Last week, the Sixth Circuit U.S. Court of Appeals stayed George Fort's preliminary order of reinstatement. Tennessee Commerce Corp. fired Fort last year after he sent a letter to the company's audit committee about failures in the bank's internal controls. Fort filed a whistleblower complaint under the Sarbanes-Oxley Act (SOX). I reported here about how the Occupational Safety and Health Administration (OSHA) issued a preliminary order requiring TCC to immediately reinstate Fort to his former position.
The case deserves comment here about the importance of preliminary orders in modern whistleblower protections. TCC challenges the enforceability of such orders, and if it prevails, the result would be a serious setback for the whistleblower cause. Indeed, even the stay itself has taken the power away from OSHA's reinstatement order for George Fort. Still, whistleblower advocates need to know that the Sixth Circuit has issued a fairly rapid briefing schedule. Hopefully, the stay will not be in effect for long and this issue might be resolved in favor of OSHA's power to enforce preliminary reinstatement orders.
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:
Reinstate Fort as CFO immediately;
Pay backpay of $6,442.40 per week ($624,913, and counting);
Pay $301,500 for a missed bonus;
Pay interest (which I estimate to be $117,299, and counting;
Pay $35,000 for seven missed Board meeting fees;
Reinstate Fort's stock options of 152,308 shares ($1,057,018 at $6.94 per share, although this price is declining today);
Pay $31,601.41 in medical expenses, car allowance, insurance and job hunting expenses;
Pay attorney fees of $129,794.19;
Expunge Fort's employment records;
Refrain from further retaliation; and,
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.