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Federal Courts Take Divergent Approaches to Jury Trials for Whistleblower Plaintiffs Under Dodd-Frank and Sarbanes-Oxley




by:
Sutherland Asbill Brennan LLP - Washington Office

 
January 16, 2014

Previously published on January 9, 2014

A recurring question under the federal whistleblower laws is whether plaintiffs suing their employers for retaliation have the right to a jury trial. The Dodd-Frank Wall Street Reform and Consumer Protection Act1 appears designed to clarify the answer to this question for at least one group of whistleblowers — those reporting suspected violations of the federal securities laws — but the Act’s text has led federal district courts to take different approaches depending on the specific nature of the plaintiff’s claim. Although courts have begun to afford jury trials to whistleblowers suing under the Sarbanes-Oxley Act of 2002 (SOX), at least one court has refused to hold jury trials for plaintiffs invoking Dodd-Frank’s new cause of action for those who share information with the U.S. Securities and Exchange Commission (SEC).

Before Dodd-Frank’s enactment in July 2010, retaliation plaintiffs in securities or shareholder-fraud cases typically relied on SOX, which prohibits retaliation against an employee for lawfully providing information or assisting in an investigation or proceeding related to a potential violation of the federal securities laws.2 Yet because the remedies available under SOX (e.g., reinstatement, back pay, and attorney’s fees) are typically considered restitutionary, SOX plaintiffs were often denied jury trials on the ground that the “equitable” relief they sought did not trigger the constitutional right to a jury trial.3

Dodd-Frank overrode this line of cases by creating an express statutory right to a jury trial for SOX whistleblowers.4 As a result, in opinions issued after Dodd-Frank’s effective date, a number of courts have allowed SOX retaliation claims to proceed to trial before a jury.5

Despite the express jury-trial guarantee for retaliation plaintiffs under SOX, however, Dodd-Frank lacks a similar guarantee for employees alleging retaliation after reporting potential violations of the securities laws to the SEC.6 Given the statute’s silence in this regard, the question is whether plaintiffs hoping to take advantage of the longer statute of limitations and more generous remedies available to SEC whistleblowers7 are nevertheless entitled to a jury trial.

Although few courts have had an opportunity to address this question, at least one federal court has held that the answer is no. In Pruett v. BlueLinx Holdings, Inc.,8 the U.S. District Court for the Northern District of Georgia recently struck the plaintiff’s demand for a jury trial on his claim for unlawful retaliation after he reported alleged violations of the securities laws to the SEC.

Because of Dodd-Frank’s silence about an SEC whistleblower’s right to a jury trial, the Pruett court — like the courts that addressed the issue under SOX before Dodd-Frank created an express jury right for SOX plaintiffs — performed an analysis under the U.S. Constitution’s Seventh Amendment, which guarantees the right to a jury trial for “suits at common law” in which the amount in controversy exceeds twenty dollars.9

After concluding that an SEC whistleblower’s retaliation claim is analogous to a common-law claim for wrongful discharge, the court turned to the “‘more important inquiry’” by asking whether the remedy sought is legal or equitable in nature.10 On this point, the court explained, “[i]f the purpose of the remedies is to make the employee ‘whole,’ then they are equitable,” and concluded that “reinstatement, hiring, and back pay are generally considered equitable remedies.”11

Despite these general principles, the plaintiff argued that Dodd-Frank’s provision for an award of double back pay for SEC whistleblowers takes the remedy “out of the restitutionary or equitable field and moves it to compensatory, liquidated, or punitive damages.”12 The court, however, rejected this argument on two grounds. First, the court reasoned that under Dodd-Frank’s retaliation provisions for SEC whistleblowers, “there is no willfulness determination, [and] there [is] nothing to be done other than to double the amount of back pay determined by the judge.”13 Second, the court concluded, “to the extent that the doubling of the back pay would take such damages outside of a restitutionary or equitable nature, . . . those damages are otherwise intertwined with the reinstatement remedy.”14

The court also considered the similarity of the remedies for SEC whistleblowers to those provided for retaliation plaintiffs under SOX. As noted above, until Dodd-Frank gave SOX whistleblowers an express right to a jury trial, most courts had denied jury trials to SOX plaintiffs on the ground that the remedies sought were restitutionary and thus equitable. In light of this history, the court found it significant that

[w]hile Congress enlarged the scope of individuals potentially protected in the Dodd-Frank Act, it did not specify in Dodd-Frank that a jury trial was available [to SEC whistleblowers] despite being aware of the legal controversy surrounding whether a jury trial was available under Sarbanes-Oxley and amending that legislation to specify a right for jury trial.15

The Pruett court’s decision to strike the plaintiff’s demand for a jury trial suggests that jury demands in connection with SEC whistleblower claims may face the same hurdles that SOX plaintiffs encountered before receiving an express statutory right to a jury trial. Although the Pruett opinion’s non-precedential status means that employers should not assume that Dodd-Frank retaliation plaintiffs will necessarily be denied a jury trial, the decision serves as an early indication that federal courts ultimately could reach a consensus denying jury trials on SEC whistleblower claims under Dodd-Frank.

 


1 Pub. L. No. 111-203, 124 Stat. 1376 (2010) [hereinafter Dodd-Frank].

2 See 18 U.S.C. § 1514A(a).

3 E.g., Schmidt v. Levi Strauss & Co., 621 F. Supp. 2d 796, 805-06 (N.D. Cal. 2008) (“Based on this court’s review of the statutory text, purpose of the remedies, and overall statutory scheme, the court concludes that the relief provided by § 1514A is equitable in nature, or otherwise intertwined or inextricably linked [to] the equitable relief of reinstatement. Because the second factor weighs more importantly than the first in the Seventh Amendment analysis, the court concludes that a balance of the two factors weighs against there being a right to a jury trial for plaintiffs’ Sarbanes-Oxley claim.”); Walton v. Nova Info. Sys., 514 F. Supp. 2d 1031, 1034 (E.D. Tenn. 2007) (“Plaintiff has conceded that reinstatement, listed along with back pay damages in the enforcement provision of [SOX] Section 806, under the heading of ‘compensatory damages,’ is a form of equitable relief that does not entitle Plaintiff to a jury trial. Accordingly, Plaintiff’s demand for a jury trial of her back pay damages claim should be denied and the demand struck from the pleadings.”).

4 Dodd-Frank § 922(c)(1)(B) (codified at 15 U.S.C. § 1514A(b)(2)(E)).

5 See, e.g., Jones v. SouthPeak Interactive Corp., No. 3:12cv443, 2013 U.S. Dist. LEXIS 155169, at *4 (E.D. Va. Oct. 29, 2013) (“After the Court dismissed Jones’ claim for relief under the Dodd-Frank Act, Jones’ claim for relief under SOX proceeded to trial.”); Van Asdale v. Int’l Game, Tech., No. 3:04-CV-703-RAM, 2011 U.S. Dist. LEXIS 56715, at *3 n.2 (D. Nev. May 24, 2011) (“The court initially granted IGT’s motion to strike Plaintiffs’ jury demand, but granted Plaintiffs’ renewed jury demand after SOX was amended to add the right to a jury trial.”), aff’d, No. 11-16538, 2013 U.S. App. LEXIS 19843 (9th Cir. Sept. 27, 2013).

6 See generally 15 U.S.C. § 78u-6(h).

7 See id. § 78u-6(h)(1)(B)(iii) (allowing the assertion of claims up to ten years after unlawful retaliation occurs); id. § 78u-6(h)(1)(C) (establishing reinstatement, attorney’s fees, and double back pay as possible remedies).

8 Order (ECF No. 14), No. 1:13-cv-02607-JOF (N.D. Ga. Nov. 12, 2013).

9 U.S. Const. amend. VII (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .”).

10 Order (ECF No. 14), No. 1:13-cv-02607-JOF, at 4 (quoting Stewart v. KHD Deutz of Am. Corp., 75 F.3d 1522, 1525 (11th Cir. 1996).

11 Id.

12 Id. at 5.

13 Id. at 6.

14 Id.

15 Id. at 7.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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