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.

Please be sure to visit our website at http://RobertBFitzpatrick.com