Managing Legal
Despite our nation’s sacred aspiration to have a government “of laws, not men”, businesses often find themselves governed by the preconceived, subjective opinion of some judge or bureaucrat.
Even when that preconceived, subjective opinion conflicts with the plain meaning of a statute’s or regulation’s actual words.
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The Dodd-Frank Act provides specified whistleblower rights to an employee who communicates a securities law violation “to the [Securities and Exchange] Commission”.
Two days ago (February 21, 2018) the U.S. Supreme Court held that this provision did not apply where the employee communicated a securities law violation to an internal company official — instead of the SEC. (Digital Realty Trust v. Somers).
No report to the SEC. No recovery under this statute. The proverbial no-brainer, right?
Why did it take the employer company four years of litigation — and appeals all the way to the U.S. Supreme Court — to confirm what a reasonably intelligent 6th grader would have understood from reading the text?
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Because our legal institutions indulge idiosyncrasies and whims on the part of judges and bureaucrats that frequently render the law’s demands unpredictable.
At the trial court level in Digital Realty Trust v. Somers (U.S. District Court for the Northern District of California), the gist of the judge’s reasoning went like this:
- Congress intended to enact a rule different from what it actually wrote.
- I (the judge) know what that intention is because I’ve done my own survey of the federal law of whistleblowing — Dodd-Frank, Sarbanes-Oxley, and the SEC’s regulation on that subject.
- Based on my own survey I believe that I can improve on the job Congress performed in drafting the statute that I’m (supposed to be) simply interpreting.
- Therefore the statute’s words “to the Commission” actually also denote “to the company that employs the complainant” (though you won’t actually find that second phrase anywhere in the statute).
The federal appeals court (U.S. Circuit Court of Appeals for the 9th Circuit) came to the same conclusion. And by the same line of reasoning as above: Congress’ words didn’t express its own “intention” adequately. Fortunately the judges of the 9th Circuit were able to “correct” Congress’ drafting “mistakes” to express what Congress really meant to say in the Dodd-Frank Act (!).
Unsurprisingly, bureaucrats at the SEC and U.S. Department of Justice filed a joint friend-of-the-court brief with the U.S. Supreme Court in which they appeared to jump at the chance to override the words that Congress had actually used in order to create a rule better suited to their own preferred way of exercising power over the businesses affected.
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If the U.S. Supreme Court finally set this right — what’s the problem?
Uncertainty.
Too often sheer guesswork for businesses when it comes to staying out of legal trouble and securing whatever benefits they might have a right to under the law.
In considering how to handle a potential whistleblower situation how are my head of Human Resources and our company’s lawyers to know what conduct will enable our business to conform to the statute and what won’t? How can they know when our business is in the clear — and when it’s in jeopardy?
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The destructive uncertainty that such preconceived, subjective opinions of individual judges and bureaucrats is repeated across dozens of statutes and regulations at both federal and state levels.
In Part II of this two-part series I take up the question of how to manage the business amidst statutes and regulations that too often aren’t given the effect that they were meant to have.