The 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.