The Sarbanes-Oxley Act of 2002 (“SOX”) provides remedies for employees of publicly traded companies who are retaliated against by their employers for reporting suspected corporate fraud or other misconduct related to shareholders. A recent case decided by the United States Court of Appeals addressed an important question that is not completely clear from the language of the statute itself: whether SOX whistleblowers can recover emotional distress damages. Siding with the Department of Labor and two previous federal Courts of Appeal to examine the issue, the Court answered yes.
Although the case did not arise in Ohio, it has potentially significant ramifications for employees who find that they need a Cleveland corporate fraud whistleblower attorney.
The Facts of Jones v. SouthPeak Interactive Corp.
Andrea Gail Jones worked as the chief financial officer for a video game publishing company called SouthPeak Interactive Corp. In 2009, the Company attempted to buy some 50,000 units of a video game from Nintendo. However, it did not have the cash on hand, and Nintendo required payment in advance. In order to make the purchase, the Company’s Chairman paid approximately $300,000 of his own money for the games. At the same time, the Company did not properly record this payment by the Chairman as a debt on its balance sheet. Nor did it report the debt to the Securities and Exchange Commission in its quarterly filing.
None of this was known by Jones until after the fact. When she found out the debt had not been properly recorded or reported to the SEC, she complained about what she viewed as fraud to the Company’s internal audit committee and outside law firm. On August 13, 2009, Jones refused to sign off on an amended earnings statement to the SEC that denied the Company had engaged in any intentional fraud or misrepresentation. The same day, SouthPeak fired her.
In keeping with the administrative procedures required by SOX, Jones then filed a whistleblower retaliation complaint with the Department of Labor’s Occupational Safety and Health Administration (“OSHA”). Under SOX, a whistleblower must first file with OSHA within 180 days of the negative employment action, and then pursue her claim through that agency’s process. If the Department of Labor fails to complete the administrative hearings and appeals process within 180 days after filing, a whistleblower can pursue a SOX retaliation claim in federal court. That is what happened in this case.
In 2012, Jones filed a SOX whistleblower claim against SouthPeak, its CEO, and its Chairman in federal district court. The case proceeded to trial. The jury returned a verdict for Jones, awarding her $593,000 in back pay and $357,000 in compensatory (or “emotional distress”) damages, which was reduced by the trial court. SouthPeak appealed to the United States Court of Appeals for the Fourth Circuit.
The Court of Appeals’ Decision on Damages Available Under SOX
Under Sarbanes-Oxley, a prevailing whistleblower is entitled to reinstatement with seniority, back pay with interest, reasonable attorney fees and costs of suit, and compensation for any “special damages sustained as a result of the discrimination.” 18 U.S.C. § 1514A(c)(2). A successful SOX plaintiff is also entitled to “all relief necessary to make the employee whole.” Id. at § 1514A(c)(1). The question that arises is whether this statutory language encompasses an award for emotional distress damages.
In its appeal, SouthPeak argued, among other things, that SOX does not allow for recovery of emotional distress damages. In a decision issued on January 26, 2015, the Court of Appeals rejected that argument.
Before Jones, two federal Courts of Appeal had previously considered the availability of emotional distress damages under Sarbanes-Oxley. Both the Fifth and Tenth Circuits concluded that they are available. Tasked by Congress with enforcing SOX (along with the SEC), the Department of Labor has taken the same position. While a “smattering” of mostly unpublished district court cases have held to the contrary, the Jones Court held their reasoning to be unpersuasive based on both the language of SOX—specifically, “all relief necessary to make the employee whole”—and the statute’s purpose. It therefore held that emotional distress damages are recoverable by prevailing whistleblowers.
The Impact of the Court’s Decision
The Court’s decision in Jones is important for a few reasons.
First, having been passed only a decade ago, SOX is relatively new. As a result, its case law is not entirely settled. Uniformity between the various circuit courts of appeals is critical in establishing SOX’s scope. The Jones decision helps achieve that, at least with respect to emotional distress damages.
Second, recovery for emotional harms can be vital to making a whistleblower whole. In fact, in many cases, it will be the most significant aspect of damages. In cases where retaliation comes in the form of threats and harassment, but not termination, the whistleblowing employee may have no lost wages to recover. Without emotional distress damages, he or she would be entitled to virtually no recovery at all. In other cases where the whistleblower is terminated but finds a new job relatively quickly, emotional distress damages may again comprise the bulk of any recovery. Thus, emotional distress damages are a critical component of SOX’s remedial scheme.
Despite the favorable ruling for whistleblowers in Jones, employees reporting corporate fraud still risk facing retaliation for speaking up and doing what is right. If you have been retaliated against for blowing the whistle on corporate fraud, you should contact an experienced Cleveland whistleblower lawyer right away.