Do You Hear What I Hear? Accent Discrimination in the Workplace.

By

Robert B. Fitzpatrick, Esq.

Justin P. Sacks, Esq.

            Workplace discrimination on the basis of national origin, of which accent discrimination is often a component, rose by 76% between 1997 and 2011.  See Associated Press, “Discrimination Against Foreign Accents: A Growing Problem”, AOL Jobs (Nov. 30, 2012) (available here).  In Wilkie v. Geisinger Sys. Servs., the plaintiff, a native of Germany who spoke fluent English with a German accent, brought a claim for national origin discrimination against her employer following her termination.  No. 3:12-cv-580, 2014 U.S. Dist. LEXIS 132162 (M.D. Penn. Sept. 18, 2014).  Plaintiff argued that the employer terminated her on the basis of her German origin.  Plaintiff claimed that her supervisors had told her that they were “not fond of Germans”, made at least ten jokes about Adolf Hitler, sometimes referred to Plaintiff as “Little Hitler”, ordered her not to speak German in the workplace even on personal calls, and mocked her accent.  In one written exchange, one of Plaintiff’s supervisors mocked a conversation he had with Plaintiff by stating that it was just “yada, yada…stutter, stutter”. 

In analyzing the significance of the remarks from her supervisor about disliking Germans and comments regarding Adolf Hitler, the Court invoked the “stray remarks” doctrine.  This doctrine provides that “stray remarks by non-decisionmakers or by decisionmakers unrelated to the decision process are rarely given great weight, particularly if they were made temporally remote from the date of decision.”  Ezold v. Wolf, Block, Schorr & Solis-Cohen, 983 F.2d 509, 514 (3d Cir. 1992).  In the Third Circuit, such statements are evaluated based on their temporal proximity to the adverse action, the relationship of the speaker to the plaintiff, and the context in which the remarks were made.  Id.  The Court found that some of the remarks, which – viewing the facts in the most favorable light to Plaintiff – may have been made only several months prior to her termination were potentially relevant, but that others more remote in time were not relevant.  The Court strongly implied that these “stray remarks” comparing Plaintiff to Hitler and establishing that the supervisors who terminated Plaintiff were “not fond of Germans” would have been insufficient, by themselves, to overcome summary judgment.

More relevant to the Court was the fact that Plaintiff was prohibited from speaking her native language in the workplace for any purpose.  As an initial matter, numerous courts and commentators, have recognized that “language may be used as a covert basis for national origin discrimination.”  Wilkie, 2014 U.S. Dist. LEXIS 132162 at *24 (citing Abbasi v. SmithKline Beecham Corp., 2010 WL 1246316 (E.D. Pa. 2010)); see also Raad v. Fairbanks N. Star Borough Sch. Dist., 323 F.3d 1185, 1195 (9th Cir. 2003) (“Accent and national origin are obviously inextricably intertwined in many cases.”); Wesley v. Palace Rehab. & Care Ctr., L.L.C., 2014 WL 956016, at *5 (D.N.J. 2014) (discussing when accent-based discrimination constitutes national origin versus racial discrimination in the context of a 42 U.S.C. § 1981 claim); Le v. City of Wilmington, 736 F. Supp, 2d 842, 855 (D. Del. 2010) aff'd, 480 F. App'x 678 (3d Cir. 2012) (differentiating “disparaging remarks about one's language skills and national origin” from situations where “an employee's heavy accent or difficulty with spoken English can be a legitimate basis for adverse employment action where effective communication skills are reasonably related to job performance”) (quoting Yili Tseng v. Florida A & M Univ., 380 Fed. App'x. 908, 908-10 (11th Cir. 2010)). Patreese D. Ingram, “Are Accents One of the Last Acceptable Areas for Discrimination”, Journal of Extension, Vol. 49, No. 1 (Feb. 2009) (available here) (describing the incidence of accent discrimination, and citing studies showing that an individual’s perceived race impacts the perception of their accent); Russell, A. “Thou shalt not speak: Accent discrimination in the American workplace” (2002) (available here) (noting that “accent discrimination” is “one of the final acceptable forms of racism”).     

Indeed, the Ninth Circuit has held that courts must take a “very searching look” at adverse employment decisions allegedly based on an individual’s accent interfering with their ability to communicate.  See Fragante v. City & Cy. Of Honolulu, 888 F.2d 591, 595 (9th Cir. 1989).  In Fragante, the Ninth Circuit acknowledged that an accent could constitute a legitimate reason for an adverse action if it interfered “materially” with communication.  Id. at 596-97 (“There is nothing improper about an employer making an honest assessment of the oral communications skills of a candidate for a job when such skills are reasonably related to job performance”) (emphasis in original).  However, in so doing, the Court cautioned that alleged poor communication skills would appear to be an “easy refuge” for an employer whose actual motive was national origin.  Id. at 596.  In Fragante, the Ninth Circuit affirmed the lower court’s determination that the defendant had legitimate concerns about Plaintiff’s ability to communicate.  Defendant established this through the contemporaneous written evaluation of Plaintiff by two interviews, each of whom indicated that Plaintiff was likely to be difficult to understand over the phone.  Id. at 598.  This, the Court held, was sufficient factual basis to constitute a legitimate, non-discriminatory, reason for his non-selection.   

While it remains unclear how an employer is to determine at what point difficulties communicating become “material”, at least one court has suggested that this standard should be objective, rather than subjective.  In Xieng v. Peoples Nat’l Bank, the Defendant suggested that an adverse action should be deemed non-discriminatory if the ability to speak English is a job requirement and the employer had a “good faith belief that…lack of communication skills would materially interfere with job performance.”  821 P.2d 520, 579 (Wash. Ct. App. 1991).  The Court rejected this view, noting that the “‘good faith belief’ standard is inconsistent with the heavy burden Fragante places on employers in accent discrimination cases.”  Id. at 580.  Instead, the Court found that “[g]ood faith alone is not enough”, explaining that “the employer’s honest assessment must have a factual basis” to qualify as a legitimate, non-discriminatory reason.  Id. at 580 n.4. 

Returning to Wilkie, the Court, after recognizing the connection between accent and national origin discrimination, turned to the guidelines promulgated by the EEOC regarding “English-only” policies in the workplace.  See 29 C.F.R. 1606.7.  Noting that the EEOC’s guidance distinguishes between policies which require that employees speak English “at all times” or “only at certain times”.  Wilkie, 2014 U.S. Dist. LEXIS 132162 at *25-*26, quoting Reyes v. Pharma Chemie, Inc., 890 F. Supp. 2d 1147, 1163 (D. Neb. 2012).  In brief, the EEOC guidance provides that English-only policies are permissible “at certain times” when justified by business necessity.  29 C.F.R. 1606.7(b) (“Policies applied only at certain times are permitted, but only where the employer can show the rule is justified by business necessity.”) (internal quotations omitted); see also  Roman v. Cornell Univ., 53 F. Supp. 2d 223, 237 (N.D.N.Y. 1999) (“Several courts have held that an English-only policy designed to reduce intra-office tensions is a legitimate business reason.”) (collecting cases).

While Defendants apparently conceded that the guidelines applied, the Court noted that this issue was not settled.  In Garcia v. Spun Steak, the Ninth Circuit rejected the validity of Section 1606.7, finding that the EEOC’s interpretation was contrary to the text of Title VII.  998 F.2d 14801, 1489-90 (9th Cir. 1993).  In Garcia, the Ninth Circuit held, contrary to the EEOC’s guidance, that the implementation of an English-only policy “does not inexorably lead to an abusive environment for those whose primary language is not English[.]”  Id.  Emphasizing that “[w]hether a working environment is infused with discrimination is a factual question” the court refused to create a per-se rule regarding English-only policies.  In so doing, the court rejected 29 C.F.R. 1606.7, explaining that “[n]othing in the plain language of section 703(a)(1) supports EEOC’s English-only rule Guideline.” 

By contrast, the Tenth Circuit found that “the very fact that the City would forbid Hispanics from using their preferred language could reasonably be construed as an expression of hostility to Hispanics. At least that could be a reasonable inference if there was no apparent legitimate purpose for the restrictions.”  Maldonado v. City of Altus, 433 F.3d 1294, 1305 (10th Cir. 2006).  Interestingly, in Maldonado, the Tenth Circuit noted, in dicta, that “hostility would be a reasonable inference to draw from a requirement that an employee calling home during a work break speak only English.”  Id.  In other words, “[t]he less apparent justification for speaking English, the more reasonable it is to infer hostility”.  Id. 

In Wilkie, the Court noted that there was no need to determine the weight afforded to section 1606.7 because Defendants did not have a blanket policy – only Plaintiff was prohibited from speaking German on personal calls.  Wilkie, 2014 U.S. Dist. LEXIS 132162 at *28.  The Court found that, if true, such an individual restriction would be “indicative of discrimination.”  Id.  Noting the record was unclear as to the particulars of this restriction, the court found that it constituted an issue of material fact which was in genuine dispute.

            Following this conclusion, the court addressed several additional arguments raised by Defendant in support of its motion for summary judgment, including Defendant’s claim that supervisors who terminated Plaintiff “are of German descent.”  Id. at *34.  As an initial matter, the Court reiterated the basic principle, put forth by the plaintiff, that “being a member of a class does not preclude one from discriminating against that class.”  Id.; see also Castaneda v. Partida, 430 U.S. 482, 499 (1977) (“Because of the many facets of human motivation, it would be unwise to presume as a matter of law that human beings of one definable group will not discriminate against other members of their group.”).  Although the Court did not explore this line of reasoning, it is worth noting that the plaintiff argued that there is a difference between an individual who has some “ancestry” of a particular sort, and an individual who is a foreign national.  Wilkie, 2014 U.S. Dist. LEXIS 132162 at *34. 

            Ultimately, the Court held that the “stray remarks” submitted by plaintiff, coupled with the other evidence of discrimination was sufficient, “though barely”, to defeat summary judgment.  In so doing, the Court opined that although Defendants may argue at trial that Plaintiff was disciplined and terminated in accordance with policy, that Plaintiff need not argue that point here.  Plaintiff’s burden at summary judgment, which she met, was to show that “the factors discussed above combine to create a reasonable inference that an invidious discriminatory reason was more likely than not a motivating or determinative cause of Defendants decision to fire Plaintiff.”  Wilkie, 2014 U.S. Dist. LEXIS 132162 at *35 (internal quotations omitted). 

            Other courts which have addressed the problem of language-based national origin discrimination in the workplace have taken a similar approach.  In Architect of the Capitol v. Iyoha, the Board of Directors of the Office of Compliance of the United States Congress affirmed the Hearing Officer’s determination that Complainant, a Nigerian man with a Bachelor’s degree in English and Associate Degrees in Mass Communication and Journalism, had been discriminated against on the basis of his national origin.  Nos. 11-AC-138, 11-AC-129 (Bd. of Dirs. Dec. 11, 2014) (available here) (accessed Dec. 12, 2014).  In Iyoha, the evidence demonstrating that Complainant had been discriminated against came primarily in terms of comments about his proficiency in English and his accent. 

            In Iyoha, the Complainant, the Help Desk Manager for Respondent’s Production Management Branch, was transferred from his customer-service related position into a project-management position, allegedly due to poor performance.  In fact, much as in Wilkie, Complainant had consistently received favorable performance reviews until he came under the management of an individual who disliked his accent.  Iyoha’s new manager made comments such as “[t]hank goodness [Complainant] sent me an e-mail because I can never understand him when he talks to me” and “We have a Branch Chief from Iran, engineers from Taiwan and Germany who do not speak English as their first languages.  What can you expect?”  Following Complainant’s reassignment, he was replaced by an individual who spoke English as his first language.  The Hearing Officer found, and the Board agreed, that the circumstances of Iyoha’s reassignment gave rise to an inference of discrimination.

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Out of Bounds: Second Circuit “Blows the Whistle” On Extraterritorial Application of Anti-Retaliation Provisions of Dodd-Frank Act

            In Liu v. Siemens, AG, No. 13-4385, 2014 U.S. App. LEXIS 15637, 2014 WL 3953672 (2d Cir. Aug. 14, 2014) the Second Circuit, with Judge Lynch writing for a unanimous panel, held that the whistleblower provisions of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h)(1)(A), did not apply where the plaintiff, his employer, and the other entities involved were all “foreigners based abroad,” and where the whistleblowing, the purported activity which allegedly violated the Foreign Corrupt Practices Act, and the alleged retaliation occurred abroad, and where the plaintiff’s complaint stated “essentially no contact with the United States regarding either the wrongdoing or the protected activity.” 

The Court also held that the plaintiff’s argument that Siemens’ voluntary election to publicly list a class of its securities with the New York Stock Exchange was the type of “fleeting connection” that the Supreme Court in Morrison v. Nat’l Australia Bank, Ltd., 130 S. Ct. 2869 (2010) held could not overcome the presumption against a statute’s extraterritoriality.  See Celia Joseph, “Court Denies Extraterritorial Application of the Dodd-Frank Act’s Whistleblowing Provisions”, Cross Border Employer Blog, Fisher & Phillips, LLP (Sept. 8, 2014) (available at: http://www.crossborderemployer.com/post/2014/09/08/Court-Denies-Extraterritorial-Application-of-the-Dodd-Frank-Acts-Whistleblowing-Provisions.aspx); Rebekah Mintzer, A Low Note for Whistleblowers at the Second Circuit, American Lawyer Blog (Aug. 19, 2014) (available at: http://www.americanlawyer.com/id=1202667161707).

            The Court explained that, to survive a motion to dismiss, a plaintiff must demonstrate:

[E]ither (1) that the facts alleged in his complaint state a domestic application of the antiretaliation provision of the Dodd-Frank Act, or (2) that the antiretaliation provision is intended to apply extraterritorially. As an initial matter, the Court noted that “this case is extraterritorial by any reasonable definition”.  Having thus disposed of the first prong, Court devoted the bulk of its analysis to addressing the second prong of the test.  Perhaps significantly, the plaintiff in Liu did not report the alleged conduct to the Securities Exchange Commission until after being terminated, thus forfeiting any argument that the termination was on account of a filing with the SEC.  After, as explained above, determining that the “fleeting” contact of registering on a domestic exchange did not, under Morrison, bring Siemens within the application of the Dodd-Frank Act, the Court addressed whether the Dodd-Frank Act applied to extraterritorial conduct. 

            The Court framed its analysis on this point by noting that “there is absolutely nothing in the text of the provision…or in the legislative history of the Dodd-Frank Act, that suggests that Congress intended the [A]nti-[R]etaliation [P]rovision to regulate the relationships between foreign employers and their foreign employees working outside the United States.”  Although conceding that the plaintiff “offers several arguments that the statutory language or context” of the Dodd-Frank Act was intended to have extraterritorial reach, the Court founds that the plaintiff failed to provide a “clear and affirmative indication” of legislative intent sufficient to overcome the presumption against extraterritoriality. 

One of the plaintiff’s more interesting arguments was based on the SEC’s interpretation of the Dodd-Frank Act’s whistleblower bounty provision, 15 U.S.C. § 78u-6(b).  The implementing regulations adopted by the agency provide that “you are not eligible [for an award] if:…You are…a member, officer, or employee of a foreign government, any political subdivision, department, agency, or instrumentality of a foreign government, or any other foreign financial regulatory authority.”  17 C.F.R. § 240.21F-8(c)(2).  Elsewhere, the agency discusses the tax filing procedures for an award payment to a foreign national.  See 76 Fed. Reg. 34300-01, 34348 n.370, 34320 (June 13, 2011).  Liu argued that these regulations indicated that the SEC interpreted the Dodd-Frank Act to apply to conduct outside the United States.

Although noting that “Courts generally defer to reasonable agency interpretations of statutes that” they administer, the Court questioned whether “regulations should be accorded weight…with respect to [determining] the extraterritorial application of a statute.”  Liu, 2014 U.S. App. LEXIS 15637 at *17.  The Court went on to note that the presumption against extraterritoriality was a “canon of construction” which was capable of resolving Congressional intent without resort to agency regulations.  Id. at *18.  The Court also held that, in any event, extraterritorial application of the bounty program did not necessarily imply extraterritorial application of the Anti-Retaliation Provision.  Id. at *18.  Interestingly, the Second Circuit decision came after at least one lower court’s pre-Morrison decision that a similar provision of the Sarbanes-Oxley Act of 2002, Section 806, did have extraterritorial application.  See O’Mahoney v. Accenture Ltd., 537 F. Supp. 2d 506 (S.D.N.Y. 2008).  It is unclear whether the Second Circuit’s decision in Liu overruled this interpretation, or whether SOX will continue to receive extraterritorial application – at least in the Southern District of New York – while Dodd-Frank Act does not. 

In light of the Second Circuit’s holding it is worth considering whether Liu similarly cuts off extraterritorial application of the whistleblower bounty provisions.  See Liu, 2014 U.S. App. LEXIS 15637 at *18 (“even if we assume that the regulations clearly apply the bounty program to whistleblowers located abroad…”).  Of course, there is some reason to believe that the two regimes would be treated differently – as the Second Circuit explained “[p]roviding rewards to persons, foreign or domestic, who supply information about lawbreaking is far less intrusive into other countries’ sovereignty than seeking to regulate the employment practices of foreign companies with respect to the foreign nationals they employe in foreign countries.”  Id. at *19. 

Indeed, the Securities and Exchange Commission has relied on this argument to distinguish Liu.  In Whistleblower Award Proceeding, the SEC awarded Claimant, a foreign resident, a payment in excess of $30 million under 15 U.S.C. § 78u-6(b)(1) and 17 C.F.R. § 240.21F-3(a), the “bounty” provisions of the Dodd-Frank Act.  File No. 2014-10, Release No. 73174 (Sept. 22, 2014) (available at: http://www.sec.gov/rules/other/2014/34-73174.pdf).  In so doing, the SEC found that “an award payment is appropriate here notwithstanding the existence of certain extraterritorial aspects of Cclaimant’s application.”  Id. at n.2.  The SEC reasoned that “there is a sufficient U.S. territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission.  Id.  In such instances, the location of the claimant’s employment, citizenship, and the location where the fraud occurred is irrelevant.  Id.  The SEC distinguished Liu on the ground that “the whistleblower award provisions have a different Congressional focus than the [A]nti-[R]etaliation [P]rovisions[.]”  Id.  It is worth noting that nearly twelve percent of the whistleblower tips received by the SEC during FY 2013 came from employees working outside the United States.  See U.S. Securities & Exchange Comm’n, 2013 Annual Report to Congress on the Dodd-Frank Whistleblower Program at p. 22 (available at: http://www.sec.gov/about/offices/owb/annual-report-2013.pdf).  

            The Second Circuit is not the first court to find that the Anti-Retaliation Provision of the Dodd-Frank Act did not apply to primarily extraterritorial events.  In Asadi v. G.E. Energy (USA), LLC, Judge Nancy F. Atlas faced a similar set of facts.  No. 4:12-345, 2012 U.S. Dist. LEXIS 89746, 2012 WL 2522599 (S.D. Te. June 28, 2012), aff’d on other grounds, Asadi v. G.E. Energy United States, L.L.C., 720 F.3d 620 (5th Cir. 2013).  In Asadi, the plaintiff alleged that the defendant had terminated him in retaliation for reporting a violation of the anti-bribery provisions of the Foreign Corrupt Practices Act.  Id.  Judge Atlas first examined the language of the Anti-Retaliation Provision and, finding that it was “silent regarding whether it applies extraterritorially”, proceeded to “consider the Provision’s ‘context.’”  Id. at *15 to *16; citing Morrison v. Nat’l Australia Bank, Ltd., 130 S. Ct. 2869 (2010).  In considering the Anti-Retaliation Provision’s “context”, the Asadi Court gave substantial weight to the fact that the Dodd-Frank Act “explicitly addresses extraterritorial scope of the statute in a limited context” in Section 929P(b)[1].  Asadi, 2012 U.S. Dist. LEXIS 89746 at *17.  The Court recognized that Section 929P(b) contained explicit language regarding extraterritoriality, and that “when a statute provides for some extraterritorial application, the presumption against extraterritoriality operates to limit that provision to its ters.”  Id. at *18 (internal quotations omitted).  Quoting the Supreme Court’s holding in Morrison v. National Australia Bank, Ltd., the Court found that “when a statute provides for some extraterritorial application, the presumption against extraterritoriality operates to limit that provision to its terms” and that, accordingly, the language in Section 929P(b) “strengthens the conclusion that the Anti-Retaliation Provision does not apply extraterritorially.”  Id. at *18; quoting Morrison, 130 S. Ct. at 2883. 

            Similarly, while analyzing a similar provision of the Sarbanes-Oxley Act of 2002, the Administrative Review Board in Villaneuva v. Core Labs. NV, noted that the Anti-Retaliation Provision of the Dodd-Frank Act does not apply to wholly extraterritorial conduct.  ARB Case No. 09-108, ALJ Case No. 2009-SOX-006, 2011 DOLSOX LEXIS 82, 2011 WL 6981989 (ARB Dec. 22, 2011) (en banc) (interpreting 18 U.S.C. § 1514A).  In Villaneuva, the plaintiff, a non-U.S. citizen, complained of conduct by the defendant, a Columbian company which does not list securities under Section 12, or file reports under Section 15(d), of the Securities Exchange Act of 1934.  Id. at *2 to *3.  The ARB found that the Employee Protection Provisions of Section 806 of the Sarbanes-Oxley Act of 2002 did not apply to the concededly wholly-extraterritorial conduct of which the plaintiff complained.  Id. at *3.  In so holding, the ARB drew a parallel to the Dodd-Frank Act, in which it endorsed the same reasoning later used by Judge Atlas in Asadi: that because Section 929P of the Dodd-Frank Act expressly provides for extraterritorial application, that other portions of the Dodd-Frank Act should not be extended by judicial interpretation into extraterritorial application.  Id. at *27 to *29; see also Carnero v. Boston Sci. Corp., 433 F.3d 1 (1st Cir. 2006) (In a pre-Morrison case, the First Circuit found that Section 806 of SOX does not apply to extraterritorial conduct); but see Penesso v. LCC Int’l, Inc., 2005 SOX 00016, 2005 DOLSOX LEXIS 95, 2005 WL 4889018 (U.S. Dept. of Labor March 4, 2005) (Denying motion for summary judgment because Complainant was a U.S. Citizen, much of the protected activity occurred in the U.S. and at least one of the retaliatory acts occurred in the U.S.).  Interestingly, although the ARB based its holding in Villaneuva entirely on Section 806’s lack of extraterritorial application, on appeal the Fifth Circuit again ducked this issue, instead finding against Villaneuva on the grounds that he had not engaged in protected activity.  Villaneuva v. United States Dept. of Labor, 743 F.3d 103 (5th Cir. 2014). 

            Although they have yet to find purchase, it is worth taking a moment to unpack the sophisticated arguments deployed to argue that the Anti-Retaliation Provisions should have extraterritorial effect.  On appeal to the Fifth Circuit, the plaintiff in Asadi attempted to distinguish Morrison on the basis that “the whistleblower protections under Dodd-Frank rely entirely on the securities laws incorporated by the statute to establish liability.”  Brief of Plaintiff-Appellant at 27, Asadi v. G.E. Energy (USA), L.L.C., No. 12-20522 (5th Cir. Oct. 22, 2012).  Plaintiff went on to note that the laws incorporated by 15 U.S.C. § 78u-6(h)(1)(A)(iii) include those with “explicit extraterritorial applicability”, such as the Foreign Corrupt Practices Act and Section 302 of the Sarbanes-Oxley Act of 2002.  Id. at 27, 29; 15 U.S.C.S. § 7241(a)(4)-(5).  Asadi argued that by incorporating those statutes, the Anti-Retaliation Provision explicitly provided for its extraterritorial application.  The Fifth Circuit did not address these arguments, opting instead to affirm the lower court’s holding on the alternative rationale that Asadi was not a “whistleblower” within the meaning of the Anti-Retaliation Provision.  See Asadi, 720 F.3d at 630. 

            Although both Liu and Asadi determined that the Anti-Retaliation Provision of the Dodd-Frank Act did not apply to extraterritorial conduct, in neither case did the facts have more than a “fleeting” connection to the United States.  In Liu, the Second Circuit found that the plaintiff had “essentially no contact with the United States”, while in Asadi the plaintiff conceded that “the majority of events giving rise to the suit occurred in a foreign country” and the only alleged connection with the United States was that the plaintiff was a dual U.S. and Iraqi citizen and that the plaintiff’s termination was governed by U.S. law.  In neither case did the plaintiff allege that any deceptive conduct had occurred within the United States.  So, although “clearly” extraterritorial conduct is not within the reach of the Anti-Retaliation Provision, it remains to be seen what level of domestic connection is required to sustain a successful claim. 

Robert B. Fitzpatrick is the principal of the law firm of Robert B. Fitzpatrick, PLLC in Washington, D.C., where he has practiced employment law for over forty years.

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[1] Section 929P(b) is ably described by Judge Atlas in footnote 40 of her opinion in Asadi, which is quoted here in its entirety: Dodd-Frank, § 929P(b), 124 Stat. 1376. Section 929P(b) amended three statutory sections (15 U.S.C. § 77v(a), 15 U.S.C. § 78aa, and 15 U.S.C. § 80b-14) by adding a new subsection entitled “Extraterritorial Jurisdiction.” Each of the three provisions granted jurisdiction to the federal courts over an “action or proceeding brought or instituted by the Commission or the United States” that alleged a statutory violation involving either (1) “conduct within the United States that constitutes significant steps in furtherance of the violation,” even if the relevant transaction or violation occurred outside the United States and involved only foreign investors; or (2) “conduct occurring outside the United States that has a foreseeable substantial effect within the United States.” Id.

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FLSA Pleading – Your Way, My Way, and the “Middle” Way

In Davis v. Abington Mem’l Hosp., the Third Circuit, with Judge Chagares writing for the unanimous panel in an FLSA overtime case, affirmed the district court’s dismissal on the ground that plaintiffs’ third amended complaint did not state a plausible claim of an overtime violation.  Nos. 12-3514, 3515, 3521, and 3522, 2014 U.S. App. LEXIS 16472 (3d Cir. Aug. 26, 2014).  This question has “divided courts around the country.”  Nakahata v. N.Y.-Presbyterian Healthcare Sys., Inc., 723 F.3d 192, 200 (2d Cir. 2013). 

At the outset of its analysis, the Third Circuit identifies both the most “lenient” and most “stringent” approaches to pleading standards.  The most stringent, in the Court’s view, is exemplified by Jones v. Casey’s Gen. Stores, 538 F. Supp. 2d 1094, 1102-03 (S.D. Iowa 2008).  There, the Judge held that a complaint alleging that the plaintiffs “regularly worked regular time and overtime each week but were not paid regular and overtime wages” was “implausible on its face.”  (internal quotation marks omitted).  See also Villegas v. J.P. Morgan Chase & Co., 2009 U.S. Dist. LEXIS 19265, 2009 WL 605833 at *5 (N.D. Cal. Mar. 9, 2009) (granting motion to dismiss where the plaintiff “attempt[ed] to state a claim by reciting that she did not receive properly computed overtime wages . . . . because it is not much more informative than an allegation that she was not paid for overtime work in general"); Bailey v. Border Foods, Inc., 2009 U.S. Dist. LEXIS 93378, 2009 WL 3248305 at *2 (D. Minn. Oct. 6, 2009) (granting motion to dismiss where the plaintiff "failed to identify their hourly pay rates, the amount of their per-delivery reimbursements, the amounts generally expended in delivering pizzas, or any fact that would permit the Court to infer that [plaintiffs] actually received less than minimum wage”).

The most lenient, by contrast, is characterized by the approach of the federal district court for the District of Maryland in Butler v. DirectSat USA, LLC, 800 F. Supp. 2d 662, 668 (D. Md. 2011).  In Butler, Judge Deborah K. Chasanow held that “[w]hile defendants might appreciate having Plaintiffs’ estimate of the overtime hours worked at [the pleading stage],” an FLSA complaint will survive dismissal so long as it alleges that the employee worked more than forty hours in a week and did not receive overtime compensation.  See also Uribe v. Mainland Nursery, Inc., 2007 U.S. Dist. LEXIS 90984, 2007 WL 4356609 at *3 (E.D.Cal. Dec. 11, 2007) (denying motion to dismiss where plaintiffs alleged they were "non-exempt employees for a wholesaler of plants who have not been paid the applicable overtime wages under the FLSA"); Xavier v. Belfor, USA Group, Inc., 2009 U.S. Dist. LEXIS 11751, 2009 WL 411559 at *5 (E.D.La. Feb. 13, 2009) (denying motion to dismiss where the plaintiff alleged that "they were paid on an hourly basis, that they routinely worked in excess of 40 hours per week, and that they were not paid an overtime premium").

Rather than adopt either the Jones or Butler approaches, the panel stated that it agreed with “the middle-ground approach” adopted by the Second Circuit in Lundy v. Catholic Health Sys. of Long Island, Inc., 711 F.3d 106 (2d Cir. 2013).  In that case, Chief Judge Dennis Jacobs, writing for the unanimous panel, stated: “[I]n order to state a plausible FLSA overtime claim, a plaintiff must sufficiently allege [forty] hours of work in a given workweek, as well as some uncompensated time in excess of the [forty] hours.”  Id. at 114. 

Having adopted the Lundy approach, the Third Circuit held that the plaintiffs’ allegations in Davis, the case at issue, failed to satisfy the Lundy test.  In Davis, the named plaintiffs alleged that they “typically” worked 37.5 hours per week and “occasionally” worked an additional 12.5 hour shift or “slightly longer”.  Plaintiff also indicated that she “typically” worked during thirty-minute meal breaks, and was not compensated for this work.  Plaintiff argued that these allegations were sufficient to plausibly plead that at least some uncompensated work was performed during weeks when the plaintiffs’ total work time was more than forty hours. 

The Third Circuit disagreed.  While noting that the determination whether a plausible claim has been pled is context-specific, the Court found that none of the named plaintiffs had alleged a single workweek in which they worked at least forty hours and also worked uncompensated time in excess of forty hours.  Accordingly, the court found the allegations to be insufficient and declined to provide plaintiffs with an opportunity to file a fourth amended complaint.  In rejecting plaintiffs’ pleadings, the Court cited and quoted at length from Lundy and an earlier Second Circuit decision, Nakahata v. N.Y. Presbyterian Healthcare Sys., Inc., 723 F.3d 192, 200 (2d Cir. 2013).  In Nakahata the Court held that “[p]laintiffs must prove sufficient detail about the length and frequency of their unpaid work to support a reasonable inference that they worked more than forty hours in a given week”.

The Court then went on to state that it was not holding that a plaintiff must identify the exact date(s) and time(s) that s/he worked overtime.  The Court stated: “for instance, a plaintiff’s claim that she ‘typically’ worked forty hours per week, worked extra hours during such a forty-hour week, and was not compensated for extra hours beyond forty hours he or she worked during one of those forty hour weeks would suffice.”  (footnote omitted).  Finally, on the pleading issue, the Court emphasized that it read Lundy to hold only that “a plaintiff must connect the dots between bare allegations of a ‘typical’ ‘forty-hour workweek’ and bare allegations of work completed outside of regularly scheduled shifts, so that the allegations concerning a typical forty-hour week include an assertion that the employee worked additional hours during such a week, and we believe that this middle-ground approach is the correct one.”

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Ward & Solomon – The D.C. Circuit Can Be Quite Accommodating

In Ward v. McDonald, the D.C. Circuit addressed the case of an individual who had requested that she be permitted to work from home on a full-time basis as a reasonable accommodation for her medical condition.  No. 12-5374, 2014 U.S. App. LEXIS 15402 at *1-*2 (D.C. Cir. Aug. 12, 2014).  In Ward plaintiff had been diagnosed with a medical condition which rendered her unable to sit for long periods of time.  Id.  In addition, plaintiff required “routine daily care at home”.  Id. at *5.  These daily treatments required 1 to 3 hours, and sometimes required that plaintiff disrobe.  Id. *4 to *5.  Plaintiffs job was “the quintessential desk job”, and required little or no physical exertion – indeed, the by far the bulk of plaintiff’s work was performed sitting at her desk.  Id. at *4, *8. 

            Although plaintiff “struggled at times” to perform her job, she nevertheless was rated “[f]ully [s]uccessful or better” on her performance reviews.  Id. at *5.  Nevertheless, the long periods of sitting exacerbated plaintiff’s condition, and she applied for a reasonable accommodation to be permitted to work at home.  Id. at *5 to *6.  There followed a series of conversations between plaintiff and her supervisors regarding her requested accommodation, during which time period plaintiff provided additional documentation regarding her medical condition, the basis for her requested accommodation, and how it would enable her to perform her job duties.  Id. at *6 to *9.  During these conversations, plaintiff’s employer indicated that it could allow her to work from home on a part-time schedule.  Plaintiff’s supervisors indicated that, as she would need to sit for long periods of time regardless of her work location, and due to the substantial time needed for her treatments, they were concerned about her ability to maintain a full-time work schedule.  Id. at *7.  In that communication, defendant requested additional information regarding plaintiff’s ability to work a full time schedule.  Id.  Plaintiff failed to respond, instead tendering her resignation.  Id. at *9. 

            Although plaintiff tendered her resignation, she indicated that consideration of her resignation be delayed.  Id.  In response to plaintiff’s resignation, defendant indicated that it had not denied any requested accommodation.  Id. at *9 to *10.  Defendant also indicated that it would consider allowing plaintiff to “try work-from-home on a full-time basis.”  Id. at *10.  Plaintiff never responded to that communication.  The district court granted summary judgment for defendant.  In so doing, the district court found that the defendant had participated in the interactive process and had offered plaintiff the very accommodation which she sought while, on the other hand, plaintiff had failed to participate in the interactive process and had not demonstrated that she could perform the essential functions of her job.

            On appeal, the D.C. Circuit issued a split decision.  The dispute centered primarily around the employer’s requests for additional information regarding plaintiff’s medical condition.  The majority found that plaintiff’s failure to respond to the employer’s request for medical information constituted a failure to participate in the interactive process.  Affirming the district court’s grant of summary judgment, the majority explained that “[plaintiff] did not provide the requested information.  Instead, she resigned.  No reasonable juror could have found that the [defendant] denied [plaintiff’s] request for an accommodation, then, because [plaintiff] abandoned the interactive process before the [defendant] had the information it needed to determine the appropriate accommodation.” Id. at *22. 

            By contrast, the dissent emphasized that the employer did not need any of the information which it requested to reasonably accommodate plaintiff, nor did the information requested relate to any essential function of plaintiff’s job.  Id. at *30.  Indeed, the employer had admitted that this was the case.  In the dissent’s view the employer had discriminated against plaintiff by “needlessly prolonging” the process of applying for defendant’s flexi-place program, and emphasized that “[plaintiff’s] increasing inability to properly treat her [condition] in the office was literally endangering her life, making the delay caused by her supervisors’ unjustified factual detours acutely harmful.”

            The plaintiff in Solomon v. Vilsack had been denied her requested accommodation of a flexible work schedule (a “maxiflex” schedule) despite apparently similarly situated employees being permitted to make use of such a schedule.  No. 12-5123, 2014 U.S. App. LEXIS 15671 (D.C. Cir. 2014).  The court’s decision focuses primarily on whether such flexible work schedules can be, as a matter of law, “reasonable” accommodations under the Rehabilitation Act.  Id. at *16 to *17.  The Court found that such schedules can, as a matter of law, be reasonable accommodations.  Id. 

As an initial matter, it is worth noting that plaintiff’s medical expert provided evidence that “to a reasonable degree of medical certainty [defendant’s actions] substantially worsened [plaintiff’s] condition” to the point that she was eventually rendered unable to work.  Id. at *10.  Although plaintiff took a disability-related retirement, the Court held that she was not precluded from pursuing a disability discrimination claim because her retirement application “never stated that she would have been unable to work if she had been afforded the accommodations she sought”. Id. at *13.  However, the Court appears to have limited her claim to “spring and summer of 2004” – in other words, prior to the worsening of her condition due to the employer’s actions.  Id. at *13.

            As noted above, the Court seems to have cut off liability at the time after which plaintiff’s conditions worsened to the point that she could no longer work.  Id. at *13, *38.  This is true even though plaintiff’s medical expert proffered evidence that plaintiff’s worsened condition was due, at least in part, to the employer’s actions.  Id.  While the Court devotes little time or analysis to this issue, a paragraph at the end is telling:

Finally, Solomon points to her requests in late May to telecommute or to work part-time. But for that period of time, correspondence from Solomon herself and Dr. Cozzens led Solomon's supervisors to believe that her condition had deteriorated to the point that she was medically unable to work in any capacity. Even if the supervisors incorrectly assessed Solomon's condition, and the Department was thus obligated to provide reasonable accommodation, Solomon must still present evidence casting doubt on the sincerity of the Department's proffered non-retaliatory justification for its action.

Id. at *38 to *39.

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Check Your Privilege – Does Judicial Privilege Apply to Cease & Desist Letters?

Your client signs a non-compete agreement and later leaves to go work for another employer.  Your client’s former employer sends a “cease and desist” letter to the new employer, resulting in your client being terminated or suffering other damages.  Does your client have a claim?  This basic, and increasingly common, scenario, has played out in numerous courts across the country to widely disparate outcomes.

In Murphy v. LivingSocial, Inc., 931 F. Supp. 2d 21 (D.D.C. 2013), Judge Sullivan held that the defendant’s letter to plaintiff and plaintiff’s new employer, which asserted that plaintiff had violated her non-compete agreement with defendant, was insulated from plaintiff’s libel claim on the ground that the letter was protected by the judicial proceedings privilege because it was clear that defendant was seriously considering litigation.  The court stated that “the Travelzoo [the new employer] Letter was written by LivingSocial’s attorney, to advise Travelzoo of plaintiff’s contractual obligations, explained that plaintiff’s actions appeared to have been taken in violation of the contract, stated that LivingSocial reserved its rights to take all legal and equitable action to protect its business interests, and demanded that Travelzoo immediately cease and desist from any further solicitation of LivingSocial employees, customers, or prospective customers.” In dismissing the case, the Court noted that the non-compete agreement provided that LivingSocial was permitted to communicate the terms of the non-compete agreement to a perspective or current employer of plaintiff. 

By contrast, in SCI Funeral Servs. of Fla., Inc. v. Henry, the District Court of Appeal for the Third District of Florida found that the “litigation privilege” did not extend to a cease and desist letter seeking to enforce a non-compete agreement.  839 So. 2d 702 (Fla. App. 2002).  In SCI Funeral, defendant moved to dismiss plaintiff’s claims, arguing that its demand letter was absolutely privileged under the “litigation privilege”.  This privilege “bars causes of action in tort for statements made in connection with a judicial proceeding.”  The court, however, found that defendant’s conduct was not protected by the litigation privilege, reasoning that “an employer cannot threaten an employee with litigation over a non-compete agreement which has expired.  If the employer wrongly does so, thus causing the employee to lose his or her job, there must necessarily be a judicial remedy for such conduct.”

This position finds indirect support in the treatment of such claims by other courts.  For example, in Hidy Motors, Inc. v. Sheaffer, the Court of Appeals of Ohio focused on the enforceability of the non-compete agreement in addressing plaintiff’s claims based on the transmission of a Cease & Desist letter to plaintiff’s new employer. 916 N.E.2d 1122 (Ohio App. 2009).  Although it does not appear that the employer raised a “litigation privilege” defense, the employer did contend that it was “privileged to protect [its] legitimate business interest[s]”.  Id. at 1131.  The Court, however, noted because “[t]he trial court did not address whether the covenant not to compete…was enforceable” that “[it] erred in assuming that the covenant not to compete could be relied on as the basis for [defendant’s] privilege defense[.]”  Id. at 1132.  Other courts have also endorsed such analysis on similar facts.  See Gentile v. Olan, No. 12-cv-3664, 2013 U.S. Dist. LEXIS 64472, 2013 WL 1880771 (S.D.N.Y. 2013) (finding that cease and desist letter may constitute actionable tortious interference when defendant’s letter was “unwarranted” by plaintiff’s conduct and when “a material question of fact exists as to whether Plaintiff ever signed [the] agreement”);Voorhees v. Guyan Machinery Co., 446 S.E.2d 672 (W. Va. 1994) (no privilege where the plaintiff’s alleged “competition” was “so insignificant as to render [defendant’s] claim that it was protecting its business interests by enforcing the noncompetition agreement [with plaintiff] absurd.”); Carter v. Aramark Sports & Entm’t Servs, Inc., 835 A.2d 262 (Md. Ct. Spec. App. 2003) (tortious interference claim can be based on at-will relationship); but see Bonds v. Philips Electronic N.A., No. 2:12-cv-10371, 2014 U.S. Dist. LEXIS 6845, 2014 WL 222730 (E.D. Mich. Jan. 21, 2014) (“Defendant’s actions cannot be improper because they were motivated by legitimate business reasons”).  

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Statute of Limitations Starts Running Before Constructive Discharge

In Green v. Donahoe, No. 13-1096, 2014 U.S. App. LEXIS 14290, 2014 WL 3703823 (10th Cir. July 28, 2014), a panel of the 10th circuit, Judge Hartz writing, held that a claim for constructive discharge does not accrue at the time when plaintiff resigns.  Instead, the claim accrues on the date of the employer’s last misconduct.  In Green the plaintiff, a postal employee, agreed to resign his employment on December 16, 2009, but was permitted to use accrued annual and sick leave until March 31, 2010, at which point he could choose either to retire or accept a significantly lower position at a facility some 300 miles distant.  Plaintiff filed an informal charge of retaliation with an EEO counselor on January 7, 2010, but did not file a formal charge until February 17, 2010. On February 9, 2010, plaintiff notified his employer that he planned to retire, pursuant to their earlier agreement, effective March 31, 2010.  Plaintiff initiated EEO counseling on March 22, and filed another formal charge of retaliation on April 23, alleging constructive discharge for his forced retirement.  Plaintiff’s eventual lawsuit was dismissed when the district court held that it was untimely because plaintiff had not contacted an EEO counselor about it within 45 days.

In reviewing the lower court’s decision, the Tenth Circuit first examined the nature of a constructive discharge claim.  The Court explained that “c]onstructive discharge occurs when an employer unlawfully creates working conditions so intolerable that a reasonable person in the employee’s position would feel forced to resign.”  Green, 2014 U.S. App. LEXIS 14290 at *19, quoting Lockheed Martin Corp. v. Admin. Review Bd., 717 F.3d 1121, 1133 (10th Cir. 2013).  The key issue before the court was when the constructive discharge claim accrued.  The Court framed its analysis by noting that “[f]or most federal limitations periods, the clock starts running when the plaintiff first knew or should have known of his injury.”  Green, 2014 U.S. App. LEXIS 14290 at *22 (internal quotations omitted).  In the employment context, this generally means that the claim accrues when the “disputed employment practice” occurs.  Id. (internal quotations omitted). 

However, the Tenth Circuit found this general rule to be inappropriate in the context of constructive discharge claims.  The Tenth Circuit distinguished constructive discharges from other adverse actions, stating “[a] constructive discharge involves both an employee’s decision to leave and [the employer’s] precipitating conduct.”  Id. (emphasis in original) (alterations in original) (quotations omitted). 

The Tenth Circuit went on to identify the core question for resolution – whether the date of the accrual of plaintiff’s constructive discharge claim “can be postponed from the date of the employer’s misconduct until the employee quits or announces his future departure.”  Id. at *22.  The Court framed this question as a choice between accrual at the time when the “employee quits or announces his future departure” and when the last “discriminatory act” occurs.  As an initial matter, the Court noted that most courts to consider this issue had “no occasion” to choose between these approaches.  See, e.g., Jeffery v. City of Nashua, 163 N.H. 683, 48 A.3d 931, 936 (N.H. 2012) (plaintiff unsuccessfully argued that claim accrued on effective date of resignation, not when she gave notice of resignation); Patterson v. Idaho Dept. of Health & Welfare, 151 Idaho 310, 256 P.3d 718, 725 (Idaho 2011) (same); Whye v. City Council, 278 Kan. 458, 102 P.3d 384, 387 (Kan. 2004) (same); Hancock v. Bureau of Nat'l Affairs, Inc., 645 A.2d 588, 590 (D.C. 1994) (same)  However, the Court did identify “several” decisions holding that the claim accrued on the date of the resignation, on the rationale that the resignation was a “distinct discriminatory act”.  See Flaherty v. Metromail Corp., 235 F.3d 133, 138 (2d Cir. 2000); Draper v. Coeur Rochester, Inc., 147 F.3d 1104, 1111 (9th Cir. 1998); Young v. Nat'l Center for Health Servs. Research, 828 F.2d 235, 237-38 (4th Cir. 1987). 

The Court rejected that approach.  Declaring that “we cannot endorse the legal fiction that the employee's resignation, or notice of resignation, is a ‘discriminatory act’ of the employer”, the Court sided with the Seventh and D.C. Circuits in holding that a claim for constructive discharge must be filed such that there is at least one “discriminatory act” by the employer within the statutory limitations period.  See Mayers v. Laborers' Health & Safety Fund, 478 F.3d 364, 367, 370, 375 U.S. App. D.C. 134 (D.C. Cir. 2007) (notice of resignation was within limitations period but no discriminatory act of employer was); Davidson v. Ind.-Am. Water Works, 953 F.2d 1058, 1059-60 (7th Cir. 1992) (same).  In so holding, the Court reasoned that “delaying accrual past the date of the last discriminatory act and setting it at the date of notice of resignation would run counter to an essential feature of limitations periods by allowing the employee to extend the date of accrual indefinitely.”  Green, 2014 U.S. App. LEXIS 14290 at *25 to *26. 

This leaves us with three distinct approaches to the accrual of constructive discharge claims for limitations purposes:

1)     The limitations period runs from the date on which the employee provides notice of her resignation.  This is the approach adopted by the Second, Fourth, and Ninth Circuits.

2)     The limitations period runs from the date of the final discriminatory act, which cannot be the employee’s resignation.  This is the approach adopted by the Seventh, Tenth, and D.C. Circuits.

3)     The limitations period runs from the date on which the employee actually ceases to work for the employer.  This appears to be a minority position, but has been endorsed, for example, by the Court of Appeals for Oregon.  See Hernandez-Nolt v. Wash. Cnty., 315 P.3d 428 (Ore. App. 2013).

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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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