As highlighted in this previous post, in November 2014 Bio-Rad agreed to pay $55 million to resolve a parallel DOJ and SEC FCPA enforcement action based on alleged conduct in Russia, Thailand and Vietnam.
As highlighted in this previous post, in May 2015 Sanford Wadler, the former General Counsel and Secretary of Bio-Lab Laboratories, filed a civil complaint against the company and certain executive officers and board members alleging various unfair employment practices including that Wadler was terminated for blowing the whistle on certain potential FCPA issues.
As highlighted in this previous post, Wadler’s claims were fully litigated and in February 2017 a jury awarded Wadler $2.9 million in back pay and stock compensation and $5 million for punitive damages. The district court doubled the compensatory award pursuant to Dodd-Frank for a total award of approximately $11 million.
Recently Bio-Rad filed this appeal in the Ninth Circuit challenging various aspects of the trial court decision.
In summary fashion, Bio-Rad’s brief states:
“This is an appeal from an $11 million final judgment entered by the U.S. District Court for the Northern District of California (Spero, M.J.) after jury trial against Defendants-Appellants Bio-Rad Laboratories, Inc. (“Bio-Rad”) and its Chief Executive Officer Norman Schwartz, and in favor of Bio-Rad’s former general counsel, Plaintiff-Appellee Sanford S. Wadler. The jury found Wadler was terminated for engaging in protected activity under the Sarbanes-Oxley Act (15 U.S.C. § 1514A), in violation of that statute, the Dodd-Frank Act (15 U.S.C. § 78u-6), and California public policy.
Wadler’s claims rest on a memorandum he submitted in February 2013 to Bio-Rad’s Audit Committee alleging Bio-Rad had engaged in conduct in China that violated the bribery and books-and-records provisions of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. § 78dd-1 et. seq. Wadler made these allegations without any investigation, never consulting the experienced FCPA lawyers at his disposal, Bio-Rad’s Compliance Officer, nor any of the many people on site at Bio-Rad who could have explained the Chinese-language documents on which he relied for his allegations. Predictably, given Wadler’s lack of due diligence, the allegations in his memorandum were discredited by every witness who testified at trial except Wadler himself.
Whatever may have led the jury to find for Wadler, therefore, it was not the result of applying the law to the evidence. As Bio-Rad explained to the jury at trial, Wadler had authored his memorandum just four months after he had received notice that he was being summoned to a “tone at the top” meeting with federal prosecutors—a meeting that threatened his job because its purpose was to discuss Wadler’s failure, for over twenty years, to educate Bio-Rad about the FCPA or to implement an FCPA compliance and training program. During that extended period, employees in certain of Bio-Rad’s foreign offices appeared to have violated the FCPA, ultimately causing the company to pay a $55 million fine. As Bio-Rad explained to the jury, Wadler thus created his February 2013 memorandum for his own self-protection; as he testified at trial: “the person who is reporting … isn’t usually the person with liability.” And even before preparing his memorandum, Wadler searched for and retained a lawyer who represents employee whistleblowers.”
The brief continues:
“Against this showing, the jury verdict in Wadler’s favor and the district court’s judgment declining to enter judgment for Bio-Rad as a matter of law, can be explained only by several errors that require reversal or at the very least a new trial. First, Bio-Rad is entitled to judgment on all claims because no properly instructed jury could have concluded that Wadler engaged in any “protected activity” under Sarbanes-Oxley. Wadler’s memorandum concerned purported violations of the FCPA’s bribery and books-and-records provisions, but Sarbanes Oxley’s retaliation provision, by its terms, does not apply to reports of FCPA violations. The district court thus was wrong to instruct the jury that Bio-Rad could be held liable on that basis. At the very least, this instructional error warrants a new trial because it severely prejudiced Bio-Rad by expanding the grounds on which Wadler could demonstrate protected activity to include reporting bribery under the FCPA.
Second, Bio-Rad is entitled to judgment on all claims because even if reporting alleged FCPA violations were protected activity under Sarbanes-Oxley (it is not), Wadler failed to prove he held an objectively reasonable belief that BioRad had violated the FCPA in China, as required for liability. The evidence was overwhelming that a reasonable general counsel of a Fortune 1000 company—i.e., someone with the same training and experience as Wadler—would not have believed Bio-Rad committed an FCPA violation in China based on the documents attached to his memorandum. Wadler presented no witness—percipient or expert—supporting his burden of proof on the element of objective reasonableness; nor did he present any evidence showing he had conducted any investigation whatsoever before making his self-serving allegations. And none of the evidence upon which the district court relied in upholding the verdict—much of which related to subjective reasonableness, not objective reasonableness—would have permitted a reasonable jury to find for Wadler.
Third, Bio-Rad alternatively is entitled to a new trial because of two highly prejudicial evidentiary errors. The district court wrongly excluded critical impeachment testimony that Bio-Rad sought to offer to counter Wadler’s false testimony that one of his subordinates corroborated his concerns about bribery in China. The district court ruled that the subordinate had not been previously disclosed as a witness but neither the Federal Rules nor the parties’ stipulation on witness disclosures required the pre-trial disclosure of impeachment witnesses. This exclusion was highly prejudicial as it prevented Bio-Rad from showing that Wadler had lied when he told the jury that a younger lawyer in the department had expressed concern about possible bribery in China. If allowed to testify, that witness would have told the jury that Wadler’s testimony was a fabrication. The district court also abused its discretion in excluding evidence concerning Wadler’s Internet searches for, and retention of, a whistleblower lawyer after learning about his impending meeting with government prosecutors and before preparing his memorandum. The district court’s expressed concern was that the evidence would risk a “mini-trial” over whether Wadler hired the whistleblower lawyer for “offensive” or “defensive” purposes. That concern was mooted during trial when Wadler told the jury that, in the months before he submitted his memorandum to the Audit Committee, he had no fear he might lose his job. This testimony eliminated any possible “defensive” purpose for hiring a whistleblower lawyer. The exclusion of this evidence too was highly prejudicial because it directly implicated Bio-Rad’s theory of the case that Wadler had concocted the FCPA violations to set up a whistleblower defense.
Finally, Bio-Rad preserves its argument that it is entitled to judgment on the Dodd-Frank claim because Dodd-Frank’s retaliation provision, 15 U.S.C. § 78u-6, applies only to “whistleblowers” who report to the SEC. This Court has held otherwise, but the Supreme Court has granted certiorari in that case. See Somers v. Digital Realty Trust, Inc., 850 F.3d 1045 (9th Cir.), cert granted, 137 S. Ct. 2300 (2017).
For all these reasons, the judgment should be reversed or at the very least vacated.”
*****
For an informative, in-depth read on the civil lawsuit between Wadler and Bio-Rad see this article from the American Lawyer. As stated in the article: “Wadler’s trial aired Bio-Rad’s corporate dirty laundry and provided a rare behind-the-scenes look at two internal FCPA investigations.”
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