Whistleblower Digest
DAMAGES AND OTHER REMEDIES
REINSTATEMENT AND FRONT PAY
[Last Updated Dec. 11, 2013]
After-Acquried Evidence
ADMINISTRATIVE LAW JUDGE DECISIONS
REINSTATEMENT; AFTER ACQUIRED EVIDENCE; SHAREHOLDERS' RE-ELECTION OF BOARD OF DIRECTORS WHO REMOVED COMPLAINANT; HOSTILITY TOWARD COMPLAINANT; DISPLACMENT OF INCUMBENT
Recognizing that reinstatement is a drastic remedy that can pose difficulties, the ALJ in Welch v. Cardinal Bankshares Corp. , 2003-SOX-15 (ALJ Feb. 15, 2005), noted that it is nonetheless part of the "make whole" goal of the SOX and that it is the presumptive remedy in wrongful termination cases. The Respondent presented four grounds for not granting reinstatement in Welch , but the ALJ rejected each.
First, the Respondent asserted that it had learned of facts that made the Complainant (who was the Respondent's CFO) unfit for his position ("after acquired evidence"). Those facts allegedly were egregious errors contained in call reports that were purportedly not learned of by the Board of Directors and the CEO until after the Complainant had been fired. The Respondent argued that the Complainant would have been fired for such errors had he not already been fired. The ALJ, however, found that the record made at the hearing established that the Respondent clearly knew about the call report errors prior to the time he was fired, and therefore could not rely on the errors to invoke the after acquired evidence rule.
Second, the Respondent argued that because the shareholders had re-elected the same Board of Directors who fired the Complainant, it would be egregious to require reinstatement, thereby substituting a tribunal's judgment for the judgment of both the company's independent directors and the shareholders, who are the intended beneficiaries of SOX. The ALJ rejected this argument, observing that the re-election reflected nothing more than the shareholders general approval of the board and not specific approval of dismissal of the Complainant, and that there was no legal authority to support the argument as a factor to consider in regard to reinstatement.
Third, the Respondent argued that its operations were small, and that the Complainant would be required to work in close proximity with persons who had developed a distrust and dislike of him. The ALJ noted that numerous courts have held that friction is typically not a sufficient basis for denying reinstatement. The ALJ found evidence that hostility toward the Complainant existed within Respondent's workforce and officers, but concluded that SOX nonetheless compelled reinstatement.
Finally, the Respondent argued that it would have to displace the Complainant's replacement, who was uninvolved with the events leading to the Complainant's discharge. The ALJ, however, found that the incumbent was unlikely not to have known that the CFO position was subject to a legal claim by the Complainant given the extensive local and national press coverage that had been given to the case. The ALJ also noted that the Respondent had long known that it would be ordered to reinstate the Complainant (the ALJ had issued his decision on the merits in January 2003) and that the delay in the decision on remedies had been occasioned by the Respondent's decision to attempt to take an interlocutory appeal. Thus, the incumbent's potential hardship if bumped was directly attributable to the Respondent's litigation strategy. The ALJ also discussed the Fourth Circuit's decision in Spagnuolo v. Whirlpool Corp ., 717 F.2d 114 (4th Cir. 1983), in which the court established a "rightful place" theory where aggrieved employees cannot bump innocent incumbents but are given seniority rights for the next vacancy and back pay to compensate for lost earnings. The ALJ noted that Spagnuolo was decided under Title VII and the ADEA, and also distinguished the facts of that case and the facts in Welch . Further, the ALJ noted that dicta in Spagnuolo supports reinstatement if the employer hired the incumbent in violation of an order requiring reinstatement of the complainant to a comparable position.
Enforcement
FEDERAL COURT DECISIONS
DISTRICT COURT HAS THE JURISDICTION TO ENFORCE THE SECRETARY OF LABOR'S PRELIMINARY ORDERS; SECRETARY EXERCISED DUE PROCESS N THE CONTEXT OF AN INTERIM REINSTATEMENT OF A TERMINATED EMPLOYEE; PRELIMINARY INJUNCTIVE RELIEF STANDARD
In Solis v. Tennessee Commerce Bancorp, Inc. , No. 3:10-cv-00472 (M.D. Tenn. May 19, 2010) (case below 2010-SOX-33), the Secretary of Labor filed action under SOX, 18 U.S.C. § 1514A, and AIR 21, 49 U.S.C. 42121(b)(2)(A) and (b)(3), and moved for a temporary restraining order and preliminary injunctions against Tennessee Commerce Bancorp, Inc. and Tennessee Commerce Bank. The Secretary cited the defendant's refusal to obey her preliminary order to reinstate the defendant's former chief financial officer, whom the Secretary found reasonable cause to believe was unlawfully discharged by the defendants in violation of Section 806 (a) of SOX. During her investigation she found that the chief financial officer's protected activity was a contributing factor in the adverse actions taken against him and that such conduct warranted the Secretary's Order awarding him preliminary injunctive relief, included reinstatement, back-pay, restoration of benefits and attorney fees. The defendants filed a motion to dismiss, asserting that the Court lacked the jurisdiction to enforce the Secretary's preliminary orders. They asserted that the Secretary's order violated the defendant's due process rights because the preliminary order would result in a permanent and irreparable loss to the defendant's of the permanent deprivation of payments and wages pending a final resolution of the Secretary's proceedings against the Defendants.
The District Court granted the Secretary's motion holding that: (1) jurisdiction existed to enforce the Secretary's preliminary order of reinstatement or a whistleblower for defendant's violation of SOX; (2) the Secretary's procedure for her findings and ordering reinstatement complied with due process requirements; and (3) the Secretary was entitled to preliminary injunction. The jurisdictional question was one of first impression in the Sixth Circuit, therefore, the Court looked to the Second Circuit for guidance. It adopted the analysis in the opinion by Judge Straub in Bechtel v. Competition Technologies, Inc ., 448 F.3d 469 (2d Cir. 2006). On the issue of due process in the context of an interim reinstatement of a terminated employee, the court relied on the analysis used in both Bechtel and Brock v. Roadway Express, Inc ., 481 U.S. 252, 107 S.Ct. 1740 (1987) to find that the Secretary had complied with the due process requirements.
REINSTATEMENT; ENFORCEMENT IN DISTRICT COURT; SUBJECT MATTER JURISDICTION; DOL ORDER OF REINSTATEMENT IS SUFFICIENT WITHOUT PROOF OF ELEMENTS TO COMPEL INJUNCTIVE RELIEF
In Bechtel v. Competitive Technologies, Inc. , No. 3:05-CV-00629 (D.C.Conn. May 13, 2006), OSHA had found in favor of the Complainants and ordered reinstatement. The Respondent requested a hearing and moved for a stay of the reinstatement order, which the ALJ denied. The Respondent refused to comply with the reinstatement order and the Complainants filed an enforcement suit in federal district court. The Respondent argued that the court did not have subject matter jurisdiction because the Secretary had not yet issued a final order. The Court, however, found that it had jurisdiction under the plain language of the SOX statute. 18 U.S.C. § 1514(b)(1)(A) and (B) (incorporating the procedures of AIR21).
The Respondent also argued that the Complainants had failed to demonstrate the material elements for injunctive relief. The Court, however, found that such elements are not relevant because under the SOX statute the Complainants were entitled to an injunction based exclusively on the Secretary's findings.
PRELIMINARY ORDER OF REINSTATEMENT; DISTRICT COURT LACKS ENFORCEMENT JURISDICTION WHILE APPEAL IS PENDING BEFORE THE ARB
In Welch v. Cardinal Bankshares Corp. , No.: 7:06-CV-00407 (W.D.Va. Oct. 5, 2006), the court dismissed the Plaintiff's action seeking enforcement of the ALJ's preliminary order of reinstatement in a SOX whistleblower case which was pending on appeal before the ARB. The court found that it did not have jurisdiction to enforce such an order. Upon review of the statutory language of SOX, and the AIR21 procedures incorporated therein, the court found that jurisdiction was afforded to a district court only to enforce a final order of the Secretary, notwithstanding the regulation at 29 C.F.R. § 1980.113. In support of its interpretation of the SOX and AIR21 statutes, the court observed the general principle that federal courts can only review the final decisions of administrative agencies; the fact that the whistleblower provision of the STAA specifically provides for an enforcement of a preliminary order of reinstatement, whereas the SOX and AIR21 do not; and the efficient administration of justice (because a preliminary order of reinstatement could be overturned on appeal).
PRELIMINARY ORDER OF REINSTATEMENT; DISTRICT COURT ENFORCEMENT
In Bechtel v. Competitive Technologies, Inc. , No. Civ.3:05CV629AVC (D.Conn. May 13, 2005) (case below 2005-SOX-33), the Plaintiff employees, joined by the Secretary of Labor, sought enforcement of the Secretary's preliminary order of reinstatement in a SOX whistleblower case. OSHA had found in favor of the employees and ordered reinstatement. The Respondent requested an ALJ hearing and moved for a stay of the reinstatement order, which the ALJ denied. See Bechtel v. Competitive Technologies, Inc. , 2005-SOX-33 and 34 (ALJ Mar. 29, 2005). The Respondent nonetheless continued to refuse to comply with the reinstatement order, resulting in the plaintiffs' district court suit for enforcement. The district court rejected the defendant's argument that the district court did not have subject matter jurisdiction, finding that although the agency had not yet issued a final order, the statute explicitly authorized district court jurisdiction to enforce a preliminary order as if it were a final order. The court also rejected the Defendant's argument that the Plaintiffs were not entitled to a preliminary injunction because they had not demonstrated the material elements for such relief. The court held that the SOX "makes clear that the Secretary of Labor and not the court makes the determination of whether an order of reinstatement is appropriate."
Accordingly, the court ordered the Defendant to immediately reinstate the plaintiff employees and to pay them all salary, benefits and other compensation that would have been earned had the Defendant complied with the preliminary order when it was issued.
Impossibility
ADMINISTRATIVE LAW JUDGE DECISIONS
REINSTATEMENT; RESPONDENT NO LONGER IN BUSINESS
In Kalkunte v. DVI Financial Services, Inc. , 2004-SOX-56 (ALJ July 18, 2005), the ALJ held that reinstatement was not available as a remedy because the Respondent was no longer in business, having gone bankrupt. The ALJ awarded front pay instead.
Front Pay
COURT DECISIONS
FRONT PAY IS A POTENTIAL REMEDY IN SOX RETALIATION CASES WHERE REINSTATEMENT IS NOT APPROPRIATEADMINISTRATIVE REVIEW BOARD DECISIONSIn 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.
FRONT PAY; DISSOLUTION OF COMPANY CUTS OFF ENTITLEMENT TO BACK OR FRONT PAY; UNCERTAINTIES RESOLVED AGAINST DISCRIMINATING PARTYADMINISTRATIVE LAW JUDGE DECISIONSIn 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).
REFUSAL OF OFFER OF REINSTATEMENT MUST BE OBJECTIVELY REASONABLE; FRONT PAY; ALJ APPLIES HIGHER BURDEN ON RESPONDENT WHERE IT ADMITTED LIABILITY BUT MANAGERS WITH INFLUENCE OVER THE COMPLAINANT'S WORKING CONDITIONS CONTINUE TO REFUSE TO ACKNOWLEDGE ERRORIn Hagman v. Washington Mutual Bank, Inc. , 2005-SOX-73 (ALJ Dec. 19, 2006), the ALJ found that the Complainant's rejection of the Respondent's offer of reinstatement was objectively reasonable based on the hostility exhibited toward the Complainant by managers and the likelihood of a dysfunctional work environment upon reinstatement. For the same reasons, the ALJ found that reinstatement was inappropriate and that front pay should be awarded instead. First, at the time that the reinstatement offer was made, the Complainant would have still had to interact with the manager who had intentionally threatened her physically and professionally, made regular work communications fraught with tension, and was responsible for the retaliatory termination. Second, the Respondent's managers continued to assert, even after accepting OSHA's findings, that the Complainant had been terminated due to poor performance and restructuring, even though the Complainant had been a high-performing, committed employee, and the evidence overwhelmingly failed to support the claim of poor performance. Third, despite requests for assistance from persons in positions of authority at the Respondent, they provided no aid or relief, and in fact moved the harasser to a position of immediate supervision over the Complainant. Moreover, the Respondent had made no changes in its processes for preventing or handling retaliation, credit problems or fraud concerns. The ALJ found such a failure by managers to understand their past errors supported the Complainant's testimony that she would be scared to report or investigate credit problems out of fear of retaliation. The ALJ held:
In light of the foregoing, I hold that the standard for recovery for finding excessive hostility between parties warranting front pay in place of reinstatement is relaxed under the special circumstances of this case, where a respondent's retaliation and pre-textual termination against a complainant is admitted, when compared to the evidentiary burden required to prove a prima facie claim of a hostile work environment. I find there is a noted distinction between this case and one in which a plaintiff is arguing the presence of a hostile work environment as an element of her prima facie case, where the burden of proof remains firmly on the party alleging a hostile work environment. That situation warrants stricter scrutiny and a higher burden of proof on a complainant than here, where Respondent has admitted that an adverse act hostile to Complainant has occurred yet its management refuses to acknowledge this admission and remains in a position of influence over the prevailing Complainant's work performance. Under the circumstances of this case, I hold that Respondent should be required to show by clear and convincing evidence why reinstatement is warranted. I find that Respondent has failed to show that Complainant's reinstatement to her former position is appropriate in this case.
Slip op. at 36-37.
[Note: The Respondent withdrew its appeal of the ALJ decision before the ARB. Hagman v. Washington Mutual Bank, Inc. , ARB No. 07-039, ALJ No. 2005-SOX-73 (ARB May 23, 2007) PDF | HTM ].
FRONT PAY; CALCULATION; USUAL AWARD IS FOR A SPECIFIC PERIOD OF TIME RATHER THAN UNTIL RETIREMENT
In Hagman v. Washington Mutual Bank, Inc. , 2005-SOX-73 (ALJ Dec. 19, 2006), the ALJ found that an award of front pay in lieu of reinstatement was appropriate. In determining the front pay award, the ALJ followed a line of cases suggesting that such awards are usually made for a set amount of time rather than for an entire lifetime. Specifically, the ALJ found that where, as in the instant case, the Complainant was only in her 40s, front pay until retirement was not warranted. Rather, based on the evidence of record including the assumptions and opinions of financial experts, the ALJ applied an assumption that the Complainant would fully recover her career track in 10 years. The ALJ found that the present value of the Complainant's loss of earnings and benefits was $642,941.
[Note: The Respondent withdrew its appeal of the ALJ decision before the ARB. Hagman v. Washington Mutual Bank, Inc. , ARB No. 07-039, ALJ No. 2005-SOX-73 (ARB May 23, 2007) PDF | HTM ].
Procedure
FEDERAL COURT DECISIONS
PRELIMINARY ORDER OF REINSTATEMENT; ALJ MUST PROVIDE CLEAR AND COHERENT NOTICE THAT THE PRELIMINARY ORDER OF REINSTATEMENT WOULD BE IN EFFECT WHILE THE ARB CONDUCTS ITS REVIEW OR UNTIL THE ARB STAYS THE ORDER
In Welch v. Cardinal Bankshares , __ F.Supp.2d __ , 2006 WL 14400 (W.D.Va. Jan. 4, 2006) (case below ARB No. 04-054, ALJ No. 2003-SOX-15 ), the U.S. District Court for the Western District of Virginia declined to enforce an ALJ's preliminary order of reinstatement in a Sarbanes-Oxley whistleblower case on the ground that the ALJ had not followed the proper procedure for entry of such an order. The court cited an ARB decision, which possibly suggested that the ALJ should have issued a separate, preliminary order of reinstatement as is required in ERA cases. In an order denying the plaintiff's motion to alter or amend judgment, however, the district court clarified that the citation to ERA authority was only intended to support the proposition that the ALJ must state a ruling "in clear, coherent, and unambiguous terms" and was not a ruling that the ERA procedure applied to SOX cases. Welch v. Cardinal Bankshares , No. 7:05CV00546, slip op. at 5 (W.D.Va. Jan. 26, 2006) (case below ARB No. 04-054, ALJ No. 2003-SOX-15 ). Thus, the deficiency was not the lack of a reinstatement order separate from the ALJ's decision and order, but the lack of effective notice to the Respondent that the preliminary order of reinstatement would be in effect while the ARB conducted its review or until the ARB stayed the order.
ADMINISTRATIVE REVIEW BOARD DECISIONS
ARB DECLINES INTERLOCUTORY REVIEW OF ALJ'S DENIAL OF PRELIMINARY REINSTATEMENT DURING REMAND
In Prioleau v. Sikorsky Aircraft Corp. , ARB No. 12-098, ALJ No. 2010-SOX-3 (ARB Aug. 30, 2012), the ARB declined to grant interlocutory review of the ALJ's denial of the Complainant's motion for preliminary reinstatement during a remand proceeding. The ARB found that the appeal was neither a proper interlocutory appeal nor an appeal of a collateral order, and that the request for reinstatement was premature based on a misunderstanding of the ARB's remand order in which the ARB had found that the Complainant had proffered sufficient evidence to generate a genuine issue of material fact that he engaged in protected activity.
PRELIMINARY ORDER OF REINSTATEMENT; ALJ IS NOT REQUIRED TO ISSUE A PRELIMINARY ORDER SEPARATE AND DISTINCT FROM DECISION AND ORDER
In Welch v. Cardinal Bankshares Corp. , ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB June 9, 2006), the ARB rejected the Respondent's contention that a preliminary order of reinstatement is effective only if the ALJ issues a separately designated and explicit preliminary order.
REINSTATEMENT ORDER; BIFURCATED PROCEEDING ON MERITS AND DAMAGES; ALJ SHOULD NOT ISSUE REINSTATEMENT ORDER UNTIL MATTER BECOMES APPEALABLE
Where the ALJ conducts a bifurcated proceeding first adjudicating the merits, and then the damages if the complaint is found to be meritorious, the ALJ should not issue the preliminary order of reinstatement until he or she issues the final appealable order. See Welch v. Cardinal Bankshares Corp. , ARB No. 04-054, ALJ No. 2003-SOX-15 (ARB May 13, 2004) (Respondent argued that if it could not immediately appeal the ALJ's merits decision, it would be in an untenable position as the ALJ ordered reinstatement; the ARB noted, however, that the ALJ apparently had only found the Complainant entitled to reinstatement, and appropriately had not yet issued a preliminary order of reinstatement).
Sanctions
ADMINISTRATIVE REVIEW BOARD DECISIONS
ADMINISTRATIVE LAW JUDGE DECISIONS[SOX Digest XIV A]
REINSTATEMENT; ALJ DOES NOT HAVE THE AUTHORITY TO IMPOSE A MONETARY SANCTION FOR A RESPONDENT'S REFUSAL TO REINSTATE A COMPLAINANT EVEN AFTER THE ALJ DENIED A MOTION TO STAY AN OSHA REINSTATEMENT ORDERIn Windhauser v. Trane , ARB No. 05-127, ALJ No. 2005-SOX-17 (ARB Oct. 31, 2007), OSHA issued a preliminary order of reinstatement. The ALJ denied the Respondent's motion to stay the order of reinstatement, and the ARB denied a petition for review of the ALJ's order because it was an interlocutory appeal. Later, the ALJ approved a settlement, but awarded sanctions against the Respondent based on refusal to comply with the preliminary order of reinstatement. The ALJ reasoned that SOX's grant of authority to an ALJ to deny a motion to stay reinstatement, perforce granted the ALJ authority to preserve the integrity of that denial through imposition of administrative sanctions. The ALJ awarded the Complainant a pro rata portion of his salary and expected bonus for the months from the preliminary order of reinstatement to the settlement of the case. On appeal, the ARB held that the ALJ did not have the authority to impose monetary sanctions, and that any enforcement actions for failure to reinstate are, by statute, in the jurisdiction of the federal district courts. The ARB therefore vacated the sanction.
PRELIMINARY ORDER OF REINSTATEMENT; SANCTIONS FOR FAILURE TO REINSTATE
In Windhauser v. Trane , 2005-SOX-17 (ALJ June 1, 2005), the case had been terminated by settlement, but the ALJ imposed a monetary fine on the Respondent for its failure to reinstate the Complainant. The ALJ pointed out that without an administrative sanction for failure to reinstate without a stay having been granted, a Respondent could enjoy a passive stay, at least until District Court enforcement. The ALJ calculated the fine based on double the amount the Complainant would have earned in salary and bonuses from the date of the OSHA order until the date of settlement of the case.
In contrast, in Welch v. Cardinal Bankshares Corp. , 2003-SOX-15 (ALJ Aug. 9, 2005), the ALJ denied a motion seeking an order to show cause why administrative monetary sanctions should not be imposed by the ALJ on the Respondent for its failure to reinstate the Complainant as ordered by the ALJ in his supplemental Decision and Order on damages. The ALJ denied the motion, finding that enforcement of an order of reinstatement must be pursued by instituting a civil action in U.S. District Court filed by the Secretary or the person on whose behalf the reinstatement order was issued. The Complainant cited the above-noted order in Windhauser as support for the imposition of monetary sanctions, but the ALJ in Welch found that order to be neither binding nor persuasive authority. Rather, the ALJ found that enforcement in district court was the Complainant's only avenue for relief, citing as an example, Bechtel v. Competitive Technologies, Inc. , No. Civ.3:05CV629AVC (D.Conn. May 13, 2005) (case below 2005-SOX-33).
Stay
FEDERAL COURT DECISIONS
ADMINISTRATIVE REVIEW BOARD DECISIONSCIRCUIT COURT FINDS THAT DEFENDANTS MOTION FOR A STAY RAISED A SUBSTANTIAL QUESTION AS TO THE AUTHORITY OF THE DISTRICT COURT TO ISSUE THE PRELIMINARY INJUNCTION; BALANCING OF THE HARMS SUPPORTED THE ISSUANCE OF A STAY
In Solis v. Tennessee Commerce Bancorp, Inc. , No. 10-cv-5602 (6th Cir. May 25, 2010)(case below 2010-SOX-33), the defendants appealed and moved for a stay pending appeal of the District Court ruling in the previously annotated case. The 6th Circuit applied the traditional injunctive relief standards and concluded that the defendants motion for a stay raised a substantial question as to the authority of the district court to issue the preliminary injunction. The defendants asserted that they would suffer irreparable harm if the complainant was physically reinstated immediately and that his reinstatement would cause disruption to the bank's personnel and operations that could not be undone if the Circuit Court found that the District Court lacked authority to issue the injunction. By contrast, if the reinstatement order was properly issued, the complainant could be made whole with compensatory damages, back pay, and interested. The Circuit held that a balancing of the harms supported the issuance of a stay.
[Editor's Note: On October 25, 2010, the District Court granted an indicative ruling that this case should be dismissed as moot (Fort dismissed administrative complaint, and did not want reinstatement); Sixth Circuit remanded on October 25, 2010; Stipulation of dismissal with prejudice entered on October 29, 2010).]
MOTION FOR STAY OF ALJ'S REINSTATEMENT ORDER; ARB APPLIES FOUR-PART TEST FOR DETERMINING WHETHER AGENCY ACTION SHOULD BE STAYED
MOTION FOR STAY OF ALJ'S REINSTATEMENT ORDER; RESPONDENT'S ARGUMENT THAT IT WAS NOT ON NOTICE THAT REINSTATEMENT WAS A POTENTIAL REMEDY FOUND TO BE MERITLESS
MOTION FOR STAY OF ALJ'S REINSTATEMENT ORDER; FACT THAT POSITION IS NOW FILLED BY ANOTHER EMPLOYEE IS NOT DETERMINATIVE AS THE ONLY REQUIREMENT IS REINSTATEMENT TO THE SAME SENIORITY THAT THE COMPLAINANT WOULD HAVE HAD BUT FOR THE SOX VIOLATION
In Johnson v. U.S. Bancorp , ARB No. 13-014, ALJ No. 2010-SOX-37 (ARB May 21, 2013), the ALJ found in the Complainant's favor and ordered relief, including immediate reinstatement of the Complainant with the same seniority he would have had but for the Respondent's SOX violation. The Respondent filed with the ARB a motion for a stay of the ALJ's reinstatement order arguing that it lacked fair notice regarding the potential for reinstatement as a remedy and that it was not afforded the opportunity to be heard on the issue. The ARB applied its four-part test for determining whether agency action should be stayed. First, the ARB found that although its review of the merits may or may not lead to a different conclusion, it was not persuaded by the Respondent's arguments that it would likely prevail on appeal. Second, the ARB found meritless the Respondent's argument that it was denied due process based on a lack of fair notice of reinstatement as a possible remedy. The ARB noted that SOX and the implementing regulations state that relief under SOX 'shall' or 'will' include reinstatement. Moreover, the Respondent had filed a motion with OALJ to stay OSHA's preliminary order of reinstatement. Both the Complainant and the OSHA Administrator filed responses opposing the motion, and the Complainant later filed a motion to compel reinstatement. An ALJ denied the motion. The ARB was not convinced by the Respondent's argument that there had been waiver of reinstatement as a remedy, but reserved further consideration of that issue when it reviews the appeal on the merits. Third, the ARB did not find that the Respondent established that it would suffer irreparable harm due to the hostility of the parties if a stay was not granted. The ARB stated that there must be actual and not theoretical irreparable harm. The Respondent argued that reinstatement was impossible because another employee now holds the Complainant's former position. But the ARB held that SOX merely requires that the Complainant be reinstated with the same seniority that he would have but for the discrimination. The Respondent requested an opportunity to offer evidence before the ARB to demonstrate the hostility that exists between the parties and the irreparable harm that reinstatement would occasion; but the ARB held that the Respondent had not made a showing under 29 C.F.R. § 178.54(c) (which the ARB relies on when considering requests to supplement the record) sufficient to merit consideration of new evidence on appeal. Finally, the ARB found that the public interest militates against a stay of the ALJ's reinstatement order.
PRELIMINARY ORDER OF REINSTATEMENT; STANDARD FOR MOTION FOR STAY MIRRORS TEST FOR DETERMINING WHEN AGENCY ACTION MAY BE STAYED; ECONOMIC REINSTATEMENT MAY BE AN APPROPRIATE SUBSTITUTE; ALLEGED IRREPARABLE HARM MUST BE ACTUAL AND NOT THEORETICAL
In Welch v. Cardinal Bankshares Corp. , ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB June 9, 2006), the ARB applied the four-part test the Board uses to determine when agency action may be stayed to a motion for stay of an ALJ's preliminary order of reinstatement in a SOX case. In regard to the first element, the Board declined to find that it would be likely that the Respondent would prevail on the merits where (1) there had been a full evidentiary hearing, full development of the evidentiary record, and the ALJ had found that the Complainant had been fired for engaging in protected activity, and (2) the ALJ's reasoning, while subject to further review, appeared sound on its face. The Employer also presented "after acquired evidence" that purportedly established other legitimate reasons for terminating the Complainant; however, this evidence had not been presented before the ALJ and the Respondent had not made a showing that it was not readily available prior to the closing of the record before the ALJ. The ARB also noted that, even if after acquired evidence made reinstatement inappropriate, other remedies such as front pay can be an appropriate substitute.
In regard to the second element, the ARB rejected the Respondent's assertions of irreparable injury because a lack of confidence in the Complainant reinstated as CFO could place the Board of Directors as risk for personal liability and because it would have to remove its current CFO. The ARB found that any alleged irreparable harm must be actual and not theoretical, and certain to occur. The Board also noted that the Complainant need not be reinstated as CFO; rather the Respondent could use his skills while the case is being litigated "by a variety of other means. Alternatively, front pay or economic reinstatement could be a substitute for reinstatement.
In regard to the third element, the ARB found that the Complainant would be harmed if a stay was granted because he had already waited more than three and one-half years to have his pay and benefits restored. The ARB rejected the Respondent's contention that the Complainant could not claim harm because he did not timely seek reinstatement. Rather, the ALJ's preliminary order made it unnecessary for the Complainant to seek enforcement.
In regard to the forth element, the ARB found that the public interest militated against a stay.
REINSTATEMENT; PREREQUISITE TO ENFORCEMENT IS OPPORTUNITY FOR RESPONDENT TO MOVE FOR A STAY BY THE ARB
In Welch v. Cardinal Bankshares Corp. , ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB Mar. 31, 2006), the ARB affirmed that the ALJ had issued a preliminary order of reinstatement and ordered that the Respondent would have ten days to move for a stay of that order. This issue arose because, in Welch , the ALJ had ordered the Respondent to reinstate the Complainant, but because he had issued a merits decision and a second decision on damages, and had erroneously placed a notice of appeal rights on the earlier merits decision, there was some confusion over when the matter became ripe for appeal to the ARB and whether the reinstatement order was merely recommended. When the Complainant sought enforcement of the reinstatement order in federal district court, the court concluded that the Respondent did not, under the circumstances of this case, have adequate notice, and that the ALJ's reinstatement order could not be enforced without the Respondent having had the opportunity to seek a stay from the ARB. The court therefore dismissed the enforcement action. The court, however, indicated that the dismissal was without prejudice to file a new motion to seek enforcement "should the ARB deny a stay on the merits."
ADMINISTRATIVE LAW JUDGE DECISIONS
PRELIMINARY ORDER OF REINSTATEMENT; REGULATORY OPPORTUNITY TO PETITION FOR STAY OF OSHA REINSTATEMENT ORDER IS NOT INCONSISTENT WITH GOVERNING STATUTES
In Bechtel v. Competitive Technologies, Inc. , 2005-SOX-33 and 34 (ALJ Mar. 29, 2005), one Complainant argued that DOL's regulation that allows a party to request a stay of a preliminary order of reinstatement is inconsistent with statutory mandate (SOX referring to AIR21 in regard to remedies). The ALJ found that the Acts were not in conflict with the regulations; that the Acts limit automatic stays of reinstatement orders but do not suggest that a stay is never appropriate; and that agencies act appropriately in prescribing regulations to implement statutory intent as the agency has defined it upon a review of legislative history and underlying policies.
PRELIMINARY ORDER OF REINSTATEMENT; STAY GRANTED ONLY FOR EXTRAORDINARY REASONS; ANALYSIS SIMILAR TO ANALYSIS FOR INJUNCTIVE RELIEF; POSSIBILITY THAT "ECONOMIC REINSTATEMENT" WOULD CONSTITUTE CONSTRUCTIVE COMPLIANCE; SECURITY RISK ASSERTION IS NOT AUTOMATICALLY GROUNDS FOR STAY
In Bechtel v. Competitive Technologies, Inc. , 2005-SOX-33 and 34 (ALJ Mar. 29, 2005), the ALJ found that the statutory mandate of reinstatement dictates that a stay be granted only for extraordinary reasons -- i.e., circumstances similar to those supporting injunctive relief. In the instant case, the ALJ found that there was a reasonable basis to conclude that the Complainant's would be able to establish a prima facie case and that she was not able to conclude that the Respondent would be likely to succeed on the merits. The ALJ also found that the Respondent had not established that reinstatement would cause it irrepable harm or that the harm it would realize would outweigh that experienced by the Complainants or that reinstatement would be contrary to public policy.
The ALJ, however, ruled that "economic reinstatement" would be constructive compliance with a preliminary order for reinstatement.
The ALJ concluded that the assertion that the Complainants were a security risk, proffered after OSHA had ordered reinstatement, was not grounds for an automatic stay but rather a relevant factor in determining whether injunctive relief should be granted.
PRELIMINARY ORDER OF REINSTATEMENT; STAY GRANTED ONLY FOR EXTRAORDINARY REASONS; CLAIM OF IRREPARABLE HARM BASED ON DISPLACEMENT OF SUCCESSOR TO COMPLAINANT'S POSITION
In Windhauser v. Trane , 2005-SOX-17 (ALJ Feb. 11, 2005), the ALJ found that a stay of a preliminary order of reinstatement should be granted only for extraordinary reasons, rejecting the Respondent's argument that language in the legislative history of the analogous whistleblower provision of the Pipeline Safety Act indicates that the standard should be "sufficient grounds." The ALJ rejected the Respondent's irreparable harm argument based on its being forced to terminate the Complainant's replacement, the ALJ observing that the replacement had been appointed to the position the same day that the Respondent filed its reply brief on the instant motion for a stay.
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