November 19, 2019

November 19, 2019

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November 18, 2019

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UPDATE: California Federal Court Permits Former Bank Internal Auditor’s Whistleblower Claims to Proceed

A California federal court—in Erhart v. BofI Holding, Inc., 2017 U.S. Dist. LEXIS 14755, Case No. 15-cv-02287 (S.D. Cal. Sept. 11, 2017)—recently denied BofI Federal Bank’s (“BofI’s”) motion to dismiss the Sarbanes-Oxley whistleblower claims plead in their former internal auditor Charles Erhart’s amended complaint. The court also denied BofI’s motion as to Erhart’s defamation claim, allowing it to proceed, but dismissed Erhart’s claims for (i) violation of the Confidentiality of Medical Information Act (“CMIA”); (ii) intentional infliction of emotional distress; and (iii) breach of the implied covenant of good faith and fair dealing.

Prior Rulings

We posted about this case in March, shortly after the court denied (in part) BofI’s motion for summary judgment. In response to Erhart’s complaint, BoFI had filed counterclaims alleging, among other things, breach of a confidentiality agreement predicated on Erhart’s self-help appropriation of his employer’s documents, and subsequent disclosure of that information to the government and press. Erhart’s affirmative defenses were premised on the assertion that his actions constituted protected activity pursuant to various whistleblower statutes. BofI moved for summary judgement on Erhart’s affirmative defenses. But the court sided with Erhart and ruled, among other things, that a confidentiality agreement was not applicable to communications with the government, and that an employee may be able to engage in limited self-help to the extent necessary to support their allegations.

Whistleblower Claims Sufficiently Alleged

BofI’s motion to dismiss Erhart’s amended complaint was pending at the time of that earlier decision regarding Erhart’s affirmative defenses. Earlier this month, the court issued its decision denying in part and grating in part BofI’s motion to dismiss. The court applied the same “reasonable belief” standard that had been recognized by the Ninth Circuit in Rocheleau v. Microsemi Corp., Inc., 680 F. App’x 533, 535 n.2 (9th Cir. 2017) to analyze the whistleblower claims. The court found that Erhart properly alleged he engaged in protected activity by meeting both the subjective and objective components of the reasonable belief standard: that he reasonably believes that the conduct complained of is a violation of the laws enumerated in 18 U.S.C. § 1514A.  The court also held he met the other whistleblower pleading requirements by alleging that BofI knew or suspected that he engaged in the protected activity, that he suffered an adverse action, and that the protected activity was a contributing factor in the adverse action.

Erhart’s Other Claims Are Dismissed

The court granted BofI’s motion to dismiss certain of Erhart’s claims. First, Erhart had not alleged that BofI received medical information as required under the CMIA, so his claim for violation of CMIA was dismissed. Second, Erhart failed to plead sufficient facts to overcome the presumption, created by California Labor Code Section 2922, that his employment was at-will, so his claim for breach of the implied covenant was also dismissed.  Finally, Erhart’s emotional distress claim was barred by the exclusive remedy rule (providing that the California’s Workers’ Compensation Act is the sole remedy for such claims). Erhart’s emotional distress claim did not fall within any exception to the rule. There can be an exception to the exclusive remedy rule if the employer’s conduct exceeds the risks inherent in the employment relationship.  But the California Supreme Court, in Shoemaker v. Myers, 52 Cal. 3d 1, 18 (1990), held whistleblower retaliation is a risk inherent in the employment relationship.  The court held that “[t]he kinds of conduct at issue (e.g., discipline or criticism) are a normal part of the employment relationship. Even if such conduct may be characterized as intentional, unfair or outrageous, it is nevertheless covered by the by workers’ compensation exclusivity provisions.” Id. at 25.

Outlook

The outcome of Erhart’s whistleblower claims remains to be determined, as this case will now proceed towards trial. As to BofI’s disclosure-related counterclaims, it will be interesting to see whether Erhart can meet his burden of showing that his self-help appropriation should be protected. The court ruled that to make such a showing he must establish that such appropriation was limited to the documents necessary to support his whistleblower claims. We will provide updates as the case moves forward.

© 2019 Proskauer Rose LLP.

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About this Author

Harris M Mufson, Class/Collective Action Attorney, Proskauer
Senior Counsel

Harris Mufson is a senior associate in the Labor & Employment Law Department and a member of the Employment Litigation & Arbitration and Whistleblowing & Retaliation Groups.

Adept at counseling clients at every turn of the litigation process, Harris represents employers in a variety of industries, including financial services, health care, entertainment, sports and legal, with respect to a wide range of labor and employment law matters. These include compensation disputes, employment discrimination and retaliation, whistleblowing,...

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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 various entertainment and media companies.

1.310.284.5634
Pietro Deserio, Labor, Employment Attorney, Proskauer Law Firm
Associate

Pietro A. Deserio is an associate in the Labor & Employment Law Department. Pietro's practice concentrates on all aspects of labor and employment law. His employment litigation practice in state and federal courts includes class and collective actions and defending claims of discrimination, harassment, breach of contract and violations of wage and hour laws. He is also a member of the Non-Compete and Trade Secrets Group, representing clients in sensitive and significant trade secret and employment matters.

Pietro litigates and counsels...

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