In a warning to plaintiffs’ counsel who seek emotional distress damages for alleged whistleblower retaliation under Florida law, the Eleventh Circuit in Smith v. Psychiatric Solutions, Inc., 750 F.3d 1253 (11th Cir. May 6, 2014) has created a Hobson’s choice: forcing plaintiff-employees either to forego potential emotional distress damages available under state law or risk paying prevailing party attorneys’ fees and costs to the defendant.

Plaintiff Leslie Smith sued her former employer and its owners for retaliation under Section 806 of SOX and the Florida Whistle-Blower Act (“FWA”).   While SOX contains an employee prevailing party provision and no specific emotional distress remedy, the WFA authorizes a court to award fees and costs to the prevailing party and provides for emotional distress damages.  Because Smith could not establish a prima facie case under either statute, the district court granted her former employer summary judgment; and, after summary judgment was upheld on appeal, the district court awarded prevailing party attorneys’ fees to Smith’s former employer under the FWA.

The question on appeal was whether a prevailing party employer may recover attorneys’ fees when SOX does not authorize an award of fees to a prevailing party defendant.  In affirming the attorneys’ fees award, the Eleventh Circuit rejected the employee’s arguments that: (i) SOX and the FWA were in conflict; and, (ii) therefore, the latter was preempted.  In so doing, the Eleventh Circuit concluded that there was no conflict because SOX “neither authorizes a defendant to recover attorneys’ fees nor prevents a defendant from recovering fees that are elsewhere authorized.”  Therefore, SOX’s attorney fee provision did not preempt the FWA provision.

Although the Eleventh Circuit noted that an employee’s attorneys’ fee risk can be eliminated by foregoing an FWA claim, the Court did not comment on the fact that there was a consequence for the elimination of the risk.  Some courts have not allowed for the recovery of emotional distress damages under SOX because emotional distress is not included within the list of recoverable compensatory damages under SOX.  Thus, in Florida, the employee’s leverage of seeking uncapped emotional distress damages under the FWA is something employees will need to forego if they are risk adverse to paying attorneys’ fees if their case is deemed meritless.

Posted in SOX Whistleblower Decisions
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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower…

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has the unusual experience of testifying in federal court in connection with investigations. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a ”Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a U.S. Library of Congress Burton Award Winner for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal. The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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