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4th Circuit Allows De Novo Review Of SOX Appeal

Published by on January 15, 2010

In Stone v. Instrumentation Laboratory Co., a case of first impression, the Fourth Circuit addressed the issue of whether a Sarbanes-Oxley (“SOX”) whistleblower claimant has the right to a de novo review by a district court while the claim is pending on an administrative appeal.  More after the break. David Stone was employed by Instrumentation […]

In Stone v. Instrumentation Laboratory Co., a case of first impression, the Fourth Circuit addressed the issue of whether a Sarbanes-Oxley (“SOX”) whistleblower claimant has the right to a de novo review by a district court while the claim is pending on an administrative appeal.  More after the break.

David Stone was employed by Instrumentation Laboratory Company (“ILC”) as a Director of National Accounts.  For a period of six months starting in September 2005, Stone voiced concerns to management about deficient internal controls and unpaid administrative fees by the company.  Stone alleged that he was retaliated against for his complaints and eventually terminated in March 2006.  Stone filed a retaliation claim with the Occupational Safety and Health Administration (“OSHA”) pursuant to the Sarbanes-Oxley Act.  OSHA issued its preliminary findings more than 180 days after Stone had filed his claim.  Stone then objected to those findings and requested a hearing before an Administrative Law Judge (“ALJ”).  ILC filed a motion for summary judgment, which was subsequently granted.  Stone then petitioned the Administrative Review Board (“ARB”) for review of the ALJ’s decision.  Before briefs were due in the ARB appeal, Stone filed a notice seeking dismissal of the appeal in order to file a de novo action in federal court.  Once Stone filed the federal action, ARB dismissed the appeal for lack of jurisdiction.

ILC then filed a motion to dismiss the federal suit, which the district court granted based on principles of collateral estoppel, finding that the ALJ’s decision was a “final judgment on the merits.”  The district court stayed the proceedings and instructed the ARB to rule on the merits of Stone’s claim.  The ARB ultimately dismissed the claim for failure to prosecute and the district court entered a final judgment dismissing the case.  Stone appealed the dismissal of the district court case to the Fourth Circuit.

On appeal, Stone argued that the Sarbanes-Oxley Act’s provision governing whistleblower claims was unambiguous and that he was entitled to a de novo review in federal court because a final decision had not been reached within 180 days of the filing of his complaint.  ILC argued that the district court had the power to apply collateral estoppel to avoid re-litigation.  Applying principles of statutory construction, the Fourth Circuit stated that the Act’s provision governing de novo review was plain and unambiguous.  The court held that a final decision had not been reached within the required 180 days, and that Stone had properly exercised his rights to seek de novo review in district court.  The court stated that in dismissing the federal case, the district court had strayed from the statute’s plain meaning of providing complainants with the opportunity for de novo review, and that courts do not have “free rein” to apply preclusion principles if contrary to Congress’s intent.  The court further found that giving the statute such a literal interpretation did not lead to an “absurd result.”

Contributed by Claudia L. Guzman

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