Seal of the United States Court of Appeals for the Fourth CircuitThe Fourth Circuit recently held that SOX whistleblower retaliation claims are subject to a four-year statute of limitations and that emotional distress damages are available in SOX actions.  Jones v. SouthPeak Interactive Corp. of Del., Case Nos. 13-2399 and 14-1765 (4th Cir. Jan. 26, 2015). 

Background

Plaintiff-Appellee was the former Chief Financial Officer for the Defendant-Appellant Company, which designs, develops and distributes video games.  The Company took out a personal loan to place an order for video games, but allegedly failed to record the debt on its balance sheet or in its quarterly financial report, which was filed with the SEC.  Plaintiff-Appellee complained that the Company was engaging in fraud, and refused to sign an amendment to the quarterly financial report in which the Company denied any intentional fraud or misstatement in its earlier filing.  Plaintiff-Appellee’s employment was subsequently terminated.

Plaintiff-Appellee filed a complaint with OSHA, alleging that her termination was retaliatory.  When OSHA failed to issue an order within 180 days, Plaintiff-Appellee notified OSHA that she intended to file a federal lawsuit.  She waited two years to file suit.  The court ultimately awarded her $470,000 in back pay and $123,000 in compensatory damages, as well as attorneys’ fees.  She also received $50,000 from the CEO and $50,000 from the Chairman of the Board.  Defendants-Appellants appealed.

Fourth Circuit’s Ruling

The Fourth Circuit affirmed, ruling as follows.

  • 4-year statute of limitations applies:  First, the court considered whether the claims were timely under the applicable statute of limitations.  Rejecting Defendants’ argument that the allegations sounded in fraud, for which a two-year statute of limitations applies, the court emphasized that Plaintiff-Appellee advanced a claim of retaliation, not fraud.  The court reasoned that because the “retaliation claim can succeed without the ‘discovery of facts constituting’ securities fraud,” the federal “catch-all” four-year statute of limitations governed retaliation claims under SOX.
  • Emotional distress damages are available:  Following the Fifth and Tenth Circuit, the Fourth Circuit also held that emotional distress damages are available to a prevailing party under SOX.       The court reasoned that the statute provides that a Plaintiff “shall be entitled to all relief necessary to make the employee whole,” which includes remedies that are not specifically enumerated in the statute.

Implications

Both the expanded statute of limitations and the availability of emotional distress damages heighten the stakes for employers saddled with SOX whistleblower claims.  Though this whistleblower award may not be quite as staggering as others (such as the $2.1 million award we discussed in a prior post or the$6 million award we discussed in another post), the $693,000 awarded in this case is nevertheless substantial and sends a cautionary message to employers faced with whistleblower claims.

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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