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Corporate Counsel Connect collection

March 2014 edition

Litigation and SCOTUS: Cases for your company to watch

Jeremy Byellin, JD

Jeremy ByellinThis month, as part of Corporate Counsel Connect's litigation theme, we'll be looking at some of the most significant cases before the Supreme Court that affect corporations.

Lawson v. FMR LLC

At issue in Lawson is whether Sarbanes-Oxley's whistleblower anti-retaliation provision protects employees of privately-held contractors of public companies.

The dispute arises over ambiguity in the statute, which prohibits a publicly-traded company "or any officer, employee, contractor, subcontractor, or agent of such company" from retaliating against "an employee" for whistleblowing.

There are three arguments on how to interpret this provision submitted by three different parties here. First, the former employees argue that the anti-retaliation provision protects employees of every private company that contracts with publicly-traded companies. This viewpoint was illustrated at oral arguments on November 12 with the example (posed by Justice Breyer) of an employee of a private gardening company which has contracts with a public company. The employee reports the mail fraud of his employer, which discharges the employee in retaliation. Under this view, the private company is subject to Sarbanes-Oxley's anti-retaliation provision, and the former employee brings suit.

The second view – the one advanced by the employer, is that Congress only included the "contractor" language to protect whistle-blowers against the "ax-wielding specialist" (the contractor who is retained for the sole purpose of retaliation against whistleblowers).

Finally, the U.S. government's view in the case is that the provision should be read to mean that when an employee of a private company reports misconduct relating to the company's status as a contractor for a public company, then that employee may bring an anti-retaliation claim under Sarbanes-Oxley.

Comments from the justices at oral arguments in November seemed to suggest that this final interpretation may be the one most favored by the Court, but a final ruling will tell for sure. Such a ruling could have potentially massive implications in determining which private companies are subject to Sarbanes-Oxley.

Update

After this article was written but before it was published, the Supreme Court announced its ruling in Lawson v. FMR LLC

On March 4, 2014, the Supreme Court handed down its ruling in Lawson, espousing the view advanced by the former employees – that the anti-retaliation provision protects employees of every private company that contracts with a publicly-traded one.

Clearly, this is the broadest of the three possible interpretations that the Court could have selected (the dissent specifically noted the "stunning reach" of the majority opinion), and it means that businesses, both public and private, must be especially cautious in taking any kind of adverse action against a whistleblower employee.

POM Wonderful LLC v. The Coca Cola Company

Shifting from employment law, we come to POM Wonderful's lawsuit against Coca Cola, which centers on product labeling laws, specifically as they interact with one another.

POM Wonderful sued Coke for false advertising under the Lanham Act over the latter's Minute Maid pomegranate-blueberry fruit juice blend, which contains only 0.3% pomegranate juice and 0.2% blueberry juice (the other 99.4% consisting mostly of apple and grape juices).

Normally, POM Wonderful's lawsuit under the Lanham Act would be fairly strong. But Coke was able to successfully move for summary judgment – which was affirmed on appeal – because its labels were in compliance with FDA regulations, which apparently permit a manufacturer to label beverages using the name of a flavoring juice that is not preponderate by volume.

The outcome of this case could have major implications for the recent flood of lawsuits by consumers over food labeling practices. So far, compliance with FDA or other pertinent federal agency regulations have generally been enough to shield companies from liability. But a Supreme Court decision reversing the appeals court could drastically change the playing field.

U.S. v. Quality Stores

And now we come back to employment law. Only this time, the concern isn't liability over the discharge of an employee, it's about potential tax liability resulting from payments made to employees.

More specifically, the question in U.S. v. Quality Stores is whether "supplemental unemployment benefits" (or "SUB payments") qualify as "wages" for purposes of the Federal Insurance Contributions Act (FICA).

SUB payments are a type of severance designed to help employees after being involuntarily termination due to structural changes within the organization. Because SUB payments could fall under the definition of "wages" for one federal statute but not another, the issue has been decided differently by different circuits, causing the Supreme Court to step in on the matter. After oral arguments on January 14, the Court seemed likely to side with the government in finding that such payments are "wages."

At stake in such a decision is potentially millions of dollars for a given company that may now be liable to pay FICA taxes on SUB payments where it previously owed none (Quality Stores itself is seeking a FICA tax refund for approximately $1 million).

We'll have to wait to see how the Court comes down on this issue for sure, but whichever way the decision goes will have major tax implications for employers with a large pool of employees.


About the author

Jeremy Byellin is a practicing attorney in the state of Minnesota and a writer for the Westlaw Insider blog. His articles for the blog cover a wide range of legal topics, with a specific focus on major legal developments and cyberlaw.


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