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Feb. 23 — The U.S. Supreme Court Feb. 23 declined to consider a mental health counselor's argument that the Sarbanes-Oxley Act preempted a state whistle-blower law that allows courts to award attorneys' fees to prevailing defendants.
Leslie Smith claimed Psychiatric Solutions Inc. and two related corporations fired her for reporting patient abuse, Medicare fraud, and falsification of medical forms, but a trial court granted summary judgment to the employer, and the U.S. Court of Appeals for the Eleventh Circuit affirmed (750 F.3d 1253, 38 IER Cases 411 (11th Cir. 2014).
The appeals court also affirmed an award of about $54,000 in attorneys' fees to the employer, finding the SOX Act “in no way interferes with a court's ability to award a prevailing defendant attorneys' fees” under the Florida Whistle-Blower Act.
Smith argued in a petition to the Supreme Court that the Eleventh Circuit misinterpreted “the silence of SOX on employer-side fees” as an endorsement of such an award under state law. But the justices denied the petition and left the Eleventh Circuit ruling intact.
According to the Eleventh Circuit and court records, Smith filed a lawsuit under SOX and the FWA alleging she was fired in 2006 because she told management about alleged staff physical and sexual abuse of residents at the Gulf State Youth Academy and about alleged Medicare fraud and falsification of medical forms.
The U.S. District Court for the Northern District of Florida granted summary judgment in the employer's favor on both the federal and state law claims (2009 BL 101890, 28 IER Cases 1744 (N.D. Fla. 2009)), and the Eleventh Circuit affirmed (358 F. App'x 73, 30 IER Cases 96 (11th Cir. 2009)).
According to the appeals court, Smith failed to establish a prima facie case under the Florida statute because she offered no admissible evidence of patient abuse and no evidence that other matters she complained about were covered by the state law.
Psychiatric Solutions sought an award of attorneys' fees, which the district court granted, and the Eleventh Circuit affirmed.
Smith asked the Supreme Court to review and reverse the appellate court ruling on attorneys' fees.
The Florida whistle-blower protection law, Fla. Stat. § 448.04, provides that a court may award attorneys' fees, court costs, and expenses “to the prevailing party,” while SOX mentions only an award to an employee for damages sustained as the result of unlawful discrimination, including “reasonable attorney fees.”
The Eleventh Circuit wrote SOX “neither authorizes a defendant to recover attorneys' fees nor prevents a defendant from recovering fees that are elsewhere authorized,” and held the federal statute “in no way interferes with a court's ability to award a prevailing defendant attorneys' fees under the FWA.”
In her petition for Supreme Court review, Smith argued that the fee award approved by the Eleventh Circuit compensated Psychiatric Solution for attorney work hours that represented the same time the employers' lawyers spent defending against the SOX claim.
Congress did not authorize SOX fee awards to prevailing employers, Smith argued, and she asserted “state legislatures have no such power.”
The Eleventh Circuit wrote that SOX “neither authorizes a defendant to recover attorneys' fees nor prevents a defendant from recovering fees that are elsewhere authorized,” and held the federal law “in no way interferes with a court's ability to award a prevailing defendant attorneys' fees under the FWA.”
Smith argued that her lawsuit was subject to the “American rule” that parties are generally responsible for their own attorneys' fees unless a court finds a party acted in bad faith or a statute authorizes a fee award.
“That doctrine,” Smith argued, “is not a negative or a void, but a positive fee regimen for federal statutes that can not be displaced by a state legislature.”
Richard E. Johnson in Tallahassee, Fla., filed the petition for Smith.
Opposing high court review, Psychiatric Solutions argued there is nothing in SOX that expressly preempts the Florida whistle-blower law.
The federal and state laws offer different protections, and the attorneys' fees provisions of the statutes differ, Psychiatric Solutions wrote. A prevailing employee is entitled to an award under SOX, while an award to an employee or an employer is a matter within a court's discretion under the FWA.
“As the discretionary FWA provision may give way to the mandatory SOX provision,” the company argued, “the state law presents no obstacle to achieving the federal law's objective, which is to assure a prevailing employee is awarded fees and certain other compensation.”
Arguing that Congress has not outlawed fee awards to defendants under state law, Psychiatric Solution said the Eleventh Circuit properly concluded SOX did not preempt the award of fees against Smith.
Lawrence Keefe and William L. Martin of Keefe, Anchors & Gordon P.A. in Fort Walton Beach, Fla., filed the response for Psychiatric Solutions Inc.
To contact the reporter on this story: Lawrence E. Dubé in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Susan J. McGolrick at email@example.com
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