Cy Pres on the Supreme Court’s Radar

            Cy pres is a legal doctrine under which courts, when unable to effectuate a direct monetary payment to plaintiffs, undertake to distribute moneys to provide an indirect benefit to plaintiffs.  The term cy pres originally comes from French.  Literally, the phrase means “so near/close” though a more figurative translation would be “as near as possible” or “as near as may be”.  Black’s Law Dictionary, p. 349 (5th Ed. 1979).  Cy pres remedies are important to plaintiffs both because they may be in the position of negotiating such remedies in appropriate cases, and because certain charitable or legal organizations which serve low-income populations may find themselves eligible to receive cy pres moneys.  E.g. Public Justice, “Cy Pres Donations: Serving the Class and the Public Interest” (available at: http://publicjustice.net/support-us/cy-pres-donations-serving-class-public-interest).  The ALI’s Principles of the Law of Aggregate Litigation, which are discussed in more detail below, provide that cy pres awards should be made to organizations “whose interests reasonably approximate those being pursued by the class.”  § 3.07(c);  See also In re Pharm. Indus. Average Wholesale Price Litig., 588 F.3d 24 (1st Cir. 2009) (cy pres distribution to cancer or patient related charities was appropriate where defendant was accused of price inflation for a cancer drug). 

            The Supreme Court recently declined to review the class action settlement in Marek v. Lane, 134 S. Ct. 8 (Nov. 4, 2013) (denying petition for certiorari).  However, the Chief Justice issued a statement, concurring in the denial of certiorari indicating that cy pres provisions of settlements raise “fundamental concerns.”  The Chief Justice also noted that cy pres remedies are a “growing feature of class action settlements.” 

            The original complaint, which originated as a challenge to a Facebook program known as “Beacon”, which automatically shared purchase and other personal information with both Facebook and the users’ friends lists, sought both monetary and injunctive relief.  Marek, 134 S. Ct. at 8.  The settlement eventually agreed to between the parties, and which gave rise to the challenge which is the subject of Marek, provided the vast majority of class members with neither remedy.  Id.  The underlying settlement at issue in Marek provided no monetary damages to the class at large.  Id. The named plaintiffs received “modest incentive payments”, and class counsel received approximately $2.5 million.  See Marek, 134 S. Ct. at 8-9.  Instead of providing monetary relief to the class, the settlement created a grant-making organization, the Digital Trust Foundation (the “DTF”), the mission of which would be to educate the public about online privacy.  Id. at 9; see also Mike Keefe-Feldman, “The Digital Trust Foundation: Facebook’s Unwanted Child”, Nonprofit Quarterly (June 2, 2014) (available at: https://nonprofitquarterly.org/policysocial-context/21895-the-digital-trust-foundation-facebook-s-unwanted-child.html).  The Foundation would be run by a three-member board, including Facebook’s public policy director.  Marek, 134 S. Ct. at 9.  In addition, the settlement provided for the creation of a “Board of Legal Advisors”, consisting of counsel for the plaintiff class and Facebook, to “advise and monitor the DTF”.  See Lane v. Facebook, 696 F.3d 811, 818 (9th Cir. 2012).  Further complicating the settlement, the class of those barred from future litigation included not just individuals injured by the specific program during the time period cited in the original complaint, but also all individuals injured by subsequent iterations of the program at time periods not covered by the original complaint.  Id.  As the Chief Justice notes, “Facebook thus insulated itself from all class claims arising from the Beacon episode by paying plaintiffs’ counsel and the named plaintiffs some $3 million and spending $6.5 million to set up a foundation in which it would play a major role.”  Id. 

The Chief Justice notes dryly that, when this settlement was challenged by class members, the District Court, Judge Richard Seeborg, found it to be “fair, reasonable, and adequate.”  Id., citing Fed. R. Civ. P. 23(e)(2); Lane v. Facebook, Inc., Civ. No. C 08-3845, 2010 U.S. Dist. LEXIS 24762, 2010 WL 9013059 (N.D. Cal. Mar. 17, 2010).  On appeal, a panel of the Ninth Circuit affirmed the District Court’s determination by a vote of 2-1. 

            In that decision, authored by Circuit Judge Hug, with a dissent by Judge Kleinfeld, the Ninth Circuit indicated that its responsibility was to “evaluate the fairness of a settlement as a whole, rather than assessing its individual components.”  Lane, 696 F.3d at 818.  As to the adequacy of cy pres remedies, the Ninth Circuit indicated that the Court must ensure that the remedy “account[s] for the nature of the plaintiffs’ lawsuit, the objectives of the underlying statutes, and the interests of the silent class members.”  Id. at 819-20 (internal quotations omitted).   Plaintiffs raised two principal challenges to the settlement – the amount and the use of a cy pres remedy.  Id. at 820.  Here, we focus only on the latter, which the Ninth Circuit characterized as the strongest objection to the settlement.  Id.

            First, the Court turned to plaintiff’s argument that the cy pres remedy was inappropriate because the presence of Facebook executives on DTF’s board would “create[] an unacceptable conflict of interest that will prevent DTF from acting in the interests of the class.”  Id.  Finding that the cy pres remedy here was proper, the court explained that “we do not require…that settling parties select a cy pres recipient that the court or class members would find ideal.”  Id. at 820-21.  The only requirement was that the cy pres remedy should account for the interests of the lawsuit, the statute, and silent plaintiffs.  Id.  Finding the notion “[t]hat Facebook retained and will use its say in how cy pres funds will be distributed so as to ensure that the funds will not be used in a way that harms Facebook is…unremarkable” and declining to “undermine those negotiations by second-guessing the parties’ decision”, the Court upheld the arrangement.  Id. at 822. 

            The dissent, noting the potential for embarrassment created by the “Beacon” program, also pointed out that mediation and settlement occurred prior to any class certification.  The class was only certified for settlement purposes.  Id. at 828.  Other details contained in the dissent cast further doubt on the utility, if not the validity, of the settlement.  For instance, while Facebook agreed never to relaunch the “Beacon Program”, this term was defined to include only programs “bearing the ‘Beacon’ name” – in other words, the same program under a different name would not be a “Beacon Program”.  Judge Kleinfeld’s dissenting opinion notes that “[t]he injunctive relief the class received was no relief at all, not even a restriction on future identical conduct.”  Id.  Regarding the monetary relief, Judge Kleinfeld explained “Facebook users…got no money, not a nickel, from the defendants.  Even those who…were arguably entitled to statutory damages…got nothing.  Class counsel, on the other ha[n]d, got millions.”  As to the “incentive payments”, only $39,000.00 of the $9 million settlement was allocated to those payments.  Id. at 829. 

            Judge Kleinfeld’s spirited dissent is worth reading in its entirety for its detailed exposition of the numerous conflicts to which class actions are susceptible – and which arose in this case.  A flavor, however, can be gleaned from this excerpt:

Defendant and class counsel, in any class action, have incentives to collude in an agreement to bar victims' claims for little or no compensation to the victims, in exchange for a big enough attorneys' fee to induce betrayal of the interests of the purported "clients." The defendant's agreement not to oppose some amount for the fee creates the same incentive as a payment to a prizefighter to throw a fight. A real client may refuse a settlement that is bad for him but benefits his lawyer, but a large class of unknown individuals lacks the knowledge or authority to say no. It is hard to imagine a real client saying to his lawyer, "I have no objection to the defendant paying you a lot of money in exchange for agreement to seek nothing for me." "The absence of individual clients controlling the litigation for their own benefit creates opportunities for collusive arrangements in which defendants can pay the attorneys for the plaintiff class enough money to induce them to settle the class action for too little benefit to the class (or too much benefit to the attorneys, if the claim is weak but the risks to the defendants high).

Over a dissent written by Judge Milan D. Smith, and joined by five of her colleagues, including Chief Judge Kozinski, the Ninth Circuit denied rehearing en banc.  The dissent focused what, in its view, constituted several major departures from the Ninth Circuit’s prior case law on the subject of cy pres remedies.  Among the problems identified by the dissenters are the lack of any track record on the part of the DTF, and the divorce between the DTF’s goals and the objectives of the underlying statutes.  Lane, 709 F.3d at 793-794.  As to the former, the dissenters explained that the DTF “has no record of service” and that, given this lack, there is simply no way of knowing how the settlement funds will be used in the level of detail required by the Court’s prior cy pres precedent.  Id. at 793.  The dissenters argue that there is no assurance that the class members will “actually benefit” from DTF’s activities, and that DTF’s mission statement amounts to little more than promising that “DTF will do some ‘stuff’ regarding some more ‘critical stuff.’”  Id. at 794.  Regarding the latter, the dissenters explain that the statutes cited by the original plaintiffs all, with one exception, have the goal of preventing “unauthorized access or disclosure of private information.”  Id. (emphasis in original) (citing the Electronic Communications Privacy Act, 18 U.S.C. § 2510; the Computer Fraud and Abuse Act, 18 U.S.C. § 1030; the Video Privacy Protection Act, 18 U.S.C. § 2710; the California Legal Remedies Act, Cal. Civ. Code § 1750, and the California Computer Crime Law, Cal. Penal Code § 502).  The dissenters note that DTF’s stated goals focus on educating users on controlling their private information, but not in the issue central to this case – controlling the unauthorized use of personal information which even educated users cannot anticipate, prevent, or direct.  Id. at 794. 

Returning to Chief Justice Roberts’ statement concerning the denial of certiorari, we can glean several insights into the concerns about cy pres settlements.  Although the Chief Justice joined the Court’s decision to deny certiorari, his rationale is telling:

Marek’s challenge is focused on the particular features of the specific cy pres settlement at issue. Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation[.]

Marek, 134 S. Ct. at 9.  Among the Chief Justice’s concerns are: 1) When, if ever, cy pres remedies should be considered; 2) How to assess the fairness of cy pres remedies; 3) Whether new entities may be established as part of cy pres relief; 4) How existing entities should be selected; 5) What role is to be played by both the Judge and the parties in shaping a cy pres remedy; and 6) How closely the goals of any organization selected must correspond to the interests of the class.  Id.  It may be of note that the Chief Justice referenced Redish, Julian, & Zyontz’s article in the Florida Law Review, entitled “Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis”.  62 Fla. L. Rev. 617, 653-56 (2010) (available at: http://www.floridalawreview.com/wp-content/uploads/2010/01/Redish_BOOK.pdf).  The Chief Justice concluded with an open invitation to further challenges, noting that “[i]n a suitable case, this Court may need to clarify the limits on the use of such remedies.”  Id.

            Another vivid example of the potential problems in using cy pres remedies in the class action context is provided by In re Baby Prods. Antitrust Litig., 708 F.3d 163 (3d Cir. 2013). See Wasserman, Rhonda, Cy Pres in Class Action Settlements (March 24, 2014). Southern California Law Review, Vol. 88, 2014, Forthcoming; U. of Pittsburgh Legal Studies Research Paper No. 2014-14. Available at SSRN:http://ssrn.com/abstract=2413951 (“Wasserman”).  In Baby Products, the plaintiffs alleged that defendants had conspired to set a “floor price” on select products.  Wasserman at 32.  Unlike in Lane, the district court certified a class of purchasers, and various subclasses, well in advance of settlement.  Id.  While the formula for distributing the funds was somewhat complex, assuming adequate moneys were available, plaintiffs would be eligible to receive up to treble damages, with any remainder to be donated to a charitable organization selected by the Court from among those proposed by the parties.  Baby Products, 708 F.3d at 171.  However, because most class members were unable to provide proof that they purchased a qualifying product, only roughly ten percent of the $35.5 million settlement fund was used to compensate class members. 

            As an initial matter, the court held that “[w]e join other courts of appeals in holding that a district court does not abuse its discretion by approving a class action settlement agreement that includes a cy pres component.”  Id. at 173.  However, the Court immediately cautioned that “direct distributions to the class are preferred over cy pres” remedies.  Id.  The Court noted that the ALI has published recommendations limiting the use of cy pres awards:

If the settlement involves individual distributions to class members and funds remain after distributions (because some class members could not be identified or chose not to participate), the settlement should presumptively provide for further distributions to participating class members unless the amounts involved are too small to make individual distributions economically viable or other specific reasons exist that would make such further distributions impossible or unfair.

American Law Institute Principles of the Law of Aggregate Litig. § 3.07, comment b (2010) (the “Principles”).  The Principles provide that the cy pres doctrine should be used as a last resort only when other methods of distribution are not practicable, whether due to the unknown composition of the plaintiff class or due to the impracticability of cost-effectively distributing numerous small awards.  See Karen Shanley, The Institute in the Courts: Principles of the Law of Aggregate Litigation, The ALI Reporter (available at: http://www.ali.org/_news/reporter/summer2012/07-institute-courts-aggregate-litigation.html).  The Principles indicate that cy pres is an inappropriate remedy where there was still a possibility of compensating plaintiffs.  Id.; see also Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468 (5th Cir. 2011) (use of cy pres remedy denied.  Court, citing section 3.07 of the Principles, reasoned that “a cy pres distribution to a third party…is permissible ‘only when it is not feasible to make further distributions to class members.”).  The Principles provide guidance as to when distribution of settlement proceeds to class members is viable.  Principles § 3.07(a); Shanley at 1.  Factors courts should consider include whether class members can be “identified through reasonable effort” and whether “the amounts involved are too small to make individual distributions economically viable” as well as “other specific reasons that would make such further distributions impossible or unfair.”  Principles at § 3.07(b); Shanley at 2. 

            To assess whether a settlement containing a cy pres provision is “fair, reasonable, and adequate” the Third Circuit indicated that courts should consider “the number of individual awards compared to both the number of claims and the estimated number of class members, the size of the individual awards compared to claimants’ estimated damages, and the claims process used to determine individual awards.”  Baby Products, 708 F.3d at 174.  More particularly, the Court advised that, in general, “cy pres awards should generally represent a small percentage of total settlement funds.”  Finally, the Court opined that if Defendants refused to alter the claims process to result in a higher payout to the class, “the Court will need to determine whether the class received sufficient direct benefit to justify the settlement as fair, reasonable, and adequate.”  Id. at 176.  As part of its order remanding the matter, the Court vacated the $14 million attorneys’ fee award, as the settlement was no longer in effect.  Id.

            The Baby Products opinion is part of a line of cases that have expressed concern about the implications of the cy pres doctrine.  Joshua Dunlap, Closer Scrutiny for Cy Pres Distributions?, FirstClassDefense Blog (March 8, 2013) (available at: http://pierceatwood.typepad.com/first_class_defense/2013/03/closer-scrutiny-for-cy-pres-distributions.html).  In In re Compact Disc Minimum Advertised Price Litig., the district court for the Federal District of Maine expressed skepticism of the benefit of a cy pres award to the class plaintiffs.  No. 2:00-MD-1361, 2005 U.S. Dist. LEXIS 11332 (D. Me. June 10, 2005).  In Compact Disc, the Court actually reduced the fee award to class counsel “in light of the modest benefit” received as a result of the cy pres award.  Id. 

            Of course, despite criticism, courts continued to employ cy pres awards out of a belief that they are superior to the alternatives.  In general, if a cy pres award is not available, then the settlement funds would revert to either the Defendant or the government.  Wasserman at 10-12.  In the former case, courts have expressed concern that that such a remedy would risk “undermining the deterrent effect of class actions by rewarding defendants for the failure of class members to collect their share of the settlement.”  Baby Products, 708 F.3d at 172.  This is especially true where statutory objectives include deterrence or disgorgement.  Wasserman at 11; Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1308 (9th Cir. 1990).  Of course, where compete distribution is impossible, the preference is to increase the award to class members before engaging in cy pres distribution.  See In re Lupron Mktg. & Sales Practices Litig., 677 F.3d 21 (3d Cir. 2012).  Commentators have long complained of the use of cy pres awards for numerous reasons, including the due process and First Amendment rights of class members.  See Ilya Shapiro, “Curbing Class Action Settlement Abuses”, Cato at Liberty Blog (Aug. 28, 2013) (available at: http://www.cato.org/blog/curbing-class-action-settlement-abuses).  Chief Justice Roberts’ concurrence to the denial of certiorari in Marek raises the possibility that these arguments may soon receive a hearing before the Court.  

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Front Pay and Non-Economic Damages Under the Sarbanes-Oxley Act

There continues to be substantial disputes over remedies in SOX retaliation cases.  Today, we will explore two of these issues: (1) whether one can obtain front pay under SOX; and (2) whether one can obtain non-economic damages under SOX, such as damages for emotional distress and/or damage to one’s reputation.

I.                   Front Pay Damages Under the Sarbanes-Oxley Act

The remedies section of SOX provides as follows:

Remedies.

(1)  In general. An employee prevailing in any action under subsection (b)(1) [discharge or discrimination for engaging in protected activity under SOX] shall be entitled to all relief necessary to make the employee whole.

(2)  Compensatory damages. Relief for any action under paragraph (1) shall include--

(A)  reinstatement with the same seniority status that the employee would have had, but for the discrimination;

(B)  the amount of back pay, with interest; and

(C)  compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.

18 U.S.C.S. § 1514A (emphasis added).

           

            As to front pay awards, the revised OSHA regulations regarding SOX, 76 Fed. Reg. 68084-68097, further provide as follows:

In appropriate circumstances, in lieu of preliminary reinstatement, OSHA may order that the complainant receive the same pay and benefits that he received prior to his termination, but not actually return to work. Such ‘economic reinstatement’ is akin to an order of front pay and is frequently employed in cases arising under Section 105(c) of the Federal Mine Safety and Health Act of 1977. See, e.g., Sec’y of Labor on behalf of York v. BR&D Enters., Inc., 23 FMSHRC 697, 2001 WL 1806020, at *1 (June 26, 2001). Front pay has been recognized as a possible remedy in cases under Sarbanes-Oxley and other whistleblower statutes enforced by OSHA in circumstances where reinstatement would not be appropriate. Hagman v. Washington Mutual Bank, Inc., 2005-SOX-73, 2006 WL 6105301, *32 (Dec. 19, 2006) (noting that while reinstatement is the ‘preferred and presumptive remedy’ under Sarbanes-Oxley, ‘[f]ront pay may be awarded as a substitute when reinstatement is inappropriate due to: (1) An employee’s medical condition that is causally related to her employer’s retaliatory action * * *; (2) manifest hostility between the parties * * *; (3) the fact that claimant’s former position no longer exists * * *; or (4) the fact that employer is no longer in business at the time of the decision’); see, e.g., Hobby v. Georgia Power Co., ARB No. 98-166, ALJ No. 1990-ERA-30 (ARB Feb. 9, 2001), aff’d sub nom. Hobby v. U.S. Dept. of Labor, No. 01-10916 (11th Cir. Sept. 30, 2002) (unpublished) (noting circumstances where front pay may be available in lieu of reinstatement but ordering reinstatement); Brown v. Lockheed Martin Corp., 2008-SOX-49, 2010 WL 2054426, at *55-56 (Jan. 15, 2010) (same).

Id. at 68088.

The United States District Court for the Eastern District of Virginia has similarly held in connection with front pay awards.  In Jones v. SouthPeak Interactive Corp., No. 3:12cv443, 2013 U.S. Dist LEXIS 164578 (E.D. Va. Nov. 19, 2013), after citing the regulations discussed above (76 Fed. Reg. 68084-68097), and the administrative SOX decisions discussed therein, all of which support an award of front pay under SOX, the Court held as follows:

Those administrative decisions are consistent with the controlling decisions of the United States Court of Appeals for the Fourth Circuit respecting front pay under other statutes with similar remedial provisions. For example, the Fourth Circuit, while affirming a general preference for reinstatement as a forward-looking remedy to a wrongful termination in an action under the Age Discrimination in Employment Act (‘ADEA’), has recognized that reinstatement may not be appropriate in cases where: (1) the parties have become inextricably mired in hostility; (2) there is no comparable position available with the plaintiff’s former employer; (3) the plaintiff’s former employer is no longer operating; or (4) the anticipated period of reinstatement is relatively short. See Duke v. Uniroyal, Inc., 928 F.2d 1413, 1423-24 (4th Cir. 1991).

‘The infinite variety of factual circumstances that can be anticipated do not render any remedy of front pay susceptible to legal standards for awarding damages. Its award, as an adjunct or alternative to reinstatement, must rest in the discretion of the court in shaping the appropriate remedy.’ Id. at 1424. At the same time, the Fourth Circuit makes clear that the potential for a windfall to the plaintiff should temper a court’s enthusiasm for any award of front pay. Id.

The Fourth Circuit has demonstrated a willingness to extend Duke beyond the context of the ADEA. In Cline v. Wal-Mart Stores, Inc., 144 F.3d 294 (4th Cir. 1998), a case involving the Federal Medical Leave Act (‘FMLA’), the Fourth Circuit affirmed that front pay was an equitable remedy that could be ordered by a trial court. See id. at 307; see also Nichols v. Ashland Hosp. Corp., 251 F.3d 496, 504 (4th Cir. 2001) (citing Cline in conjunction with Duke’s admonition about possible windfalls).

As a matter of first impression, the Court agrees with the Department of Labor regulations and previous administrative decisions that have offered the possibility of front pay in lieu of reinstatement. The views expressed therein are in accord with the express purpose of the remedial provisions of Sarbanes-Oxley and the views of our Court of Appeals, as thoroughly explained in Duke.

18 U.S.C. § 1514A(c)(1) states that ‘an employee prevailing in any [retaliation] action shall be entitled to all relief necessary to make the employee whole.’ § 1514A(c)(2)(A) specifically includes reinstatement as one type of available relief. SouthPeak has argued that, because front pay is not specifically mentioned in § 1514A(c)(2)(A), front pay should not be available to plaintiffs who have successfully sued under SOX for retaliation claims. Response at 2. If the Court were to adopt the SouthPeak’s construction of § 1514A(c) and bar any remedy that was not specifically listed in § (c)(2)(A), the general mandate of § (c)(1) to make the employee whole would be rendered void and superfluous. Such a construction would violate the well-known interpretative presumption against surplussage, see In re Total Realty Management, LLC, 706 F.3d 245, 251 (4th Cir. 2013); therefore this Court will not embrace it.

Furthermore, although Duke was a case involving the ADEA rather than SOX, the Fourth Circuit’s broad discussion of reinstatement and front pay seems equally applicable in a SOX retaliation context. Duke held that ‘front pay is an available remedy to complete the panoply of remedies available to avoid the potential of future loss.’ Front pay was seen as a complement to the remedy of reinstatement, which was expressly authorized by the ADEA, and another tool for effectuating the purposes of the ADEA. See 29 U.S.C. § 626(b) (‘In any action brought to enforce this chapter the court shall have jurisdiction to grant such legal or equitable relief as may be appropriate to effectuate the purposes of this chapter, including . . . reinstatement or promotion’). The same complementary role can be ascribed to front pay in a SOX action such as this one, where reinstatement is impossible and the prevailing plaintiff is entitled to be made whole. Here, as in Duke and Cline v. Wal-Mart Stores, Inc., the remedial provision of the applicable statute did not expressly authorize front pay as an equitable remedy. See Cline v. Wal-Mart Stores, Inc., 144 F.3d 294, 307 (4th Cir. 1998); 29 U.S.C. § 2617(a)(1)(B) (FMLA provision authorizing ‘such equitable relief as may be appropriate, including employment, reinstatement, and promotion’).

Given the paucity of support for SouthPeak’s argument on this issue, the presumption against superfluity, and the willingness of the Fourth Circuit to allow district courts to consider front pay as a complementary remedy for statutes that have a broad remedial purpose and explicit authorization for reinstatement, the Court concludes that front pay is a potential remedy for plaintiffs who prevail under a claim for retaliation in violation of Sarbanes-Oxley.

Jones, 2013 U.S. Dist LEXIS 164578  at *7-12 (footnote omitted).  While the Court went on to conclude that an award of front pay was not appropriate in that particular case (the company had since gone out of business, and no longer employed someone in the complainant’s prior position, strongly suggesting that the complainant would have been terminated in any event), Id. at *12-20, the Court’s finding that front pay awards are available in SOX cases is clear. 

            Moreover, front pay awards under SOX, under the appropriate circumstances, can be quite substantial.  For example, in the Hagman case discussed in the SOX regulations cited above, Hagman v. Washington Mutual Bank, Inc., 2005-SOX-73, 2006 WL 6105301 (Dec. 19, 2006), the administrative law judge (“ALJ”) at OSHA awarded the complainant $642,941 in front pay damages, based on evidence that it would take the complainant approximately 10 years to recover the damages that the respondent had caused to her career track and earning potential. 

            Further, given the above discussion in Jones, which makes it clear that a court’s analysis of front pay damages under SOX is very similar (if not identical) to an analysis of front pay damages under other causes of action, it is also worthwhile to note that front pay awards of 5 years or greater are not at all uncommon in litigation in general.  See, e.g.,  Howard Univ. v. Roberts-Williams, 37 A.3d 896 (D.C. 2012) (upholding 8 year front pay jury award); Luca v. County of Nassau, 344 Fed. Appx. 637, 641 (2d Cir. 2009) (affirming a front pay award in a Title VII claim, calculating front pay through plaintiff’s retirement, which was at least 25 years into the future, holding “We have repeatedly upheld awards of front pay through retirement where the record contained evidence sufficient to find that a plaintiff had ‘no reasonable prospect of obtaining comparable alternative employment’ and to calculate the resulting salary disparity); Howell v. New Haven Bd. of Educ., No. 3:02-cv-736, 2005 U.S. Dist. LEXIS 19897 (D. Conn. Sept. 8, 2005) (concluding that five-year front pay award was reasonable for plaintiff-teacher, given difficulties in job market); Mathieu v. Gopher News Co., 273 F.3d 769, 778 (8th Cir. 2001) (affirming front pay award of eight years); United Mine Workers of America v. Moore, 717 A.2d 332, 339-40 (D.C. 1998) (upholding a front pay award to the plaintiff projected out to age 62 based on expert testimony as to her worklife expectancy); Nelson v. Boatmen’s Bancshares, 26 F.3d 796, 802 (8th Cir. 1994) (affirming four-year front pay award in ADEA claim); Tyler v. Bethlehem Steel Corp., 958 F.2d 1176, 1188-20 (2d. Cir. 1992), cert denied, 506 U.S. 826 (1992) (upholding a 17 year front pay jury award); see also Lander v. Lujan, 888 F.2d 153, 159 (D.C. Cir. 1989) (Ginsburg, J., concurring) (describing a front pay award as a “more appropriate remedy” than “bumping” an innocent incumbent employee).

II.                Non-Economic Damages Under the Sarbanes-Oxley Act

 As the opinion in Jones notes, SOX, in its statutory language, clearly provides that aggrieved complainants “shall be entitled to all relief necessary to make the employee whole.”  As Jones holds, given that language, and the use of other language such as “including”, which suggests that the listed damages were not intended to be exhaustive, the damages available under SOX go beyond the categories of damages which are specifically listed in the in the statute itself (back pay with interest, reasonable attorneys’ fees, experts’ fees, and so on).  In addition to awards of front pay, other categories of damages have been found to be available under SOX as well. 

 Some courts have held that mental and emotional distress, and other awards for non-economic damages, were not available under SOX.  See, e.g., Hemphill v. Celanese Corp., No. 3:08-CV-2131-B, 2009 U.S. Dist. LEXIS 84049 (N.D. Tex. Sept. 14, 2009) (dismissing plaintiff’s claims for mental anguish damages); Walton v. Nova Info. Sys., 514 F. Supp. 2d 1031, 1035 (E.D. Tenn. 2007) (holding that non-pecuniary damages, such as injury to reputation, and mental and physical distress, were not available under SOX); Murray v. TXU Corp., No. 3:03-CV-0888-P, 2005 U.S. Dist. LEXIS 10945 (N.D. Tex. June 7, 2005) (noting that the original draft of the remedies provision of Section 1514A of SOX provided explicitly for punitive damages, but that subsequent drafts removed the language, suggesting that punitive damages were not available).  See also Schmidt v. Levi Strauss & Co., 621 F. Supp. 796, 805 (N.D. Cal. 2008) (approvingly citing Murray’s finding that SOX makes “no mention… of any type of damage that might be considered non-pecuniary”). 

 However, even in the cases which previously ruled that non-economic damages are not available under SOX as a general matter (a ruling which, as demonstrated below, goes against the recent weight of authority on this issue), some of those opinions did nevertheless hold that such damages, such as reputational injury damages, may be available where they are specifically for injuries caused by a decrease in the plaintiff’s future earning capacity, as granting such relief would be consistent with SOX’s goal of making the plaintiff whole. See, e.g., Jones v. Home Fed. Bank, No. CV09-336-CWD, 2010 U.S. Dist. LEXIS 3579 (D. Idaho Jan. 14, 2010) (so holding with regard to reputational injury damages); Hanna v. WCI Communities, Inc., 348 F. Supp. 2d 1332, 1334 (S.D. Fla. 2004) (same).

 Contrary to the view of the Hemphill line of cases, OSHA’s Administrative Review Board (ARB) has recently held that non-economic damages are available under SOX. See, e.g., Kalkunte v. DVI Fin. Servs., Inc., ARB Nos. 05-139 & 05-140, ALJ No. 2004-SOX-056 (ARB Feb. 27, 2009) (opinion available here) (awarding complainant $22,000 for “pain, suffering, mental anguish, the effect on her credit [because of her loss of employment] and the humiliation that she suffered.”); Brown v. Lockheed Martin Corp., ALJ No. 2008-SOX-00049 (ALJ Jan. 15, 2010), affirmed, ARB No. 10-050 (ARB Feb. 28, 2011) (opinion available here) (affirming award to complainant of $75,000 for emotional pain and suffering, mental anguish, embarrassment, and humiliation).  Of note, the ARB’s opinion in Brown was recently affirmed by the Tenth Circuit, in Lockheed Martin Corp. v. Admin. Review Bd., 717 F.3d 1121 (10th Cir. 2013).  In upholding the ARB’s award of non-economic compensatory damages in particular, the Tenth Circuit noted:

Finally, Lockheed argues the Board’s award of $75,000 to Brown as non-economic compensatory damages for her emotional pain and suffering, mental anguish, embarrassment, and humiliation was not authorized by 18 U.S.C. § 1514A(c)(2) and that the Board’s damage award was otherwise unsupported by substantial evidence. 18 U.S.C. § 1514A(c)(2), however, provides that relief ‘shall include’ the relief specifically enumerated in that subsection, indicating it was not meant as an exhaustive list of all of the relief available to a successful claimant. Moreover, § 1514A(c)(1), provides that a prevailing employee ‘shall be entitled to all relief necessary to make the employee whole.’

Id. at 1138.  The Tenth Circuit’s decision was bolstered by the fact that, under the Administrative Procedure Act, the ARB’s interpretation of SOX is entitled to deference by the courts, so long as its construction of the Act is reasonable. Id. at 1129.  As the Tenth Circuit further noted: “The [relevant review] standard does not allow a court to displace the agency’s choice between two fairly conflicting views, even though the court would justifiably have made a different choice had the matter been before it de novo.” Id. (internal citation and quotation omitted).

            Just last year, the ARB once again affirmed that non-pecuniary damages are available under SOX, in Menendez v. Halliburton, Inc., ARB No. 12-026, ALJ No. 2007-SOX-005 (ARB Mar. 20, 2013) (opinion available here).  In upholding an award of $30,000 in compensatory damages for emotional distress and professional harm, the Board stated as follows:

[W]e reject Halliburton’s argument that non-pecuniary compensatory damages are unavailable under SOX.  As the ALJ recognized, the ARB has awarded non-pecuniary compensatory damages in SOX cases.  Department of Labor precedent has countenanced damage awards for emotional distress and reputational injury under the SOX whistleblower statute. In Kalkunte v. DVI Fin. Servs., Inc., ARB No. 05-139, ALJ No. 2004-SOX-056, slip op. at 15 (ARB Feb. 27, 2009), we affirmed the ALJ’s award of $22,000 in damages for mental anguish and humiliation suffered by the complainant as a consequence of retaliation. Recently, in Brown v. Lockheed Martin Corp., ARB No. 10-050, ALJ No. 2008-SOX-049 (ARB Feb. 28, 2011), we affirmed without comment the ALJ’s award of $75,000.00 in compensatory damages for emotional pain and suffering.

   Additionally, this Board has upheld countless compensatory damage awards under the whistleblower provisions of ERA and AIR 21, upon which Section 806 was modeled.  In a 2002 unpublished opinion, the Eleventh Circuit upheld the Board's decision affirming an award of $250,000 in compensatory damages for emotional distress and reputational injury to a prevailing ERA complainant.  In Evans, ARB Nos. 07-118, -121, slip op. at 20, we affirmed the ALJ's award of $100,000.00 in non-economic compensatory damages for emotional harm and reputational injury.

   The judicial backdrop of the passage of Section 806 reflects decades of Department of Labor precedent awarding non-pecuniary compensatory damages to prevailing employees under comparable whistleblower statutes.  These statutes share similar statutory language, legislative intent, and broad remedial purpose. They should therefore be interpreted consistently. Furthermore, Congress acts with knowledge of existing law and expects its statutes to be read in conformity with established precedent. We find that Section 806 should be interpreted to allow awards of non-pecuniary compensatory damages.

Id. at pages 19-20 (endnotes omitted).

            In addition to the above ARB opinions and the Tenth Circuit’s opinion in Lockheed, numerous courts have similarly held that non-economic damages are available under SOX.  For example, in Mahony v. KeySpan Corp., No. 04 CV 554 (SJ), 2007 U.S. Dist. LEXIS 22042 (E.D.N.Y. Mar. 12, 2007), the Court held as follows with regard to the plaintiff’s claim for damages to his reputation:

Defendant contends that Plaintiff's request for reputational damages must be stricken because  ‘special damages’ do not include reputational damages. In Murray v. TXU Corp., 03 CV 0888, 2005 U.S. Dist. LEXIS 10945 *8 (N.D. Tex. 2005), the court held that ‘special damages’ were limited to ‘litigation costs, expert witness fees, and reasonable attorney fees.’ This Court disagrees with that interpretation and finds that § 1514A(c)(2)(C) comprises an illustrative list of the types of special damages that may be recovered rather than an exhaustive list.

In Hanna v. WCI Communities, Inc., 348 F. Supp. 2d 1332 (S.D.Fla. 2004), the court held that the SOX’s language stating that ‘[a]n employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole’ should be read to include damages for loss of reputation. 18 U.S.C. § 1514A(c)(1) (emphasis added). The court reasoned that ‘[w]hen reputational injury caused by an employer’s unlawful discrimination diminishes a plaintiff’s future earnings capacity, [he] cannot be made whole without compensation for the lost future earnings [he] would have received absent the employer’s unlawful activity.’ 348 F. Supp. 2d at 1334 (quoting Williams v. Pharmacia, Inc., 137 F.3d 944, 953 (7th Cir. 1998)). Therefore, the court held that a successful SOX plaintiff cannot be made whole without being compensated for damages for reputational injury that diminished plaintiff’s future earning capacity. This Court adopts the reasoning in Hanna and denies Defendant’s request to strike Plaintiff’s demand for damages to his reputation.

Id. at *20-21.

            Similarly, in Rutherford v. Jones Lang LaSalle Am., Inc., No. 12-14422, 2013 U.S. Dist LEXIS 116872 (E.D. Mich. Jan. 29, 2013), the Court held that that court opinions which had previously denied the availability of non-economic damages under SOX “reject a plain reading of SOX’s relief provision”, indicated that the Court would thus “decline to follow” those cases, and held that SOX allowed for recovery for damages for emotional distress, humilitation, and injury to reputation.  Id. at *8-13.  In so holding, the Court looked to, among other authorities, the Kalkunte and Lockheed ARB decisions cited above, “given the dearth of federal court decisions addressing the issue.” Id. at *12 (internal quotation and citation omitted). And, like the ARB’s decision above in Mahony, the Court in Rutherford also looked to court interpretations of statutory language similar to that in SOX:

SOX is more analogous to the whistleblower provision of the False Claims Act (‘FCA’), 31 U.S.C. § 3730(h), which does not limit damages to ‘equitable relief’:

(1) In general. – Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.

(2) Relief. – Relief under paragraph (1) shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.

(emphasis added). Other circuit and district courts allow recovery of damages for emotional distress, mental anguish, humiliation and injury to reputation under § 3730(h). The reasoning in these cases is persuasive. See Nguyen v. City of Cleveland, 2006 U.S. Dist. LEXIS 83282, 2006 WL 3333055 at *2 (N.D. Ohio Nov. 15, 2006) (‘The FCA provides for an award of ‘special damages’ sustained, which can include emotional distress damages [if] [t]he emotional distress [is] caused by the defendant’s actions’); Hammond v. Northland Counseling Center, Inc., 218 F.3d 886, 892-893 (8th Cir. 2000):

[t]he FCA Whistleblower provision explicitly mandates ‘compensation for any special damages sustained as a result of the discrimination.’ Damages for emotional distress caused by an employer’s retaliatory conduct plainly fall within this category of ‘special damage.’ Providing compensation for such harms comports with the statute’s requirement that a whistleblowing employee ‘be entitled to all relief necessary to make the employee whole.’

(citations omitted); Neal v. Honeywell, Inc., 191 F.3d 827, 832 (7th Cir. 1999) (damages for emotional distress are compensable as special damages); Brooks v. United States, 276 F.Supp.2d 653, 660 (E.D. Ky. 2003) (damages under § 3730(h) are intended to make the aggrieved employee whole by compensating her for any injuries caused by the employer's retaliatory conduct, such as harassment and discharge); and Brandon v. Anesthesia & Pain Mgmt. Associates, Ltd., 277 F.3d 936, 944 (7th Cir. 2002) (recovery for emotional distress is permitted under § 3730(h)).

Rutherford, 2013 U.S. Dist LEXIS 116872 at *10-12. 

            Likewise, in the Jones case cited above from the Eastern District of Virginia, in a separate opinion from the one cited above, the Court relied on the ARB’s decision in Lockheed to conclude that compensatory damages for mental distress were permitted under SOX, and to award $100,000 for such damages. Jones v. SouthPeak Interactive Corp., No. 3:12cv443, 2013 U.S. Dist. LEXIS 155169 (E.D. Va. Oct. 29, 2013).  As the Court noted:

As to the availability of emotional damages under Sarbanes Oxley, the Court ruled on the record during a July 12, 2013 conference call that 18 U.S.C. § 1514A(c)(2) does not preclude an award of emotional damages for a retaliation claim under Sarbanes Oxley, and that an award of emotional damages in consistent with 18 U.S.C. § 1514A(c)(1)’s language stating that a prevailing employee ‘shall be entitled to all relief necessary to make the employee whole.’ Conf. Call Tr., Docket No. 168, at 21:9-22:19. See also 18 U.S.C. 1514A(c). In making that ruling, this Court embraced the same interpretive position as the Tenth Circuit in Lockheed Martin Corp. v. Admin. Rev. Bd., U.S. Dep't of Labor, 717 F.3d 1121, 1138-39 (10th Cir. 2013). The Defendants has offered no new arguments on this matter. The previous ruling will stand.

Id. at *32.

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