Column: Comcast sues US Labor Department to shut down whistleblower case, citing US Supreme Court
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Aug 12 (Reuters) -If there was any doubt about the potential breadth of the U.S. Supreme Court’s latest decision curtailing proceedings before administrative law judges, it was resolved on Friday by Comcast.
The communications behemoth sued the U.S. Department of Labor, seeking an injunction to shut down an administrative proceeding launched by two former Comcast CMCSA.O executives who claim they were effectively fired after blowing the whistle on alleged deficiencies in the company's securities filings.
The former executives, Lawrence Gloss and Travis Rosiek, alleged in a Sarbanes-Oxley whistleblower complaint filed with the Labor Department that when Comcast acquired cybersecurity company BluVector for $30 million in 2019, they and other BluVector employees were promised hefty bonuses based on increases in the subsidiary's revenue. They contend that Comcast’s liability for these bonuses ballooned to $250 million as BluVector’s enterprise value rose.
Gloss and Rosiek allege that after they raised concerns about the company’s failure to disclose the unpaid bonuses in financial reports to the U.S. Securities and Exchange Commission, they were demoted and eventually forced to quit.
Sarbanes-Oxley allows allegedly wronged employees to assert retaliation claims in an administrative action at the Labor Department or in a lawsuit in federal court. Gloss and Rosiak chose to proceed at the Labor Department.
They have asked Administrative Law Judge William Farley to issue an order requiring Comcast to pay the bonuses they claim they were promised. They also want Farley to order Comcast to restate its financial reports to reflect its obligations to BluVector employees.
But Comcast argues in its new lawsuit that the entire administrative proceeding is unconstitutional after the Supreme Court’s ruling last June in Securities and Exchange Commission v. Jarkesy.
In that case, as you probably recall, the Supreme Court held that investment adviser George Jarkesy, the defendant in an SEC administrative proceeding, had a 7th Amendment right to a jury trial because the SEC was pursuing a civil penalty against him and his firm. The justices said that because the SEC’s claims against Jarkesy were akin to common-law fraud, he was entitled to a trial by jury rather than having his case decided by an SEC administrative law judge.
The Supreme Court majority based its holding on the parallels between common law fraud and SEC enforcement. But in a dissent, Justice Sonia Sotomayor warned that the majority’s “earthshattering” decision would extend far beyond that context, considering that at least two dozen federal agencies have statutory authority to seek civil penalties in administrative proceedings.
“Today's decision,” she wrote, “is a massive sea change.”
Law firms such as K&L Gates and Sidley Austin also predicted in post-Jarkesy client alerts that the majority’s reasoning could apply to other enforcement actions in which a federal agency is pursuing civil penalties based on fraud-like claims. As if to prove that point, as my Reuters colleague Dan Wiessner reported last month, a three-judge panel of the 9th U.S. Circuit Court of Appeals called for briefing on how the Jarkesy decision might affect an appeal by Macy’s of a National Labor Relations Board ruling that the department store chain illegally locked out a group of building engineers in 2020 after they ended a strike.
Comcast now appears to be the first defendant in an agency proceeding to go on offense by suing to enjoin the case under Jarkesy precedent.
Its complaint, filed in federal court in Alexandria, Virginia, by Sullivan & Cromwell and Morgan, Lewis & Bockius, asserts that the former BluVector executives have disguised a breach-of-promise case as a whistleblower action. And because they are seeking their allegedly unpaid bonuses instead of the traditional whistleblower remedies of reinstatement and back pay, Comcast argued, their claims are legal, not equitable —which means, according to Comcast, that the company is entitled to a jury trial under Jarkesy.
“An administrative adjudication of these claims would deprive Comcast of its constitutional rights to have these legal claims and damages adjudicated by a jury in a court,” the complaint alleged.
A Comcast spokesperson declined to comment on the new suit or the underlying whistleblower case. In its complaint, Comcast denied that it promised the former BluVector executives the bonuses they claim and disputed their sky-high valuation for BluVector. The company also asserted that neither of the purported whistleblowers had raised concerns in writing about Comcast’s financial filings. Both former BluVector executives, according to Comcast, voluntarily quit after receiving competing job offers.
Gloss and Rosiek are represented by Matthew Gloss, a former corporate general counsel who is the younger brother of claimant Lawrence Gloss. In an interview on Monday, the younger Gloss said Comcast filed the new lawsuit because the administrative proceeding is going so well for his side.
The administrative law judge denied Comcast’s motion to dismiss the case last year and has since ordered the company to produce financial and accounting records and to make available two top-ranking executives for depositions.
“Their lawsuit was filed for an improper purpose,” Gloss said. “They are using it to withhold discovery.”
Gloss said the circumstances are different in the Comcast whistleblower case than in Jarkesy because the Labor Department did not initiate his clients’ retaliation claim, which seeks relief specified in the Sarbanes-Oxley statute.
“This is a whistleblower case, not a contract claim,” Gloss said. “Jarkesy precedent is likely not applicable.”
Gloss told me he’s relying on a different Supreme Court ruling from the court’s most recent term: Murray v. UBS Securities, in which the justices held that employees alleging Sarbanes-Oxley retaliation claims must prove that their whistleblowing actions contributed to adverse personnel action but are not required to prove their employers’ retaliatory intent.
“Once we’ve made a prima facie case, the burden shifts to them,” Gloss said. “And they have not produced a scintilla of evidence showing a non-retaliatory intent.”
Read more:
US court weighs impact on NLRB of Supreme Court ruling on agency powers
US Supreme Court faults SEC's use of in-house judges in latest curbs on agency powers
(Reporting By Alison Frankel)
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