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In the Courts
The Ninth Circuit affirmed the majority of an $11 million jury verdict brought by a whistleblower who claimed that his company fired him for raising concerns about possible FCPA violations. Sanford Wadler, the former general counsel of Bio-Rad Laboratories, Inc. (Bio-Rad), alleged that he was fired from Bio-Rad after he wrote a memo to a committee of the Board of Directors stating that he believed senior management was “complicit” in Foreign Corrupt Practices Act (FCPA) violations he thought were being carried out by Bio-Rad's employees in China. Though the Ninth Circuit found that a jury instruction was incorrect, and that Dodd-Frank no longer applied to the claims at issue based on intervening Supreme Court precedent, it affirmed Wadler's state claim and roughly $8 million of the jury's original award against Bio-Rad.
Mr. Wadler alleged that an internal investigation at Bio-Rad revealed several red flags about business operations in China, including unexplained payments and missing sales documentation. Mr. Wadler said that Bio-Rad's CEO, Norman Schwartz, was made aware of these issues and told Mr. Wadler that he wasn't going to take any action on the matter. Further investigation at the company revealed that Bio-Rad was mislabeling the number of products it shipped on import and export cover sheets. Instead of reporting accurate data about what was being shipped, Bio-Rad's Chinese employees were using an “under the covers” scheme, where they failed to report a significant portion of extra free products that they were shipping to certain customers. Employees in China had also entered into unauthorized contracts which permitted distributors to receive unapproved incentive payments.
Mr. Wadler submitted this information to the Board's Audit Committee, and in his letter he explained that he had not raised his concerns with senior management because he believed they were aware of these violations. Two days after the CEO heard about Mr. Wadler's letter, he told the human resources department that he was thinking about placing Mr. Wadler on leave for strange behavior. In the meantime, the Audit Committee had authorized Mr. Wadler to hire a law firm to look into his allegations. Three days after the law firm presented its findings to the Board stating they had found no FCPA violations in China, Mr. Schwartz fired Mr. Wadler. Though Bio-Rad never had to pay any fines regarding activities in China, it ultimately paid $55 million for FCPA violations in Russia, Thailand, and Vietnam.
Mr. Wadler alleged he was fired in violation of the Sarbanes-Oxley Act (SOX), the Dodd-Frank Act, and California public policy. The jury found in favor of him on each claim. On appeal, Bio-Rad claimed that the jury had been incorrectly instructed that SOX protects employees against retaliation for reporting a violation of the FCPA. Bio-Rad argued that SOX actually protects against reporting of a violation of a “rule or regulation of the [SEC],” and that the FCPA was not a SEC rule or regulation. The Ninth Circuit agreed, and found that the error was not harmless. However, the Court found that a jury could have still found in favor of Wadler with a corrected instruction, so it vacated the SOX judgment and remanded for the district court to determine if a new trial is necessary. The Ninth Circuit also vacated the Dodd-Frank claim and instructed the district court to enter judgment in favor of Bio-Rad based on intervening Supreme Court precedent establishing that Dodd-Frank does not protect internal reporting. The Ninth Circuit affirmed the jury's finding against the company for violating California's public interest in preventing retaliation against those who report violations of the FCPA, finding that the erroneous SOX instructions did not impact the jury's findings — ultimately allowing Wadler to recover about $8 million against the company for his whistleblower claim.
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Kate Monks is a Litigation & Dispute Resolution associate in Mayer Brown's Washington, DC office. she can be reached at [email protected].
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