A federal appeals court has just opened the door for corporate whistleblowers considerably more, ruling that the ex-employee of an instrumentation company has the right to argue his retaliation complaint in federal court because the Labor Department wasn’t moving quickly enough to resolve the issue.
The Virginia-based 4th Circuit Court of Appeals, ruling in Stone v. Instrumentation Laboratory Co., upheld the idea that whistleblowers filing retaliation claims under Section 806 of the Sarbanes-Oxley Act have the right to sue their employers in district court if the Labor Department hasn’t issued a final decision within 180 days of the whistleblower filing an administrative complaint. It’s the first time an appeals court has ruled on that question.
Carter
“The decision means the complainant’s case starts over in federal district court,” says Adam Augustine Carter, the plaintiff lawyer in the case and a principal of the Employment Law Group. “If the Department of Labor drags its feet, the de novo review is a powerful weapon in the arsenal of a whistleblower.”
Essentially, observers say, the ruling means a whistleblower can pursue a SOX retaliation claim all the way through to an appeal to the Labor Department’s administrative review board, and then start all over again in federal court if the whistleblower isn’t happy with the Labor Department’s decision—since Labor Department bureaucracy simply cannot resolve a complaint within the law’s 180-day deadline.
Shea
“It is not possible,” says Robert Shea, Instrumentation Lab’s defense counsel and a partner at the law firm More, Barnes-Brown & Pendleton. Within that 180 days, he says, the Labor Department must investigate the complaint, issue a preliminary finding, allow an appeal to an administrative law judge, follow that with discovery, a trial, post-hearing briefing, and a decision by the administrative judge, and then permit a review of the judge’s decision by the administrative review board, which would include full briefing by the parties.
“The practical impact of the Fourth Circuit’s decision is that it gives SOX complainants two separate opportunities to prove their case,” Shea says.
The plaintiff, David Stone, worked at Instrumentation Laboratory Co. from 1999 through 2006. He claims he was then fired for voicing concerns to his superiors about poor internal controls and unpaid administrative fees, which prompted him to file a retaliation complaint with the Occupational Safety and Health Administration. While his complaint was still pending review by a Labor Department administrative review board, Stone also filed a lawsuit in a Maryland district court seeking de novo review.
The district court granted Instrumentation Lab’s motion to dismiss, but also ordered the Labor Department to rule on the merits of Stone’s appeal within 90 days. In its decision, the district court said Stone had “a full and fair opportunity to litigate his claims” before the Labor Department, and that re-litigating them in court would be a waste of time.
“If the Department of Labor drags its feet, the de novo review is a powerful weapon in the arsenal of a whistleblower.”
—Adam Augustine Carter,
Principal,
Employment Law Group
Stone appealed. In its ruling, the appeals court noted that the lower Maryland court “in applying preclusion principles … strayed from the plain and unambiguous meaning” of SOX’s whistleblower protections.
“Even if the 180-day statutory period [for a Labor Department review] is arguably both overly aggressive and not the most efficient use of administrative and judicial resources, Stone was entitled to de novo review in the court below,” said the Dec. 31 opinion, written by Judge Mark Davis. “It is undisputed that, here, the [Labor Department] did not issue a final decision within 180 days and that Stone followed the procedure set forth in the regulations to exercise his statutory right to seek relief in district court.”
Marshall
David Marshall, a partner at the law firm Katz, Marshall & Banks, says the decision “lays to rest the notion that Congress didn’t mean what it said when it gave SOX complainants the right to effectively remove cases to federal court if the Labor Department doesn’t issue a final decision in 180 days.”
DE NOVO RULING
Below is an excerpt from the decision Stone v. Instrumentation Laboratory Co.
First … the plain text of the statute
expressly provides a complainant the right to de novo review.
Second, the DOL’s own regulations acknowledge that a
district court action may be filed while an appeal is pending
before the ARB. See 29 CFR § 1980.114(b) (requiring that the
ARB be notified of intent to file a federal suit if an ALJ’s
ruling is on appeal to the ARB). Third, even though preclusion
principles are generally favored, “[c]ourts do not, of course,
have free rein to impose rules of preclusion” if it was not
intended by the legislature. Astoria, 501 U.S. at 108. Fourth,
any contention that Congress’s decision, to permit what may
amount to duplicative review, is “absurd” is countered by the
reality that Sarbanes-Oxley whistleblower cases involve fact
patterns where time is of the essence since the fortunes of the
investing public may be at stake. Both a complainant that has
suffered adverse job consequences and the public therefore
have a strong interest in Congress aiding whistleblower plaintiffs, even if in so doing Congress’s scheme may be less efficient than the scheme contemplated by the Secretary.
In summary, the plain language of § 1514A(b)(1)(B) unambiguously establishes a Sarbanes-Oxley whistleblower complainant’s right to de novo review in federal district court if the DOL has not issued a “final decision” and the statutory180-day period has expired. Here, regardless of whether the
ALJ conducted a hearing or issued findings, it is undisputed
that: (1) the administrative process did not yield a “final
decision” for purposes of § 1514A(b)(1)(B) at the time Stone
exercised his right to file suit in district court; and (2) the 180-
day period established by Congress expired prior to Stone
filing suit. Therefore, notwithstanding the Secretary’s view on
the soundness of Congress’s decision to create a framework
allowing for duplication of efforts, such framework is precisely what Congress reasonably and unambiguously provided
for in the controlling statute.
Accordingly, even if the 180-day statutory period is
arguably both overly aggressive and not the most efficient use of
administrative and judicial resources, Stone was entitled to de novo review in the court below. In the absence of any
guidance from this court, or any other circuit court, as well as in
the face of the Secretary’s comments inviting district courts
to remand cases to the ARB, the district court understandably
erred in applying preclusion principles. [W]e
reject the Secretary’s interpretation and invitation to district
courts to apply preclusion principles because Congress
expressly provided for de novo non-deferential review in
district court. A literal interpretation of the statute’s plain
language does not lead to an absurd result since Congress
unquestionably has the right to create a complainant-friendly
statutory scheme that affords no deference to non-final agency
findings.
For the reasons stated herein, we reverse the district court’s
order granting Appellees’ motion to dismiss, vacate the entry
of final judgment, and remand to the district court for further
proceedings consistent with this opinion.
Source
Stone v. Instrumentation Laboratory Co. (Dec. 31, 2009).
The ruling is all the more newsworthy because it comes from the Fourth Circuit, well known for its conservative interpretations of the law. “The Fourth Circuit has been very strict in applying SOX … so it’s unlikely other courts would go the other way on this issue,” Marshall says.
Defense Strategy: Brace Yourself
Delikat
Corporate defense counsel are predictably unhappy with the news. Mike Delikat, chair of the employment law practice at Orrick, Herrington & Sutcliffe, says the decision “is clearly an unwelcome development for employers,” whom could end up defending the same claim twice.
Whether whistleblowers will actually want that second opportunity remains to be seen, but evidence suggests they will be strongly tempted. Previous studies have found that the Labor Department shoots down a large majority of retaliation complaints. And regardless of a complaint’s legitimacy, Marshall says the Labor Department process “has been very slow, and the backlog before the administrative review board, at least until a year ago, was substantial.”
“If a SOX complainant were forced to remain in a Labor Department proceeding until a final agency decision is rendered … they could be stuck in proceedings for five years or more,” he adds.
Roberts
While the decision reflects a “straightforward interpretation” of the statute, says Allen Roberts, a partner with the law firm Epstein Becker & Green, “It sends a clear message to all SOX whistleblowers that they’ve got a second bite at the apple.”
Still, Shea and others question whether that was Congress’s intent.
“It seems that federal district court judges should be permitted to exercise their inherent authority to apply principles of claim preclusion in appropriate cases, as the U.S. Secretary of Labor has opined,” Shea says.
Berkowitz
Philip Berkowitz, head of the international labor practice team at the law firm Nixon Peabody, says that as a result of the ruling, employees can use the Labor Department’s administrative process to gather information—“and then, after 180 days, decide whether to go to court with what’s essentially free discovery.”
“I’m not sure that’s what Congress intended by creating a fast-moving process,” he says.
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