Four-year Limitations Period Applies to Sarbanes-Oxley Retaliation Claims; Emotional Distress Damages Available: Fourth Circuit | Practical Law

Four-year Limitations Period Applies to Sarbanes-Oxley Retaliation Claims; Emotional Distress Damages Available: Fourth Circuit | Practical Law

The US Court of Appeals for the Fourth Circuit held in Jones v. Southpeak Interactive Corp. of Delaware that a four year-statute of limitations applies to retaliatory discharge claims brought under the Sarbanes-Oxley Act of 2002 (SOX), and that emotional distress damages are available under those claims.

Four-year Limitations Period Applies to Sarbanes-Oxley Retaliation Claims; Emotional Distress Damages Available: Fourth Circuit

by Practical Law Labor & Employment
Published on 03 Feb 2015 • USA (National/Federal)
The US Court of Appeals for the Fourth Circuit held in Jones v. Southpeak Interactive Corp. of Delaware that a four year-statute of limitations applies to retaliatory discharge claims brought under the Sarbanes-Oxley Act of 2002 (SOX), and that emotional distress damages are available under those claims.
On January 26, 2015, the US Court of Appeals for the Fourth Circuit held in Jones v. Southpeak Interactive Corp. of Delaware that a four-year statute of limitations applies to a retaliatory discharge claim brought under the Sarbanes-Oxley Act of 2002 (SOX), and that emotional distress damages are available under those claims. The Fourth Circuit also upheld the district court's:
  • Finding that the plaintiff had properly exhausted her administrative remedies in naming two individual defendants.
  • Handling of apparent inconsistencies between the jury’s verdict and damage award as well as upheld the manner in which the lower court awarded attorney’s fees.
(No. 13-2399, (4th Cir. Jan. 26, 2015).)

Background

Plaintiff Andrea Gail Jones was the Chief Financial Officer for defendant Southpeak Interactive Corp., a video game distributor and developer. In 2009, Plaintiff became aware of a significant omission in Southpeak’s quarterly financial report which had already been filed with the SEC. After expressing concern about the omission and not receiving a satisfactory explanation from Southpeak's chairman, she reported to Southpeak’s audit committee her suspicion that Southpeak was engaging in fraud. In August of 2009, after refusing to sign an amended financial statement that her superiors presented to her, Jones drafted a letter to Southpeak's outside counsel indicating that she believed the amended report was falsely denying intentional fraud by the company. Southpeak's board of directors promptly met and terminated her employment.
In October of 2009, Jones filed a complaint against Southpeak with OSHA alleging that she had been terminated in retaliation for attempting to correct financial reports that she believed to contain misrepresentations. Her OSHA complaint named Southpeak's chairman and chief executive officer. OSHA transmitted a letter to Southpeak informing Southpeak of the plaintiff’s complaint. OSHA’s letter was addressed exclusively to Southpeak and did not mention the chairman and CEO, individually. After 180 days passed without a final order from OSHA, the plaintiff informed OSHA by letter that she was planning to file a lawsuit under SOX. The plaintiff's letter was also sent to counsel for Southpeak but not to the chairman and CEO.
In June of 2012, more than two years but less than four years after her termination, Jones filed a retaliation suit against Southpeak under SOX. The lawsuit also named the chairman and CEO individually. The district court denied Southpeak’s motion to dismiss the SOX retaliation claim and the plaintiff prevailed in a trial held in 2013.
Initially, the jury returned a verdict that found each of the three defendants liable but only assessed damages against Southpeak ($593,000.00 in back pay and $357,000.00 in compensatory damages, which the district court inferred was for emotional distress the plaintiff suffered). The trial court provided the jury with an opportunity to clarify or amend its verdict. After the jury re-deliberated, the jury returned with an amended verdict which again found all three defendants liable, again assessed back pay damages against Southpeak, but now divided the compensatory (emotional distress) damages equally among the two individual defendants.
In response to the defendants' argument that the damages assessed by the jury were excessive, the court reduced the compensatory damages award to $100,000.00, split equally between the chairman and CEO. The plaintiff accepted this reduction. The court also awarded over $350,000.00 in attorney’s fees to the plaintiff’s attorneys, to be allocated jointly and severally among the three defendants.
The defendants appealed, arguing:
  • The plaintiff's suit was untimely under SOX.
  • The plaintiff failed to properly exhaust her administrative remedies with respect to the two individual defendants.
  • The award of emotional distress damages was not permitted under SOX, and the award was itself excessive.
  • The jury’s first verdict assessing no damages against the individual defendants should have been accepted and the second verdict rejected.
  • The attorney's fees award was not properly reached by the district court and the joint-and-several allocation of attorney's fees was an abuse of discretion by the district court.

Outcome

The Fourth Circuit denied the defendants' appeal in its entirety, holding:
  • The plaintiff’s suit was timely because a four-year statute of limitations, provided for under 28 U.S.C. § 1658(a), applied to SOX retaliation claims.
  • The plaintiff had properly exhausted her administrative remedies concerning the two individual defendants.
  • Emotional distress damages are available under the whistleblower protection provisions of SOX, and the reduced emotional distress damages award was not excessive.
  • The district court did not err when handling apparent inconsistencies in the jury’s initial verdict, and the final verdict was reasonable.
  • The district court used the proper procedure in calculating the attorney's fees award, and the joint-and-several allocation of that award among the three defendants was not an abuse of discretion.
The two-year statute of limitations under Section 1658(b) which applies to claims involving "fraud, deceit and manipulation" does not apply to SOX retaliatory discharge claims; these claims do not rely on a plaintiff proving fraud. Rather, Section 1658(a), a catch-all or fallback statute of limitations, was applicable, rendering the plaintiff's claims timely.
The court affirmed that the plaintiff exhausted administrative remedies concerning her claims against the individual respondents/defendants even though OSHA did not send notices to them. In particular, the court noted that:
  • Under circuit precedent, differences between allegations in administrative complaints and allegations in judicial complaints should not become a basis to derail plaintiffs, unless the plaintiffs are trying to circumvent exhaustion requirements (Sydnor v. Fairfax County, Virginia, 681 F.3d 591 (4th Cir. 2012)(an ADA failure to accommodate case)).
  • The plaintiff’s OSHA complaint was substantially similar to her judicial complaint, and that the OSHA complaint clearly identified the individuals and provided them notice of the plaintiff’s claims.
In holding that emotional distress damages were available under SOX, the Fourth Circuit:
  • Examined the whistleblower statute, 18 U.S.C.§ 1514A(c), noting that:
    • the first subsection, Section 1514A(c)(1), entitled a prevailing plaintiff to "all relief necessary to make the employee whole;"
    • the second subsection, Section 1514A(c)(2), set out a list of compensatory damages as including reinstatement, back pay, special damages (such as attorney's fees, litigation costs); and
    • the second subsection did not specifically reference emotional distress damages.
  • Relied on the "including" language to reject the defendants' argument that compensatory damages were restricted to those damages listed in the second subsection.
  • Pointed out that courts have read similar statutory language as setting a floor, not a ceiling.
  • Likened Section 1514A(c) to the remedies provision for retaliation claims under the False Claims Act, a statute for which several circuit courts had held that emotional distress damages were available (31 U.S.C. § 3730(h)).
  • Pointed to the US DOL's Administrative Review Board's upholding of non-monetary awards in SOX retaliation cases.
  • Found the district court did not abuse its discretion. Rather, the Fourth Circuit viewed the district court’s opinion on the emotional distress damages award to be sound and well-reasoned. The court pointed to trial testimony about the emotional toll the termination had on the plaintiff.
The Fourth Circuit rejected the defendants' position that the first jury verdict should have been accepted and the second jury verdict should have been rejected as against the weight of the evidence. The district court sensibly, and within the strictures of FRCP 49(b)(3), provided the jury with supplemental jury instructions after the initial verdict and sent the jury back to deliberate without interfering or trying to influence the jury's decision. The final verdict did not conflict with either the jury instructions or the weight of the evidence offered at trial.
Finally, the Fourth Circuit affirmed the attorney's fees award. The district court had essentially applied a three-step process that was consistent with circuit precedent. The district court's decision to allocate attorney's fees jointly and severally among the three defendants was within its discretion.

Practical Implications

The Fourth Circuit’s opinion in Jones v. Southpeak addresses two novel issues for the circuit for retaliation claims brought under SOX. The opinion decides which statute of limitations within SOX applies and permits emotional distress damages under those claims.
Consistent with past circuit precedent, the Fourth Circuit did not make exhaustion of administrative remedies a hyper-technical exercise and gave the trial court latitude to review and assess damages and fees.