On October 23, 2015, the U.S. District Court for the Northern District of California largely denied a motion to dismiss a whistleblower retaliation claim brought by a company’s former general counsel, ruling that: (i) the Sarbanes-Oxley Act (“SOX”) and Dodd-Frank anti-retaliation provisions provide for individual liability against board members; and (ii) the Dodd-Frank anti-retaliation provision protects internal whistleblowers (i.e., a whistleblower who did not complain to the SEC).  Wadler v. Bio-Rad Laboratories, Inc., 2015 U.S. Dist. LEXIS 144468 (N.D. Cal. Oct. 23, 2015).

Background

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.  Plaintiff asserted six claims against the Company, including whistleblower retaliation claims under SOX, Dodd-Frank and California Labor Code Section 1102.5.  Notably, Wadler did not allege that he had ever reported any securities law violations to the SEC.  Accordingly, the Company and the individual board members moved to dismiss his whistleblower claims on the grounds that he does not qualify as a protected “whistleblower” under SOX or Dodd-Frank.

The Court’s Ruling

The district court ruled that:

1. Although the language of SOX is ambiguous, the legislative intent and context of SOX suggest that board members may be held individually liable as agents;
2. Congress intended Dodd-Frank to allow for liability, which was at least as extensive as SOX, so therefore, board members may be held individually liable for retaliating against whistleblowers;
3. Plaintiff sufficiently pled his whistleblower claim under CA Labor Code Section 1102.5 because Plaintiff’s allegations supported an inference that Plaintiff refused to participate in a cover-up of allegedly unlawful activity; and
4. Internal whistleblowers are protected from retaliation under Dodd-Frank.  In this regard, the court relied on the reasoning in an earlier Northern District of California case, Somers v. Digital Realty Trust, to conclude that “Dodd-Frank is ambiguous on the question of whether its anti-retaliation provisions apply to an individual who has provided information regarding possible illegal activity internally but has not provided such information to the SEC.”  The court gave deference to the SEC’s expansive interpretation of Dodd-Frank.

The court only dismissed, as untimely, Plaintiff’s SOX whistleblower claim as to the individual board members to whom Plaintiff did not give adequate fair notice in his administrative complaint.  Plaintiff only gave adequate fair notice, for SOX purposes, to the CEO.  Therefore, the court only allowed the SOX individual liability whistleblower retaliation claim to proceed against the Company’s CEO.

Implications

This case continues the trend of whistleblower complaints being filed by in-house counsel and underscores the risks of individual liability under SOX and Dodd-Frank—risks that extend to board members as well.