Commercial Litigation and Arbitration

Sarbanes-Oxley Whistleblower May Recover Damages for Emotional Distress, Humiliation and Injury to Reputation — Caselaw Split

Rutherford v. Jones Lang LaSalle Am, Inc., 2013 U.S. Dist. LEXIS 116872 (E.D. Mich. Jan. 29, 2013) (Report and Recommendation):

This case involves a claim of retaliation against a corporate whistleblower in violation of the Sarbanes-Oxley Act ("SOX"). The issue raised in the pending motion is one of first impression in this District: does SOX permit recovery of damages for emotional distress, humiliation and injury to reputation? This Magistrate Judge finds that it does and RECOMMENDS that Defendant Jones Lang LaSalle America, Inc.'s ("Jones Lang") motion to strike these damages (Dkt. No. 6) be DENIED.


SOX provides a private cause of action for employees of publicly-traded companies who are retaliated against for disclosing information about potentially unlawful conduct involving: (1) mail fraud, wire fraud, bank fraud or securities and commodities fraud; (2) violation of any rule or regulation of the Securities and Exchange Commission; or (3) any other federal law relating to fraud against shareholders. 18 U.S.C. § 1514A.

SOX was enacted in the wake of the public exposure of massive accounting schemes at corporations such as Enron and WorldCom in 2001 and 2002. The fraud resulted in thousands of lost jobs and billions of dollars in diminished shareholder value. Congressional hearings revealed that a "corporate code of silence" was prevalent and may have contributed to the abuses: many employees aware of wrongdoing said nothing. Through SOX, Congress sought to address these concerns by encouraging corporate employees to report fraud and by protecting them from retaliation when they did.

SOX's relief provision provides:

(1) In general. – An employee prevailing in [a Whistleblower Action] shall be entitled to all relief necessary to make the employee whole.

(2) Compensatory damages. - Relief for [a Whistleblower Action] 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. § 1514A(c) (emphasis added). The parties agree that this is the controlling provision; they differ on the scope of recoverable damages.

The parties did not cite —and this Magistrate Judge cannot find —a Sixth Circuit case that addresses the issue. In the absence of controlling authority, Jones Lang relies on Murray v. TXU Corp. , 2005 WL 1356444 (N.D. Tex. June 7, 2005); Walton v. Nova Info. Sys. , 514 F.Supp.2d 1031 (E.D. Tenn. 2007); Hemphill v. Celanese Corp. , 2009 WL 2949759 (N.D. Tex. Sept. 14, 2009); Schmidt v. Levi Strauss & Co. , 621 F.Supp.2d 796 (N.D. Cal. 2008); and Jones v. Home Fed. Bank , 2010 WL 255856 (D. Idaho Jan. 14, 2010) in support of its argument that SOX does not allow damages for emotional distress, mental anguish, humiliation and injury to reputation.***

These cases reject a plain reading of SOX's relief provision, which the Court should decline to follow. SOX's use of the terms "all relief necessary to make the employee whole," "relief . . . shall include" and "compensation for any special damages . . . including. . .," do not support such a narrow a view of available damages. 18 U.S.C. § 1514A(c) (emphasis added). See also Robinson v. Shell Oil Co., 519 U.S. 337, 340, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997); accord Roberts ex rel. Wipfel v. Hamer, 655 F.3d 578, 582-83 (6th Cir.2011) ("We begin with the cardinal rule of statutory interpretation: '[T]he meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain . . . the sole function of the courts is to enforce it according to its terms. If the words are plain . . . it is neither the duty nor the privilege of the courts to enter speculative fields in search of a different meaning.' " (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917))). See also Mahony v. KeySpan Corp. , 2007 WL 805813 at *8 (E.D.N.Y. Mar. 12, 2007) ("[t]his Court . . . finds that § 1514A(c)(2)(C) [of SOX] comprises an illustrative list of the types of special damages that may be recovered rather than an exhaustive list").

Jones Lang also argues that SOX is similar to Title VII of the Civil Rights Act of 1964 which provides that if an employer has engaged in an unlawful employment practice, courts may "order such affirmative action as may be appropriate, which may include, but is not limited to, reinstatement or hiring of employees, with or without back pay . . . or any other equitable relief as the court deems appropriate." United States v. Burke , 504 US 229, 238 (1992) (quoting 42 U.S.C. § 2000e-5(g)) (emphasis added). Burke held that Title VII (before the 1991 amendments) did not allow compensation for pain and suffering, emotional distress or harm to reputation. Id. at 239.

However, 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 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)***; 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)).

The Court may also consider decisions of the U.S. Department of Labor, Administrative Review Board ("ARB") as guidance in SOX cases, given "the dearth of federal court decisions addressing the issue," Livingston v. Wyeth, Inc. , 2006 WL 2129794 at *8 (M.D.N.C. July 28, 2006). These cases clearly support a broader view of recoverable compensatory damages. For example, in Kalkunte v. DVI Financial Svs., Inc. , 200-SOX-056, ARB Case Nos. 05-139 & 05-140 at * 15 (Feb. 27, 2009), the ARB upheld an ALJ's award of compensatory damages under SOX for "pain, suffering, mental anguish . . . and humiliation." See also Lockheed Martin Corp ., 2008-SOX-0049, 2010 WL 2054426 (Jan. 15, 2010) (awarding complainant $75,000 in compensatory damages under SOX for depression and loss of self esteem caused by the employers unlawful retaliation).

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