Lawson v. FMR LLC

• Citation: 670 F.3d 61,95 Empl. Prac. Dec. P 44417,33 IER Cases 457
• Decision Date: 03 February 2012
• Docket Number: No. 10–2240.,10–2240.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Parties: Jackie Hosang LAWSON; Jonathan M. Zang, Plaintiffs, Appellees/Cross–Appellants, v. FMR LLC, f/k/a FMR Corp.; FMR Co., Inc.; FMR Corp., d/b/a Fidelity Investments; FMR LLC, d/b/a Fidelity Investments; Fidelity Brokerage Services, LLC, d/b/a Fidelity Investments; Fidelity Management & Research Company, Defendants, Appellants/Cross–Appellees.

33 IER Cases 457

670 F.3d 61

95 Empl. Prac. Dec. P 44,417

Jackie Hosang LAWSON; Jonathan M. Zang, Plaintiffs, Appellees/Cross–Appellants,

v.FMR LLC, f/k/a FMR Corp.; FMR Co., Inc.; FMR Corp., d/b/a Fidelity Investments; FMR LLC, d/b/a Fidelity Investments; Fidelity Brokerage Services, LLC, d/b/a Fidelity Investments; Fidelity Management & Research Company, Defendants, Appellants/Cross–Appellees.

No. 10–2240.

United States Court of Appeals, First Circuit.

Heard Oct. 3, 2011.Decided Feb. 3, 2012.

Paul E. Nemser, with whom Wilfred J. Benoit, Jr., Goodwin Proctor LLP, Eugene Scalia, Jennifer J. Schulp, and Gibson, Dunn & Crutcher LLP were on brief, for appellants/cross-appellees.

Robin S. Conrad, Shane B. Kawka, National Chamber Litigation Center, Inc., Willis J. Goldsmith, Wendy C. Butler, and Jones Day, on brief for Chamber of Commerce of the United States of America, amicus curiae.

Indira Talwani, with whom Segal Roitman, LLP, was on brief, for appellee/cross-appellant Jackie Hosang Lawson.Jonathan M. Zang pro se.Mary J. Rieser, Attorney, with whom M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand, Associate Solicitor, and Jonathan T. Rees, Acting Counsel for Whistleblower Programs, were on brief, for the Secretary of Labor as amicus curiae.Mark D. Cahn, General Counsel, Richard M. Humes, Associate General Counsel, and Thomas J. Karr, Assistant General Counsel, on brief for the Securities and Exchange Commission as amicus curiae.

Before LYNCH, Chief Judge, HOWARD and THOMPSON, Circuit Judges.

LYNCH, Chief Judge.

This interlocutory appeal is from the district court's order denying a Rule 12(b)(6) motion to dismiss two separate but related cases under the whistleblower protection provision of section 806 of the Sarbanes–Oxley Act of 2002(SOX), codified at 18 U.S.C. § 1514A. See Lawson v. FMR LLC, 724 F.Supp.2d 141 (D.Mass.2010); Fed.R.Civ.P. 12(b)(6). It raises important questions of first impression.

The plaintiffs, Jackie Hosang Lawson and Jonathan M. Zang, brought separate suits alleging unlawful retaliation by their corporate employers, which are private companies that act under contract as advisers to and managers of mutual funds organized under the Investment Company Act of 1940. Because the two suits shared a common defendant, FMR LLC, and both raised the same question of the scope of employees subject to protection under § 1514A, the district court addressed both cases in a single order. Lawson, 724 F.Supp.2d at 144.

The district court concluded that the whistleblower protection provision within SOX section 806 extends its coverage beyond “employees” of “public” companies (as those terms are defined in the section) to encompass also the employees of private companies that are contractors or subcontractors to those public companies. Id. at 163. Concerned that this interpretation could be thought too broad, the district court then imposed a limitation, not found in the text, that the employees must be reporting violations “relating to fraud against shareholders.” Id. 159–60. We interpret the statute differently and reverse.

I.Background

Both plaintiffs are suing their former employers, which are private companies that provide advising or management services by contract to the Fidelity family of mutual funds.

The Fidelity mutual funds are not parties in either suit, and are investment companies organized under the Investment Company Act of 1940, 15 U.S.C. § 80a–3(a)(1). They are registered with the Securities and Exchange Commission (SEC) and are required to file reports under section 15(d) of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. § 78 o(d). The mutual funds are owned by their shareholders and are not owned or controlled by, or affiliated with, any of the defendant companies. The Fidelity funds are overseen by a single Fidelity Mutual Fund Board of Trustees; a super-majority of the Board's members are independent of the funds' advisers. As is not unusual among funds organized under the Investment Company Act, the Fidelity funds have no employees of their own.

Plaintiff Zang was employed by Fidelity Management & Research Co. and later by FMR Co., Inc., which was formed as a subsidiary of Fidelity Management & Research Co. (collectively, the Fidelity Management companies). The Fidelity Management companies have entered into contracts with certain of the Fidelity mutual funds to serve as investment advisers or sub-advisers. As investment advisers to the funds, the Fidelity Management companies are subject to the provisions of the Investment Advisers Act of 1940, 15 U.S.C. § 80b–1 et seq. The Fidelity Management companies are subsidiaries, directly or indirectly, of FMR LLC.

Zang's employment was terminated in July 2005. On September 15, 2005, he filed a complaint with the Occupational Health & Safety Administration (OSHA) of the Department of Labor (DOL), based on 18 U.S.C. § 1514A(b)(1)(A), which allows a person who alleges discharge or discrimination in violation of § 1514A(a) to seek relief by filing a complaint with the Secretary of Labor. The Secretary has, in turn, delegated enforcement responsibility for § 1514A to the Assistant Secretary for Occupational Safety and Health. See 67 Fed.Reg. 65,008, 65,008 (Oct. 22, 2002). Zang alleged that he had been terminated by the Fidelity Management companies in retaliation for raising concerns about inaccuracies in a draft revised registration statement for certain Fidelity funds. Zang alleged that he reasonably believed these inaccuracies violated several federal securities laws.

OSHA dismissed Zang's complaint, finding that he was a covered employee within the meaning of § 1514A(a), that is, he was an employee “covered” by the whistleblower protections, but that he had not engaged in conduct protected by that subsection. Zang objected and had a hearing before an Administrative Law Judge (ALJ). The Fidelity Management companies moved for summary decision, contending, among other things, that Zang was not a covered employee. After allowing limited discovery on the issue, the ALJ granted summary decision for the Fidelity Management companies on that basis and dismissed. Zang v. Fid. Mgmt. & Research Co., No. 2007–SOX–00027, 2008 WL 7835900 (Dep't of Labor ALJ Mar. 27, 2008).

Interpreting § 1514A(a), the ALJ concluded that merely being an employee of a privately held contractor to a fund was insufficient to come within the term “employee.” ¹

Zang petitioned for review of the ALJ decision by the DOL's Administrative Review Board (ARB).² Zang then gave notice to the DOL of his intention to file an action in federal court and filed his complaint against the Fidelity Management companies in the district court, terminating his appeal with the ARB. Under SOX, a claimant may seek de novo review in federal district court if the DOL has not issued a final decision on a complaint within 180 days of its filing.³ 18 U.S.C. § 1514A(b)(1)(B).

Plaintiff Lawson was employed by Fidelity Brokerage Services, LLC, a private subsidiary of FMR Corp., which was succeeded by FMR LLC. Together these companies operate under the trade name Fidelity Investments. Lawson filed SOX complaints against her employer and its parent with OSHA pursuant to § 1514A(b)(1)(A) in 2006 while she was still employed. She alleged retaliation against her for raising concerns primarily relating to cost accounting methodologies. She resigned her employment in September 2007, claiming that she had been constructively discharged. One year after filing, Lawson notified OSHA that she intended to seek review of her SOX claim in federal court. Her claims, which had been consolidated, were closed by the DOL, and she filed a complaint against her employers in the district court.

The defendants, all private companies, filed motions to dismiss under Rule 12(b)(6), arguing that the plaintiffs were not covered employees under § 1514A(a) and, in the alternative, that they had not engaged in protected activity under § 1514A(a)(1). The district court denied the motions to dismiss as to the plaintiffs' claims alleging retaliation in violation of § 1514A, which is the subject of this appeal. ⁴ Lawson, 724 F.Supp.2d 141.

The district court held that the SOX whistleblower protection provisions of § 1514A(a) extend to employees of private agents, contractors, and subcontractors to public companies; that the plaintiffs had sufficiently pleaded facts alleging that their private company employers were “either contractors, subcontractors, or agents of publicly held investment companies;” and that both plaintiffs had sufficiently alleged that they had engaged in protected activity under § 1514A(a)(1). Lawson, 724 F.Supp.2d at 163–65.

The defendants moved that the dispositive issue of § 1514A(a)'s applicability to the plaintiffs be certified for interlocutory appeal under 28 U.S.C. § 1292(b). The district court granted the motion, certified a “controlling question of law” to this court, and stayed the cases before it. Lawson v. FMR LLC, 724 F.Supp.2d. 167, 169 (D.Mass.2010). The defendants petitioned this court for interlocutory review, and the plaintiffs each filed cross-petitions urging this court to grant the appeal. We granted the parties' cross-petitions for interlocutory review. Lawson v. FMR LLC, No. 10–1944 (1st Cir. Oct. 25, 2010).

II.Statutory Construction

We limit our review of the district court's order to the question the court certified:

Does the whistleblower protection afforded by Section 806(a) of the Sarbanes–Oxley Act, 18 U.S.C. § 1514A, apply to an employee of a contractor or subcontractor of a public company, when that employee reports activity which he or she reasonably believes may constitute a violation of 18 U.S.C. §§ 1341, 1343, 1344, or 1348; any rule or regulation of the Securities and Exchange Commission; or any provision of Federal law and such a violation would relate to fraud against shareholders of the public company?

Lawson, 724 F.Supp.2d at 169; see also 28...