NDCalRecently, a California federal court denied the defendant–employer’s motion for a new trial, upholding the jury’s $7.96 million verdict finding that the Company terminated its former general counsel for reporting alleged Foreign Corrupt Practices Act violations.  See Sanford S. Wadler v. Bio-Rad Labs., Inc. et al., 2017 WL 1910057 (N.D. Cal. May 10, 2017).

Background and Jury Verdict

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.  Wadler asserted several claims against the Company, including whistleblower retaliation claims under SOX and Dodd-Frank, and wrongful termination in violation of California public policy.  His claims were based on his belief that the Company’s Chinese sales department had violated the FCPA and his purported protected activity of drafting a memorandum to the Company’s Audit Committee concerning such allegations.

On the eve of trial, the Company filed a motion to prevent Wadler from introducing virtually all of the evidence and testimony he intended to rely on to prove his case, including all the information he learned in the course of his service as the Company’s general counsel, claiming it was protected from disclosure by attorney-client privilege.  The motion was denied and the trial was held over several weeks in January and February 2017.  On February 6, 2017, the jury awarded Wadler $2.96 million in back wages and $5 million in punitive damages, finding that the Company violated SOX, Dodd-Frank, and California public policy regarding wrongful termination.

The Court’s Denies the Company’s Post-Trial Motions

Following the jury verdict, the Company filed a motion for renewed judgment as a matter of law and a motion for a new trial.  The Company argued that it was entitled to judgment as a matter of law as to all claims that a new trial was warranted because the verdict was against the weight of the evidence.

First, the Company argued that no reasonable jury could conclude that “Wadler engaged in protected activity, that is, that he held a subjectively and objectively reasonable belief that the conduct he was disclosing constituted a violation of the FCPA.”  The Company argued that Wadler’s memo requested an investigation into the potential FCPA violations and that he was trying to protect himself rather than expose wrongdoing.  The Court rejected this argument, relying on testimony from Wadler concerning his conversations with others about potential wrongdoing and that he found it difficult to obtain correct documentation of corporate transactions in China.  In the alternative, the Company argued that Wadler’s subjective belief was unreasonable and pointed to evidence that Wadler’s concerns were based on a fundamental misunderstanding of how the Company conducted its invoicing and business practices in China.  The Court also rejected this argument, citing evidence concerning Wadler’s conversations with others and a presentation in which someone learned of unauthorized contracts in China.

Second, the Company asserted that no reasonable jury could find that Wadler’s protected activity –  writing his memorandum to the audit committee – was a substantial or contributing factor in his termination.  The Company pointed to evidence that Wadler was terminated for “a pattern of behavior involving a series of incidents with coworkers” that demonstrated the incompetence for which he was allegedly terminated.  The Court disagreed, finding support for the jury verdict in evidence of an earlier positive performance evaluation, close temporal proximity between the protected activity and comments concerning his termination, and a negative performance evaluation that was purportedly created after the termination and back-dated.  The Company also argued that it had legitimate, non-discriminatory reasons for terminating Wadler, which was rejected by the Court on similar grounds.

Finally, the Court disposed of the Company’s claim that there could be no Dodd-Frank violation because Wadler did not report the purported violations to the SEC.  The Court followed the Ninth Circuit’s recent decision in Somers v. Digital Realty, Inc., 850 F.3d 1045 (9th Cir. 2017), which held that Dodd-Frank protects those who report internally, and joining other circuits on this issue, including the Second Circuit in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015).

Implications for Employers

This is a troubling case for employers for many reasons.  Chief among those is the fact that it calls into question whether companies can have frank discussions with in-house counsel that will remain privileged if the in-house counsel later asserts a whistleblower claim.  Employers can take comfort in the fact that other courts have reached contrary conclusions about this issue.  For example, in New York, courts have specifically prohibited counsel from relying on privileged information to pursue whistleblower claims.

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Photo of Lloyd B. Chinn Lloyd B. Chinn

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…

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.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.