Whistleblower Digest
DAMAGES AND OTHER REMEDIES
COMPENSATORY DAMAGES
[Last Updated Jan. 28, 2015]
[For decisions discussing whether reputational damages are available under SOX, see SOX Digest, Special Damages .]
FEDERAL COURT DECISIONS
DAMAGES FOR EMOTIONAL DISTRESS ARE AVAILABLE UNDER THE SOX WHISTLEBLOWER PROVISION; DISTRICT COURT HAS DISCRETION TO REDUCE JURY'S AWARD BASED ON COMPARISON TO AWARDS IN COMPARABLE CASES
In Jones v. Southpeak Interactive Corp. of Delaware , No. 13-2399 (4th Cir. Jan. 26, 2015) (2015 WL 309626; 2015 U.S. App. LEXIS 1114), the Appellants argued that damages for emotional distress are not permissible under the whistleblower provisions of the Sarbanes-Oxley Act. The Fourth Circuit rejected this argument because 18 U.S.C. § 1514A(c)(1) expressly entitles a prevailing employee to "all relief necessary to make [her] whole." In this regard, the Fourth Circuit joined the Fifth Circuit and the Tenth Circuit in holding that emotional distress damages are available under the statute. Halliburton, Inc. v. Admin. Review Bd. , 771 F.3d 254, 266 (5th Cir. 2014); Lockheed Martin Corp. v. Admin. Review Bd. , 717 F.3d 1121, 1138 (10th Cir. 2013). The court also afforded deference to the Administrative Review Board's history of upholding non-pecuniary compensatory damages in Sarbanes-Oxley Act whistleblower cases, citing Menendez v. Halliburton, Inc. , ARB Nos. 12-026, ALJ No. 2007-SOX-5 (ARB Mar. 15, 2013) (reissued with corrected caption Mar. 20, 2013) (2013 WL 1282255, at *11), aff'd sub. nom. . Halliburton, Inc. v. Admin. Review Bd. , 771 F.3d 254, 266 (5th Cir. 2014). The court found that the district court had not abused its discretion when reducing a jury's award for emotional distress to $100,000 when comparing the jury's damages assessment to awards in comparable cases.
[Editor's note: The court cited the ARB's Menendez decision using ARB Case Nos. 09-002 and 09-003 in the case citation. However, those case numbers were an error on the caption of the ARB's decision as originally issued on March 15, 2013. The ARB reissued the decision on March 20, 2013, with a correction to show the ARB Case No. as 12-026.]
NONECONOMIC COMPENSATORY DAMAGES ARE AVAILABLE UNDER SOX
In Halliburton v. Administrative Review Board, USDOL , No. 13-60323 (5th Cir. Nov. 12, 2014) (per curiam) (case below ARB Nos. 12-026, ALJ No. 2007-SOX-5) ( Revised Opinion - Dec. 29, 2014), the ARB had affirmed the ALJ's alternative award of $30,000 to the complainant for emotional distress and reputational harm. Halliburton contended on appeal that such "noneconomic compensatory damages" (i.e., emotional distress and reputational harm) are not available under SOX. The court, reviewing the text of SOX, relevant caselaw, the policies underlying SOX and its common law background relating to damages, held that "the plain language of SOX's text relating to remedies for retaliation affords noneconomic compensatory damages." Id . at 22.
POSTJUDGMENT INTEREST ON BACKPAY AWARD TRIED IN DISTRICT COURT UNDER 18 U.S.C. § 1514A(b)(1)(B) IS GOVERNED BY 28 U.S.C. § 1961; MANNER OF CALCULATION OF PREJUDGMENT INTEREST IS COMMITTED TO DISTRICT COURT'S DISCRETION
The Ninth Circuit's court staff's summary of the court's decision in Van Asdale v. International Game Technology , No. 11-16538 (9th Cir. Aug. 15, 2014), states:
The panel granted plaintiffs' motion for attorneys' fees and postjudgment interest following its affirmance of the district court's judgment, after a jury trial, in a Sarbanes-Oxley whistleblower case.
Agreeing with the views of the Secretary of Labor, as amicus curiae, the panel held that postjudgment interest on a back pay award in a Sarbanes-Oxley whistleblower case tried in district court is governed by 28 U.S.C. § 1961, the rate that applies to all civil cases in federal district courts, rather than 26 U.S.C. § 6621, the interest rate for underpayment of federal taxes.
Slip op. at 2.
The court acknowledged that Section 6621 "may" apply to cases that commence--and are resolved--before the Department of Labor. The instant case, however, was commenced before DOL, but was subsequently "kicked out" to federal district court. DOL took the position in its amicus brief that a court of appeals may award postjudgment interest under FRAP 37, even if the if district court did not address the issue, and that postjudgment interest should be governed by section 1961 when a case is tried in federal district court under 18 U.S.C. § 1514A(b)(1)(B), because postjudgment interest is "interest" on a money judgment in a civil case recovered in district court. The Plaintiff argued that the Defendant had essentially received a loan at below market rates by failing to pay the judgment, benefiting it from its unlawful conduct. The court rejected this argument, finding that section 1961 does reflect market rates and does fully compensate aggrieved parties. The court also provided Skidmore deference to DOL's interpretation.
The court declined to rule that postjudgment interest must always be calculated in the same manner that the district court calculated prejudgment interest. Noting DOL's argument that calculation of prejudgment interest was within the district court's discretion, and noting that the Defendant had failed to raise before the district court the district court's use of Section 6621 (citing the DOL regulation at 29 C.F.R. § 20.58(a)) for calculation of prejudgment interest, the court determined that it would not revisit the prejudgment interest award.
FRONT PAY IS A POTENTIAL REMEDY IN SOX RETALIATION CASES WHERE REINSTATEMENT IS NOT APPROPRIATE
In Jones v. Southpeak Interactive Corp. of Delaware , No. 3:12cv443 (E.D.Va. Nov. 19, 2013), after a jury found in her favor on her SOX complaint, the Plaintiff moved the court for an award of front pay in lieu of reinstatement. The court noted that the retaliation provisions of SOX do not mention front pay as a remedy and that the court had not found any judicial decisions awarding front pay in lieu of reinstatement. The court noted, however, that DOL's 2011 interim final rule on SOX complaints stated that front pay is a possible remedy where reinstatement is not appropriate, citing several administrative ALJ and ARB decisions. The court found those administrative decisions consistent with Fourth Circuit decisions respecting front pay under similar statutes, and consistent with the remedial provisions of SOX. Thus, the court found that front pay is a potential remedy for plaintiffs who prevail under the SOX retaliation provision.
FRONT PAY WHERE DEFENDANT IS NO LONGER OPERATIONAL IS NOT NECESSARILY A WINDFALL; HOWEVER, A PLAINTIFF MUST OFFER PROOF THAT MINIMIZES NECESSARY SPECULATION; PLAINTIFF WHO RELIED SOLELY ON ASSUMPTION THAT SHE WOULD HAVE SUFFERED NO DECREASE IN COMPENSATION DENIED FRONT PAY
In Jones v. Southpeak Interactive Corp. of Delaware , No. 3:12cv443 (E.D.Va. Nov. 19, 2013), the Defendant argued that because it had effectively ceased operations, and no longer employs a Chief Financial Officer (the position formerly held by the Plaintiff), front pay was not an appropriate remedy for its violation of the SOX retaliation provision because it would put the Plaintiff in a better position than she would have occupied had she not been fired. The court rejected this argument finding that "[i]f a plaintiff has been diverted onto a less profitable career path through the unlawful actions of his former employer, an award of front pay to compensate the plaintiff until such time as he can regain his former career track is not a windfall" and that "[t]his is true without regard to whether the former employer continues to operate and to maintain comparable opening within the company." Slip op. at 12. The court noted, however, that the tests developed by the courts for determining the scope of a front pay award are largely not useful in the situation of a Defendant that has gone out of business. Thus, the court stated that a plaintiff in this situation "will be obliged to produce more data about future earning prospects than a plaintiff who confronts a defendant-employer that continues to operate and employment individuals in a similar capacity." Slip op. at 15. The court indicated that if future earnings would have been depressed because of the job market and low demand for a person with the plaintiff's skills, front pay would be an unearned windfall. However, front pay would be appropriate when a plaintiff "can show that she would have been well-positioned to weather a temporary layoff and resume employment at a salary level commensurate with the amount of front pay sought." Slip op. at 15. A plaintiff must offer proof that minimizes the degree of speculation in determining earnings potential.
In the instant case, the Plaintiff would have been laid off in struggling job market, and would have been seeking a high-ranking position with limited openings. The court found that the Plaintiff's effort to justify her proposed front pay award was meager, and asked the court to assume that if lawfully terminated, she would have been able to obtain another CFO position immediately without any decrease in compensation. The Plaintiff proposed a five-year period for front pay. The court found that proposal to be an arbitrary choice unsupported by any lay or expert analysis. Thus, the court denied the motion for front pay because any award would be entirely speculative.
SOX CLAIM; JUDGMENT AS A MATTER OF LAW; MOTION FOR NEW TRIAL OR REMITTITUR
In Van Asdale v. Int'l Game Technology , No. 3:04-CV-00703-RAM, 2011 WL 2118637 (D. Nev. May 24, 2011), the plaintiffs filed their complainant against the International Game Technology ("IGT") asserting a claim for whistleblower protection relief under § 1514A along with various state law claims. A jury trial was held on the SOX claims. Before the jury reached a verdict, IGT filed a Motion for Judgment as a Matter of Law. The trial resulted in a verdict in favor of the plaintiffs and the jury awarded them over $2 million in damages. After the judgment was entered, IGT filed a Renewed Motion for Judgment as a Matter of Law and Motion for New Trial or Remittitur. The court found both motions to be timely filed.
On the Renewed Motion for Judgment as Matter of Law, IGT first argued that the plaintiffs failed to establish causation - that any alleged protected activity was a contributing factor in their termination. Viewing the evidence in the light most favorable to the plaintiffs, the court found that the testimony at trial provided substantial evidence from which the jury could reasonably conclude that causation was established. The court also found substantial evidence to defeat IGT's argument that the plaintiffs failed to establish that they definitely and specifically reported shareholder fraud. Lastly, the court rejected IGT's arguments that the plaintiffs did not have a subjectively or objectively reasonable belief that shareholder fraud occurred.
On the Motion for New Trial or Remittitur, IGT challenged the jury's award to one plaintiff of $955,597, which appeared to correlate with his purported loss of stock options. IGT argued that the uncontroverted evidence showed that the plaintiff failed to mitigate his damages. The plaintiffs argued that IGT's mere speculation as to why the jury awarded damages to the plaintiff was not an adequate basis for a new trial or remittitur. The plaintiffs further argued that even if the only component of the jury award was lost stock options, those were included in the definition of backpay in the jury instructions, and IGT waived any objection to that jury instruction. The court found no basis for a new trial.
PREJUDGMENT INTEREST ON BACK PAY AWARD; FEDERAL POST-JUDGMENT INTEREST RATE STATUTE IS APPROPRIATE GUIDE FOR RATES
In Parexel International Corp. v. Feliciano , No. 04-cv-3798 (E.D.Pa. Dec. 4, 2008) (case below 2005-SOX-13), a jury had found that the Defendant retaliated against the Plaintiff in violation of the whistleblower provision of the SOX and terminated his employment in violation of state public policy law. The jury awarded $44,000 in back pay on the two claims. The Plaintiff then moved to mold the judgment to include prejudgment interest. The court held that the Plaintiff was entitled to prejudgment interest on the SOX claim, and that the appropriate guide for the applicable interest rate is the rate contained in the federal post-judgment interest rate statute at 28 U.S.C. § 1961(a), because among other reasons, it is easy to determine the rate using the rate charts in the statute, and because the rates are a suitable approximation of a return on a risk free investment during the back pay period.
PURPOSE OF SOX'S REMEDIAL PROVISIONS IS RESTITUTION RATHER THAN COMPENSATION
In Schmidt v. Levi Strauss & Co. , No. 5:05-cv-01026 (N.D.Cal. Mar. 28, 2008), the court in considering the type of remedy at stake in a SOX whistleblower complaint for purpose of deciding whether that provision of SOX includes a right to a jury trial, held that "the purpose of 1514A's remedial provisions is restitution rather than compensation." Slip op. at 9. The court stated that even though the section also provides for certain monetary awards, such remedies appear to be restitutionary or otherwise incidental to or intertwined with the injunctive relief. According to the court, the provision does not permit a broad claim for compensatory or special damages, but particularly for (1) back pay with interest, and (2) compensation for any special damages sustained as a result of the discrimination. The relief is restitutionary in nature because it seeks to restore plaintiffs to their status quo had the retaliation not occurred. It does not represent discretionary monetary relief.
ADMINISTRATIVE REVIEW BOARD DECISIONS
MAKE WHOLE RELIEF; TUITION REIMBURSEMENT
Tuition reimbursement provided by Respondent company's policy is part of award of relief when Complainant enrolled in college classes and took advantage of program while employed with Respondent. Gunther v. Deltek, Inc. , ARB Nos. 13-068, -069, ALJ No. 2010-SOX-49 (ARB Nov. 26, 2014).
BACK PAY CALCULATION; ALJ DID NOT ERR IN USING SALARY COMPLAINANT COULD HAVE EARNED HAD RESPONDENT NOT TAKEN AWAY HIS ABILITY TO EARN THAT AMOUNT
In Barrett v. e-Smart Technologies, Inc. , ARB Nos. 11-088, 12-013, ALJ No. 2010-SOX-31 (ARB Apr. 25, 2013), when the Complainant became the Chief Operating Officer, his salary was $377,000. Later, when restructuring engineer's salaries to cut base pay, the Complainant reduced his base pay to $245,000 as a symbol of solidarity. If performance goals were met, the employees could earn back the difference. When awarding back pay on the Complainant's successful SOX whistleblower complaint, the ALJ used the higher rate of pay. The Respondent argued on appeal that the Complainant had no contractual or statutory right to the higher annual rate of pay, and that the pay reduction was a discrete discriminatory act that the Complainant was barred from challenging because he did not timely challenge it. The ARB found that the Respondent was mischaracterizing the issue. The ARB stated:
The pay reduction was not alleged as a discrete discriminatory act - it was simply a circumstance relevant to determining sufficient damages. The [SOX limitations] period ... is not relevant for purposes of determining damages for victims of a hostile work environment (or constructive discharge). SOX's make-whole remedy applies to the proven damages for actionable incidents incurred following the protected activity. See Nat'l R.R. Pass. Corp. v. Morgan , 536 U.S. 101, 119 (2002) ("timeliness requirement does not dictate the amount of recoverable damages"). The protected activity took place in mid-August. Following this protected activity, a series of escalating non-discrete adverse events occurred, eventually resulting in a cause of action on or around October 17, 2007. When e-Smart took away his duties in retaliation for his internal reports concerning the 10-K draft, it took away Barrett's ability to earn the full salary for which he was initially hired. The ALJ did not err in using Barrett's original salary of $377,000 to effectuate the requisite "make whole" remedy. 18 U.S.C.A. § 1514A(c)(1).
USDOL/OALJ Reporter at 9.
COMPENSATORY DAMAGES; DAMAGES FOR EMOTIONAL DISTRESS AND LOSS OF REPUTATION ARE PERMITTED UNDER SOX SECTION 806; BREACH OF ASSURANCE OF CONFIDENTIALITY IS PARTICULARLY SUITED TO AWARD OF DAMAGES FOR EMOTIONAL DISTRESS AND LOSS OF REPUTATION
COMPENSATORY DAMAGES; DAMAGES FOR NON-PECUNIARY LOSS ARE SUBJECTIVE, BUT MAY BE QUANTIFIED BY REFERENCE TO AWARDS MADE IN SIMILAR CASES
In Menendez v. Halliburton, Inc. , ARB No. 12-026 ALJ No. 2007-SOX-5 (ARB Mar. 15, 2013) (reissued with corrected caption Mar. 20, 2013), the Complainant, whose identity as the source of a complaint to the Respondent's Audit Committee had been improperly disclosed by the Respondent, was awarded compensatory damages by the ALJ for emotional distress and reputational harm. On appeal, the Respondent argued that non-pecuniary damages are not authorized under SOX and, in any case that the Complainant failed to prove entitlement to such damages. The ARB rejected the argument that non-pecuniary compensatory damages are not available under SOX, noting that there was ARB precedent for such awards under SOX, and under the ERA and AIR21 on which Section 806 was modeled. (In a footnote, the ARB acknowledged that there was a spilt of opinion about the availability of compensatory damages in the federal courts.) The ARB found that Congress, when enacting Section 806, was aware of the decades of DOL precedent awarding non-pecuniary compensatory damages under comparable whistleblower statutes, and that Section 806 should be interpreted in conformity with that well-established precedent.
In regard to the size of the award, the ALJ made alternative findings. His primary finding was the Complainant was entitled to a $1,000 award because he had suffered no financial loss or reputational harm outside Halliburton and KMPG. The ARB, however, found that entitlement to compensation for reputational harm does not require proof of financial loss, and that even if it was true that the reputational loss was confined, such a loss within two large firms warrants more than nominal damages. The ARB noted that in a prior decision in this matter, it had explained that the Complainant had suffered real, if not quantifiable, professional and emotional harm, and that based on this evidence of harm, it would affirm the ALJ's alternative award of $30,000. The ARB agreed with the Complainant that the nature of the adverse action in this case - a breach of an assurance of confidentiality - is particularly suited to recognition of non-pecuniary compensatory damages. The Board stated that "[g]iven the inherent subjectivity of non-pecuniary awards, the Board looks to damage awards in similar whistleblower cases for instruction. An award of $30,000.00 is well within the range of awards for emotional distress and reputational injury under Section 806 and other whistleblower statutes." USDOL/OALJ Reporter at 23 (footnote omitted).
BACK PAY; DISSOLUTION OF COMPANY CUTS OFF ENTITLEMENT TO BACK OR FRONT PAY; UNCERTAINTIES RESOLVED AGAINST DISCRIMINATING PARTY
In Kalkunte v. DVI Financial Services, Inc. , ARB Nos. 05-139, 05-140, ALJ No. 2004-SOX-56 (ARB Feb. 27, 2009), the ALJ found that reinstatement was impossible because the Employer was no longer in business, and awarded back and front pay for a period of time past when the Employer had gone out of business. The ARB found that dissolution of the company was a superseding intervening cause that cut off the Complainant's entitlement to back or front pay. The Complainant was a contract attorney for the Employer. The legal department closed its doors in October 2004, but the last employee was not terminated until December 2004. The ARB set December 2004 as the terminal point for the back pay award based on the principle that "uncertainties in establishing the amount of back pay to be awarded are to be resolved against the discriminating party." McCafferty v. Centerior Energy , 1996-ERA-6, slip op. at 26-27 (Sec'y Sept 24, 1997).
DAMAGES FOR PAIN, SUFFERING, MENTAL ANGUISH AND HUMILIATION
In Kalkunte v. DVI Financial Services, Inc. , ARB Nos. 05-139, 05-140, ALJ No. 2004-SOX-56 (ARB Feb. 27, 2009), the ARB affirmed the ALJ's award of $22,000 for "pain, suffering, mental anguish, the effect on her credit [because of her loss of employment] and the humiliation that she suffered." The ARB noted that although damage to credit may not be legally compensable, the balance of the award was supported by the evidence and was within the ALJ's discretion.
ADMINISTRATIVE LAW JUDGE DECISIONS
DAMAGES; 401K PLAN; COMPLAINANT NOT YET ELIGIBLE WHEN FIRED
In Platone v. Atlantic Coast Airlines Holdings, Inc. , 2003-SOX-27 (ALJ July 13, 2004), the Complainant had not yet worked long enough for the Employer to be eligible to participate in a 401K plan when she was fired. The ALJ declined to award damages for 401K participation had the Complainant stayed in the Respondent's employ because there was no way to know whether the Complainant would have participated and, if so, how much she would have elected to have placed in the plan from her salary.
DAMAGES; FLIGHT BENEFITS
In Platone v. Atlantic Coast Airlines Holdings, Inc. , 2003-SOX-27 (ALJ July 13, 2004), the Complainant asserted that her back pay award should include the value of free and discounted airline travel provided to Respondent's employees. The ALJ declined to make this award because of the difficulty of assigning value to the benefit, because there was no way to know how often the Complainant would have taken advantage of it, and because the benefit did not accrue under the Respondent's program.
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