2.1(b)(5)(C) requires that employees must be free to make reports “without fear of retaliation.” The organization’s benefits for operating a compliance program will be wiped out, however, if the organization fails to report criminal activity to appropriate governmental entities. Section 8C2.5(f)(2). Thus, today’s legal structure for corporate governance requires that every organization maintain an effective program, known to its employees, through which employees must be free to make disclosures, and which culminates in the organization’s self-disclosures to the appropriate governmental authorities.[8]
The Federal Acquisition Council also sets standards for the internal compliance programs of companies contracting with the federal government. Federal Acquisition Regulation, FAR 52.203-13(b)(3)(i), 52.203-13(c)(2)(i) Code of Business Ethics and Conduct; see also Joseph D. West, et al., “Contractor Business Ethics Compliance Program & Disclosure Requirements.”[9] It is now the norm that all employees can use their established channels of internal reporting to make disclosures that must flow all the way to the government. Disclosures to the government may now be made through internal reporting.[10]
On March 17, 2010, the Association of Corporate Counsel (ACC) submitted a letter to the Sentencing Commission.[11] It represents the in-house counsel of over 10,000 businesses and believes that strong, effective and protected internal reporting mechanisms are critical in the fight against fraud and corruption. As in-house counsel, their perspective is, “their over-arching concern with compliance and preventive practice[.]” P. 1. The ACC recognize that the Sentencing Commission has a unique role in defining “effective corporate compliance programs,” and that the Commission’s definition “has tremendous relevance and impact outside the context of sentencing[.]” P. 2. Modern internal compliance programs are often adapted to the particular needs and operating environments of each organization. Thus, ACC notes that organizations “no longer feel limited to employing ‘traditional’ or uniform paths of activities that were previously implemented by the lawyers responsible for establishing and maintaining a compliance function[.]” P. 3. Companies “are more and more likely to think outside the box to craft unique compliance initiatives and internal controls[.]” Id.
The United States Chamber of Commerce recognizes internal reporting as its preferred method of whistleblowing and fraud detection. It made these comments to the SEC on implementation of section 21F the Securities Exchange Act in December of 2010 (pp. 3-4):
Effective compliance programs rely heavily on internal reporting of potential violations of law and corporate policy to identify instances of non-compliance. These internal reporting mechanisms are cornerstones of effective compliance processes because they permit companies to discover instances of potential wrongdoing, to investigate the underlying facts, and to take remedial actions, including voluntary disclosures to relevant authorities, as the circumstances may warrant… Moreover, if the effectiveness of corporate compliance programs in identifying potential wrongdoing is undermined, their attendant benefits, such as promotion of a culture of compliance within corporations, as well as their value to enforcement efforts, will likewise be diminished.[12]
The Chamber went on to state that when it comes to malfeasance, companies are “dependent on internal reporting of such instances,” and that these companies are “best positioned to quickly and effectively investigate potential wrongdoing …Thus, individuals with relevant information should be incentivized to utilize internal reporting mechanisms, rather than discouraged from doing so.” Id., at 5.
The Ethics Resource Center (ERC) is a private, nonprofit organization devoted to independent research and the advancement of high ethical standards and practices in public and private institutions. For 88 years, ERC has been a resource for corporations[13] committed to a strong ethical culture. On December 17, 2010, ERC stated the following in comments[14] to the SEC:
We note the concern of other commentators that the proposed rules may incentivize employees with knowledge of misconduct to ignore internal processes for addressing possible bad behavior. That’s important because, in the long run, strong E&C [Ethics & Compliance] programs backed by senior leadership with a strong commitment to ethical conduct are the best way to prevent misconduct.
ERC wants to support E&C programs by “encouraging employees to initially work through their own institutions’ processes.” The importance of internal reporting is evident from ERC’s December 2010 report, Blowing the Whistle on Workplace Misconduct.[15] At p. 5, the report finds that:
For the largest number of employees (46 percent), the most likely place to report is an immediate supervisor. Higher management was the second favorite reporting location (29 percent) in 2009. Only three percent used company hotlines to report misconduct. A slightly larger number, four percent, took their suspicions outside the company as their initial action.
If employees are forced to file their reports with governmental agencies to receive protection, then all parties involved, the whistleblower, the company and the governmental agency will suffer for it. The Chamber made clear that rules forcing employees to make disclosures only to the government (the SEC, for example) would:
not only place an unrealistic responsibility on companies, but it would also unduly burden the SEC, which would find itself inundated with and having to review and process a high volume of poor quality tips and frivolous or otherwise meritless allegations . . .. Requiring companies to disclose within a reasonable time only information concerning substantiated securities laws violations would better reflect the Commission’s objectives and would substantially reduce the burden on SEC resources.
Chamber letter at 10.
Internal reporting is now the preferred means of raising concerns about illegality and suspicious activity. Congress added § 1790b to the FCUA knowing that courts had applied prior whistleblower protections broadly to protect internal disclosures. The modern development of internal compliance programs, and the predominance of internal reports as the means used by almost all employees, makes their protection a practical imperative.
B. FCUA’s remedial purpose supports a broad scope of protection.
In Haley v. Retsinas, 138 F.3d 1245, 1250 (8th Cir. 1998), the Court said:
Laws protecting whistleblowers are meant to encourage employees to report illegal practices without fear of reprisal by their employers. These statutes generally use broad language and cover a variety of whistleblowing activities. Accordingly, when the meaning of the statute is unclear from its text, courts tend to construe it broadly, in favor of protecting the whistleblower. This is often the best way to avoid a nonsensical result and “to effectuate the underlying purposes of the law.” United States v. S.A., 129 F.3d 995, 998 (8th Cir. 1997).
The court found Haley was protected under 12 U.S.C. § 1831j(a)(2) when he asked a bank officer to make a disclosure even though the request did not identify the federal agency as a recipient. Courts have recognized that when reading statutory language, courts must avoid “unreasonable” or “absurd” results. See Clark v. Riley, 595 F.3d 1258, 1266 (11th Cir. 2010). A result can be considered unreasonable if it is so absurd as to be against the intent of Congress in enacting the provision. See e.g. Dunn v. CTFC, 519 U.S. 465, 480 (1997). It is “nonsensical” here to deny Mary Schroeder protection for actions that are the initial stages of raising compliance concerns.
Courts have traditionally given whistleblower protection laws a broad construction of the scope of protection in line with their remedial purposes. English v. General Elec. Co., 496 U.S. 72 (1990); Bechtel Constr. Co. v. Secretary of Labor, 50 F.3d 926, 932 (11th Cir. 1995) (protecting informal nuclear safety complaints because “it is appropriate to give a broad construction to remedial statutes such as nondiscrimination provisions in federal labor laws”).
Remedial statutes, however, cannot be read literally when the result is contrary to the purpose of the law. Instead, courts must read it with an eye towards its remedial purpose. In Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 397 (1982), the Court stated:
In Love v. Pullman Co., 404 U. S. 522 (1972), we announced a guiding principle for construing the provisions of Title VII. Declining to read literally another filing provision of Title VII, we explained that a technical reading would be “particularly inappropriate in a statutory scheme in which laymen, unassisted by trained lawyers, initiate the process.” Id. at 404 U. S. 527. That principle must be applied here as well.
Similarly, Judge Learned Hand once stated, “There is no surer way to misread any document than to read it literally[.]” Guiseppi v. Walling, 144 F.2d 608, 623-624 (2d Cir. 1944), concurring opinion.
The district court opinion takes Congress’ language in § 1790b and turns congressional intent on its head by claiming that the text actually eliminates protection when it comes to using internal reports as a means of making disclosures. The district court errs in failing to see that the modes of disclosure can include all regular channels of employee communication. Mary Schroeder can reasonably believe that management communicates with NCUA. She can use the established channels of communication to disclose compliance concerns so long as her actions are reasonable in context. The district court ignored the developed case law and the remedial purpose. It adopted a per se exclusion of internal disclosures from FCUA’s zone of protection.
Protecting internal disclosures of financial violations is consistent with FCUA’s remedial purpose of assisting the NCUA and the public in understanding the true financial position of credit unions. It further assists in prompting government officials to act on disclosed violations. It is entirely consistent with the remedial purpose to protect disclosures made through the established channels of employee communications.
C. Because disclosures to management and other entities serve an essential function in uncovering financial fraud, it is unreasonable to read Section 1790b to exclude them from protection.
Justice Brandeis famously commented that “sunlight is the best disinfectant,” recognizing that exposure, more than any regulation, is the best disincentive against fraud and abuse. Disclosures of fraud and waste increase transparency and prompt official investigations.
Empirical analyses of whistleblower cases note the importance of employee disclosures in prosecuting fraud. A study conducted at the Booth School at the University of Chicago noted that 18.3% of corporate fraud is detected by the employees, compared to 14.1% detected by industry regulators, government agencies and self-regulatory organizations. Alexander Dyck, Adair Morse & Luigi Zingales, Who Blows the Whistle on Corporate Fraud?, 40 (University of Chicago 2009). The Association of Certified Fraud Examiners (ACFE) has conducted biennial reports on occupational fraud since 2002. Its 2010 Report to the Nations finds that employee tips detected 40.2% of reported frauds, compared to 1.8% detected by law enforcement.[16] By forcing potential whistleblowers to choose between their careers and the truth, a narrow reading of Section 1790b risks losing the 40% of fraud cases disclosed by employees.
Businesses with robust internal reporting mechanisms function more smoothly according to the US Chamber of Commerce.
Without voluntary reporting up the corporate hierarchy…it is unlikely that company decision-makers will be able to obtain the facts they need to take the necessary corrective action. … More generally, internal reporting improves corporate governance by affording employees an opportunity to participate in the compliance process, thus improving morale and efficiency and fostering a culture of cooperation, trust, and respect for the law.[17]
Comments to SEC, pp. 3-4.
The Chamber’s sentiment shows that the vast majority of US businesses are moving towards an emphasis on protecting internal reports of suspicious activity.
Most public companies have … develop[ed] well-publicized, effective, and secure internal reporting programs. … Indeed, two of the most prominent social science researchers of whistleblowing behavior contend that the best approach for encouraging whistleblowing is to ‘set up internal complaint procedures where concerned employees could report, and make sure that those procedures provide for speedy and impartial review.
Id., pp. 7-8.
If a narrow reading is used to deny protection to internal reporting, employees would have less incentive to report fraud within the system, a result greatly at odds with the intent of whistleblower protection laws. The Chamber further clarified, “by undermining the incentives to use internal reporting programs, the proposed rule risks undermining trust and fostering an adversarial culture within many companies.” Id., pp. 10-11.
D. Other federal whistleblower provisions promote a consistent body of whistleblower law.
In Simas v. First Citizens’ Fed. Credit Union, 170 F.3d 37, 43 (1st Cir. 1999), the Court stated:
Since the case law interpreting section 1790b itself is extremely sparse, however, the courts have looked to case law construing comparably-phrased anti-retaliation provisions in other federal employment-discrimination statutes, such as Title VII, 42 U.S.C. § 2000e et seq., . . . as well as other federal whistleblower statutes . . ..
A wide variety of whistleblower protection laws are enforced by the Department of Labor (DOL). These laws are in areas as sensitive as nuclear power, aviation safety and transit system security. The Department’s Administrative Review Board (ARB) recognizes that, “[a] complainant need not express a concern in every possible way or at every possible time in order to receive protection . . ..” Klopfenstein v. PCC Flow Technologies Holdings, Inc., ARB Case No. 04-149, 2004-SOX-11 (May 31, 2006), p. 17. A disclosure is within the “zone of protection” if it is “related to a general subject that was not clearly outside the realm covered . . ..” Id.
In a nuclear whistleblower case, Willy v. Administrative Review Bd. 423 F.3d 483, 489, n. 11 (5th Cir. 2005), the Fifth Circuit recognized that internal disclosures should be protected, notwithstanding prior case law of this Circuit:
Neither party disputes that Willy’s writing of the Belcher Report is protected conduct under the relevant statutes. Congress clarified by statute that Brown & Root [v. Donovan, 747 F.2d 1029 (5th Cir. 1984)] was incorrect in holding that complaints to employers were not protected under 42 U.S.C. § 5851. Stone & Webster Eng’g Corp. v. Herman, 115 F.3d 1568, 1576 (11th Cir. 1997) (“The legislative history of the 1992 Energy Policy Act, too, makes clear that Congress intended the amendments to codify what it thought the law to be already. Congress sought ‘to explicitly provide whistleblower protection for nuclear industry employees [who] (1) notify their employer of an alleged violation rather than a federal regulator.’” (quoting H.R. No. 102-474(VIII), at 78, reprinted in 1992 U.S.C.C.A.N. 1953, 2282, 2296 (italic emphasis added by the Court)).
In Kansas Gas & Elec. Co. v. Brock 780 F.2d 1505, 1512 (10th Cir. 1985), the Court gave effect to the same legislative indication in an amendment to ERA to protect internal whistleblowing. The Court stated, “Congress was advocating the protection of internal action and changed the statutory language not because its intent had changed, but because this intent had been incorrectly perceived by certain courts.”
In Guttman v. Passaic Valley Sewerage Comm., 85-WPC-2, D&O of SOL, pp. 10-13 (March 13, 1992), aff’d, Passaic Valley Sewerage Comm. v. U.S. Department of Labor, 992 F.2d 474, 478-79 (3rd Cir. 1993), the Secretary found that for raising concerns through official channels is protected. In affirming, 992 F.2d at 478-79, the Third Circuit said:
protection would be largely hollow if it were restricted to the point of filing a formal complaint with the appropriate external law enforcement agency. Employees should not be discouraged from the normal route of pursuing internal remedies before going public with their good faith allegations. Indeed, it is most appropriate, both in terms of efficiency and economics, as well as congenial with inherent corporate structure, that employees notify management of their observations as to the corporation’s failures before formal investigations and litigation are initiated . . ..
The Third Circuit concluded that Mr. Guttman’s internal complaints constituted a “proceeding” and affirmed the finding that his activity was protected. 992 F.2d at 480.
In DeFord v. Secretary of Labor, 700 F.2d 281, 286 (6th Cir. 1983), the Court explained its concern about the chilling effect of denying protection under the ERA:
Under this antidiscriminatory provision, as under the NLRA, the need for broad construction of the statutory purpose can be well characterized as “necessary ‘to prevent the [investigating agency’s] channels of information from being dried up by employer intimidation,’” NLRB v. Scrivener, 405 U.S. 117, 122, 92 S. Ct. 798, 31 L. Ed. 2d 79, 82-83 (1972), and the need to protect an employee who participates in agency investigations clearly exists even though “his contribution might be merely cumulative,” id. at 123, 31 L. Ed. 2d at 84. Cf. NLRB v. Retail Store Employees Union, 570 F.2d 586 (6th Cir.), cert. denied, 439 U.S. 819, 99 S. Ct. 81, 58 L. Ed. 2d 109 (1978) (discrimination established under § 8(a) (4) of the NLRA although employee provided no information at all during agency proceeding).
The public policy against retaliation is so strong that the Supreme Court has found protection in laws that do not explicitly provide any remedy for retaliation. Jackson v. Birmingham Board of Education, 544 U.S. 167 (2005) (Title IX); CBOCS West, Inc. v. Humphries, 553 U.S. 442, 128 S. Ct. 1951 (2008) (42 U.S.C. § 1981); Gomez-Perez v. Potter, 553 U.S. 474 (2008) (ADEA). As participation clauses assure that all persons can initiate and participate in proceedings, its scope of protection is broader. “The participation clause is designed to ensure that Title VII protections are not undermined by retaliation against employees who use the Title VII process to protect their rights.” Brower v. Runyon, 178 F.3d 1002, 1006 (8th Cir.1999). See, e.g., Deravin v. Kerik, 335 F.3d 195, 203 (2d Cir.2003) ( “[C]ourts have consistently recognized [that] the explicit language of § 704(a)’s participation clause is expansive and seemingly contains no limitations.”); Booker v. Brown & Williamson Tobacco Co., 879 F.2d 1304, 1312 (6th Cir.1989) (noting that “courts have generally granted less protection for opposition than for participation” and that the participation clause offers “exceptionally broad protection”); Sias v. City Demonstration Agency, 588 F.2d 692, 695 (9th Cir.1978) (stating that the opposition clause serves “a more limited purpose” and is narrower than the participation clause); Pettway v. American Cast Iron Pipe Co., 411 F.2d 998, 1006 n. 18 (5th Cir. 1969) (noting that the participation clause provides “exceptionally broad” protection for employees covered by Title VII). In Pettway, this Court held that protections for participation apply regardless of the merits of the underlying proceeding.
The Supreme Court recently addressed the distinction between the two forms of protection in Crawford v. Metropolitan Government of Nashville and Davidson County, 555 U.S. ___, 129 S.Ct. 846 (2009). Vicky Crawford participated in an internal investigation of sexual harassment. She reported conduct she felt was inappropriate, and she was later discharged. The Supreme Court held that her statements to the internal investigator constituted protected opposition. As such, it left for another day the question of whether it was also participation.
Congress enacted SOX because “corporate insiders are the key witnesses that need to be encouraged to report fraud,” 148 Cong. Rec. S7358 (July 26, 2002) (Statements of Senator Leahy), and “whistleblowers in the private sector, like [Enron whistleblower] Sharron Watkins, should be afforded the same protections as government whistleblowers.” 148 Cong. Rec. H5472 (July 25, 2002) (Statements of Representative Jackson-Lee).
Unequivocal protection of witnesses and complainants in an employer’s internal processes is essential if those mechanisms are to be effective in detecting and correcting violations. The EEOC has concluded from many years of experience that protection of witnesses and complainants is critical. See Enforcement Guidance on Vicarious Employee Liability for Unlawful Harassment by Supervisors, 2 EEOC Compl. Man. (BNA) Pt. V(C)(1)(b) at 615-0108 n. 59 (Oct. 2002). In the absence of protection against retaliation, witnesses would be understandably reluctant to participate in compliance programs, which in turn would undermine the statutory purpose to spur employers’ efforts to detect and deter illegality.
E. More recent rulings on the scope of the FCUA protection have failed to consider the full history of employee protections, including Phillips and Munsey, that better reflect the modern culture of the vast majority of American businesses.
....... When addressing internal reporting under whistleblower protections in banking laws, courts have done so in dicta or without considering the full history and purpose of such protections. In Ridenour v. Andrews Fed’l Credit Union, 897 F.2d 715, 721 n.5 (4th Cir. 1990), the operative facts predate enactment of FIRREA. In dicta, and without considering the history and purpose of whistleblower protections, the court recited the literal wording of Section 1790b. In Bruns v. Nat’l Credit Union Admin., 122 F.3d 1251, 1254-55 (9th Cir. 1997), the plaintiff alleged retaliation by NCUA, a federal agency. He did not plead a Section 1790b claim against the credit union. He alleged retaliation on account of his pursuit of a bond claim. The court’s discussion of Section 1790b is therefore dicta. It also failed to examine the Act’s remedial purpose and the history of similar whistleblower protections.
....... Other cases, including Wyrick v. TWA Credit Union 804 F. Supp. 1176 (W.Mo. 1992), Hill v. Mr. Money Finance Company & First Citizens Banc Co. 309 Fed. Appx. 950 (6th Cir. 2009), and Stephen v. Greater New Orleans Fed. Credit Union 2009 U.S. Dist. LEXIS 106913 (E.La. 2009), all said that disclosures to entities other than federal regulatory bodies are not protected. As explained above, these arguments have been repudiated. See Munsey, Phillips, Kansas Gas & Electric, cited above. Corporate culture emphasizes the use of internal whistleblowing as an accepted channel of taking such actions.
....... In proposing rules under the Dodd-Frank Act, the SEC recently stated that, “Compliance with the Federal securities laws is promoted when companies implement effective legal, audit, compliance, and similar functions.” 75 FR 70,493. The SEC wants to avoid policies that, “discourage whistleblowers who work for companies that have robust compliance programs to first report the violation to appropriate company personnel . . ..” 75 FR 70,488. In light of this change of priorities by both the United States Chamber of Commerce and the Association of Corporate Council, the appropriate rulings to let stand as precedent should be Phillips and Munsey as they reflect four decades of whistleblower protection precedent that better fit with the desires of the nation’s foremost representatives of large businesses.
....... Such a policy would better reflect the Chamber of Commerce’s assertion that “the past decade has been a time of tremendous improvement in the area of corporate compliance.” Chamber Comments to SEC, p. 10. Moving away from the decisions of the past decade to match this growth of internal compliance would further the interests of the nation’s business community and potential whistleblowers. The Greater New Orleans Federal Credit Union’s desires to not protect the internal disclosures of its employees stands greatly at odds with the stances of the Chamber, ACC, SEC, the Sentencing Commission, and a long line of cases from Munsey to Willy.
Conclusion
For the reasons mentioned above, amicus ask this court to hold that internal disclosures can be protected under Section 1790b of the FCUA. Amicus ask this Court to reverse and vacate the opinion of the district court and remand this matter for further proceedings consistent with the established law.
Respectfully Submitted by:
/s/ Stephen M. Kohn
Stephen M. Kohn, sk@kkc.com
/s/ Richard R. Renner
Richard R. Renner, rr@kkc.com
Attorneys for Amicus Curiae
National Whistleblower Legal
Defense and Education Fund
3233 P St., NW
Washington, DC 20007-2756
(202) 342-6980
(202) 342-6984 (FAX)
RULE 32(a)(7)(C) CERTIFICATE
I HEREBY CERTIFY that the foregoing Brief for Amici Curiae complies with the type-volume limitation of Federal Rule of Appellate Procedure 32(a)(7)(B). The Brief is composed in a 14-point proportional typeface, Times New Roman. As reported by the NeoOffice.Org application, the contents of the Brief (exclusive of those parts permitted to be excluded under FRAP and the local rules of this court) contain 6,819 words.
Respectfully submitted by:
/s/ Richard R. Renner
Richard R. Renner
CERTIFICATION OF INTERESTED PARTIES
I HEREBY CERTIFY that the National Whistleblowers Center is a not-for-profit corporation based in Washington, DC, and that there are no corporations that own a 10% share or more of it.
Respectfully submitted by:
/s/ Richard R. Renner
Richard R. Renner
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on February 22, 2011, I caused the foregoing Brief of Amicus Curiae National Whistleblowers Center Urging Reversal, in Support of Appellant, to be served through this Court’s electronic filing system on all counsel of record.
/s/ Richard R. Renner
Richard R. Renner
[1] The NWC’s amicus brief is available at http://www.dol.gov/arb/briefs/08-032/index.htm
[2]....... Available at: http://www.dol.gov/arb/briefs/07-123/index.htm
[3]......... http://www.whistleblowers.org/storage/whistleblowers/documents/pwc_survey.pdf
[4]....... http://www.whistleblowers.org/storage/whistleblowers/documents/acfefraudreport.pdf
[5]....... Available at: http://www.ethics.org/whistleblower
[6]....... 29 U.S.C. § 158(a)(4) (1976) states: “It shall be an unfair labor practice for an employer . . . to discharge or otherwise discriminate against an employee because he has filed charges or given testimony under this subchapter.”
[7] Congress amended the ERA in 1992 and clarified that the modes of engaging in protected activity include notifying one’s employer, refusing to engage in illegal activity, and testifying before Congress or in a governmental proceeding. None of these additions could be construed as constricting the protection for disclosures made through other means.
[8]....... If an employee’s internal disclosures were not protected, then employees would be trapped when they are encouraged to make disclosures internally but find themselves without legal protection when they face retaliation.
[9]....... Available at: http://www.gibsondunn.com/publications/Documents/WestRichardManosBrennan-ContractorBusinessEthics.pdf
[10]....... While the Sentencing Guidelines provide a strong incentive for companies to operate internal compliance programs, SOX requires publicly traded companies to maintain such programs. 15 U.S.C. §§ 7241, 7262 (Sections 302 and 404) (civil provisions); 18 U.S.C. § 1350 (Section 906) (criminal provision).
[11]....... Available at: http://www.ussc.gov/Meetings_and_Rulemaking/Public_Comment/20100317/ACC_Hackett_comments.pdf
[12]......... Full text of the Chamber’s comments can be found at http://www.sec.gov/comments/s7-33-10/s73310-110.pdf
[13]......... According to its web page, ERC sponsors include many of our leading corporations such as BP, Dow, Duke Energy, Lockheed, Merck, Raytheon, and Walmart.
[14]....... Available at: http://www.ethics.org/news/erc-files-comment-letter-sec-whistleblower-provision
[15]....... Available at: http://www.ethics.org/whistleblower
[16]......... http://www.acfe.com/rttn/2010-highlights.asp
[17]......... Full text of the comments can be found at http://www.sec.gov/comments/s7-33-10/s73310-194.pdf
| Johnson v. Siemens |
UNITED STATES DEPARTMENT OF LABOR
ADMINISTRATIVE REVIEW BOARD
CARRI S. JOHNSON. ARB Case No. 08-032
Complainant, OALJ Case No. 2005-SOX-00015
against,
SIEMENS BUILDING TECHNOLOGIES,
INC. and siemens ag,
Respondents.
______________________________________________________________
BRIEF OF AMICUS CURIAE
NATIONAL WHISTLEBLOWERS CENTER
______________________________________________________________
Richard R. Renner, rr@kkc.com
Attorney for Amici
Kohn, Kohn and Colapinto, LLP
3233 P St., N.W.
Washington, DC 20007
(202) 342-6980
(202) 342-6984 (FAX)
I. Introduction
The remedial purpose of SOX, and the context of its enactment within securities law and after the scandal of Enron's abuse of subsidiary accounting, make clear that Congress intended SOX to cover subsidiaries. Traditional rules of statutory construction lead to the same result.
A. Interests of amicus National Whistleblowers Center.
Established in 1988, the National Whistleblowers Center (NWC) is a non-profit tax-exempt public interest organization. The Center regularly assists corporate employees throughout the United States who suffer from illegal retribution for lawfully disclosing violations of federal law. NWC maintains a nationwide attorney referral service for whistleblowers, and provides publications and training for attorneys and other advocates for whistleblowers. NWC has participated as amicus curiae in the following cases: English v. General Electric, 110 S.Ct. 2270 (1990), Kansas Gas & Electric Co. v. Brock, 780 F.2d 1505 (1985); EEOC v. Waffle House, 534 U.S. 279 (2002); Haddle v. Garrison, 525 U.S. 121 (1998); Vermont Agency Of Natural Resources v. United States ex rel. Stevens, (98-1828) 529 U.S. 765 (2000); Beck v. Prupis, 529 U.S. 494 (2000).
In 2002, the Center worked closely with the Senate Judiciary Committee and strongly endorsed its efforts to “prevent recurrences of the Enron debacle and make similar threats to the nation’s financial markets.” 148 Cong. Rec .S. 7420 (daily ed. July 26, 2002) (remarks of Senator Leahy, quoting from letter signed by the Center as well as the Government Accountability Project).
Senator Leahy recognized the role of amici in the enactment of SOX:
This “corporate code of silence” not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. The consequences of this corporate code of silence for investors in publicly traded companies, in particular, and for the stock market, in general, are serious and adverse, and they must be remedied. …
Unfortunately, as demonstrated in the tobacco industry litigation and the Enron case, efforts to quiet whistleblowers and retaliate against them for being “disloyal” or “litigation risks” transcend state lines. This corporate culture must change, and the law can lead the way. That is why S. 2010 is supported by public interest advocates, such as the National Whistleblower Center, the Government Accountability Project, and Taxpayers Against Fraud, who have called this bill “the single most effective measure possible to prevent recurrences of the Enron debacle and similar threats to the nation's financial markets.”
S. Rep. 107-146, at 10.
The amici advocate on behalf of whistleblowers because these truth-tellers uncover and rectify grave problems facing our federal government and our society at large. Whistleblowers are a bulwark of accountability against those who would corrupt government or corporations. Therefore aggressive defense of whistleblowers is crucial to any effective policy to address wrongdoing or abuse of power. Conscientious employees who point out illegal or questionable practices should not be forced to choose between their jobs and their conscience.
Whistleblowers who take an ethical stand against wrongdoing often do so at great risk to their careers, financial stability, emotional well-being and familial relationships. Society should protect and applaud whistleblowers, because they are saving lives, preserving our health and safety, and protecting vital fiscal resources.
II. INTERPRETATION OF SOX MUST BE GUIDED BY ITS REMEDIAL PURPOSE.
A. SOX is a remedial law, broadly construed to accomplish its remedial goals.
The Sarbanes-Oxley Act (“SOX”) Section 806, 18 U.S.C.A. § 1514A, protects employees who provide information relating to a violation of any other rule or regulation of the SEC, or any provision of federal law relating to fraud against shareholders. Actions brought pursuant to the SOX are governed by the legal burdens set forth under AIR 21, 49 U.S.C.A. § 42121. 18 U.S.C.A. § 1514A(b)(2)(C).
SOX’s legislative history reflects that “the law was intentionally written to sweep broadly, protecting any employee of a publicly traded company who took such reasonable action to try to protect investors and the market.” Carnero v. Boston Scientific Corporation, 433 F.3d 1, 13 (1st Cir. 2005) (citing Senator Leahy’s comments at 149 Cong. Rec. S1725-01, S1725, 2003 WL 193278 (Jan. 29, 2003)).
B. SOX seeks to remedy abuse of subsidiary companies.
The political impetus for SOX arose from scandals that involved the abuse of overseas subsidiaries. The House Report for SOX explains:
Following the bankruptcies of Enron Corporation and Global Crossing LLC, and restatements of earnings by several prominent market participants, regulators, investors and others expressed concern about the adequacy of the current disclosure regime for public companies.[1]
The Senate Report, 107-205, stated the purpose as follows:
The purpose of the bill is to address the systemic and structural weaknesses affecting our capital markets which were revealed by repeated failures of audit effectiveness and corporate financial and broker-dealer responsibility in recent months and years.
If the reason for the enactment of SOX had to be distilled down into one word, that word would be “Enron.” The congressional record is loaded with references to Enron being the catalyst for this Act. Ironically, attached to the last 10-k Enron filed with the SEC before they imploded in 2001 was a 56 paged list of hundreds of subsidiaries and limited partnerships.[2] The various frauds that caused Enron’s downfall occurred at these subsidiaries and LPs. In fact, Enron’s S-4 registration statement, filed with the SEC on October 9, 1996, states: “Essentially all of Enron’s operations are conducted through its subsidiaries and affiliates…”[3]
In Walters v. Deutsche Bank AG, 2008-SOX-70 (ALJ Mar. 23, 2009), p. 9-10, Judge Levin reported on SOX's legislative history as follows:
Time and again, the legislative history of Sarbanes-Oxley reflects Congressional appreciation for the important antifraud contribution whistleblowers can make and the unique role inside whistleblowers can play in deterring financial fraud and misrepresentation. The role Congress envisioned for the whistleblower was best described by Senator Leahy: “When sophisticated corporations set up complex fraud schemes, corporate insiders are often the only ones who can disclose what happened and why.” See, Senate Banking Committee Legis. History,Vol. III. at 1300-01. Senator Leahy revealed that Enron operated through a veil of subsidiaries and entities including Ponderosa, Jedi Capital, Big Doe, Sundance, Little River, Yosemite, OB-1 Holdings, Pregrine, Kenobe, Braveheart, Mojave, Chewco, and Condor, Osprey, Zenith, Egrit, Cactus, Big River, Whitwing, and Raptor, among others, and observed that without an inside whistleblower: “There is no way we could have known about this… If you look at that, [the Enron corporate structure] you do not know these entities belong to Enron.” Id.
*** Senator Leahy emphasized that Congress was dealing not only with the web of subsidiaries Enron and other corporations had used systematically to defraud stockholders, but the realization that the average investor and professional accountant, in many instances, were unlikely, without inside assistance, to untangle the complex corporate structure in which fraud or financial misrepresentation could fester undetected.
Judge Levin concluded that, “the predominant purpose of Section 806 is fraud detection, not
worker protection … .” Walters, at p. 11. Quoting Senator Johnson, Judge Levin noted that the employee protection was, “designed to protect investors from corporate greed.” Senate
Banking Committee Legis. History,Vol. III, at 1461. This purpose is consistent with a scope of coverage that follows the full extent of transactions affecting the parent company's financial reports. It is inconsistent with a narrow scope that looks to control of the employment relationship. SOX's whistleblower protection is not motivated by the nature of the employment relationship itself, as say the Civil Rights Act is, but rather by the public policy that encourages employees to come forward to help with the detection and proof of fraud, wherever it might be. This purpose follows the scope of entities included in the parent company's public reports, not the scope of control over the employment relationship.
After the enactment of SOX, Senator Leahy stated that “[t]he law was intentionally written to sweep broadly, protecting any employee of a publicly traded company who took such reasonable action to try to protect investors and the market.”[4] Earlier, when Senator Leahy had reported on the whistleblower provision of the pending legislation which would become law a few days later he described it in the context of Enron:
Look what they were doing on this chart. There is no way we could have known about this without that kind of a whistleblower. Look at this. They had all these hidden corporations—Jedi, Kenobi, Chewco, Big Doe—I guess they must have had “little doe”—Yosemite, Cactus, Ponderosa, Raptor, Braveheart. Ahluwalia think they were probably watching too many old reruns when they put this together. The fact is, they were hiding hundreds of millions of dollars of stockholders’ money in their pension funds. The provisions Senator Grassley and I worked out in Judiciary Committee make sure whistleblowers are protected.[5]
Senator Durbin said that Section 806 “creates protections for corporate whistleblowers. We need them. If insiders don‘t come forward, many times you don‘t know what is happening in large corporations.” Senate Banking Committee Legis. History, Vol. III, at 1294. These goals would be completely frustrated if international companies simply moved their fraudulent activities to subsidiaries outside the US. Does it make sense that Congress would be so concerned about Enron’s “hidden corporations” but would not have intended to protect a whistleblower at a subsidiary of a publicly traded company who would be in a position to blow the whistle on that fraud? No.
C. Other whistleblower protections are construed in light of the remedial purpose of their principal statute.
The ARB has recognized that a whistleblower protection statute “should be liberally interpreted to protect victims of discrimination and to further its underlying purpose of encouraging employees to report perceived . . . violations without fear of retaliation.” Fields v. Florida Power Corp., USDOL/OALJ Reporter (HTML) ARB No. 97-070 , ALJ No. 96-ERA-22 (ARB Mar. 13, 1998) at 10 (decision under the Energy Reorganization Act, 42 U.S.C. § 5851, citing English v. General Elec. Co., 496 U.S. 72 (1990) and Bechtel Constr. Co. v. Secretary of Labor, 50 F.3d 926, 932 (11th Cir. 1995) (“it is appropriate to give a broad construction to remedial statutes such as nondiscrimination provisions in federal labor laws”)).
III. SOX is a securities law and SUBSIDIARIES ARE INCLUDED IN THE DEFINITION OF A PUBLICLY TRADED COMPANY UNDER SECURITIES LAW.
Each whistleblower law is written in the context of the industry it covers and the laws regulating that industry. Under Section 806 of SOX, a covered company is defined, in part, as a “company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)).”[6] This is a securities law definition – not an employment law definition. The same applies to coverage definitions in the other whistleblower statutes, i.e., an “air carrier” comes from the FAA definition[7]; “commercial motor carrier” comes from the DOT definition[8]; “licensee of the Commission” comes from the NRC definition[9], etc. Definitions of covered companies and jurisdiction arise from the general provisions of the various statutes, in the case of SOX, from the Securities Exchange Act of 1934, 15 U.S.C. § 78a and sequence. SOX defines the scope of covered employers to include any, “company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)) . . ..” While jurisdiction is established from the general provisions of the Act, employment law is applied to the burdens of proof and elements of an alleged violation in whistleblower cases.
In Walters v. Deutsche Bank AG, 2008-SOX-70 (ALJ Mar. 23, 2009), Judge Levin carefully examined the “labor law perspective” of SOX's whistleblower protection and found that it was inconsistent with SOX's remedial purpose, legislative history and regulatory context. On page 8, he sets out the following contradiction that flows from the labor law perspective:
The legislative history of Sarbanes-Oxley would seem to confirm that Section 806 was meant to include an agent or contractor like the accounting firm of Arthur Andersen, not because there was any evidence that Andersen implemented Enron‘s personnel actions, but because Congress hoped an insider in an Arthur Andersen situation would blow the whistle on the type of fraud Arthur Andersen helped to conceal. Yet, application of the labor agency test probably would have been fatal to the claim of an Andersen whistleblower, and has been fatal to claims of
whistleblowers in wholly owned subsidiaries, because the labor law simply does not deem it especially relevant if a non-publicly traded subsidiary, agent, or contractor that allegedly caused or facilitated fraud or misrepresentation were to fire a whistleblower for its own reasons; for example, to keep the business of an important client or to keep damaging financial disclosures from coming to light. Under such circumstances, simply to state the labor law test in the context of Sarbanes-Oxley seems sufficient to refute it, because it leaves essentially unchanged conditions Congress passionately wanted to reform.
This contradiction between the remedial purpose of SOX and the labor law/agency perspective explains why the ARB should reject the holdings of the vast majority of cases to have addressed this issue to date. See, for example, See e.g., Klopfenstein v. PCC Flow Tech. Holdings, Inc., ARB No. 04-149, ALJ No. 2004-SOX-011 (ARB May 31, 2006) (Klopfenstein I); Perez v. H&R Block, Inc., ALJ No. 2009-SOX-042 (ALJ Dec. 1, 2009). The doctrine behind these cases is a good example of how SOX has been misapplied. See, Richard E. Moberly, UNFULFILLED EXPECTATIONS: AN EMPIRICAL ANALYSIS OF WHY SARBANES-OXLEY WHISTLEBLOWERS RARELY WIN, 49 Wm. & Mary L. Rev. 65, 135 (“administrative decision makers … in some cases misapplied, Sarbanes-Oxley‘s substantive protections to the significant disadvantage of employees.”).
Judge Levin got it right when he examined the legislative purpose for SOX on page 9 of his decision in Walters:
If Congress wanted to encourage corporate insiders to monitor and report financial fraud and deception, and clearly it did, very little in cases that apply the labor law test and deny that protection seems consistent with that goal. To the contrary, any employee of a subsidiary familiar with the labor test case law might still find it difficult to ignore the advice of the attorney who advised Enron of the minimal risk associated with the terminating a whistleblower. Yet even more important, the burdens and hurdles associated with proof of agency for labor law purposes seem misdirected and unnecessary not only because Section 806 imposes direct responsibility on the publicly traded company, but also because Section 806 is fundamentally an antifraud law, not a labor law. This, moreover, is not an isolated fringe assessment foundering about in a sea of contrary opinion; it is the unanimous consensus of every Senator who commented on the issue. About this, the legislative history is crystal clear. [Footnotes omitted.]
Judge Levin went on to explain that while a parent company's limited liability normally serves the interests of the shareholders, SOX intends to protect shareholders by protecting the whistleblowers who might reveal how corporate managers are abusing subsidiaries to the detriment of the the shareholders. Walters, pp. 19-20.
If the definition of a covered company under SOX is a securities law definition[10] – and the definition cites the Securities Exchange Act of 1934 twice – then there are really are no other conclusions but that 1) the other sections of SOX apply to subsidiaries; 2) the parent and subsidiary are jointly and severally liable under section 20(a) of the Exchange Act for a violation of section 806 of SOX; 3) that a subsidiary of a publicly traded parent is part of the §12 registration of the parent; 4) that a subsidiary of a publicly traded parent is part of the §15(d) reporting requirement of the parent.
D. Other sections of SOX apply to subsidiaries.
In the case of SEC v. Koninklijke Ahold N.V. (Royal Ahold) (SEC Litigation Release No. 18929, October 13, 2004), the SEC sued the parent (Royal Ahold) for fraud that occurred at its wholly-owned subsidiary, U.S. Foodservice. While the SEC had jurisdiction to sue Royal Ahold for the fraud at U.S. Foodservice, the ALJ dismissed a whistleblower complaint against U.S. Foodservice for lack of jurisdiction. Ambrose v. U.S. Foodservice, Inc., 2005-SOX-00105 (ALJ Apr. 17, 2006). It makes no sense that Congress would intend for the SEC to have jurisdiction to sue for a violation, and also intend that the whistleblower is not covered under the same securities law definitions (and in this case, in the same parent-subsidiary relationship). This result is repugnant both to the congressional intent of protecting whistleblowers, and the intent of securities laws to protect shareholders.
When consumers buy a public company’s stock, they are buying ownership in the company and also ownership in the subsidiaries. The subsidiaries are as much a part of the stock as the parent company. They are a part of the company that issued the security and part of the underlying value owned by the shareholders. The shareholders own the company, including the subsidiaries. Congress enacted SOX, the Exchange Act and amendments and included many references to subsidiaries in the section 12 registration and 15(d) reporting requirements to protect the shareholders. If the whistleblower works at a subsidiary, he works at part of the publicly traded company. The whole company is subject to securities laws since the whole company — including its subsidiaries — is part of the stock.
In the Walters opinion, Judge Levin explained how SOX Section 301 permits employees anywhere in the corporate structure to submit internal and anonymous disclosures to the parent company's audit committee, even though the word “subsidiary” is absent from Section 301, just as it is absent from Section 806. Walters, pp. 22-23. The audit committee serves as an additional option for whistleblowers to call management's attention to weaknesses in the company's internal controls. Those weaknesses could be anywhere in the corporate organization and still affect the soundness of the public reports. Just as there is no reason, and no support in the legislative record, to exclude the employees of subsidiaries from the audit committee process, there is no reason to exclude them from the whistleblower protection.
E. The parent and subsidiary are jointly and severally liable under Section 20(a) of the Exchange Act for a violation of section 806 of SOX.
For years, the SEC and private litigants have successfully used Section 20(a) of the Securities Exchange Act of 1934 to assert jurisdiction over parents, their subsidiaries, and various individuals:
20(a) Joint and several liability; good faith defense. Every person who, directly or indirectly, controls[11] any person liable under any provision of this title or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. [Footnote added.]
Section 20(a) expressly imposes joint and several liability on “persons” who directly or indirectly control other “persons” subject to the provisions of the Act (the definition of which includes parent corporations and their subsidiaries). This provision means that the parent can be held liable for an act of the subsidiary for securities law purposes. Should the parent be able to meet the good faith defense, they may be let off the hook as a respondent, but the subsidiary could still be on the hook. This is exactly why Congress did not need to put the word “subsidiary” in Section 806 (but did feel the need to include “any officer, employee, contractor, subcontractor, or agent of such company”). Section 20(a) has been used for years to give the SEC and private litigants the ability to reach out and touch the parents and subsidiaries and other control “persons.” The applicability of section 20(a) of the Exchange Act to section 806 of SOX is clear. Section 3(b)(1) of SOX states:
A violation by any person of this Act, any rule or regulation of the Commission issued under this Act, or any rule of the Board shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the rules and regulations issued thereunder, consistent with the provisions of this Act, and any such person shall be subject to the same penalties, and to the same extent, as for a violation of that Act or such rules or regulations.
So a violation of Section 806 of SOX “shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)” Therefore, section 20(a) of the Exchange Act – joint and several liability – applies to a violation of Section 806 of SOX. Therefore, the parent and subsidiary are jointly and severally liable under 20(a) of the Exchange Act for a violation of section 806 of SOX.
F. A subsidiary of a publicly traded parent is part of the § 12 registration of the parent.
A security registered under Section 12 “shall” contain in the registration statement:
“(b)(1) Such information, in such detail, as to the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the issuer, and any guarantor of the security as to principal or interest or both, as the Commission may by rules and regulations require, as necessary or appropriate in the public interest or for the protection of investors, in respect of the following...” [Emphasis added.]
This means subsidiaries, directly or indirectly controlled, are included in the registration of the issuer. And what directly follows is “(b)(1)(A) the organization, financial structure, and nature of the business…” which, again, includes subsidiaries, directly or indirectly controlled, as per 12(b)(1) above. Section 12(b)(1)(D) contains the same language with respect information on: “the directors, officers, and underwriters, and each security holder of record holding more than 10 per centum of any class of any equity security of the issuer (other than an exempted security), their remuneration and their interests in the securities of, and their material contracts with the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the issuer.”
Section 12(b)(2) requires:
“Such copies of articles of incorporation, bylaws, trust indentures, or corresponding documents by whatever name known, underwriting arrangements, and other similar documents of, and voting trust agreements with respect to, the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the issuer as the Commission may require as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security.”
Thus, subsidiaries (persons controlled by the issuer) are clearly included in the registration requirements under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) and are subject to Section 806 of SOX. Judge Levin held that “responsibility for compliance with Sarbanes-Oxley reforms rests directly with the publicly traded corporate parent that files the reports.” Walters, p. 19. Similarly, the decision in Morefield v. Exelon, 2004-SOX-00002 (ALJ, Jan. 28, 2004), cogently reasoned as follows:
Nothing in the structure, language, or purpose of Sarbanes-Oxley, however, suggests that Congress viewed the publicly traded entity as a free-floating corporate apex. To the contrary, when the value and performance of the publicly traded company is based, in part, on the value and performance of the component entities within its organization, the statute ensures not only that those entities are subject to internal controls applicable throughout the corporate structure, but that they are also subject to the oversight responsibility of the audit committee. A publicly traded corporation is, for Sarbanes-Oxley purposes, the sum of its constituent units; and Congress insisted upon accuracy and integrity in financial reporting at all levels of the corporate structure, including the non-publicly traded subsidiaries. In this context, the law recognizes as an obstacle no internal corporate barriers to the remedies Congress deemed necessary. It imposed reforms upon the publicly traded company and, through it, to its entire corporate organization. Morefield Order at 3.
G. A subsidiary of a publicly traded parent is part of the § 15(d) reporting requirement of the parent.
Section 15(d) provides that:
“Each issuer…shall file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, such supplementary and periodic information, documents, and reports as may be required pursuant to section 13 of this title in respect of a security registered pursuant to section 12 of this title.” (This refers us directly to §13.)
Section 13(a)(1) requires that every issuer of a security registered pursuant to section 12 file, among other things “such information and documents (and such copies thereof) as the Commission shall require to keep reasonably current the information and documents required to be included in or filed with an application or registration statement filed pursuant to section 78l [Section 12]of this title.” This includes keeping current from § 12(b)(1) of the registration: “Such information, in such detail, as to the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the issuer…” (which includes subsidiaries, directly or indirectly controlled).
Section 13(b)(1) addresses “books, records, and internal accounting; directives” and specifically requires that this information be reported regarding “any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer.”
There are further examples in 13(e)(2) which states that if a subsidiary buys stock in the issuer, it “shall be deemed to be a purchase by the issuer”, and 13(k)(1) which prohibit subsidiaries from providing personal loans to executives. Further, Regulation S-X and Regulation S-K (both having to do with the 15(d) reporting requirements) are replete with examples of how the business, activities, transactions, financial statements etc. of the subsidiaries are to be reported on the 15(d) reports. The subsidiaries are very clearly required to be reported by the issuer.
Section 302 of SOX requires that the CEO and CFO certify each quarterly and annual report – §13(a) or 15(d) reports – and such certification is based on several criteria to insure the accuracy of the reports. § 302(a)(4)(B) requires that the CEO and CFO certify that they: “have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared.” (Emphasis added.) This is part of the argument the ALJ used in Morefield v. Exelon Services, Inc. Thus, subsidiaries (persons controlled by the issuer) are clearly included in the reporting requirements under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d) and are subject to Section 806 of SOX.
IV. SUBSIDIARIES ARE AGENTS OF A PUBLICLY TRADED COMPANY UNDER SECURITIES LAW.
SOX's scope of coverage includes “any officer, employee, contractor, subcontractor, or agent of such company [with a class of registered securities] . . ..” 18 U.S.C. § 1514A(a). As such, it is appropriate to consider a subsidiary's status as an “agent” of the parent company. The Administrative Review Board (ARB) in Klopfenstein v. PCC Flow Technologies Holdings, Inc., ARB 04-149, 2004-SOX-11 (ARB May 31, 2006), said: “Whether a particular subsidiary or its employee is an agent of a public parent for purposes of the SOX employee protection provision should be determined according to principles of the general common law of agency.” They further defined agency as:
“the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.” Rest. 2d. Agen. § 1; see also Rest. 3d. Agen. § 1.01 (draft approved, publication expected 2006). The person “for whom action is to be taken is the principal” and “the one who is to act is the agent.” Rest. 2d. Agen. § 1.
Under securities law, a signed certification under § 302 of SOX, 15 U.S.C. § 7241, as well as management’s assessment of internal controls under § 404 of SOX, 15 U.S.C. § 7262, demonstrate a principal/agent relationship between parent[12] and the consolidated subsidiary.[13] In this relationship, the consolidated subsidiary is acting as a fiduciary or agent of the parent and subject to the parent’s control in implementing and maintaining the internal controls required under § 13(b)(2) of the Securities Exchange Act of 1934 and § 302 and § 404 of the Sarbanes-Oxley Act of 2002.
Finally, the ARB held that “[t]he Act prohibits an agent from discriminating against an employee who engages in protected activity, and Holdings offers no persuasive reason why we should not allow a cause of action against an agent who does so. Therefore, we do not interpret the Act to require a complainant to name a corporate respondent that is itself ‘registered under § 12 or … required to file reports under § 15(d),’ so long as the complainant names at least one respondent who is covered under the Act as an ‘officer, employee, contractor, subcontractor, or agent’ of such a company.” Klopfenstein at 13.
As noted above, Section 12 of the Securities and Exchange Act requires parent companies to include activities and information about their subsidiaries in their public filings. Section 12(b)(1) of the registration requires inclusion of, “Such information, in such detail, as to the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the issuer…” (which includes subsidiaries, directly or indirectly controlled). Regulation S-X, 17 C.F.R. 210, and Regulation S-K, 17 C.F.R. 229, govern reporting under Section 13 and 15(d) of the Act and are replete with examples of how the business, activities, transactions, financial statements etc. of the subsidiaries are to be reported on the Section 13 and 15(d) reports. The subsidiaries are very clearly required to be reported by the issuer. The subsidiaries thereby have a legal duty to report their activities to the parent, and to abide by the parent's instructions on the establishment and maintenance of internal controls. Every subsidiary acts on behalf of the parent, and is there an agent of that parent.
SOX Section 302 requires the CEO and CFO to certify, in part, that they have:
Designed such disclosure controls . . . to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities . . .. [Emphasis added.]
The internal controls required by SOX are thus, by law, controlled by the parent company, and obligatory on the subsidiaries. The subsidiaries are duty bound to act under the control of the parent company in their compliance with SOX. If a subsidiary were to balk against the parent's direction, that would be a material weakness in the parent company's internal controls. It would constitute a violation of SOX that the parent would be required to report.
Therefore, consolidated subsidiaries are agents of the parent where a certification is present under Section 302 of SOX. This relationship is further solidified by the report pursuant to Section 404 of SOX. More to the point, the nature of this agency relationship – disclosure controls and internal control over financial reporting – relates directly to the nature of protected activity under Section 806 of SOX and the congressional intent for enacting Section 806, which is entitled: “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.”
To the extent that the ARB required evidence of any particular agency relationship between a given respondent and its parent company in Klopfenstein, this ARB is free to modify that requirement. In FCC v. Fox Television Stations, Inc., 556 U.S. ___, 129 S. Ct. 1800 (2009), the U.S. Supreme Court permits an agency to change its policy when it "examine[s] the relevant data and articulate[s] a satisfactory explanation for its action." Quoting Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U. S. 29, 43 (1983). The Court added:
To be sure, the requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position. An agency may not, for example, depart from a prior policy sub silentio or simply disregard rules that are still on the books. . . . And of course the agency must show that there are good reasons for the new policy.
Now is a good time to relieve parties and ALJs from repetitive litigation of the scope of each subsidiary's agency on behalf of its parent. Parental control of the subsidiary's employment practices is not necessary to find that the subsidiary is an agent of the parent under SOX – within its securities law context. Indeed, SOX's coverage of subsidiaries flows naturally from its remedial purpose, and its statutory context within securities law.
V. SUBSIDIARIES ARE AGENTS OF A PUBLICLY TRADED COMPANY UNDER SECURITIES LAW.
SOX's scope of coverage includes “any officer, employee, contractor, subcontractor, or agent of such company [with a class of registered securities] . . ..” 18 U.S.C. § 1514A(a). As such, it is appropriate to consider a subsidiary's status as an “contractor” of the parent company. This language and the historical context of SOX, in the wake of Arthur Anderson's complicity in Enron's fraud, makes clear that Congress wanted the employee protection to reach beyond the employees of the registrant company and include employees of any entity that agrees to assume any duty of the registrant, or perform any service for the registrant. See Walters at pp. 15-18 (concluding that, “With abundant clarity, Congress expressed its concern with the operations of subsidiaries, not as separate entities, but as consolidated assets and liabilities which are susceptible to manipulation on the books of their publicly traded parents.”). The statutory language does not contain any limitation on the nature of the contract that would extend employee protections to the employees of the contractor. Oral and written contracts are both sufficient to make the contractor a covered employer.
For subsidiaries, contractor coverage is superfluous to their coverage as part of the company with a class of registered securities, as a company required to report to the SEC, and as an agent of the parent company. Still, if the ARB is going to focus on this case to set policy about the scope of SOX coverage of subsidiaries, is should not ignore how subsidiaries are also covered under SOX by virtue of their contractual relationship with the parent.
Subsidiaries are contractors of their parents. The very nature of being a subsidiary is contractual. The parent gives life to the subsidiary in exchange for the subsidiary's service to the parent – typically in generating revenue. This mutual exchange is the essence of a contract and essential to the subsidiary relationship. As such, every subsidiary is also a contractor of its parent.
SOX Section 806 also covers “subcontractors” so that a subsidiary's placement farther from the parent on a corporate tree will make no difference to its status as a covered employer. Contractor coverage would also extend SOX coverage to subsidiaries that the parent might not consolidate into its financial statements. Those parent companies that wish to emulate Enron through the creation of off-the-books Special Purpose Entities (SPEs) should know from SOX's plain language that the SPE's employees will still be covered through their contractual link.
III. CONCLUSION
The amici ask this Board to declare that all subsidiaries of cover companies are themselves covered employers under Section 806 of SOX. Anything less than a blanket declaration that all employees of all subsidiaries are covered would leave this issue to be relitigated separately in each individual case. Reliance on the integrated employer test would leave many employees uncovered, and deprive the employee protection of its desired effect of encouraging employees to come forward with information that could assist in the detection and proof of fraud. For example, Berkshire Hathaway and its subsidiaries employs approximately 257,000 persons according to its form 10-K.[14] In Warren Buffet’s 2006 letters to shareholders, he mentioned that there were 19 people working in the corporate office.[15] Berkshire’s subsidiaries are famously independent and none would pass an “integrated employer test” with the public parent. Form their latest 10-K, p. 31: “Berkshire’s operating businesses are managed on an unusually decentralized basis. There are essentially no centralized or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there is minimal involvement by Berkshire’s corporate headquarters in the day-to-day business activities of the operating businesses.” So, only 19 out of 257,000 employees would be protected under SOX if employees of subsidiaries must prevail under the “integrated employer” test. This is inconsistent with the legislative purpose and would deprive investors of the flow of information Congress sought through the whistleblower protection. As statutory language of SOX includes all employees of all subsidiaries, amici ask this Board to declare that all such employees are covered.
Respectfully submitted by:
_____________________________
Richard R. Renner, rr@kkc.com
National Whistleblowers Legal Defense and Education Fund
3233 P St., N.W.
Washington, DC 20007
(202) 342-6980
(202) 342-6984 (FAX)
CERTIFICATE OF SERVICE
I certify that a true copy of the foregoing Brief of Amicus Curiae was served by regular mail, unless email is indicated, on the following persons of the following address on this 15th day of July, 2010:
Jacqueline Williams
Attorney for Complainant
2524 Hennepin Ave.
Minneapolis, MN 55405
BY EMAIL: williams.jacqueline2008@gmail.com
Gregg F. LoCasio
Rebecca Ruby Anzidei
Attorneys for Respondents
Kirkland & Ellis LLP
655 Fifteenth Street, N.W
Washington, D.C. 20005
BY EMAIL: gregg.locascio@kirkland.com
rebecca.anzidei@kirkland.com
Administrative Review Board
200 Constitution Ave., NW, # S-5220
Washington, DC 20210
Directorate of Enforcement Programs
U.S. Department of Labor/OSHA
200 Constitution Avenue, NW
Room N-3603, FPB
Washington, DC 20210
Associate Solicitor
U.S. Department of Labor/SOL
200 Constitution Avenue, NW
Room N-2716, FPB
Washington, DC 20210
__________________________
Richard R. Renner
Attorney for Amici
[1] House Report 107-414, available at: http://www.thomas.gov/cgi-bin/cpquery/?&item=&&sid=cp107wSLP0&&refer=&&r_n=hr414.107&&dbname=cp107&&sid=cp107wSLP0&&sel=TOC_82035&
[2] http://www.sec.gov/Archives/edgar/data/1024401/000102440101500010/exh21.txt
[3] http://www.sec.gov/Archives/edgar/data/1024401/0000950129-96-002433.txt
[4] Congressional Record S1725, January 28, 2003
[5] Congressional Record S7358, July 25, 2002
[6] Section 806 of the Sarbanes-Oxley Act of 2002 (SOX), 18 U.S.C. §1514A. This language is more specific than the general “owner or operator” under CERCLA, 42 U.S.C. §9601(20)(A)(ii), that the Supreme Court considered in U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). The Supreme Court came to “rue” the uselessness of CERCLA's definition in Bestfoods, a problem Congress has not give us in SOX. Even the Bestfoods opinion recognized that “there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation’s conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder’s behalf.” 524 U.S. at 62. The issue in Bestfoods, however, was whether a parent may be subject to derivative liability for the actions of its subsidiary under CERCLA's vague liability for an “owner or operator.” The issue here is whether the subsidiary is liable for its own act of retaliation under SOX.
[7] Section 519 of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR21), 49 U.S.C. §42121
[8] Section 405 of the Surface Transportation Assistance Act of 1982 (STAA), 49 U.S.C. §31105
[9] Section 211 of the Energy Reorganization Act of 1978 (ERA), 42 U.S.C. §5851
[10] Use of the securities law definition of a covered company does not exclude the possibility of establishing coverage or liability through doctrines of employment law. For example, two companies that are not related by any subsidiary relationship may become so intertwined as to become an integrated employer for liability purposes even though neither company has any SOX obligation to report for the other company. The securities context and the employment law context are not mutually exclusive, but rather independent and supplementary. Use of the securities law analysis is preferable to the labor law analysis though. The securities law set out in this brief would provide a blanket answer that subsidiaries are always covered. The integrated employer or common law agency analysis would require the parties to litigate a mixed question of law and fact in each and every case.
[11] The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise. – Rule 1-02 (Regulation S-X) 17 CFR § 210 and Rule 12b-2.
[12] Regulation S-X (17 CFR 210.1-02(p)) defines “parent” as: “A parent of a specified person is an affiliate controlling such person directly, or indirectly through one or more intermediaries.”
[13] The term “consolidated subsidiary” while used in SOX Section 302 as well as throughout the SEC regulations is not specifically defined in SEC laws and regulations. It refers to a subsidiary whose assets and liabilities (i.e., revenues and debts) are consolidated and reported in the financial reports of the parent. See Regulation S-X Rule 3A-02 and Rule 3-01, for example. Various other subsidiary relationships are defined in Rule 1-02. Also see definitions of “consolidated subsidiary” elsewhere, such as 26 CFR 1.597-1 (IRS) and 12 CFR 559.2 (Banking).
[14] See page 18 (“Berkshire employed approximately 222,000 persons at December 31, 2009, which excludes the 35,000 employees of BNSF which was acquired on February 12, 2010.”), available from http://www.sec.gov/Archives/edgar/data/1067983/000119312510043450/d10k.htm
[15] http://www.berkshirehathaway.com/letters/2006ltr.pdf