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

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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.

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