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Here is the text of our letter:

July 21, 2010

Paul M. Igasaki, Chair & Chief Judge

Administrative Review Board

U.S. Department of Labor

2000 Constitution Ave., N.W., N5404

Washington, D.C. 20210

Re: Johnson v. Siemens Building Technologies, Inc., ARB No. 08-032/ALJ No. 2005-SOX 015

Dear Chair and Chief Judge Igasaki:

We are writing in further regard to the briefing order issued in the above-captioned case on April 15, 2010 and your letter issued today.

As you are aware, today President Obama signed into law the Dodd-Frank Wall Street Reform Act, which directly impacts the issue under consideration in this case. The Dodd-Frank Act amends The Sarbanes–Oxley Act of 2002 (SOX) to include liability for subsidiary companies. Based on the text of this amendment and its legislative history the issue of subsidiary coverage under SOX should be readily resolved.

The portion of Dodd-Frank that concerns subsidiary coverage is contained in Section 929A of the Act. The legislative history for this section is set forth on page 114 of Senate Report No. 111-176. A copy of the relevant page of the report is attached.

The Report explains that section 929A amended section 806 of the Sarbanes-Oxley Act of 2002 in order to “make clear that subsidiaries and affiliates of issuers may not retaliate against whistleblowers . . . .” The amendment was designed to eliminate the current employer defense that subsidiaries of publicly traded corporations somehow were not covered under SOX, and explicitly clarified the original intent of the statute: The “clarification” contained in section 929A “would eliminate a defense now raised in a substantial number of actions brought by whistleblowers under the statute.” ¹

Congress’ use of the phrase “make clear” in explaining the legislative intent behind the amendment was not an accident. This precise phrase was used in another leading case interpreting a similar whistleblower law, also administered by the Department of Labor. In Willy v. Administrative Review Bd. 423 F.3d 483, 489, n. 11 (5th Cir. 2005), the Fifth Circuit gave effect to a similar legislative action on the basis that the legislative history and indicated that such an amendment is intended to “make clear” the original intent: “The legislative history of the 1992 Energy Policy Act, too, makes clear that Congress intended the amendments to codify what it thought the law to be already.” (Emphasis added). Accord., Kansas Gas & Elec. Co. v. Brock 780 F.2d 1505, 1512 (10th Cir. 1985) (applying amendment to law as indication of Congress’ original intent).

Based on section 929A of the Dodd-Frank Act, and consistent with this section’s legislative history and controlling case law, we believe the issue of subsidiary coverage has been resolved by explicitly and clear legislative action. It is now imperative that the Department of Labor effectuate this intent, and ensure that the SOX is fully and properly administered in a manner intended by Congress.

Respectfully submitted,

Stephen M. Kohn

Executive Director

Richard R. Renner

Legal Director

Enclosure: Page 114 from S. Rep. 111-176

The Court's majority relied on this sentence from Article II of the Constitution:  The executive Power shall be vested in a President of the United States of America. The majority held that allowing only the Securities and Exchange Commission (SEC) to remove members of the Public Company Accounting Oversight Board "stripped" the President of the power to hold the Board members accountable. 

Still, the majority held that "the unconstitutional tenure provisions are severable from the remainder of the statute." The decision explains as follows:

The Sarbanes-Oxley Act remains “‘fully operative as a law’” with these tenure restrictions excised. New York [v. United States], 505 U. S. [144], at 186 (quoting Alaska Airlines, Inc. v. Brock, 480 U. S. 678, 684 (1987)). We therefore must sustain its remaining provisions “[u]nless it is evident that the Legislature would not have enacted those provisions . . . independently of that which is [invalid].” Ibid. (internal quotation marks omitted). Though this inquiry can sometimes be “elusive,” [INS v.] Chadha, 462 U. S. [919], at 932 [(1983)], the answer here seems clear: The remaining provisions are not “incapable of functioning independently,” Alaska Airlines, 480 U. S., at 684, and nothing in the statute’s text or historical context makes it “evident” that Congress, faced with the limitations imposed by the Constitution, would have preferred no Board at all to a Board whose members are removable at will. Ibid.; see also Ayotte [v. Planned Parenthood of Northern New Eng., 546 U. S. 320], supra, at 330 [(2006)].

Justice Breyer said that SOX does not significantly interfere with the President's "executive Power." He adds, "the Court's contrary holding threatens to disrupt severely the fair and efficient administration of the laws." He notes that the Constitution also gives to Congress the power to enact statutes "necessary and proper" to carry out its enumerated authority. The Framers made clear two centuries ago that it would be "unwise" to deprive Congress of the flexibility to respond to future "exigencies." He notes that hundreds of other federal officials have their jobs protected by statutory limitations on the power to remove them.  He listed them in Appendices A and B to his opinion. He explained that there may be others because he listed only the members of the Senior Executive Service (SES) who are high-ranking officials serving below the Presidential appointees who can be removed only "for cause."  These are also the officials who have opposed the provisions of the Whistleblower Protection Enhancement Act (WPEA) that would allow federal employees to have jury trials for their retaliation claims. Justice Breyer also criticized the majority for allowing private individuals whose only standing is based on being regulated by the agency to challenge the statute's limitation on the President's power of removal. Justice Breyer argues that this is a significant expansion of standing.  I note that it is an expansion of standing for business interests, and expansion the Court has been more reluctant to extend for environmentalists.

Congress first authorized the Department of Labor to issue preliminary reinstatement orders as part of the Surface Transportation Assistance Act (STAA) in 1982. 49 U.S.C. § 31105. Congress was concerned about the “increasing number of deaths, injuries and property damage” resulting from commercial trucking accidents. Brock v. Roadway Express, Inc., 481 U.S. 252, 258 (1987) (quoting 128 Cong. Rec. 32509, 32510 (1982)). In Brock v. Roadway Express, the Supreme Court recognized the importance of the preliminary order of reinstatement:

Congress also recognized that the employee's protection against having to choose between operating an unsafe vehicle and losing his job would lack practical effectiveness if the employee could not be reinstated pending complete review. The longer a discharged employee remains unemployed, the more devastating are the consequences to his personal financial condition and prospects for reemployment. Ensuring the eventual recovery of backpay may not alone provide sufficient protection to encourage reports of safety violations. Accordingly, § 405 incorporates additional protections, authorizing temporary reinstatement based on a preliminary finding of reasonable cause to believe that the employee has suffered a retaliatory discharge. The statute reflects a careful balancing of the relative interests of the Government, employee, and employer.

The Sixth Circuit did not cite to Brock or consider this public safety objective in issuing its stay. Congress, however, recognized the power of this tool to encourage whistleblowers with the fastest possible reinstatement. If the Department of Labor finds that a worker was fired for raising a public health or safety concern, then our society has two pressing reasons to see that worker reinstated quickly: (1) we want to encourage other employees in coming forward with such concerns by showing them that government will flex its muscle on their behalf to get them their jobs back, and (2) we want the safety-conscious employees on the job so they can continue to look out for us. Congress has included similar power for the Department of Labor to issue preliminary orders of reinstatement in subsequent whistleblower protections, including the Energy Reorganization Act (ERA) which protects nuclear whistleblowers, AIR 21 which protects airline employees, SOX, the Consumer Product Safety Improvement Act, the Federal Rail Safety Act and the National Transit Systems Security Act. Notably absent from this list are the earlier protections for health, safety and environmental whistleblowers. These older laws are still hindered by a thirty (30) day statute of limitations and antiquated remedies.

As I reported here on March 19, 2010, George Fort worked for the Tennessee Commerce Bank (stock symbol TNCC) since 2004. He was soon promoted to CFO and was responsible for the bank's SOX compliance. In June 2007, the bank's CEO, Arthur Helf, decided that he and the other top executives deserved bonuses and pay raises that would more than double their annual compensation.  Three board members resigned in protest. Then Helf decided that he would cash out over a million dollars in stock options just before the bank had to report the raises and resignations.  Fort objected that this was insider trading. Fort also raised concerns about internal controls, file maintenance procedures and fabrication of meeting minutes. By 2008, Fort had decided that he would no longer sign the bank's Form 10k because he believed the company was not in compliance with SOX. Over Helf's objection, Fort went to the bank's audit committee to present his concerns. Fort went to federal and state bank regulators with his concerns. The next day, the bank placed Fort on administrative leave, and later fired him.

 On March 17, 2010, OSHA issued its findings. They show that OSHA's staff gave strong weight to the timing of the administrative leave right after Fort went to state and federal regulators. This was sufficient to find that Fort's protected activities were a contributing factor in the decision to fire him. OSHA's investigation also uncovered inconsistencies in the bank's explanation of how and when it decided to fire Fort. These prevented the bank from proving that they would have fired Fort even if there had been no protected activity. OSHA informed TNCC of its preliminary findings and gave the bank an opportunity to submit evidence.  TNCC initially submitted no evidence but asked for mediation to try to settle the case.  When the settlement negotiations failed, then the bank submitted new evidence.  OSHA found that the new evidence did not change its findings.

OSHA ordered TNCC to:

1. Reinstate Fort as CFO immediately;

2. Pay backpay of $6,442.40 per week ($624,913, and counting);

3. Pay $301,500 for a missed bonus;

4. Pay interest (which I estimate to be $117,299, and counting;

5. Pay $35,000 for seven missed Board meeting fees;

6. Reinstate Fort's stock options of 152,308 shares ($1,057,018 at $6.94 per share, although this price is declining today);

7. Pay $31,601.41 in medical expenses, car allowance, insurance and job hunting expenses;

8. Pay attorney fees of $129,794.19;

9. Expunge Fort's employment records;

10. Refrain from further retaliation; and,

11. Post a "Notice to Employees" about their rights under SOX.

I compute that the total present value of this order is $2,297,125 -- the largest amount of any OSHA order for a whistleblower that I know about. This figure assumed that TNCC will comply with the reinstatement order and stop Fort from suffering further lost wages and compensation. The value of the reinstatement order is likely to be worth even more than this figure. OSHA's press release, however, says only that the value of this order is over $1 million.

TNCC quickly announced that it would appeal. Meanwhile, it refused to obey the preliminary order of reinstatement. This refusal prompted OSHA and the U.S. Attorney in Nashville, Tennessee, to seek a federal court injunction. Assistant U.S. Attorney Mark H. Wildasin made a nice argument in opposition:

The bank has willfully ignored the Secretary’s order to reinstate him for more than two months. He should not be made to sit another day – much less many more months – waiting to return to work at his former job because he did the right thing and complained of Sarbanes-Oxley violations.

Congress has made the policy decision that reinstatement should be immediate and effective to protect actual whistleblowers and their colleagues who remain at work. 

On May 19, 2010, U.S. District Court Judge William J. Haynes granted that injunction in Solis v. Tennessee Commerce BanCorp, Inc., No. 3:10-00472. TNCC immediately sought a stay of that order. Judge Haynes found that its motion “does not cite any evidence that would justify a stay.” Without evidence of any irreparable harm, and without pointing to any factual errors in the judge's order, Judge Haynes saw no grounds for a stay.

TNCC promptly appealed to the U.S. Court of Appeals for the Sixth Circuit. It sought a stay again. On May 25, 2010, the Sixth Circuit granted that stay. Case No. 10-5602. Its order finds a “substantial question,” specifically whether the preliminary order is “an order issued under paragraph (3).” 49 U.S.C. § 42121(b)(5). Paragraph 3 states in part:

(A) DEADLINE FOR ISSUANCE; SETTLEMENT AGREEMENTS. Not later than 120 days after the date of conclusion of a hearing under paragraph (2), the Secretary of Labor shall issue a final order providing the relief prescribed by this paragraph or denying the complaint.

As the preliminary order has final effect, it seems easy enough for me to find that it can be enforced. When the statute is considered as a whole, with a purpose of obtaining the soonest possible reinstatement, there is no purpose in having preliminary reinstatement if it cannot be enforced. Remember Brock?

The Sixth Circuit balanced the hardships as follows:

The defendants assert that they will suffer irreparable harm if Fort is physically reinstated immediately. They argue that Fort’s reinstatement will cause disruption to the bank’s personnel and operations that cannot be undone if this court finds the district court lacked authority to issue the injunction. By contrast, if the reinstatement order was properly issued, Fort can be made whole with compensatory damages, back pay, and interest. A balancing of the harms supports the issuance of a stay.

The Court did not consider the disruption to the investing public in TNCC's continued use of financial data prepared without proper internal controls. It did not consider the damage that comes to an employee in suffering a prolonged absence from the workplace. And if Fort can be made whole with a simple order of backpay and interest, why can't TNCC be made whole with the value of Fort's work during the time of reinstatement?

What distresses me more, however, is the Sixth Circuit's consideration of the “public interest.” On page one, the Sixth Circuit recognizes that one of the required considerations in issuing a stay is “where the public interest lies.” The words “public interest” do not thereafter recur in the Court's order. The Court just forgot to do what it is required to do. There is no consideration of the public's interest in making sure that TNCC has a CFO who will follow the law. Similarly, the Sixth Circuit does not consider the goal of assuring that employees are encouraged to come forward.

The Sixth Circuit did set a prompt briefing schedule. Hopefully, with the benefit of full briefing by the end of this summer, the court will see the light of the public interest at stake and lift its stay so George Fort can finally go back to work and protect us all.