Amicus Brief: Tennessee Commerce Bancorp; Whistleblower Litigation
INTEREST OF AMICUS CURIAE
The AABD, which has obtained the consent of all parties to its amicus curiae participation in this case, is a non-profit organization devoted to serving the information, education and advocacy needs of individual bank and savings institution directors. Outside directors, who in most cases also satisfy the SOX’s definition of “independence” from bank management, make up 95% of the AABD’s membership.
SOX mandates that only such “independent” directors may serve on public company audit committees, and gave those committees significant new responsibilities and authorities. Among the new responsibilities is a critical role in addressing reports from whistleblowers. Pursuant to SOX Section 301, public company audit committees must establish procedures to facilitate and encourage employees to report wrongdoing to the committees on a confidential, anonymous basis. SOX also grants audit committees the power to hire outside advisors to investigate and address the whistleblower reports they receive, drawing on a budget that the audit committee alone determines. The AABD therefore has a substantial interest in how courts construe SOX’s whistleblower provisions, including the scheme of judicially imposed whistleblower remedies in SOX Section 806 that is at issue in this case.
The AABD also is concerned that enforcement of interim orders of reinstatement would create a “revolving door” of discharge and reinstatement in sensitive positions at financial institutions. This, in turn, would disrupt the stability needed in such positions, and would impair the ability of bank directors to supervise their institutions effectively.
SUMMARY OF ARGUMENT
The district court, relying heavily on the opinion of Second Circuit Judge Straub in Bechtel v. Competitive Technologies, Inc., 448 F.3d 469 (2d Cir. 2006), concluded that each of two sources for determining legislative intent — the provisions of the SOX statute “as a whole” and passages from the legislative history of Section 806 in particular — “‘evince a strong Congressional preference for [preliminary] reinstatement as a means of encouraging whistleblowing.’” (Op. at 16 (quoting Bechtel, 448 F.3d at 486 (Straub, J., dissenting from the result)); see also Op. at 17 (“‘The importance of effective preliminary reinstatement is plain … from the purpose of the statute as a whole.’” (quoting Bechtel, 448 F.3d at 485 (Straub, J., dissenting from the result)). The district court, moreover, left no doubt about the importance of legislative intent to its ultimate decision on how the inconsistent language in 49 U.S.C. § 42121(b) should be reconciled, describing the evidence marshaled by Judge Straub of such intent as “particularly compelling.” (Order at 17; see also Bechtel, 448 F.3d at 486 n.3 (Straub, J., dissenting from the result) (arguing that supposed indications in “the [legislative] history” of “Congress’ preference for immediate reinstatement … ought to inform our attempt to reconcile apparently conflicting statutory language”).
If the district court’s decision is upheld, it will adversely affect the ability of boards of directors to oversee the sound and stable functioning of banks facing a whistleblower complaint. As discussed in Part I below, the district court’s decision to enforce a preliminary reinstatement order ignores substantial policy considerations that make clear how detrimental preliminary reinstatement orders can be for a public company, its shareholders, and other stakeholders.
As discussed in Parts II and III below, the district court’s determination of legislative intent – a principal foundation for its holding – is incorrect. In reaching that flawed determination, the district court made two independent errors. First, it misread the legislative history of Section 806 as indicating that if a litigation remedy or procedure might encourage whistle blowing, Congrees meant to make it available. The district court overlooked clear evidence in the legislative record that Congress chose to eliminate expansive remedies and to narrow available procedures that would have encouraged whistleblowing at least as much as preliminary reinstatement might. Congress took those steps because of concern that whistleblower causes of action can be misused — as the Bank contends it is being misused in this case — by employees seeking to use its potential remedies as leverage to avoid termination for legitimate reasons.
Because pre-hearing reinstatement — like any pre-hearing property deprivation — is an extraordinary remedy, it would be a source of tremendous leverage to those who would, as Congress feared, seek to abuse the cause of action. Congress’ conscious choice to prevent such abuse by limiting remedies and narrowing the procedural options through which they may be obtained cannot be reconciled with the view that the legislature simultaneously intended to permit preliminary reinstatement. Indeed, the legislative history does not mention “preliminary reinstatement” at all (or any similar term or concept). See Bechtel, 448 F.3d at 478 (Leval, J., concurring in the judgment) (noting that there is “no language in the legislative history which addresses in any way the enforceability of a preliminary order of reinstatement”).
Second, the court proceeded on an understanding of SOX “as a whole” that is demonstrably wrong. What it believed to be the entirety of SOX was, in fact, a relatively short amendment to it. This error gave the district court a distorted view of the role that Congress expected Section 806 to play in promoting the legislation’s ultimate goal of improving corporate financial reporting. It also caused the district court to overlook the fact that SOX contains other whistleblower provisions. Those other provisions, like Section 806’s legislative history, signal Congress’ view that offering plaintiffs the prospect of preliminary reinstatement would be unwise. The district court’s erroneous conception of SOX also caused it to overlook congressional goals evident in other SOX provisions, the achievement of which would be frustrated by provisionally installing an officer without affording a company the opportunity to defend itself at a hearing.
In view of this evidence of congressional intent, this Court should be loathe to infer the extraordinary remedy of preliminary reinstatement in the absence of clear statutory text mandating it. One point on which all parties would agree, however, is that the statutory text is most unclear on that point. Accordingly, the district court’s ruling that Section 806 provides for judicially ordered preliminary reinstatement should be reversed.