Image of Bio-Rad Whistleblower Retains Most of his Record Whistleblower Retaliation Verdict on Appeal

Bio-Rad Whistleblower Retains Most of his Record Whistleblower Retaliation Verdict on Appeal

In February 2017, Sanford Wadler, a former in-house lawyer at Bio-Rad, secured a record $11M verdict in his whistleblower retaliation lawsuit.  Despite his stellar performance record as an in-house lawyer at Bio-Rad for 25 years, they fired him after he raised concerns about Bio-Rad employees in China violating the FCPA’s bribery and books-and-records provisions.

Bio-Rad appealed the verdict, and in a ruling issued today, Mr. Wadler retained most of the verdict, including $5 million in punitive damages and $2.96 million in compensatory damages for past economic loss.  After the trial, Bio-Rad stipulated to pay $3.5 million in attorneys’ fees and costs.  Wadler’s win highlights the substantial exposure that companies can face for whistleblower retaliation.

The only reduction in the verdict is attributable to the Supreme Court’s February 2018 decision in Digital Realty v. Somers holding that the Dodd-Frank Act’s whistleblower protection provision does not protect internal disclosures unless the whistleblower has also made a disclosure of a potential violation of federal securities law to the SEC.  Mr. Wadler did not report violations of securities laws to the SEC prior to Bio-Rad firing him.  As Dodd-Frank authorizes double back pay, the verdict was reduced by approximately $3M.

The large award of punitive damages appears to have been motivated by Bio-Rad’s CEO backdating a negative performance review of Mr. Wadler that the CEO drafted after firing Wadler.  That review was an aberration from the positive reviews that Mr. Wadler received during his 25-year tenure at Bio-Rad. The company’s apparent attempt to create a post-hoc justification for the termination of Mr. Wadler’s employment apparently backfired by enabling Mr. Wadler to prove malice and thereby recover punitive damages.

The Ninth Circuit’s decision does not address the trial judge’s important pre-trial ruling permitting Mr. Wadler to use privileged communications and confidential information that was “reasonably necessary” to establish that he engaged in protected whistleblowing.  Wadler’s win on that issue is critical for in-house attorney whistleblowers because it was the first decision holding that SEC attorney conduct rules preempt state rules of professional responsibility and that the Sarbanes-Oxley whistleblower protection provision preempts the attorney-client privilege.

Mr. Wadler’s win signals to in-house counsel that they have a strong remedy to combat retaliation, albeit a protracted route to achieving full relief.

All too often, in-house lawyers, compliance officers, internal auditors, and other gatekeepers suffer severe retaliation for raising critical compliance issues and trying to prevent fraud.  As corporate compliance at public companies is premised on internal gatekeepers effectively identifying and preventing violations of the federal securities laws, silencing the gatekeepers puts shareholders at risk.  Thus, in-house lawyers should be afforded robust whistleblower protection.

Ninth Circuit Affirms Wrongful Discharge Verdict

The Ninth Circuit affirmed the verdict for the California common law wrongful discharge claim on the ground that Mr. Wadler proved that Bio-Rad discharged him for making a report of what Mr. Wadler in good faith and reasonably believed was an FCPA violation. In particular, he had several sources of concern:

  1. a free-product scheme that “suggest[ed] several possibilities for bribery”;
  2. Bio-Rad’s inability to obtain documents for the Life Tech audit, which “could itself be considered a substantive and clear violation of [the FCPA’s] books and records requirements”; and
  3. the Chinese distributor contracts without FCPA compliance language.

Mr. Wadler concluded that “these practices [we]re endemic and that high levels of management within the company had to know they were happening.”  Thus, he successfully established that he reported a statutory violation for the public’s benefit.

Ninth Circuit Remands the SOX Verdict

The Ninth Circuit, however, remanded the SOX claim because of an erroneous jury instruction permitting the jury to find that a FCPA violation is tantamount to a violation of an SEC rule or regulation. But the opinion strongly suggests that Mr. Wadler would easily prevail if he retries the SOX claim because his disclosures implicated a violation of an SEC rule barring the falsification of a book, record or account:

“[A] reasonable jury could find that Wadler reasonably believed that Bio-Rad had falsified books and records . . . There is sufficient evidence to support the objective reasonableness of Wadler’s belief that Bio-Rad had falsified books and records . . . Wadler was aware of Bio-Rad’s FCPA issues in several countries and the numerous “red flags” in China . . . [including] an “under the covers” scheme in which Bio-Rad shipped free products . . . [and Wadler’s discovery of] Chinese contracts without FCPA compliance language and with unauthorized terms providing for free product incentives.”

Had the jury instructions clarified that disclosing a violation of an SEC internal control rule constitutes SOX protected conduct, the Ninth Circuit likely would have affirmed the SOX verdict.  As it does not appear that Mr. Wadler stands to recover substantial additional damages in a retrial, it appears likely that his five-and-a-half-year fight for justice has successfully concluded.

Kudos to Mr. Wadler and his counsel at Wagstaffe, von Loewenfeldt, Busch & Radwick LLP for their persistence in combatting the retaliation that Mr. Wadler suffered and extraordinary success in establishing precedent protecting in-house lawyers against retaliation.

SOX Whistleblower Damages

Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.