The U.S. Court of Appeals for the Ninth Circuit last month upheld an award of more than $8 million to a corporate General Counsel who was fired after internally reporting violations of the Federal Corrupt Practices Act (FCPA). See Wadler v. Bio-Rad Laboratories, Inc., No. 17-16193, 2019 WL 924827 (9th Cir. Feb 26, 2019). This decision reconfirms that even company attorneys are legally entitled to report violations of the securities laws without fear of retaliation. The opinion also highlights the need for great care in drafting retaliation claims and presenting such claims at trial.

Sanford Wadler, the General Counsel of Bio-Rad Laboratories, Inc. (“Bio-Rad”), a publicly-traded company, reported to Bio-Rad’s Audit Committee that he believed company representatives in China had violated the Foreign Corrupt Practices Act (FCPA), which prohibits the payment of bribes to obtain business abroad. When Bio-Rad’s CEO learned of Wadler’s report, the CEO quickly proposed adverse action against Wadler. Four months later Wadler was terminated. Bio-Rad subsequently paid $55 million to resolve FCPA violations in several countries.

Wadler filed retaliation claims against his former employer and several officers and board members under the Sarbanes-Oxley Act (SOX) and the Dodd-Frank Act. He also asserted a claim solely against the company for wrongful discharge under California law. The jury found in Wadler’s favor on each of these claims and he was awarded almost $11 million in damages.

On appeal, the Ninth Circuit also reached a result favorable to Wadler, but on more narrow grounds. The Court’s treatment of Wadler’s claims offers significant lessons for potential whistleblower plaintiffs.

Dodd-Frank Retaliation Claim

The Ninth Circuit vacated the judgment in favor of Wadler on his Dodd-Frank claim because the U.S. Supreme Court has held (after the trial court decision in Wadler’s case) that Dodd-Frank’s anti-retaliation provisions protect only whistleblowers who have filed tips with the SEC. See Digital Realty Trust, Inc., 138 S. Ct. 778 (2018). Wadler had not reported the suspected FCPA violations to the SEC and thus lost the approximately $3 million awarded in the trial court on his Dodd-Frank claim. This outcome was unsurprising after Digital Realty, but it serves as a stark reminder that reporting suspected securities law violations to the SEC is essential to obtaining protection under the Dodd-Frank anti-retaliation provisions.

SOX Retaliation Claim

Sarbanes-Oxley prohibits retaliation against an employee who lawfully reports conduct believed to be in violation of, inter alia, “any rule or regulation” of the SEC. In instructing the jury, the trial court stated that FCPA itself is such a “rule or regulation.” The Ninth Circuit concluded, correctly, that the jury instruction was technically inaccurate, i.e., FCPA is a statute, not a rule or regulation. However, the Ninth Circuit’s criticism of the jury instructions is not likely to derail Wadler’s SOX claim in the long run, i.e., the Court noted that the evidence was sufficient to support a verdict in Wadler’s favor on remand.

Defense counsel may attempt to portray Wadler as restricting SOX whistleblower protections. That reading is wrong with regard to both Wadler (as noted above) and whistleblowers generally. With thoughtful preparation, a complaint filed on behalf of a whistleblower who has reported improper foreign payments can almost always identify SEC “rules and regulations” that have been violated. Likewise, experienced counsel can prepare jury instructions that accurately identify those rules and regulations.

Indeed, the Wadler opinion provides substantial support for retaliation claims. The Ninth Circuit emphasized that under SOX a plaintiff faces a “low bar” with regard to the sufficiency of the evidence and need only prove that he or she “reasonably believed that there might have been” a violation, not that there actually was a violation. Likewise, the Court noted that SOX “does not require an employee to undertake an investigation before reporting his concerns.” Despite the remand of Wadler’s claim, the overall tone of the decision is quite favorable for whistleblowers pursuing SOX claims.

Wrongful Termination Claim

Wadler’s strongest claim on appeal was his state law wrongful termination claim. California recognizes claims based on violations of a “fundamental public policy” linked to a constitutional or statutory provision (“Tameny” claim). Finding that Wadler had properly asserted that he was discharged for reporting perceived FCPA violations, the Ninth Circuit affirmed the jury’s favorable verdict on this claim. As a result, Wadler is entitled to receive approximately $3 million in compensatory damages from the company and its CEO jointly, as well as an additional $5 million in punitive damages solely from the company, for a total recovery of $8 million.

In sum, the Ninth Circuit’s decision in Wadler is a substantial monetary victory for Wadler and should provide encouragement (and guidance as to pleading and trial practice) for other whistleblowers and their counsel.

Finally, it is worth noting that the SEC filed an amicus brief in the district court supporting Wadler on an issue of great importance for attorney whistleblowers. The SEC argued that its SOX regulations authorized Wadler to introduce into evidence confidential attorney/client communications, even if the California Bar’s ethical rules prohibited disclosure of those communications. In essence, the SEC asserted that the federal anti-retaliation protections in SOX preempt conflicting state ethics rules. The trial court agreed, thus allowing Wadler to use otherwise-confidential attorney/client documents to prove his retaliation claims.

Whistleblower Aid

The foregoing is provided by Whistleblower Aid, Inc. for general information purposes and is not intended to be, and should not be, taken as legal advice. See https://whistlebloweraid.org/contact/#whistleblower-contact for guidance on how to contact Whistleblower Aid.