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Ninth Circuit Affirms Most of Jury Verdict in Former GC’s SOX Whistleblower Lawsuit

On February 26, 2019, the Ninth Circuit affirmed much of a jury’s approximately $11M verdict finding that a former general counsel was discharged in retaliation for reporting alleged Foreign Corrupt Practices Act (“FCPA”) violations.  Wadler v. Bio-Rad Labs., Inc.No. 17-cv-16193.

Background

Sanford Wadler, then the former General Counsel of Bio-Rad Laboratories, Inc. (the “Company”) filed whistleblower retaliation claims against the Company and its CEO under SOX and Dodd-Frank, along with a wrongful termination claim against the company under California common law.  Wadler’s claims were premised on his allegation that he was discharged for submitting a memorandum to Bio-Rad’s audit committee asserting FCPA violations.

The district court denied the Company’s motion to dismiss after the SEC filed an amicus brief arguing that Dodd-Frank prohibits retaliation based on internal complaints, and the case proceeded to trial.  On the eve of trial, the Company filed a motion to exclude evidence it claimed was shielded by the attorney-client privilege.  The SEC submitted another amicus brief, arguing that federal whistleblower laws are designed to protect all employees of public companies from retaliation, and preempt California’s ethical rules that generally prohibit attorneys from disclosing client confidences.  The motion was denied and a trial was held over several weeks in January and February 2017.  On February 6, 2017, the jury found in Wadler’s favor on each of his claims and awarded him approximately $11M, including $2.96M in backpay, which was doubled under Dodd-Frank, and $5 million in punitive damages under his California public policy claim.  An appeal to the Ninth Circuit followed.

Ruling

The Ninth Circuit upheld the award of damages with the exception of the award of double backpay under Dodd-Frank, recognizing that the U.S. Supreme Court in Digital Realty Trust, Inc. v. Somers, No. 10-1276 (2018), held that Dodd-Frank does not protect purely internal complaints (discussed here).  However, the Ninth Circuit vacated the verdict as to the SOX claim, concluding that the jury instructions erroneously listed the FCPA’s anti-bribery and books-and-records-provisions as “rules and regulations of the SEC” under SOX Section 806.  The court explained that those provisions are not “rules or regulations” of the SEC under Section 806 of SOX because Congress’s use of the phrase “rule or regulation” in conjunction with an administrative agency (the SEC) suggests it was only intended to encompass administrative rules or regulations.  This interpretation was supported by Congress’s use of that phrase in the same list of unlawful activities (in Section 806 of SOX) as violations of “Federal law relating to fraud against shareholders,” which suggests there is a difference between the meaning of a “law”—which encompasses statutes (like the FCPA)—and a “rule or regulation”—which does not.  The Ninth Circuit ruled that the district court erred in instructing the jury otherwise, and that the error was not harmless with respect to the SOX claim.  It remanded the case for consideration of whether a new trial is warranted and directed the district court to consider whether any retrial would result in a double recovery given the portion of the decision affirming the California public policy verdict and the corresponding verdict for compensatory damages for past economic loss.  Notably, the Ninth Circuit did not address the district court’s ruling allowing the use of privileged information at trial.

Implications for Employers

The Ninth Circuit’s narrow reading of what constitutes an SEC “rule or regulation” will make it more difficult for plaintiffs to show they engaged in protected activity under SOX.

© 2019 Proskauer Rose LLP.

TRENDING LEGAL ANALYSIS


About this Author

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....

312-962-3545
Lloyd B Chinn, Financial, Whistleblower Attorney, Proskauer Law Firm
Partner

Lloyd B. Chinn is a Partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd's practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

212-969-3341
Pinny Goldberg Labor and Employment Lawyer Proskauer Rose Law Firm
Associate

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims. 

In...

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