[ For the issue of whether arbitration proceedings or severance negotiations toll the limitations period for filing a SOX complaint, see
Filing of Complaint. ]
MANDATORY ARBITRATION; ALJ PROPERLY DISMISSED SOX COMPLAINTS AFTER COMPLAINANTS REPORTED THAT THEY WOULD NOT BE PURSUING ARBITRATION; LATER ARGUMENT THAT THE ARBITRATION WAS NOT MANDATORY WAS NOT CONSIDERED BECAUSE THE COMPLAINANTS' ATTORNEY HAD NOT ARGUED THAT POSITION PRIOR TO DISMISSAL
MANDATORY ARBITRATION; COMPLAINANTS FOUND TO HAVE THE BURDEN TO INITIATE ARBITRATION
In Ulibarri v. Affiliated Computer Services, ARB No. 07-003, ALJ No. 2005-SOX-46 and 2006-SOX-47 (ARB July 31, 2008), the Complainants filed SOX complaints, and the Respondent filed a motion with the ALJ to stay the proceedings arguing that the matter was governed by the company's Dispute Resolution Program (DRP), which compelled arbitration. The Complainants argued that the contract was void ab initio or, alternatively, that the Respondent had breached the DRP and thereby forfeited the right to compel arbitration. Following a hearing on the issue, the ALJ granted the stay. Months later, the Complainants had not proceeded to arbitration and the ALJ ordered them to show cause why the SOX complaints should not be dismissed. When they responded that they would not be pursuing arbitration, the ALJ dismissed the complaints. The Complainants then petitioned the ALJ to reconsider, arguing for the first time that their attorney had failed to highlight for them certain portions of the DRP that arguably excluded their SOX complaints from mandatory arbitration. They also argued for the first time that the dismissal was in error because the Respondent had not initiated the arbitration process. The ALJ denied the motion.
On appeal, the ARB found that the Complainants' attorney had specifically informed the ALJ that the challenge to the arbitration was limited to two grounds (void ab initio or breach). The ARB held that the new argument that the DRP did not mandate arbitration had not been presented by the Complainants' attorney and that they were bound by the attorney's argument. The ARB also found that the Respondent was under no obligation to initiate the arbitration under the language of the DRP or in the context of American jurisprudence generally. The Complainants were the aggrieved parties and it was their burden to initiate the arbitration process.
MOTION TO COMPEL ARBITRATION; PARTICIPATION IN DOL SOX PROCEEDINGS IS NOT A WAIVER OF THE RIGHT TO COMPEL
In Green v. Service Corp. Int'l, No. 4:06-CV-00833 (S.D.Tx. June 30, 2006) (case below 2006-SOX-35), the Plaintiff had removed his SOX whistleblower complaint to federal district court. The Respondent then moved to compel arbitration. Noting that U.S. Supreme Court has held that any doubts concerning the scope of arbitral issues should be resolved in favor of arbitration, the court rejected the Plaintiff's claim that the Defendant had waived its right to compel arbitration when it defended itself in the administrative proceedings before DOL. The court did not find any Fifth Circuit case law on point, but found authoritative the decision of the First Circuit in Brennan v. King, 139 F.3d 258, 264 (1st Cir. 1998), which held that, in determining whether such a waiver occurred, reference is made to judicial rather than administrative proceedings. The court also rejected the Plaintiff's claim that the arbitration agreement was not enforceable because it did not identify the Defendant as the party which could enforce the agreement. Finally, the court denied the Plaintiff's request that his case be dismissed rather than stayed. In Green v. Service Corp. Int'l, No. 4:06-cv-00833 (S.D.Tx. Aug. 17, 2006), the court denied reconsideration. The court recognized that the DOL proceedings resembled the judicial process quite closely, but nonetheless found no authority that states that invoking a process that resemble a judicial process operates as a waiver of the right to compel arbitration. The Plaintiff appealed to the Fifth Circuit, which found that under 16(b) of the FAA, 9 U.S.C. § 16(b), it had no jurisdiction, the case being still pending before the district court. Green v. Service Corp. Int'l, No. 06-20732 (5th Cir. May 30, 2007).
SOX WHISTLEBLOWER JURISDICTION IN FEDERAL DISTRICT COURT DOES NOT EXEMPT EMPLOYEE FROM MANDATORY ARBITRATION AGREEMENT
In Boss v. Salomon Smith Barney Inc., No. 02 Civ. 7539(RO) (S.D.N.Y. May 16, 2003) (available at 2003 WL 21146653), the Plaintiff filed suit seeking damages and reinstatement when his employer fired him allegedly for his failing to change a draft research report under pressure from the employer. Plaintiff, however, had signed a mandatory arbitration agreement as a term of employment, and Defendant moved to stay the litigation and compel arbitration. Plaintiff argued that because the Sarbanes-Oxley Act provides for Federal court jurisdiction to hear whistleblower complaints his suit was exempt from mandatory arbitration. The court rejected this argument and granted the relief requested by the Defendant.
[Editor's note: The text of the decision does not state whether the Plaintiff had filed a SOX complaint with OSHA.]
MANDATORY ARBITRATION; ARBITRATION AGREEMENTS ARE NOT IN INHERENT CONFLICT WITH THE PURPOSES OF THE SOX WHISTLEBLOWER PROVISION
In Guyden v. Aetna Inc., 3:05-CV-1652 (D.Conn. Sept. 25, 2006), after OSHA failed to act on her SOX whistleblower complaint, the Plaintiff filed suit in federal district court, and the Defendant moved to compel arbitration and to dismiss the federal proceedings. The court granted the motion because the Plaintiff had signed an employment contract with a provision calling for mandatory arbitration of employment-related disputes. The court rejected the Plaintiff's argument that the arbitral forum inherently conflicts with the statutory purpose of the SOX, finding that it fell within a line of Supreme Court decisions upholding the enforcement of arbitration agreements over objections that such undermine the role served by a private attorney-general as a protector of the public interest. The court held:
The legislative history reveals that Congress created provisions of the SOX directed at the encouragement and protection of employees who report corporate misconduct. At the same time, the SOX's legislative history underscores the compensatory function of section 1514A to relieve whistleblowing employees from the vagaries of state law and to provide such litigants uniform civil remedies. Such private remedies of reinstatement and backpay can be provided through arbitration.
Slip op. at 8 (citations omitted). The court also rejected as grounds for attacking the arbitration agreement the Plaintiff's complaints that the arbitrator's decision would not be published (and thereby vitiate SOX's purpose of encouraging breach of the "corporate code of silence") and that arbitral discovery is extremely limited (which would cripple her ability to present a fact-intensive whistleblower claim).
ARBITRATION; CLAUSE IN ARBITRATION CONTRACT COVERING "ANY CLAIMS INVOLVING RIGHT PROTECTED BY ANY FEDERAL STATUTE" CAPTURES SOX WHISTLEBLOWER CLAIM, EVEN THOUGH CONTRACT PRECEDED ENACTMENT OF SOX
In Kimpson v. Fannie Mae Corp., No. 1:06-cv-00018 (D.D.C. Mar. 31, 2007), the Plaintiff did not deny the existence of a valid agreement to arbitrate employment disputes with the Defendant, but argued that he did not consent to arbitrate SOX claims because SOX was not listed among the statutes stated to be covered by the dispute resolution policy. The Defendant responded that the comprehensive language of the policy applied to the Plaintiff's SOX claims. The court agreed with the Defendant. Even though SOX had not yet been passed when the arbitration contract was entered into, the court found that language in the agreement regarding the inclusion of "any claims involving rights protected by any federal … statute" captured the Plaintiff's SOX claim. Pursuant to the Federal Arbitration Act, 9 U.S.C. § 3, the court stayed the district court suit pending the conclusion of arbitration.
MANDATORY ARBITRATION; STAY OF ALJ PROCEEDING FOR ARBITRATION TO BE INITIATED
In Ulibarri v. Affliated Computer Services, 2005-SOX-46 and 47 (ALJ Jan. 13, 2006), prior to the hearing the Respondent filed a motion to dismiss or to stay the proceedings and compel arbitration. The Complainants opposed the motion, arguing that the mandatory arbitration agreement had been breached by Respondent, and that there was never a valid enforceable contract to arbitrate based on unconscionability and a failure of mutuality of consideration. The ALJ first observed:
The Federal Arbitration Act (FAA) enforces contractual waivers of the right to judicial resolution of disputes in favor of arbitration. It provides that "[a] written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The FAA requires that any proceedings brought upon any issue referable to arbitration under the terms of such a contract shall be stayed pending arbitration upon application by a party who is not in default in the arbitration.
Slip op. at 17 (footnotes omitted). Upon review of the facts and circumstances of the case, the ALJ found that adequate consideration had been provided for the arbitration clause, that the clause was not unconscionable, and that the Respondent had not breached the contract. The ALJ issued an order staying the hearing in order for the parties to enter arbitration. The ALJ directed the Respondent to file periodic status reports.
In Ulibarri v. Affliated Computer Services, 2005-SOX-46 and 47 (ALJ July 24, 2006), after several months of failed communication, the Respondent filed a letter stating that the Complainant had yet to move forward with arbitration and requesting a dismissal with prejudice of the DOL proceeding. The Complainants responded, expressing frustration with their inability to be heard before DOL on the merits of the complaint, complaining that they had already spent $20,000 litigating their case, that in order to proceed with arbitration they would need an initial $7,000 for attorney fees, and therefore they could not pursue arbitration. The ALJ found no evidence that the Complainants would be required to have counsel to proceed with arbitration, and that the Complainant's stated intent not to pursue arbitration was not attributable to a breach by the Respondent of the agreement to arbitrate. The ALJ therefore dismissed the complaint.
The Complainants thereafter filed a motion to reconsider arguing that the mandatory arbitration clause in their employment contract did not apply to complaints filed with government regulatory agencies. In Ulibarri v. Affliated Computer Services, 2005-SOX-46 and 47 (ALJ Sept. 18, 2006), the ALJ denied the motion finding that that the argument that the clause did not apply to complaints before federal agencies was first raised in the motion to reconsider, and that their attorney at the time of the hearing had implicitly conceded this point with the knowledge and consent of the Complainants.
BINDING ARBITRATION AGREEMENT; ALJ PROCEEDING STAYED PENDING
In Ulibarri v. Affiliated Computer Services, 2005-SOX-46 and 47 (ALJ Jan. 13, 2006), the ALJ held that the Complainants entered into a binding agreement with the Respondent to arbitrate complaints arising out of federal law and that the Respondent had not breached that agreement. Accordingly, pursuant to the Federal Arbitration Act, 9 U.S.C. §§2, 3, the ALJ stayed the SOX whistleblower proceedings pending arbitration. See Boss v. Salomon Smith Barney Inc., 263 F.Supp.2d 684, 685 (S.D.N.Y. 2003) (nothing in the text or legislative history of the SOX evinces an intent to preempt the FAA).
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