USDC Northern District of CA Upholds Fired General Counsel’s Dodd-Frank Act “Whistleblower” Suit Against Company’s Board of Directors

On October 23, 2015, in Wadler v. Bio-Rad Laboratories, Inc., et al., case no. 15-cv-02356-JCS, Chief U.S. Magistrate Judge Joseph C. Spero ruled that plaintiff, the former general counsel of the defendant company, could state a private claim for relief against the company and its individual directors under the Dodd-Frank Act, 15 U.S.C. §78u-6, pursuant to the “whistleblower” provisions of the statute. The defendants had moved to dismiss such claims on the grounds that the statute only permitted the whistleblower plaintiff to sue the “employer,” i.e., the company, for retaliatory termination of employment. The court concluded that Congress intended the Dodd-Frank Act to provide for individual liability at least as extensive as that of the Sarbanes-Oxley Act, 18 U.S.C. §1514A, which Congress had enacted in 2002 following the collapse of Enron Corporation. Sarbanes-Oxley provided that no publicly traded company, or any officer, employee or agent of the company, could retaliate against an employee for providing information or assisting in an investigation into matters the employee believed constituted violations of the securities laws or applicable SEC rules.

In Wadler, plaintiff, who had held the general counsel position for more than twenty years, alleged that he was abruptly terminated because he refused to cooperate in what he viewed as a cover-up of an illegal bribery scheme to enhance the marketability of the company’s products in China. (The company agreed in 2014 to pay $55.1 million to the U.S. Department of Justice and the Securities Exchange Commission to avoid prosecution for violations of the Foreign Corrupt Practices Act.)

Judge Spero rejected the defendants’ arguments that the Dodd-Frank Act claims should be dismissed as against the individual board members because plaintiff had not provided information to the SEC. Plaintiff argued that Dodd-Frank’s definition of “whistleblower” was ambiguous and, accordingly, that the court should adopt the SEC’s interpretation of the scope of the statute. The SEC interprets the Act to extend its anti-retaliation provisions not only to individuals who brought information about possible securities violations to the SEC but also to “internal” whistleblowers like plaintiff. Significantly, the SEC filed an amicus brief supporting plaintiff’s opposition to defendants’ motion to dismiss and his interpretation of the statute as protecting internal whistleblowers.

The court’s decision leaves a split between the Fifth and Ninth Circuits on this issue; there also remains a split of authority within some of the district courts within the Ninth Circuit. Judge Spero’s persuasive reasoning tracks with that of Northern District Judge Edward M. Chen in Somers v. Digital Realty Trust, Inc., no. c-14-05180 EMC, 2015 WL 4483955, who also found the statute ambiguous on the issue of the Dodd-Frank Act’s coverage for internal whistleblowers while adopting the SEC’s interpretation that covers such individuals. This suggests that at least in the Ninth Circuit, internal whistleblowers will be able to obtain the protections of the Dodd-Frank Act if their employers take retaliatory employment actions against them after concerns are raised about the company’s activities.

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