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Wadler v. Bio-Rad Laboratories, Inc.

United States Court of Appeals, Ninth Circuit

February 26, 2019

Sanford S. Wadler, Plaintiff-Appellee,
v.
Bio-Rad Laboratories, Inc., a Delaware Corporation; Norman Schwartz, Defendants-Appellants.

          Argued and Submitted November 14, 2018 San Francisco, California

          Appeal from the United States District Court for the Northern District of California D.C. No. 3:15-cv-02356-JCS Joseph C. Spero, Magistrate Judge, Presiding

          Kathleen M. Sullivan (argued) and William B. Adams, Quinn Emanuel Urquhart & Sullivan LLP, New York, New York; Karin Kramer, Andrew P. March, and John M. Potter, Quinn Emanuel Urquhart & Sullivan, LLP, San Francisco, California; for Defendants-Appellants.

          Michael John von Loewenfeldt (argued), Kenneth P. Nabity, and James M. Wagstaffe, Kerr & Wagstffe LLP, San Francisco, California, for Plaintiff-Appellee.

          Before: Susan P. Graber and Mark J. Bennett, Circuit Judges, and Leslie E. Kobayashi, [*] District Judge.

         SUMMARY[**]

         Labor Law

         The panel vacated in part the district court's judgment after a jury trial, affirmed in part, and remanded in a whistleblower retaliation suit.

         The jury found that Bio-Rad Laboratories, Inc., and its CEO violated the Sarbanes-Oxley Act, the Dodd-Frank Act, and California public policy by terminating the employment of Bio-Rad's former general counsel, Sanford Wadler, in retaliation for his internal report that he believed the company had engaged in violations of the Foreign Corrupt Practices Act in China.

         Vacating the SOX verdict, the panel held that the district court erred in instructing the jury that statutory provisions of the FCPA constitute rules or regulations of the SEC for purposes of whether Wadler engaged in protected activity under SOX § 806. Because a properly instructed jury could return a SOX verdict in favor of Wadler, the panel remanded for the district court to determine whether a new trial was warranted.

         With respect to Wadler's California public policy claim, the panel concluded that the district court's SOX instructional error was harmless and therefore affirmed the verdict and corresponding damages as to that claim.

         Addressing additional issues in a contemporaneously-filed memorandum disposition, the panel also vacated the district court's Dodd-Frank verdict and remanded.

          OPINION

          BENNETT, CIRCUIT JUDGE

         In this whistleblower retaliation case, Bio-Rad Laboratories, Inc. ("Bio-Rad" or "the Company") and its CEO, Norman Schwartz, appeal an $11 million jury verdict in favor of Bio-Rad's former general counsel, Sanford Wadler.[1] The jury found that Defendants violated the Sarbanes-Oxley Act ("SOX"), the Dodd-Frank Act, and California public policy by terminating Wadler's employment in retaliation for his internal report that he believed the Company had engaged in serious and prolonged violations of the Foreign Corrupt Practices Act ("FCPA") in China.

         On appeal, Defendants argue that the district court erred by instructing the jury that statutory provisions of the FCPA constitute "rule[s] or regulation[s] of the Securities and Exchange Commission" ("SEC") for purposes of whether Wadler engaged in "protected activity" under SOX § 806, 18 U.S.C. § 1514A(a). We agree. We reject, however, Bio-Rad's argument that no properly instructed jury could return a SOX verdict in favor of Wadler. Accordingly, we vacate the SOX verdict and remand for the district court to determine whether a new trial is warranted.

         With respect to Wadler's California public policy claim, by contrast, we conclude that the district court's SOX instructional error was harmless and therefore we affirm the verdict and corresponding damages as to that claim.

         In a memorandum disposition filed this date, we conclude that the instructional error was not harmless as to the SOX claim. We also reject Bio-Rad's challenges to the district court's evidentiary rulings and the sufficiency of the evidence. Finally, we vacate with instructions to enter judgment in favor of Bio-Rad as to the Dodd-Frank claim in light of Digital Realty Trust, Inc. v. Somers, 138 S.Ct. 767, 778 (2018), which held that Dodd-Frank does not apply to purely internal reports. We therefore also vacate the portion of damages attributable solely to the Dodd-Frank verdict, approximately $2.96 million plus interest.

         Accordingly, we vacate in part, affirm in part, and remand for consideration of whether a new trial is warranted as to the SOX claim.

         I.

         We must view the evidence at trial in the light most favorable to the verdict. Shafer v. Cty. of Santa Barbara, 868 F.3d 1110, 1115 (9th Cir. 2017), cert. denied, 138 S.Ct. 2582 (2018). Because the jury returned a verdict in favor of Wadler on all claims, we review the pertinent facts adduced at trial in the light most favorable to him.

         A.

         The trial centered on a memorandum that Wadler delivered to the Audit Committee of Bio-Rad's Board of Directors in February 2013 (the "Audit Committee Memo" or "Memo") and Schwartz's subsequent decision to terminate Wadler's employment in June 2013. Wadler stated in the Memo that he believed Bio-Rad employees in China had violated the FCPA's bribery and books-and-records provisions, and that senior management was likely complicit.

         The factual basis for the Memo, and Wadler's reasons for writing it, can be traced back to 2009. In that year, Bio-Rad's internal audit team discovered that Bio-Rad salesmen in Vietnam and Thailand had engaged in potential FCPA violations. At Wadler's recommendation, Bio-Rad hired FCPA attorney Patrick Norton of Steptoe & Johnson to investigate.

         Norton reported his findings to Bio-Rad's Board of Directors in September 2011. Specifically, Norton reported that he had found evidence that Bio-Rad employees were violating the FCPA's bribery and books-and-records provisions in Vietnam, Thailand, and Russia. As for China, Norton reported several "red flags," including "[v]ery high, unexplained commissions" and a "history of widespread corruption" in the country's medical products market. Norton reported, however, that "no evidence of improper payments" had been found to date in China.

         In June 2012, Wadler and Schwartz received the results of a sales documentation audit that had been initiated at the request of Bio-Rad's licensor, Life Technologies, Inc. ("Life Tech"). The audit, which covered the years 2006 to 2010, revealed that Bio-Rad owed Life Tech around $30 million in royalty obligations due to Bio-Rad's ...


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