Jason M. Knott


  • November 2013 Monthly Roundup

    | Zuckerman Spaeder Team and Jason M. Knott

    Here at Suits by Suits, we are thankful that the news about executive-employer disputes keeps flowing like gravy.  This past month, we focused a lot of attention on non-compete agreements, many of which met the same fate as an unpardoned turkey.  On a day as cold as chilled cranberry sauce, we sent a live correspondent to cover the oral argument in Lawson v. FMR LLC, in which the Supreme Court will decide whether employees of privately-held contractors of public companies have viable Sarbanes-Oxley claims.  Finally, as per our holiday tradition, we recapped the history of Thanksgiving, in a post as entertaining as the most memorable Cowboys loss.

    If you are interested in more information about legal issues involving executives and their employers, on December 10, 2013, Zuckerman Spaeder LLP partners and Suits by Suits contributing editors Ellen D. Marcus and Jason M. Knott will present a webinar titled “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.”  In the session, Ms. Marcus and Mr. Knott will discuss the basics of these whistleblower and anti-retaliation provisions and address new developments in the law, including the Sarbanes-Oxley case currently pending before the U.S. Supreme Court.  To register, click here

  • Upcoming Suits by Suits Webinar: Whistleblower Watch

    | Jason M. Knott

    On December 10, 2013, Suits by Suits contributing editors Ellen D. Marcus and Jason M. Knott will present a live webinar titled “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.”  During the webinar, Ms. Marcus and Mr. Knott will discuss the whistleblower and anti-retaliation provisions of the Dodd-Frank and Sarbanes-Oxley Acts, the Internal Revenue Code, and other federal statutes.  Their presentation will address the types of businesses and conduct that can be targeted by whistleblowers, the procedures that whistleblowers must follow to pursue and preserve a claim, the remedies available to whistleblowers, and more.  Ms. Marcus and Mr. Knott will also examine the pressing issues under these laws that are being debated in the courts. This includes contradictory decisions about whether the Sarbanes-Oxley Act’s whistleblower provision covers employees of privately-held companies, such as investment advisers—an issue that is currently before the U.S. Supreme Court in the case of Lawson v. FMR LLC, which we have previously covered in various posts.  To register for the webinar, click here.

  • Argument Recap: Five Takeaways from Lawson v. FMR LLC

    | Jason M. Knott

    On Tuesday, the Supreme Court heard oral argument in Lawson v. FMR LLCAs we explained in this post, Lawson presents the question of whether Sarbanes-Oxley’s whistleblower anti-retaliation provision (Section 806 of Sarbanes-Oxley, codified at 18 U.S.C. § 1514A) shields employees of privately-held contractors of public companies such as the plaintiffs, who are employees of investment advisers for Fidelity mutual funds.  We editors of Suits by Suits don’t often get the chance to report live on the cases we cover, but an argument at One First Street was too tempting to pass up, even on a blustery Washington day.  Here are five major takeaways that we drew from the argument (with the caveat that reading the tea leaves from an oral argument is always a difficult proposition):

    1.      The Court is uncomfortable with the scope of potential Sarbanes-Oxley claims that would result from the Fidelity employees’ interpretation of the statute.

    A number of Justices pressed Eric Schnapper, who argued for the Fidelity employees, and Nicole Saharsky, arguing for the United States in support of the employees, as to how the Court could limit the reach of the statute if it holds that Sarbanes-Oxley allows employees of private companies to bring whistleblower retaliation claims.  Justice Breyer posed a hypothetical involving an employee of a privately-held gardening company who reports on mail fraud by his employer, is fired, and then brings a whistleblower anti-retaliation claim, arguing that he is covered by Sarbanes-Oxley because his company has gardening contracts with public companies.  Schnapper argued that the statute as written would cover the gardener, but the Justices were less convinced that Congress intended this kind of reach for Sarbanes-Oxley.  Justice Breyer even commented that the fear of expanding the statute to cover “any fraud by any gardener, any cook, anybody that had one employee in the entire United States” was the “strongest argument” against the Fidelity employees’ position.

  • The Inbox - Twitter IPO Edition

    | Jason M. Knott

    Twitter’s founders are cashing in on Wall Street, and journalists are piggybacking on the news with articles like this one, which recaps 10 “surprising superstars” of the social network.  No, Suits by Suits didn’t make the cut, but you can still follow us at @suitsbysuits, where we’ll bring you 140-word tweets about news related to executive-employer disputes.  These are the kinds of stories we track:

    • The Texas Supreme Court heard argument this week in Exxon Mobil’s dispute with former executive William Drennen.  Jeremy Heallen of Law360 (subscription required), wrote that after Drennen retired from Exxon (@exxonmobil) and went to work for competitor Hess, Exxon claimed that he had forfeited his restricted stock under a “detrimental-activity provision” in his incentive plan.  Exxon is seeking reversal of the lower court’s holding that the forfeiture violated Texas law, which disfavors “unreasonable” noncompetition agreements.
    • AIG has settled a $274 million dispute with former real estate executive Kevin Fitzpatrick, reported (@nateraymond) Nate Raymond of Reuters.  The terms are confidential, but Fitzpatrick’s lawyer says that he is “very happy.”  Given the potential dollar amounts between $0 and $274 million, it’s easy to guess why.
    • Rachel Louise Ensign of the Wall Street Journal (@RachelEnsignWSJ) (subscription required) covered a developing trend this week: more whistleblowers are coming from corporate compliance departments.  As one example, Ensign described Meng-Lin Liu’s case against Siemens AG, which we covered here.  The possibility of lucrative awards under the Dodd-Frank Act’s whistleblower program may be sparking the trend, although as Ensign points out, compliance officers are subject to additional restrictions under that program.
    • In other whistleblower news, the Senate approved a bill to prohibit companies from retaliating against whistleblowers who report violations of the antitrust laws.  Jennifer Koons of Main Justice (@jenkoons) said that the bill passed with bipartisan support.  “Bipartisan” – does anyone still remember that concept?
    • Newscaster Larry Conners is still trying to get back on television, despite a prior ruling that his noncompete agreement prohibited him from working for other TV stations in the St. Louis market for a year.  Conners’s attorney asked the judge to modify that ruling, which restricted Conners to radio work, wrote (@STLSherpa) Joe Holloman of the St. Louis Times-Dispatch.  We’ve previously examined Conners’s case here and here.
  • Argument Preview: What to Look For in Lawson v. FMR LLC

    | Jason M. Knott

    On Tuesday, November 12, the Supreme Court will hear argument in the most-watched case of this Term (at least for those of us who edit this blog).  The case, Lawson v. FMR LLC, presents the question of whether an employee of a privately-held contractor of a public company can bring a whistleblower retaliation claim against his or her employer under the Sarbanes-Oxley Act of 2002.  The plaintiffs in the case, and the parties who have appealed to the Supreme Court, are Jackie Lawson and Jonathan Zang. 

    In their lawsuit, Lawson and Zang claim that their employers – a group of privately-owned Fidelity subsidiaries that serve as “investment advisers” to publicly-held Fidelity mutual funds – retaliated against them for raising concerns about fraud.  Here’s a handy chart from Fidelity’s brief that illustrates the relationship between the parties:

     

    The First Circuit dismissed Lawson and Zang's claims, holding that Sarbanes-Oxley’s anti-retaliation provision only protects employees of public companies.  Because Lawson and Zang worked on the blue side of the chart, and not the yellow side, they couldn’t bring a claim for retaliation.  (The mutual funds on the yellow side have no employees; they do their business through their contractors on the blue side.)

    What do Lawson and Zang argue?

    The parties spend a lot of time parsing the language of the Sarbanes-Oxley anti-retaliation provision (18 U.S.C. § 1514A).  In their opening and reply briefs, Lawson and Zang argue that the plain text of the law shows that Congress intended to shield employees of contractors of public companies from retaliation for reporting corporate misconduct.  If Congress didn’t mean to protect those employees, they say, it wouldn’t have prohibited retaliation by “any officer, employee, contractor, subcontractor, or agent” of “such [public] company.”  Under Fidelity’s reading of this provision, the language about contractors would only come into play if a contractor retaliated against a public company employee, and because that doesn’t happen in the real world, the use of the term “contractor [or] subcontractor” would be meaningless.

  • ‎“Man Bites Dog” in the Fourth Circuit: Court Reverses Arbitrator’s Award and Enforces ‎Release

    | Jason M. Knott

    There’s a famous aphorism in journalism: “When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.”

    The same is true of arbitration awards.  When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen.  But when a court tosses an arbitrator’s decision, it creates headlines.

    On October 28, the Fourth Circuit made news by vacating an arbitration award issued to a former employee of an accounting firm.  Kiran M. Dewan, C.P.A., P.A. v. Walia, No. 12-2175 (4th Cir. 2013).  The former employee (Walia) was a native of Canada on a work visa who joined the Dewan firm as an accountant.  When he was terminated, he signed a release in which he gave up any tort or contract claims he had against the company in exchange for a payment of $7,000.  Three months later, the firm filed an arbitration against Walia, alleging that he had violated noncompete and nonsolicitation provisions in his employment agreement.  Walia filed counterclaims alleging that the firm underpaid him in violation of visa regulations, breached his employment agreement, and fraudulently sought to withdraw its sponsorship of his visa.  The arbitrator found that Walia’s release was legally enforceable, but also found that Dewan (the president of the firm) brought baseless claims and purposely sought to injure Walia’s immigration interests.  As a result, the arbitrator awarded Walia over $450,000.

    In the build-up to its decision, the Fourth Circuit recognized the dog-bites-man principles of confirming arbitration awards.  It wrote that under the Federal Arbitration Act, “the scope of judicial review for an arbitrator’s decision is among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all—the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.”   The Federal Arbitration Act and the common law only allow an arbitration award to be vacated when

    • the award was “procured by corruption, fraud, or undue means”;
    • there was “evident partiality or corruption” in the arbitrators, or either of them;
    • the arbitrators “were guilty of misconduct”;
    • the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made”; or
    • “an award fails to draw its essence from the contract, or the award evidences a manifest disregard of the law.”

    In other words, to vacate an arbitration award, a party must show that the winning party bought the award; the arbitrators were crooked or obviously biased; the arbitrators botched the arbitration to such a degree that a final and definite award wasn’t even made; or the arbitrators didn’t follow the contract at issue and/or disregarded binding law.

  • The Basics: Dodd-Frank vs. Sarbanes-Oxley Whistleblower Law

    | Jason M. Knott

    The Dodd-Frank and Sarbanes-Oxley whistleblower laws are hot topics right now.  A split of authority is developing in the federal courts over how an employee can qualify as a whistleblower and bring a retaliation claim under Dodd-Frank.  And the Supreme Court will hear argument next Tuesday in a case, Lawson v. FMR LLC, that will require it to decide whether private employers can be subject to Sarbanes-Oxley retaliation claims by their employees.

    As we at Suits by Suits continue to watch these issues, we thought it would be helpful to step back for a broader view of these important whistleblower laws.  In the table linked here, we have summarized the important facets of each law.  This table will serve as a reference point for new developments, placing them in the broader context of these whistleblower protections.  

     

  • October 2013 Monthly Roundup

    | Zuckerman Spaeder Team and John J. Connolly and Jason M. Knott

    October was a busy month for us here at Suits By Suits – and, we imagine, for many of you as well.  The baseball playoffs shut out our hometown Orioles and Nationals (although our sister office in Tampa got to cheer on, however briefly, the playoff-bound Rays), and the gods of the pigskin haven’t been much kinder to the Ravens or Redskins so far.  But despite the fickle fortunes of professional sports, we still managed to crank out some pretty interesting content this month; if you missed any of our prior articles, here’s a summary and link to each one:

  • Federal Court Rules That Dodd-Frank Whistleblower ‎Protection Doesn’t Apply Internationally

    | Jason M. Knott

    A judge in the U.S. District Court for the Southern District of New York ruled Monday that the Dodd-Frank Act’s whistleblower protection provision does not protect an employee in China who was allegedly fired for raising concerns about corruption.  Judge William H. Pauley III found “no indication” that Congress wanted Dodd-Frank’s anti-retaliation provision to apply extraterritorially, and as a result invoked the “strong presumption” against the international application of U.S. laws.  Liu v. Siemens A.G., No. 13 Civ. 317 (WHP) (S.D.N.Y. Oct. 21, 2013).

    The plaintiff in the case, Meng-Lin Liu, is a Taiwanese resident who worked as a compliance officer for Siemens China.  Liu alleged that he was fired after giving a speech, attended by the Siemens China CEO, in which he claimed that Siemens would lose 30% of its business if it started following its compliance guidelines.  Two months after his firing, Liu reported to the SEC that Siemens had violated the Foreign Corrupt Practices Act (FCPA).  He then brought his suit for whistleblower retaliation, asserting that although Siemens is a German company, it has listed American depository receipts on the New York Stock Exchange.

  • Federal Judge Upholds Jurisdiction Based on Employer’s Computer Fraud and Abuse Act (CFAA) Claim Against Former Employee

    | Jason M. Knott

    In a decision last week, Judge Ewing Werlein Jr. of the U.S. District Court for the Southern District of Texas addressed the question of whether an employer had successfully alleged a claim under the Computer Fraud and Abuse Act (“CFAA”), such that the employer could properly bring its numerous claims against former employees and their companies in federal court.  He ruled that the employer had properly pleaded the CFAA claim, and that as a result, the court had subject matter jurisdiction over the case.  Beta Technology, Inc. v. Meyers, Civ. No. H-13-1282, ‎2013 WL 5602930‎ (S.D. Tex. Oct. 10, 2013‎).

    Before we get into the substance of the decision, some background is in order.  Subject matter jurisdiction is an important issue for federal judges.  If there’s no basis for subject matter jurisdiction, a case doesn’t belong in federal court.  First-year civil procedure students learn this rule from the venerable decision in Capron v. Van Noorden, in which the Supreme Court allowed a plaintiff to obtain reversal of a final judgment because he hadn’t properly alleged that the court below had subject matter jurisdiction over his claim.

    The two main categories for federal jurisdiction in non-criminal cases are diversity jurisdiction and federal question jurisdiction.  Diversity jurisdiction, as defined in 28 U.S.C. § 1332, permits the federal courts to hear disputes between citizens of different states – i.e., “diverse” citizens – so long as more than $75,000 is at stake.  Federal question jurisdiction, which is defined in 28 U.S.C. § 1331, allows the federal courts to address “all civil actions arising under the Constitution, laws, or treaties of the United States.”  And under 28 U.S.C. § 1367, once the court has jurisdiction to hear one claim, it can hear any other claims that form “part of the same case or controversy,” even when those claims drag additional parties into the mix.

As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.

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