Offer of Judgment Makes SOX Whistleblower a Prevailing Party and Entitles Whistleblower to Attorneys Fees
January 9, 2009 | Leave a Comment
The Fourth Circuit Court of Appeals has held that an employee was an “employee prevailing” on his Sarbanes-Oxley Act (SOX) whistleblower claim when his case was resolved via an offer of judgment pursuant to Federal Rule of Civil Procedure 68. The employee, who worked as a vice president and project manager for a publicly traded commercial real estate developer, filed suit in federal district court asserting he was terminated in retaliation for expressing his concern to company officials that the company had knowingly, in two consecutive reports to the Securities and Exchange Commission, underreported the actual projected cost of a certain project by 18 percent and 12 percent respectively. The employer countered that he was terminated for poor performance. Prior to the close of discovery, the employee accepted the employer’s offer of judgment in the amount of $130,000.00, and the court clerk entered judgment in favor of the employee in that amount. The court then awarded the employee $325,484.08 in attorneys’ fees and costs.
On appeal, the employer asserted that the employee was not eligible for attorneys’ fees and costs under SOX because he did not prevail on the merits of his claim. The Fourth Circuit disagreed. In terms of statutory text, the court concluded that, although SOX does not use the term “prevailing party,” as commonly used in other federal fee-shifting statutes, the jurisprudence developed with respect to that term was applicable in determining whether the employee was an “employee prevailing” on his SOX claim. See Grissom v The Mills Corp.
Allen v. A.R.B.
March 31, 2008 | Leave a Comment
In January of 2008, the Fifth Circuit held “an employee’s complaint must ‘definitively and specifically’ relate to one of the six enumerated categories found in the Act.” The are mail fraud, wire fraud, bank fraud, securities fraud, any rule or regulation of the SEC, and any provision of federal law relating to fraud against shareholders See Allen v. Administrative Review Bd., 514 F. 3d 468, WL 171588, (5th Cir. 2008).
The Fifth Circuit found that an employee must have a reasonable belief that the employer engaged in one of the enumerated categories, and such reasonable belief is to be scrutinized under both a subjective and objective standard. The Fifth Circuit also found that the objective standard to be applied is similar to that of Title VII retaliation claims. However, while the objective reasonableness of an employee’s belief is sometimes decided as a matter of law, if there is a genuine issue of material fact it cannot be.
The Fifth Circuit also noted that an employee’s mistaken belief an employer violated one of the six categories is protected, if the mistaken belief was reasonable.
When discussing the sixth category (any provision of federal law relating to fraud against shareholders), the Fifth Circuit noted that “the employee must reasonably believe that his or her employer acted with an intent to deceive, manipulate, or defraud its shareholders.”
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