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Page number 21-1097 et al.

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Jane Doe petitioner for the Securities and Exchange Commission.

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Mr. Maccoby for the petitioner, Ms.

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Wagner for the respondent.

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All right, Mr. Maccoby, please proceed.

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Thank you, may it please the court.

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Max Maccoby on behalf of petitioners.

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Good morning to everybody.

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Your honor, petitioners appeal the Securities and Exchange Commission's denial of whistleblower awards

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with the Novartis $25 million bribery settlement.

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Several years ago, the commission settled with Novartis for $25 million based on Novartis' self-reported findings of bribing doctors to prescribe their pharmaceutical products, and the bribes were accomplished through travel and event planning.

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And when the settlement was finished, the commission invited whistleblowers to submit award applications under their whistleblower award

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eligibility regulations, which is a led to test.

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Did the whistleblower provide any original information that led to the successful $25 million settlement?

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Original information in the regulations is information not publicly known, but can include news articles relevant here.

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so long as the applicant- Can I go back to where you are in your brief?

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Your argument in the brief is, as I understand it, is that the SEC aired here because it limited whistleblower claims to the three circumstances listed in the rule, right?

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That's your argument.

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Two arguments, one is that, the other is we actually fit into one of the three fact patterns, but yes.

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Well, the commission says, well, let's start with your first one.

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So, and you're arguing that this rule is clear, right?

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Because it didn't use the word only.

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That's correct.

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That's correct.

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It also doesn't use the word, it doesn't say among others or including,

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So you could really interpret this either way.

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Is that your only argument that it's clear, is that the word only is not there?

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I just don't understand why that makes it clear.

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It seems to me the language which says, it says in any of the following circumstances.

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Now it doesn't say only in those, nor does it say in any of the following circumstances among others.

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So we just don't know, right?

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That's who we contend, Your Honor.

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If the commission had intended only, it would have said only and in

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And we highlighted very carefully the August of 2020 Securities and Exchange Commission order, which said that it does not, that language does not expressly state that the three components led to, that was their agency position until this litigation.

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And one of the arguments we make is we asked the court not to accord any deference to the fact that there were several, several cases.

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Um, where, um, where, um, there's this in the record, there's, there's two more cases.

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There's one in 20, 2018, and then another in 2020 where the commission did reject whistleblower claims because they didn't fall into those three, one of those three categories.

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Right.

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Your honor, the only case that we're aware of where they actually commented on the meaning of the language, whether it was restrictive or whether it was broader, was this August 13, 2020 order where it said that it was not that the language was the textual language, the natural reading, that that language did not expressly state that the three components were the only way to establish led to.

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They concede that.

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That was their official agency position.

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Yet they're changing it here during litigation.

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We ask that they should not be heard to change their position during litigation.

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But more to the point, a natural reading, we suggest, is not limited.

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And I think it's as simple as a patron going to a restaurant.

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And on the menu, it says, you can have any of the following.

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You can have spaghetti marinara, bolognese, or carbonara.

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Any of the following.

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I think a patron could naturally

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order buttered spaghetti.

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But if the menu said no substitutions permitted or only the following, I think a patron naturally would not order buttered spaghetti instead of marinara or bolognese.

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I think it's as simple as that as far as a natural reading of the text.

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We cited Supreme Court case Townsend v. Sain and we cited a district court case that said in the following circumstance is not limiting.

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And the district court case said if the government wanted it to be limiting, it would have used the word only.

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Yeah.

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Let me go back to an argument you made earlier.

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You said there were two arguments.

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One was, I think, that you said that the commission also, because it denied your claim under fact pattern two.

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Right?

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Right.

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The commission said you didn't raise that before the commission.

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And then in your reply brief, you say you did raise it at page, I don't have the page number.

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You did say you raised it, but you didn't give a citation to where you did raise it.

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Do you have a site to where you raised it before the commission?

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Yes, we raised it at the very end.

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So in the appendix in the final, when we

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submitted our objection to the preliminary denial.

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At the very end, the last footnote on that page, we stated we incorporated all of the arguments, all the possible bases on the fact patterns in which to

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to make the claim.

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So in the first application, we make a claim on everything.

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And then in the objection to the plenary denial, we say we incorporate by reference all the arguments made in the initial application.

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So you're saying they were before the commissioners?

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I'm sorry?

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You're saying the argument was therefore before the commissioners in reviewing the initial decision.

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Yes.

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Yes, we applied on everything.

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We understood we properly cited it in the brief.

[00:07:38] Speaker 04:
Well, I didn't see it.

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There's no citation in the brief.

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It's not there.

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That's why I asked you the question.

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It's the footnote in the appendix.

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If you read the appendix and you see that the application

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and you see the objection to the preliminary denial, you'll see in the objection, we incorporate all the arguments made in the original.

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My only point is I wouldn't have known that from your brief.

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That's OK.

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I asked you where it is, so you've not told us.

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OK.

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And so the SEC, I don't remember, did they address this in this final decision or only in the preliminary decision?

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Sorry, Your Honor, the waiver issue?

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Is that the question?

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Yes.

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But did the commission, in its final decision, address that argument about fact pattern two?

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Yes, it did.

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It did.

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I found it.

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So it's note 20 in the final, in the objection, where we incorporate all the arguments we made in the original petition.

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But yes, the commission did deny on all grounds.

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And just say that they actually dealt with that pattern, too.

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Yes.

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OK.

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So on that particular issue, Your Honor, we contend that we did satisfy that subsection two.

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The commission's argument boils down to adding language into subsection two that's not there.

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We provided the information to the commission.

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That's not disputed.

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Albeit it was about a different company, but we provided it.

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We submitted that information along with the Wall Street Journal articles that we published, but it was submitted to the commission contemporaneous.

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And that information was material to the settlement.

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They admit that in paragraph 17 of their Novartis settlement order, virtually admitted that our information was material and led to the settlement.

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because it instituted the internal review by Novartis's council and led to the $25 million settlement.

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So it's highly meritorious and it's deserving.

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The government tries to distinguish that fact pattern, the second element by saying, well, the information has to be about that particular company.

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Well, guess what?

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We provided that that particular company, the word company is not in the text.

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It is in the subsection three, but not two.

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So that has to be understood as deliberate.

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Um, and so you can only reach the decision the commission made.

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If you read a word in there, that's not there, i.e.

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that company, it's not there.

[00:10:33] Speaker 02:
So we, we contend we are, we, aren't you overlooking that there's a step here that is that the company is given an opportunity.

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Uh, and I'll ask Ms.

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Wagner can address that.

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You're overlooking that step.

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I mean, you, so you say.

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something about another company.

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The statute first says company, you straighten this out.

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And if you're reporting on something other than Novartis, that wipes that step out.

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Oh, sorry.

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That's all right.

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I don't need an answer to that.

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If there are no more questions, then Ms.

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Wagner, we'll hear from you.

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Thank you.

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Good morning.

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May it please the court, Brooke Wagner from the Securities and Exchange Commission.

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Over a decade ago, at Congress's direction and following notice and comment, the Commission promulgated the rule at issue here, Rule 21F4C.

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At that time, the Commission made clear that the rule required claimants to establish

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one of the three causal circumstances.

[00:11:49] Speaker 04:
Wait, wait, wait, wait.

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Let me make clear.

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It doesn't say only in the rule.

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Why didn't the commission just put the word only in there?

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And you can make a very good argument that the commission knew how to use the word only because it used it in the footnote.

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in the release document, but it didn't.

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In other words, the commission knows how to use the word only, knows how to spell it, knows how to use it, but it didn't put it in the regulation.

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Sure.

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Pretty hard, and it's pretty hard to say.

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And also, well, why don't you just answer that question, first of all?

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Sure.

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Of course, the rule could have been clearer in that it could have included the burden only.

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And I'll just note that

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to Mr. McAfee's point, that is all that we acknowledged in the August 2020 order.

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We acknowledge that it doesn't express, we state that the three circumstances are the only way of satisfying the rule.

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In other words, it doesn't include the word only.

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Okay, so this is an ambiguous rule, right?

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The question is, do we defer, correct?

[00:12:56] Speaker 01:
Well, I think if the court finds it ambiguous, it should defer.

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I think that even without the word only, I think that

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there's still the natural reading and the best reading of the rule in context is still that it is limited to the three circumstances.

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Maybe, maybe, but take a look at, take a look at release.

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I think it's 89, 551, August, 2020.

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He says, the commission says this one didn't satisfy any of the three fact patterns.

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And then here's what it says in its reasoning.

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It says, although rule 21F4C does not expressly state that the three components are the only way to establish it, it has been the commission's consistent practice

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I mean, that's a pretty obvious, pretty clear concession by the commission that the rule is not clear, but it's been its practice to limit recoveries to one of the four facts or consensus, right?

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That's what that says.

[00:14:03] Speaker 01:
It seems that it's not expressed indeed, but it also acknowledges in a footnote I think that there's nothing, as you say, there's nothing in the tax bet is clearly the other way.

[00:14:11] Speaker 04:
Okay, well that's, we're into ambiguous things, right?

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Which brings up the question of deference

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Right, which the courts, since Kaiser, are much more subscribed to, correct?

[00:14:24] Speaker 01:
Sure, if we're talking about ambiguity, then we are looking at the guideposts under deference, but as we, a guidepost under Kaiser, but as we explained in the briefs, the commission's interpretation here would easily satisfy each of those guideposts under Kaiser because it is authoritative, long-standing, consistent, considered, and it implicates the commission's law enforcement expertise and its experience administering the whistleblower program for over a decade.

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Okay.

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Miss Wagner, I'm just curious about SEC procedures.

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Are rules like this reviewed by the general counsel's office before their issue?

[00:15:02] Speaker 01:
I believe the general counsel's office is generally involved in enrollment.

[00:15:07] Speaker 04:
Well, I ask because, you know, with

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With the courts being far more skeptical about deference to agency regulations, they're ambiguous.

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It would seem to me that an agency like the SEC would want to do everything it can to make sure its regulations are clear and not ambiguous.

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And this seems such an obvious example of a problem that could have been avoided simply by putting the word only in there.

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That's why I asked whether the general counsel reviews these things because I would think anybody looking at this would have said, wait, this is not clear.

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We need to make it clear so that we don't get into trouble later with the courts.

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So you don't know whether they're reviewed by the general counsel's office?

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I think they were reviewed by the general counsel's office.

[00:16:04] Speaker 04:
Well, someone missed it.

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And I have to say, this has got to be one of the sloppiest regulations I've ever seen.

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Look, not only is it only not there, but you got three fact patterns.

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Fact pattern one ends with an or, and then it goes on the fact pattern two.

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And then fact pattern two ends with a period.

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I mean, I don't mean to be picky about this, but this is what we do.

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Courts do this thing to try to understand what the agency is doing.

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And why would the second one not have said or?

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Is there something significant in that?

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Are we supposed to look at the third factor as somehow different from the first two?

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Candidly, my, my suspicion is that that's a drafting error because there were originally two circumstances and then the third was added later but I need to, I'm only speaking for myself here, but you need to take at least for me a message back to the commission that they need to get their act together on these kinds of things.

[00:17:06] Speaker 04:
They need to avoid drafting errors at this point.

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But more important, they need to have clarity in their regulations.

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Otherwise, you're going to have cases like this all the time.

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And the courts are increasingly skeptical about deferring to agencies' interpretations of these kinds of regulations.

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I understand.

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Which I presume in this case long predates the Kaiser decision.

[00:17:29] Speaker 04:
It does.

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It does.

[00:17:31] Speaker 03:
Yes, of course.

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You've got an inventory of breaks that need some review.

[00:17:36] Speaker 04:
Yeah, it does.

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But of course, the drafting errors existed then and now.

[00:17:40] Speaker 01:
Of course, we never want drafting errors, of course.

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Yeah.

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Ms.

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Wagner, counsel for the plaintiff here, petitioner here, said that the question, the issue, the claim that their facts fit into pattern two was raised before the commission and addressed by the commission in its final order.

[00:18:04] Speaker 03:
I cannot find that in the order, let alone in the petition before the agency.

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Is it there?

[00:18:16] Speaker 01:
No, it is not there.

[00:18:17] Speaker 01:
My understanding, they included a footnote in their objections to the preliminary determination that purported generally not to waive any position or argument that didn't raise this argument in particular.

[00:18:28] Speaker 01:
It didn't urge it before the commission.

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And so the commission's order, as you know, it has one paragraph where it says,

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notes that the petitioners appear to concede that they have not satisfied any of the three circumstances.

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And then it proceeds to explain why it's not appropriate to reward them despite not satisfying any of the three circumstances.

[00:18:47] Speaker 01:
So the commission didn't rule on the applicability of 21F or C2 here.

[00:18:51] Speaker 01:
Thank you.

[00:18:59] Speaker 02:
All right, we have your argument, Ms.

[00:19:01] Speaker 02:
Wagner.

[00:19:01] Speaker 02:
If there are no more questions, we just want to rely on your brief.

[00:19:06] Speaker 01:
Yes, exactly.

[00:19:06] Speaker 01:
Thank you very much.

[00:19:08] Speaker 02:
All right.

[00:19:08] Speaker 02:
Thank you.

[00:19:09] Speaker 02:
Mr. Maccabee, unless you have something or unless the court has questions for you, I think we have your argument as well.

[00:19:20] Speaker 00:
May I make just a couple of points?

[00:19:23] Speaker 00:
All right.

[00:19:24] Speaker 00:
Just quickly, we contend that the subsection two was not waived and that the commission did actually deny expressly on

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C2.

[00:19:35] Speaker 00:
C1, C2, and C3.

[00:19:37] Speaker 00:
So it says it on the... Oh, you've already made that point.

[00:19:40] Speaker 00:
Okay.

[00:19:41] Speaker 00:
And then finally, we urge the court not to give deference.

[00:19:46] Speaker 00:
The Kaiser case specifically cites West Virginia Highland's conservancy, which says that fee applications are well within the bailiwick of courts.

[00:19:55] Speaker 00:
It's not anything that... It's not an EPA

[00:19:58] Speaker 00:
toxic waste complicated issue that requires agency deference.

[00:20:02] Speaker 00:
That is directly on point in this case as to why the court should not accord any deference on this issue.

[00:20:07] Speaker 00:
Thank you.

[00:20:07] Speaker 00:
We appreciate it.

[00:20:09] Speaker 02:
All right.

[00:20:10] Speaker 02:
Madam Clerk, if you'll call the next case.