District Court Lacks Jurisdiction To Enforce Preliminary Orders of Reinstatement In Sarbanes-Oxley Cases

The long, strange trip of the first person to be awarded reinstatement under the Sarbanes-Oxley Act recently took another turn. The U. S. District Court for the Western District of Virginia dismissed the petition to enforce an Administrative Law Judge's preliminary order of reinstatement, finding that it lacked jurisdiction to enforce the order. This is the second federal court to find it lacked jurisdiction to enforce preliminary orders to reinstate SOX Act complainants to their former positions.

The procedural facts of the case are messy but critical to understanding the result. The individual's complaint filed with the Occupational Safety and Health Administration alleging a violation of the SOX Act was initially denied. Following an appeal and hearing on that decision, an Administrative Law Judge issued a supplemental recommended decision and ordered the company to reinstate the individual to his previous position. Pursuant to SOX regulations, the company appealed that decision and order to the Administrative Review Board.

In the meantime, even though it had not obtained a stay of the recommended order, the company refused to reinstate the individual, who subsequently sought enforcement. Since the ALJ held that the order could only be enforced in the district court, the individual applied for but was denied enforcement by the court which found there were questions as to whether the ALJ intended the supplemental recommended decision and order to be an order of reinstatement.

Following clarification from the ARB that the ALJ's supplemental recommended decision and order was, in fact, a preliminary order of reinstatement, the individual filed a petition to enforce it in the U. S. District Court for the Western District of Virginia. The court said while it had jurisdiction to enforce a final order, the preliminary order of reinstatement was not a final order and the court lacked jurisdiction to enforce it. The court noted that although the regulations promulgated by the Department of Labor under SOX provide for enforcement of preliminary orders of reinstatement in the district court, this conflicted with the plain language of the statute.

In support of its decision, the court relied on a decision of the U. S. Court of Appeals for the Second Circuit in Bechtel v. Competitive Tech, Inc., 448 F.3d 469 (2d. Cir. 2006). There, the federal appeals court declined to enforce a preliminary order of reinstatement, noting that the regulations were not authoritative over the district court. Other federal statutes with enforcement mechanisms similar to the SOX Act further supported the court's decision. Moreover, the court reasoned that its conclusion was consistent with the efficient administration of justice in that it insured appeals of ALJ orders would go through all levels of the administrative process before reaching federal court. If it were otherwise, "the immediate enforcement at each level would cause a rapid sequence of reinstatement and discharge and a generally ridiculous state of affairs."

Reaching its decision, the court acknowledged that this situation represented a departure from the Congressional intent that Sarbanes-Oxley claims would be adjudicated quickly and that the remedy of reinstatement would be provided in a short amount of time. Recognizing that over 18 months had passed since the ALJ had issued his supplemental recommended decision and order, the appeal was still pending before the ARB, and the delay was inordinate, the court noted that the SOX Act provides an alternative procedure in the district court if a final decision by the administrative process is not reached within 180 days from filing the complaint.

This decision is a positive development for employers regarding the remedy of reinstatement, one of the most worrisome aspects of the SOX Act. However, in recognizing the delays in the administrative adjudicative process and the inability to enforce a preliminary order of reinstatement, this decision ultimately may lead more SOX complainants to opt for de novo review in federal district court after the 180-day period from the time the complaint is filed. This option would take the dispute out of the administrative review process and into the federal judicial process with all the risks associated with litigation.

Jackson Lewis attorneys are available to assist employers in advising and counseling, as well as establishing compliance programs and defending the litigation of SOX complaints.

Jackson Lewis attorney Joseph C. Toris assisted in the preparation of this article.