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May 7 -- Because the Sarbanes-Oxley Act doesn't preempt a state whistle-blower statute that allows courts to award attorneys' fees to prevailing defendants, a health care employer that defeated a fired worker's retaliation claims under the SOX Act and the Florida Whistle-Blower Act may recover about $54,000 in legal fees, the U.S. Court of Appeals for the Eleventh Circuit ruled May 6 .
Affirming the fee award to Psychiatric Solutions Inc., Premier Behavioral Solutions Inc. and Gulf Coast Treatment Center Inc., the Eleventh Circuit said although the SOX Act is silent regarding legal fees for prevailing defendants, the federal law doesn't prevent employers that prevail on whistle-blower claims filed jointly under the SOX Act and state law from recovering attorneys' fees authorized under the state law.
“[W]e are persuaded that when a prevailing defendant-employer has moved for attorneys' fees, Sarbanes-Oxley's fee provision has no application,” the court said. “It neither authorizes a defendant to recover attorneys' fees nor prevents a defendant from recovering fees that are elsewhere authorized. The [SOX Act] in no way interferes with a court's ability to award a prevailing defendant attorneys' fees under the FWA [Florida Whistle-Blower Act].”
Leslie Smith, a fired mental health counselor who filed the unsuccessful suit under the SOX Act and Florida law, argued the SOX Act preempts state law to the extent it authorizes attorneys' fees for defendants who prevail in whistle-blower cases that include SOX Act claims.
But the court said the FWA's fee provision presents no obstacle to accomplishment of the SOX Act's purposes and objectives.
Rather, the Florida statute, by also protecting employees from retaliation for reporting suspected illegal conduct, “acts as a corollary to Sarbanes-Oxley and supports the federal objective by further incentivizing employees to blow the whistle on corporate wrongdoing,” the court said.
“[W]hile the FWA authorizes courts to award fees to prevailing defendants, this alone does not frustrate the federal objectives underlying Sarbanes-Oxley,” Judge Arthur L. Alarcon wrote.
“Fee awards under the FWA are discretionary, so judges need not award prevailing defendants fees if they determine doing so might deter employees from bringing meritorious whistleblower actions in the future,” the court said. “Further, aggrieved employees can themselves eliminate the risk they may be held liable for a prevailing defendant-employer's attorneys' fees by forgoing an FWA claim and alleging only a Sarbanes-Oxley claim.”
Judges Gerald B. Tjoflat and Emmet R. Cox joined in the decision.
Smith contended 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.
But a federal district court granted the defendants summary judgment on Smith's SOX Act and Florida law whistle-blower claims (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)).
The Law Office of Richard E. Johnson represented Smith. Keefe Anchors & Gordon represented the defendants.
Text of the opinion is available at http://www.bloomberglaw.com/public/document/SMITH_v_PSYCHIATRIC_SOLUTIONS_INC_No_1312785_2014_BL_125997_11th_.
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