Lawson v. Fmr Llc.

Decision Date31 March 2010
Docket NumberCivil Action Nos. 08-10466-DPW, 08-10758-DPW.
Citation724 F.Supp.2d 141
CourtU.S. District Court — District of Massachusetts
PartiesJackie Hosang LAWSON, Plaintiff, v. FMR LLC, dba Fidelity Investments; FMR Corp., dba Fidelity Investments; and Fidelity Brokerage Services, LLC, dba Fidelity Investments, Defendants. Jonathan M. Zang, Plaintiff, v. Fidelity Management & Research Company, FMR Co., Inc., and FMR LLC f/k/a FMR Corp., Defendants.



Indira Talwani, Segal Roitman, LLP, Boston, MA, for Plaintiff.

Eugene Scalia, Jennifer J. Schulp, Gibson, Dunn & Crutcher LLP, Washington, DC, Wilfred J. Benoit, Jr., Goodwin Procter LLP, Boston, MA, for Defendants.


DOUGLAS P. WOODLOCK, District Judge.

This Memorandum addresses motions to dismiss in two separate cases alleging unlawful retaliation against employees of nonpublic companies in the mutual fund industry who complained of improper business activities by their employers. Because the cases share a common defendant, FMR LLC, and both raise the question of the reach of the Corporate and Criminal Fraud Accountability Act of 2002, also known as the Sarbanes-Oxley Act (“SOX”), I address them jointly. In particular, the plaintiffs in both cases seek the protection of Section 806, the SOX whistleblower provision, administered through the Occupational Safety and Health Administration (“OSHA”) of the Department of Labor (“DOL”). 18 U.S.C. § 1514A.

In the first case (No. 08-10466), Jackie Hosang Lawson seeks relief against her former employers, FMR LLC, FMR Corp. and Fidelity Brokerage Services, LLC (collectively Fidelity Investments). Lawson's employment at Fidelity Investments ended in September 2007, when she concluded she had no choice but to tender her resignation.

In the second case (No. 08-10758), Jonathan M. Zang seeks relief against his former employers, Fidelity Management & Research Company, FMR Co., Inc. and FMR LLC (collectively Fidelity Management). Zang worked for Fidelity Management from 1997 until July 2005, when his employment was terminated.

Both Fidelity Investments and Fidelity Management have moved to dismiss the cases pursuant to Fed.R.Civ.P. 12(b)(6).


In summarizing the factual background of this litigation, I take all well-pleaded facts contained in the Complaints as true, and I draw all reasonable inferences in the Plaintiffs' favor. In re Citigroup, Inc., 535 F.3d 45, 52 (1st Cir.2008). These facts “may be derived from the complaint, from documents annexed to or fairly incorporated in it, and from matters susceptible to judicial notice.” Warren Freedenfeld Assocs., Inc. v. McTigue, 531 F.3d 38, 44 (1st Cir.2008). A court is entitled, however, to disregard “bald assertions, unsupportable conclusions, and opprobrious epithets.” In re Citigroup, 535 F.3d at 52 (quoting Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 4 (1st Cir.2007)).

A. Lawson's Claims 1. The Parties

The Defendants in Lawson's suit are three privately held companies involved in the business of mutual fund investments. Defendant FMR LLC is the successor to Defendant FMR Corp., and Defendant Fidelity Brokerage Services, LLC (Fidelity Brokerage) is its subsidiary. 1 Together they conduct business under the name “Fidelity Investments.” Their business, according to Lawson, includes acting as investment advisers to the Fidelity family of mutual funds (“Funds”), which are separate investment companies under the Investment Company Act of 1940, 15 U.S.C. § 80a-3(a)(1). The Funds, which are publicly held companies, have no employees, but are rather overseen by a single Board of Trustees.

Fidelity Management & Research Company (FMR Co.), not named as a defendant in Lawson's suit, is a subsidiary of FMR Corp. and/or FMR LLC. FMR Co. serves as the registered investment adviser to the Funds under 15 U.S.C. § 80b-2(a)(11). FMR Co. provides services pursuant to a written contract approved by the Fund's Board of Trustees. Before approving these contracts, the Board of Trustees reviews the financial data and methodologies that determine the Funds' profitability, as provided by FMR LLC and its subsidiaries.

Lawson began working at Fidelity Investments in 1993 as a contract employee. She became a full-time employee in 1996, and was promoted to Director of Finance in 1999. In 2001, she was promoted to Senior Director of Finance. Her specific employer until 2007 was Fidelity Brokerage.

2. Alleged Protected Activities and Retaliation

a. Protected Activities

From the face of the Complaint, it is not readily apparent precisely which activities Lawson alleges to be “protected” for purposes of SOX or the common law. Her brief in Opposition to the Motion to Dismiss, however, identifies seven categories of protected activities.

First, she reported inaccuracies in the expenses for “Guidance Interactions,” a new initiative to give investment advice to the public. She provided information about these inaccuracies to Fidelity Investments' counsel and CFO, as well as to Vice President Betty Connolly, in June 2007.

Second, she reported the improper retention of 12b-1 2 fees to Fidelity Investments General Counsel in May 2007.

Third, she challenged the methodology used by PI Finance, a group within Personal Investments, one of the three main companies in Fidelity Brokerage. In May 2007, she reported to Fidelity Investments General Counsel that stale methodology generated variances and discrepancies for the Funds, which affected Fund Profitability models.

Fourth, she raised questions regarding PI Finance's switch of source system. She alleges that in March 2005, she advised her manager of discrepancies that had resulted from the use of a new source system, and that the switch to the new system had not been disclosed to or approved by the Board of Trustees.

Fifth, she questioned a methodology for allocating internet expenses. In the summer of 2005, Lawson presented findings to Senior Vice President Harris Komishane and then to Vice President of PI Finance John Cahill that PI Finance had failed to implement the methodology for this allocation, which the Board had approved in 2003.

Sixth, she reported two major errors in a methodology applied to the PI Back Office Group, which services shareholders' accounts. She reported the errors to Komishane.

Seventh, she filed complaints with OSHA.

b. Retaliation

The retaliation allegedly suffered by Lawson consists of a series of events: reduction of her performance rating from “exceeds expectation” to “proficient;” selection of another person instead of Lawson for the position of Director of the Board Support Group; charges that Lawson had failed to prepare business partners properly for a meeting with PricewaterhouseCoopers; reduction in bonus compensation; exclusion from committee meetings regarding her OSHA complaints; denial of approval of an expense report; implication that she was involved in the improper 12b-1 fee retention; an “oral warning” for violating Fidelity Investments rules on insubordination; a statement by a supervisor that it was impossible for Lawson to continue working at Fidelity Investments; and harassing behavior by supervisor Claire Cadogan, including verbal abuse, sabotage of her work, and the imposition of an unrealistic workload.

3. Procedural History

Lawson filed SOX whistleblower complaints with OSHA on four separate dates: December 20, 2006; April 24, 2007; September 14, 2007; and November 9, 2007. In a letter on January 28, 2008, the DOL consolidated the four complaints into one. Lawson alleged unlawful retaliation in violation of the SOX provision which makes it unlawful for certain persons and entities to penalize employees for providing information about or assisting an investigation that employees reasonably believe constitute violations of 18 U.S.C. §§ 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission (“SEC”), or any federal law relating to shareholder fraud. 18 U.S.C. § 1514A(a)(1).

On January 3, 2008, Lawson notified the DOL that she intended to seek review in federal court of her SOX claim. Under SOX, if the DOL has not issued a final decision on the complaint within 180 days of filing, the claimant may seek de novo review in federal district court. 18 U.S.C. § 1514A(b)(1)(B). The DOL, in its January 28 letter, notified Lawson that over 180 days had passed since she filed her first complaint, and that because of her intention to seek de novo review in federal court, the consolidated complaint before the DOL was closed. The Plaintiff filed her Complaint in this Court on March 20, 2008. After a scheduling conference for this litigation, Lawson filed the Amended Complaint on September 19, 2008, to which the Defendants have responded with the instant Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6).

B. Zang's Claims 1. The Parties

The Defendants in Zang's suit, here collectively referred to as Fidelity Management, are privately owned companies whose operations include the management of mutual funds. Defendant FMR LLC is the parent company of Defendant Fidelity Management & Research Company, which itself is the parent of Defendant FMR Co., Inc. As noted, FMR LLC is the successor to FMR Corp. These companies provide investment management services to a group of mutual funds (“Funds”), each of which is a publicly held investment company, registered with the SEC and required to file reports under Section 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78o(d). A Board of Trustees has oversight capacity for the Funds, but the Defendants perform the management and administrative functions necessary for the Funds' operation. Together, the Defendants manage approximately 350 mutual funds.

The Plaintiff began his employment for Fidelity Management in 1997. Under Zang's employment agreement, he was employed “by FMR Corp., and/or any entity which is directly or indirectly owned or controlled wholly or...

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