Running head: EXISTING COURT CASE LEGAL 1

Existing Court Case Legal Brief - Lawson and Zang v. FMR LLC, ET AL
Stephanie Beske, Jeff Emmerich, Kevin Hansen, and Brian Morey
Cardinal Stritch University
January 9, 2014


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Lawson and Zang v. FMR LLC, ET AL Case Brief
Case Citation
Lawson V FMR LLC, 724 F.Supp.2d 141
Lawson v. FMR LLC, 670 F.3d 61
Lawson and Zang V. FMR LLC 12-3
Procedural History
Jonathon Zang filed a complaint with OSHA on September 15, 2005 alleging Sarbanes-
Oxley whistleblower provision violations when discharged in July 2005 by Fidelity
Management.
OSHA dismissed the complaint finding that even though Zang was a covered employee
within the Sarbanes-Oxley whistleblower provision, 18 U.S.C. 1514A(a), he had not
engaged in protected conduct.
Zang requested a hearing before an administrative law judge. The judge issued a decision
granting summary judgment to Fidelity Management and dismissing the complaint.
Zang filed complaint with district court
Jackie Lawson filed an OSHA complaint against her employer and its parent pursuant to
1514A alleging retaliation for whistleblower provisions.
Lawson notified OSHA that she intended to seek review of her claim in federal court
Lawson filed a complaint in district court
Although both lawsuits were filed separately the district court merged both cases into a single
order since they shared a common defendant and complaint about whistleblower protection
provision of section 806 of Sarbanes-Oxley, codified at 18 U.S.C. 1514A.
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Defendants filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure
District court denied the defendants motions to dismiss finding that the whistleblower
protection under 1514A extends to employees of private contractors and subcontractors to
public companies.
Case was appealed to first circuit via interlocutory appeal.
First circuit reversed the district courts decision, holding that only employees of public
companies are protected by 1514A
First circuit denied timely filing of re-hearing request.
Supreme Court agreed to review the case to determine whether the whistleblower provisions
of Section 806 of the Sarbanes-Oxley Act of 2002 apply to privately held employers that act
as contractors to public companies.
Facts
Congress enacted the Sarbanes-Oxley Act of 2002 to protect investors in public traded
companies following the Enron Corporation collapse
1
.
Petitioners Jackie Lawson and Jonathan Zang were both employees of privately held firms
(the respondents) which had been contracted by the Fidelity mutual funds
1
.
The Fidelity mutual funds are public companies with no employees of their own. Day-to-day
operations are carried out by advisory and management companies such as the respondents
under contracts approved by the Fidelity mutual funds board of trustees
1
.
Petitioner Lawson was the former finance director for Fidelity Brokerage
1
.
While employed by Fidelity Brokerage, Lawson reported alleged wrongful accounting and
fee practices for certain Fidelity mutual funds
1
.
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Lawson claims she had been constructively discharged in retaliation for reporting of the
alleged activities
1
.
Petitioner Zang was a former research analyst and portfolio manager for several Fidelity
mutual funds
1
.
Zang informed his supervisors of conflicts of interest and alleged errors in a draft SEC-
required disclosure
1
.
Zang claims his employment was terminated as a result of providing this information to
management
1
.
Petitioners have both filed a whistleblower-protection complaint with the Department of
Labor
2
.
The Department of Labors Administrative Review Board (ARB) has adjudicatory authority
for enforcement of the whistleblower-protection provision
2
.
If the ARB does not issue a decision within 180 days of filing the complaint, the petitioners
may file suit directly with the federal district court
2
.
The ARB did not issue a decision on the petitioners complaint within the allowed 180 days
and the petitioners filed suit with the federal district court
2
.
Respondents filed motions with the district court to dismiss both complaints on the grounds
that employees of contractors and subcontractors of a public company are not protected by
the whistleblower-protection provision
2
.
The federal district court denied the respondents motion for dismissal. The court held that an
employee of a contractor or subcontractor of a public company is protected from retaliation
by the whistleblower-protection provision when the employee reports fraud against the
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public companys shareholders. In the courts opinion, limiting protection to only employees
of a public company would be an excessively forced and formalistic reading of the statute
2
.
The district court forwarded their decision to the court of appeals for interlocutory review
2
.
The court of appeals reversed the district court decision, concluding a more natural reading
of the statute is that only the employees of the defined public companies are covered
1
. The
court based that conclusion on the statutes heading referring to employees of publically
traded companies; that other statutes used more specific language when referring to private
companies; and on general statements in a congressional report by individual legislators
regarding protecting employees of publically traded companies.
1

Court of Appeals Judge Thompson dissented the decision claiming it imposed an
unwarranted restriction on the intentionally broad language of the Sarbanes-Oxley
Act and bar[s]a significant class of securities-fraud whistleblowers from any legal
protection
2
.
Petitioners appealed to the U.S. Supreme Court.
Issue
The issue is whether an employee of a privately held contractor or subcontractor of a public
company is protected from retaliation by 18 USC 1514A.
Rules
The petitioners are filing for protection based on whistleblower protection from the Sarbanes-
Oxley Act of 2002: 18 USC 1514A
Two legal analogies used are Spinner v. David Landau & Associates, LLC, and Chevron
U.S.A. Inc. v. NRDC. The Spinner decision found that private firms that contract with public
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firms are protected by 18 USC 1514A and in the Chevron decision it was ruled that
ambiguity in law can be decided by the governing body.
Jurisdiction
One of the key pieces of jurisdiction involved with this case is the Administrative Review
Board (ARB). The ARB had the opportunity to rule on this case within the first 180 days of
the complaint being filed. The ARB is a part of the Department of Labor that was established
in 1996, taking over some of the decisions previously ruled on by the Secretary of Labor.
They cover issues related to workers protection, such as child labor, employer
discrimination, service contracts, and whistleblower protection. In this case, while the ARB
had the opportunity to rule on the case, they decided to let it fall upon the district court
(Administrative Review Board).
Areas of Law
There are several areas of law this case covers. The Sarbanes-Oxley Act deals with corporate
law, but the whistleblower portion in particular has close ties to employment law as well.
Key Parties
The key party FMR has contracted employees that work for Fidelity, which manages mutual
funds, a protected group under Sarbanes-Oxley. The petitioning employees are contracted
workers with FMR. The motive of both employees involved is job retention and the feeling
of security in reporting issues without any other retaliation. The motive of FMR is to not face
any damages, or lose rights as employers. Testimony on the side of the petitioners would be
to first prove ties between termination and reporting violations to show coverage under the
whistleblower protection, and then to clearly identify their involvement with Fidelity and
specifically the mutual fund management within Fidelity. The position of the petitioners
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through this testimony is that they as contracted employees had direct involvement with the
mutual funds, identified what they considered wrongdoings and reported them, and as a
result lost their jobs. The defendants, on the other hand want to testify that they were only
contracted employees with little to no involvement with the administration and management
of the mutual funds of Fidelity, and that their terminations were not directly linked to their
reporting of wrongdoings.
Application
The initial construction of the Sarbanes-Oxley Act was to protect future Enron-like
activities from reoccurring. Specifically, the private contractors of the Arthur Andersen firm
were aware of wrongdoings and should feel protection for whistleblowing without being
subject to retaliation. The Sarbanes-Oxley Act offers protection for said whistleblowers in 18
USC 1514A. Additionally, the Senate Report which was a filing from the U.S. Senate
specifically cited that that Enrons fraud started with the approval or advice of its accountants,
auditors and lawyers and that employees at both Enron and Andersen attempted to report or
blow the whistle on fraud, but they were discouraged at nearly every turn. Petitioners Lawson
and Zang both worked for Fidelity Management and Research (FMR) which made them private
contractors of a public firm much like the Arthur Andersen, and should be protected as suggested
by the intent of the Sarbanes-Oxley Act.
In the case Spinner v. David Landau & Associates, LLC, supra, the Administrative
Review Board (ARB) ruled that private firms that contract with public firms are offered
protection, despite the ambiguity of the Sarbanes-Oxley Act. Spinner, an accountant (and
contractor) for David Landau and Associates, found internal control problems that he reported to
OSHA, and was later terminated. While the initial decision ruled against Spinner, the Administrative
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Review Board reversed the decision ruling in favor of Spinner, despite Spinner being a contracted
employee. This analogous case shows that the ARB has a precedent of ruling in favor of considering
contracted employees protected.
Furthermore, any question of ambiguity in the legal wording of the Act is reaffirmed in the
case of Chevron U.S.A. Inc. v. NRDC, supra which ruled any legal ambiguity can be defined by
the governing body, meaning that if determined that the definition of employee is ambiguous,
then the court should rule based on the definition supported in the Spinner case. More clearly, in
the Chevron case, Congress had not clearly defined EPA standards as it related to stationary
sources of pollution, and the US Supreme Court based their ruling of the case on the fact that
when decisions are not clearly defined in law and are ambiguous, the decision is left to the
governing body. The EPA in the Chevron case is analogous to the ARB in this case.
Implications
This cases decision could have broad implications on the future effectiveness of the
Sarbanes-Oxley whistleblower protection provisions. In fact, since this is the first case to reach
the Supreme Court, some argue that more cases should be tried in lower courts prior to a
Supreme Court decision to establish additional precedence on the issue (Secunda, 2013).
In light of Enron and similar scandals, the Sarbanes Oxley Act attempts to protect the
economy and the public from a recurrence of the previous financial damage suffered. Reversal of
the First Circuit Courts decision, which found in favor of the respondents, could help provide
such economic and societal protection by strengthening both early detection of fraudulent
activity and by deterring management from participating in criminal acts.
Although Sarbanes-Oxley mandates the institution and maintenance of many internal
company financial controls, information provided through tips and hotlines are found to provide
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the most important initial resource for detecting fraudulent activity. According to the 2007
PricewaterhouseCoopers report on economic crime, 43% of that years detected fraud was
accredited to individual tips and whistle-blowing systems (Pricewaterhousecoopers, 2007). The
importance of safe reporting avenues is further exemplified in a report by the Association of
Certified Fraud Examiners (ACFE). In 2008, 46.2% of all initial fraud detection was through
tips, outweighing the total discoveries through internal audits and controls. Tips were also the
single largest tool, by far, in detection of fraud committed by owners and executives (Association
of, 2008).
Results of cases like Spinner and Lawson can make it clear that the laws intent is to
protect all individuals from retaliation when reporting activities suspected to be in violation of
SEC regulations. This could encourage reporting by employees in key positions, who without
such assurances, would elect not to bring forward evidence of illegal financial activities. Early
detection and prosecution of violations would serve to minimize the degree of the damage done
to the economy and shareholding citizens.
Increased freedom in the reporting of white collar criminal activities could greatly
increase the ease of detection and the likelihood of prosecution. An increased level of exposure
and risk could serve to deter would-be abusers from taking advantage of their positions. As
summarized in The Labor Lawyer, Sarbanes-Oxley clearly intends to deter future repetitions of
Enron, WorldCom, and the like by encouraging employee whistle-blowing about fraud on the
financial markets. The U.S. capital markets have been the primary engine of the worlds
economic growth in the last several centuries. If the Sarbanes-Oxley whistleblower provisions
that facilitate under-sight actually work in practice to deter frauds then they may be among the
most significant employment law developments in recent times. (Westman & Fall, 2005).
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Freedom in reporting suspected illegal activity may not only help protect the economy,
safeguard society investments and dissuade unscrupulous management, but may also instill and
promote a sense of corporate ethics by empowering individuals to report suspected wrong-
doings. While carefully implemented and regularly updated controls can themselves be
effective in detecting and, over a period of time, deterring fraudsters, our research also shows
that it is the culture of a company one that supports a holistic compliance program working in
conjunction with a clearly understood, and lived, code of ethics that is the true foundation for
an effective anti-fraud program (Pricewaterhousecoopers, 2007, pp. 11 - 12).
The results of this case may have other less obvious implications. Consider the recent
Snowden leak. At present Edward Snowden is unable to claim whistleblower protection. This is
partially due to the fact that he was a federally contracted worker for the government with Booz
Allen Hamilton. The policy director for the Project on Government Oversight was quoted as
saying, they received no coverage under the WPEA for federal employees, the PPD-19 for IC
civil servants, and were carved out of the contractor whistleblower protections in the NDAA
based on objections from the Congressional intelligence committeesleaving them with no
specific protections for whistleblowing under the law. If you look at intelligence contractors,
they have no protections under any of the laws. It really is an accountability loophole (Elk,
2013). If this Supreme Court decision finds in favor of contracted employees, it would also help
give intelligence contractors more rights as well.
While the obvious implications are changes to the effects of contracted workers from
public companies in whistleblower protection, the ruling for this case could cause other changes
to the Sarbanes-Oxley whistleblower protection. One example is that current protection for
public corporations could eventually spread to private companies, if public contracted employees
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of private firms are first included. A desired implication from Sarbanes-Oxley would be to have
companies following the law and doing business by the book. Expanding coverage of
whistleblower protection could, in theory, protect more employees, and force more employers to
be cautious in how they do business. On the other side, it could also cause employers to have a
harder time terminating poor performing employees, as the number of unjustified claims for
protection after termination could rise, and some may reach settlement or unfavorable decisions
against the employer despite any wrongdoing.
Conclusion
For reasons of initial intent of the law, as well as using a Chevron-based decision to
revert to the ARB for judgment, which the ARB has previously determined in favor of contracted
employees in the Spinner case; the judgment of the court of appeals should be reversed.
Respectfully submitted.
Team Impressions of the Case
This case seems to be an example of what we want the law to govern versus what it
actually governs. At present, the literal interpretation of the law state that employees of public
companies are protected, and it does not clearly state protection for contracted workers. For that
reason, the district and appellate courts ruled in favor of the law in the true literal sense. There is
a hope that the Supreme Court will allow a more open-ended interpretation, along with the legal
analogies presented to rule the other direction, in favor of the plaintiffs. In agreement with
arguments made by the plaintiffs, it makes sense that the law was made with the intent to protect
people with influence over publically traded companies to report violations. Whether that is a
contracted employee or regular employee should not matter.
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On the other hand, this case brings up a matter of one of the key ethical norms,
efficiency. The more people that are offered whistleblower protection, the more wrongful
termination lawsuits that will be filed, which will make it tougher for companies to justify
terminations. This will drive up expenses for companies as well as costs to the court system with
additional claims.
Self-Reflection
Morey As a retail manager, this assignment and this course in general have altered my view on
how I manage. For one, I am more fearful of lawsuits, from simple things like improper
shoveling in front of my store, to something relevant to this case; wrongful termination. It has
been made clear to me between real life examples at work and this class that we are far from an
employment-at-will country, and we as employers need to be very careful, from the point of hire
to the point of termination. Future decisions by me will be made with more caution and scrutiny.
Hansen As a manager this assignment and course has shown me how important it is to consider
all potential ramifications when terminating employees. With the numerous laws that are written
to protect employees as well as employers it is important to have baseline knowledge in the law
in order to be properly protected if sued in court. While not all laws will be specific to every
situation, it is important to understand the prior cases, and the rulings of those cases, in order to
properly apply or distance yourself from those findings and the specific incident you may be
involved in.
Emmerich It may seem selfish, but as an individual not done with his professional career but
planning to retire within the next twenty years, it is important to me that we do not again suffer
the investment losses incurred over the last decade due to the incredibly selfish and greedy
actions of a few. There was no good reason for this. More freedom in reporting suspected
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criminal corporate acts will help avoid future violations. I hope that a more wide-eyed
community in combination with government policy can prevent history from repeating itself.
Beske This course has heightened my awareness of legal issues in general. While I am
completely aware of legal implications for obvious crimes, this course has enlightened me on
legal implications of less obvious crimes. One example is white collar crime. Fraudulent activity
of high ranking CEOs, CFOs, and others - especially when they are caught and not punished -
seems like an injustice. What I was hoping to learn from this class was more about legal issues
involving hiring and firing of employees. What I have learned is invaluable. I will use the book
as a reference. I also will be able to research laws with much more understanding than before.
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References
Association of Certified Fraud Examiners. (2008). 2008 Report To The Nation On Occupational
Fraud & Abuse (Report to the Nations). Retrieved January 6, 2014, from
http://www.acfe.com
Brief for United States as Amicus Curiae Supporting Petitioners, Lawson and Zang V. FMR
LLC
Brief for United States as Amicus Curiae, Lawson and Zang V. FMR LLC
Brief on Writ of Certiorari to the United States Court of Appeals for the First Circuit, Lawson
and Zang V. FMR LLC
Department of Labor. (N.D.). Administrative Review Board. Retrieved December 26, 2013 from
http://www.dol.gov/arb/welcome.html
Elk, M. (2013). Snowden Leak Highlights Few Whistleblower Protections for Intelligence
Contract Employees. Todays Workplace. Retrieved December 26, 2013 from
http://www.todaysworkplace.org/2013/06/12/snowden-leak-highlights-few-
whistleblower-protections-for-intelligence-contract-employees/
PricewaterhouseCoopers. (2007). Economic crime: people, culture and controls. The 4
th
biennial
Global Economic Crime Survey. Retrieved January 5, 2014, from http://www.pwc.com/
crimesurvey
Secunda, P. (2013). U.S. Supreme Court to Hear Sarbanes-Oxley Whistleblower Case Involving
Contractors. Todays Workplace. Retrieved December 26, 2013 from
http://www.todaysworkplace.org/2013/06/04/u-s-supreme-court-to-hear-Sarbanes-Oxley-
whistleblower-case-involving-contractors/
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Westman, D. (Fall 2005). The Significance of the Sarbanes-Oxley Whistleblower Provisions.
The Labor Lawyer, 21(2), 141 - 155.