In-House Counsel and Whistle-Blower Issues

May 10, 2017

Author: John M. Tanner and Cecil E. Morris, Jr.

In the November CLE sessions, we discussed the distinction between wrongful termination/whistleblowing under state law on the one hand and statutory whistleblower protections under federal law on the other hand.  For example, we discussed Pang v. International Document Services, 356 P.3d 1190 (Utah 2015).  In Pang, the Utah Supreme Court affirmed the trial court ruling that a fired in-house counsel had no recourse under Utah law protecting whistle blowers because the Utah public policy protecting whistle blowers was not as strong as the Utah public policy allowing a client unfettered discretion in choosing counsel.  We mentioned that there was a contrary line of federal cases.

Well, recently that contrary line really showed its colors in Wadler v. BioRad in the Northern District of California.  There, the fired in-house general counsel sued under the whistle-blower protections of Dodd-Frank and Sarbanes-Oxley.  He won $3 million in actual damages, $5 million in punitive damages, and another $3 million under Dodd-Franks doubling of actual damages.  There, the U.S. District Court held that Dodd-Frank trumped California state ethics rules.

Wadler V. BioRad

Sandy Wadler was general counsel for BioRad Laboratories, Inc., a company that manufactured lab equipment and sold it worldwide, for nearly 25 years.  Because Bio-Rad sells many of its products to hospitals, universities, and similar public entities and officials, it must abide by the terms of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. §§ 78dd-2, 78ff, which forbids the company or its agents from engaging in bribery and kickback schemes involving public officials and requires that companies maintain accurate accounting records and put in place adequate internal controls or face significant fines and possible criminal punishment.

Mr. Wadler was terminated by Bio-Rad in June 2013.  He claimed he was terminated because he was investigating potential FCPA violations in China and because he reported his concerns to Bio-Rad’s Audit Committee “when it became clear that the company was not taking reasonable steps to investigate and remedy FCPA violations.”  Bio-Rad contended it terminated Mr. Wadler “due to poor work performance and behavior.”

Mr. Wadler’s allegations were addressed in administrative proceedings conducted by the SEC and the DOJ in connection with an investigation of potential FCPA violations in China on the part of Bio-Rad.  They were also the subject of a whistleblower complaint filed by Mr. Wadler with the Department of Labor, which he brought under the 2013 Sarbanes-Oxley Act.   Interestingly, it was ultimately determined Bio-Rad had not violated the FCPA.

Bio-Rad addressed Mr. Wadler’s allegations in its January 28, 2014 response to the DOL complaint, asserting that Mr. Wadler did not use reasonable diligence in investigating Bio-Rad’s activities in China and that his accusations were not made in good faith.  Bio-Rad asserted that it fired Mr. Wadler because his behavior and performance had deteriorated over the previous year. Mr. Wadler later brought suit in the Northern District of California.

In a significant pre-trial ruling, the District Court determined that Mr. Wadler was entitled to use not only information protected by California’s equivalent of Rule of Professional Conduct 1.6, but even information that would otherwise be considered attorney-client privileged.  Wadler v. Bio-Rad, 2016 U.S. Dist. LEXIS 176166 *; 2016 WL 7369246 (N.D.Cal.).  The District Court ruled that:  (a) the exception in California’s equivalent to Model Rule 1.6 allowing a lawyer to use client information in a dispute between the lawyer and the client applied; (b) in the prior administrative actions and also in the case at bar, Bio-Rad had waived whatever privilege might have applied; and (c) Sarbanes-Oxley itself might well pre-empt state ethics rules.

The trial was to a jury.  Bio-Rad’s claim that Mr. Wadler had been fired for cause lost considerable credibility when it produced a performance review dated two months before the firing, but forensic examination of the meta data showed the document had been at least modified, if not created entirely, after the termination.

The jury awarded $3 million in actual damages and $5 million in punitive damages.  The court doubled the actual damages pursuant to Dodd Frank.  Bio-Rad also later agreed to reimburse Mr. Wadler $3.5 million for attorneys’ fees.

Conclusion:  The interplay between state and federal whistle-blower statutes and state ethics rules is still being developed, so utmost care must be taken.  Wadler v Bio-Rad is another step in that development.  The importance of forensically preserving documents is underscored in Wadler, as its manipulation of Mr. Wadler’s review document after he was fired may well have lost it all credibility and, ultimately, the case and $15 million.

 

For more information, contact Jack Tanner at (303) 894-4495 or jtanner@fwlaw.com, or Cecil Morris at (303) 894-4424 or cmorris@fwlaw.com,