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N.D. Cal.: Internal Whistleblowers Are Protected and May Sue Individual Directors

On October 23, 2015, the U.S. District Court for the Northern District of California largely denied a motion to dismiss a whistleblower retaliation claim brought by a company’s former general counsel, ruling that:  (I) the SOX and Dodd-Frank anti-retaliation provisions provide for individual liability against board members; and (ii) the Dodd-Frank anti-retaliation provision protects internal whistleblowers.  Wadler v. Bio-Rad Laboratories, Inc., 2015 U.S. Dist. LEXIS 144468 (N.D. Cal. Oct. 23, 2015).

Background

Plaintiff Sanford Wadler, the former general counsel of Defendant Bio-Rad Laboratories, Inc. (the “Company”), filed suit against the Company and its individual board members after his employment was terminated in June 2013.  Plaintiff asserted six claims against the Company, including whistleblower retaliation claims under SOX and Dodd-Frank.  Notably, Wadler did not allege that he had ever reported any securities law violations to the SEC.  Accordingly, the Company and the individual board members moved to dismiss his whistleblower claims on the grounds that he does not qualify as a protected “whistleblower” under SOX or Dodd-Frank.

The Court’s Ruling

The district court ruled, in pertinent part, that:

1.      Although the language of SOX is ambiguous, the legislative intent and context of SOX suggest that board members may be held individually liable as agents;

2.      Congress intended Dodd-Frank to allow for liability, which was at least as extensive as SOX, so therefore, board members may be held individually liable for retaliating against whistleblowers; and

3.      Internal whistleblowers are protected from retaliation under Dodd-Frank.  In this regard, the court relied on the reasoning in an earlier Northern District of California case, Somers v. Digital Realty Trust, to conclude that “Dodd-Frank is ambiguous on the question of whether its anti-retaliation provisions apply to an individual who has provided information regarding possible illegal activity internally but has not provided such information to the SEC.”  The court gave deference to the SEC’s expansive interpretation of Dodd-Frank.

The court only dismissed, as untimely, Plaintiff’s SOX whistleblower claim as to the individual board members to whom Plaintiff did not give adequate fair notice in his administrative complaint.  Plaintiff only gave adequate fair notice, for SOX purposes, to the CEO.  Therefore, the court only allowed the SOX individual liability whistleblower retaliation claim to proceed against the Company’s CEO.

Implications

This case continues the trend of SOX and Dodd-Frank whistleblower complaints being filed by in-house counsel and underscores the risks of individual liability under SOX and Dodd-Frank—risks that extend to board members.

© 2019 Proskauer Rose LLP.

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About this Author

Jeremy M. Mittman, Proskaeur Rose, Special Employment Counsel, Attorney, Unlawful Discrimination Lawyer,
Special Employment Counsel

Jeremy Mittman is a special employment counsel in the Labor & Employment Law Department. He represents management in litigation of employment-related matters, including claims of unlawful discrimination, harassment, and retaliation, as well as state and federal wage and hour claims. In addition to litigation, Jeremy counsels clients on compliance with employment-related laws and on developing, implementing and enforcing personnel policies and procedures. He has represented employers in a variety of industries, including financial services, security services, and...

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Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm
Partner

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S. District Court for the Northern District of Illinois.

312-962-3545
Bali Kumar, Labor, Employment Attorney, Executive Compensation Group, Proskauer Law FIrm
Associate

Bali Kumar is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group. Bali assists with representation of senior executives, compensation committees, companies and other entities on a range of executive compensation matters.

Prior to law school, Bali attended the London School of Economics where he earned a Masters of Science in International Employment Relations & Human Resources Management. Bali worked as an Executive Compensation Consultant for several years at...

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