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Fourth Circuit Holds SOX Whistleblowers Entitled to De Novo Review in Federal Court


On December 31, 2009, in a case of first impression, the Fourth Circuit held in Stone v. Instrumentation Laboratory Company that a Sarbanes-Oxley (SOX) complainant may seek de novo review in federal court after the complaint has been pending before DOL for over 180 days without a final decision by the Secretary of Labor.  In Stone, the whistleblower lost a Motion for Summary Decision before the DOL’s Administrative Law Judge (ALJ) and successfully petitioned the Administrative Review Board (ARB) for review.  Before his initial brief was due, Stone followed all necessary procedures and brought an action in federal district court seeking de novo review.  The employer filed a Motion to Dismiss which the district court granted, relying on comments in DOL implementing regulations stating that “the Secretary anticipates that Federal courts will apply [preclusion] principles” when a SOX claim is removed to federal court.  The district court held that allowing de novo review of a “final judgment” would be absurd and an inefficient use of judicial resources.  The district court remanded the case to the ARB for a faster review of the ALJ’s decision. 

On appeal, the Fourth Circuit unequivocally rejected the lower court’s decision, finding that:

• The ARB’s dismissal of a SOX claim due to the complainant’s removal of the case to federal court  does not result in a final decision being issued by the Secretary of Labor;

• Comments from the Secretary of Labor do not inform the literal interpretation of a federal statute, nor do they override congressional intent;

• Congress, in enacting SOX, “expressly provided for de novo non-deferential review in district court;”

• Deferring to an administrative agency, “even if more efficient, is in direct conflict with the unambiguous language of [SOX];”

• “‘Courts do not, of course, have free rein to impose rules of preclusion. . . the question is not whether administrative estoppel is wise but whether it is intended by the legislature.’”

In essence, the Fourth Circuit held that a right to a de novo review means just that.  “The plain language of § 1514(b)(1)(B) unambiguously establishes a Sarbanes-Oxley whistleblower complainant’s right to de novo review in federal district court if the DOL has not issued a ‘final decision’ and the statutory 180-day period has expired.”

Mr. David R. Stone is represented by Adam Augustine Carter and R. Scott Oswald, Principals at The Employment Law Group® law firm.  To learn more about the firm’s Sarbanes-Oxley Whistleblower Practice, click here.

DC City Council Unanimously Approves the DC Whistleblower Protection Amendment Act of 2009

Monday, the DC Council approved the Whistleblower Protection Amendment Act of 2009, which strengthens the DC Whistleblower Protection Act (DC Code § 1-615.51 et seq.) and The Employees of District Contractors and Instrumentality Whistleblower Protection Act of 1998 (DC Code § 2-223.01 et seq.).  The Whistleblower Protection Amendment Act of 2009 eliminates loopholes in the existing DC statutes and provides critical enhancements, including the following:

  • Clarifying that a whistleblower need not be an original source of a protected disclosure.  The legislative history states: “prospective whistleblowers should not have to guess about whether a supervisor already knows about misconduct in government.”
  • Eliminating the “duty speech” loophole, i.e., protected conduct includes blowing the whistle in the course of performing one’s job duties.  Protected acts under the DC WPA include “disclosure[s] made in the ordinary course of an employee’s duties.”
  • Clarifying that retaliatory investigations are a form of actionable retaliation.  The DC WPA now defines retaliation to include “conducting or causing to be conducted an investigation of an employee or applicant for employment because of a protected disclosure made by the employee or applicant who is a whistleblower.”  An investigation includes a fitness for duty examination.
  • Extending the statute of limitations to 3 years and clarifying that § 12-309 (the pre-suit notice provision) does not apply to DC WPA claims.  Under the revised DC WPA, a “civil action shall be filed within 3 years after a violation occurs or within one year after the employee first becomes aware of the violation, whichever occurs first.”
  • Clarifying that a DC WPA action can be brought against a DC supervisor or official having personal involvement in the prohibited personnel action.  “Any person” who is found to have participated in prohibited retaliation may be “subject to appropriate disciplinary action including dismissal.”
  • Providing a financial incentive for whistleblowing.  In particular, a whistleblower may receive an award of up to $50,000 for providing information that enables the District to recover or prevent the loss of more than $100,000 in public funds.
  • Increasing the civil penalty for retaliation from $1,000 to $10,000.

For information on The Employment Law Group® law firm’s Whistleblower Retaliation Practice, click here.

Voices for Corporate Responsibility Kicks Off

On December 15, 2009, The Employment Law Group® law firm participated in the launch of Voices for Corporate Responsibility (Voices).  Voices is a project sponsored by Grant & Eisenhofer P.A., Mehri & Skalet, PLLC, and The Employment Law Group® law firm.  Its mission is to help and encourage corporate employees to take a stand against corporate wrongdoing and irresponsibility.  The project aims to facilitate participation in legislative and regulatory reform and provide a networking environment for those who have been injured as a result of wrongful conduct.

Among the speakers at the event were David E. Welch and Jon Oberg.  Dr. Welch is the first whistleblower to win a case before an Administrative Law Judge under the Sarbanes-Oxley whistleblower provision.  The Employment Law Group® law firm wrote an amicus curiae brief in support of Dr. Welch. Dr. Oberg is a TELG client currently bringing suit against several student lending companies seeking the return of $1 billion in “special allowances” wrongfully extracted from the United States Department of Education.

TELG Associate Quoted by The Raleigh News & Observer

Tom Harrington, an associate at The Employment Law Group® law firm, was quoted in a December 3, 2009 article published by The Raleigh News & Observer.  The article, “Tony Rand accused of insider trading,” discusses accusations of insider trading by Paul Feldman, the former President of Law Enforcement Associates.  Mr. Feldman claims he was unlawfully terminated after leading LEA for more than 19 years.  He has filed an administrative complaint with the Department of Labor alleging LEA fired him because he disclosed information to federal authorities, and participated in investigations by federal authorities, about conduct by LEA that violated rules of the Securities and Exchange Commission, federal laws, rules and regulations relating to securities fraud and fraud against shareholders, and various other federal laws.  His insider trading allegations implicate as many as 50 North Carolina politicians.  North Carolina state senator Tony Rand, chairman of LEA’s board, recently announced that he will step down from his position as Senate Majority Leader. 

Mr. Feldman is represented by The Employment Law Group® law firm.  To learn more about the firm’s Whistleblower Practice, click here

TELG Client Wins Right to Pursue Case Against CA School District, and Superintendent and Board Member Individually, for Alleged Sec. 1983 and Due Process Violations

On November 30, 2009, Judge Jeffrey S. White of the U.S. District Court for the Northern District of California partially denied the defendants’ motion to dismiss in Galli v. Pittsburg Unified School District.  The Court held that an employee’s wrongful termination constitutes an ongoing violation and that reinstatement is prospective injunctive relief from unconstitutional state action.  Accordingly, a request for reinstatement is not barred by the Eleventh Amendment.  The Court also held that since damages sought from Superintendent Barbara Wilson and board member Percy McGee as individuals will not come from public funds, they are not immune from claims that they deprived Mr. Galli of federal rights under the color of state law.  Accordingly, Mr. Galli may proceed against them in their individual capacitates and seek punitive damages. 

This decision is an important victory for public employees.  It shows that it is possible to pierce the veil of immunity surrounding government officials, holding them personally responsible for their violations of individuals’ rights and the law.  Mr. Galli is represented by David Scher, a principal at The Employment Law Group® law firm.  For information on The Employment Law Group® law firm’s Wrongful Discharge Practice, click here