Case 3:15-cv-02356-JCS Document 115-3 Filed 11/21/16 Page 1 of 21
1 JOHN M. POTTER (Bar No. 165843)
[email protected]
2 KARIN KRAMER (Bar No. 87346)
[email protected]
3
QUINN EMANUEL URQUHART & SULLIVAN, LLP
nd
4 50 California Street, 22 Floor
San Francisco, CA 94111
5 Telephone:
(415) 875-6600
Facsimile:
(415) 875-6700
6
JAMES R. ASPERGER (Bar No. 83188)
7
[email protected]
th
8 865 South Figueroa Street, 10 Floor
Los Angeles, CA 90017
9 Telephone:
(213) 443-3000
Facsimile:
(213) 443-3100
10
11 Attorneys for Defendants Bio-Rad Laboratories, Inc.; Norman Schwartz; Louis Drapeau; Alice N.
Schwartz; Albert J. Hillman; Deborah J. Neff
12
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
13
14
15
SANFORD S. WADLER, an individual,
Case No. 3:15-CV-2356 JCS
16
Plaintiff,
17
18
19
20
21
22
DEFENDANTS’ TRIAL BRIEF
v.
BIO RAD LABORATORIES, INC., a Delaware
corporation; Norman Schwartz; Louis Drapeau;
Alice N. Schwartz; Albert J. Hillman; Deborah J.
Neff,
REDACTED VERSION
Defendants.
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24
25
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1
TABLE OF CONTENTS
Page
2
3 INTRODUCTION ....................................................................................................... 1 4 BRIEF EXPLANATION OF THE FCPA ................................................................... 3 5 FACTS ......................................................................................................................... 4 6 I. BIO-RAD GROWS AND CHANGES; PLAINTIFF DOES NOT .................. 4 7 II. THE FIRST FCPA INVESTIGATION AND PLANNED MEETING
WITH THE GOVERNMENT ........................................................................... 5 8
III. PLAINTIFF PLOTS TO MAKE HIMSELF LOOK GOOD WITH
THE GOVERNMENT BY MANUFACTURING A BOGUS CLAIM
ABOUT CORRUPTION IN CHINA ................................................................ 6 IV. PLAINTIFF’S UNPROFESSIONAL AND UNSTABLE BEHAVIOR .......... 9 9
10
11
LEGAL DISCUSSION ................................................................................................ 9 12
I. PLAINTIFF’S CLAIMS ................................................................................... 9 13
A. Dodd-Frank Act .................................................................................... 10 B. SOX ....................................................................................................... 10 C. California Public Policy ........................................................................ 11 14
15
16
II. 17
PLAINTIFF WILL NOT BE ABLE TO SHOW HE ENGAGED IN
PROTECTED CONDUCT OR THAT HE WAS TERMINATED FOR
DOING SO ...................................................................................................... 11 18
A. Plaintiff Did Not Engage in Protected Conduct: California
Ethical and Statutory Rules for Attorneys Preclude Him from
Being a Whistleblower .......................................................................... 12 B. Plaintiff Cannot Establish a Subjective Belief of Illegal Activity ....... 13 C. Plaintiff Cannot Satisfy the Element of Objective
Reasonableness ..................................................................................... 13 19
20
21
22
23 III. 24
BIO-RAD WILL BE ABLE TO SHOW—EASILY—THAT
PLAINTIFF WAS FIRED FOR LEGITIMATE BUSINESS
REASONS ....................................................................................................... 15 25 IV. UNCLEAN HANDS BARS PLAINTIFF’S CLAIMS ................................... 16 26 CONCLUSION .......................................................................................................... 16 27
28
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TABLE OF AUTHORITIES
1
Page
2
3
CASES 4
5
Abdel v. Ikon Office Solutions, Inc.,
2006 WL 2474331 (N.D. Cal. Aug. 25, 2006) ................................................ 11
6 Beacom v. Oracle Am., Inc.,
825 F.3d 376 (8th Cir. 2016) ........................................................................... 10
7
8
Coppinger-Martin v. Solis,
627 F.3d 745 (9th Cir. 2010) ........................................................................... 10
9 Elijah W. v. Superior Court,
216 Cal. App. 4th 140 (2013) .......................................................................... 12
10
11
Freund v. Nycomed Amersham,
347 F. 3d 752 (9th Cir. 2003) .......................................................................... 11
12 General Dynamics Corp. v. Superior Court,
7 Cal. 4th 1164 (1994) ..................................................................................... 12
13
14
Grant-Burton v. Covenant Care, Inc.,
99 Cal. App. 4th 1361 (2002) .......................................................................... 11
15 Harkness v. C-Bass Diamond, LLC,
2010 WL 997101 (D. Md. Mar. 16, 2010) ...................................................... 14
16
17
Mann v. Fifth Third Bank,
2011 WL 1575537 (S.D. Oh. 2011) ................................................................ 14
18 Nance v. Time Warner Cable, Inc.,
433 F. App’x 502 (9th Cir. 2011).................................................................... 13
19
20
Rosser v. Laborers’ Int’l Union of N. Am., Local No. 438,
616 F.2d 221 (5th Cir. 1980) ........................................................................... 15
21 Salas v. Sierra Chem. Co.,
59 Cal. 4th 407 (2014) ..................................................................................... 16
22
23
Somers v. Digital Realty Trust, Inc.,
No. 15-17352 ................................................................................................... 15
24 Tameny v. Atlantic Richfield Co.,
27 Cal. 3d 167 (1980) ........................................................................................ 9
25
26
Univ. of Tex. Sw. Med. Ctr. v. Nassar,
133 S. Ct. 2517 (2013) .................................................................................... 10
27 Unt v. Aeorospace Corp.,
765 F. 2d 1440 (9th Cir. 1985) ........................................................................ 15
28
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1 Van Asdale v. Int’l Game Tech.,
3:04-cv-0703, Dkt. 315, Instruction 15 (D. Nev. Feb. 8, 2011)................ 10, 12
2
3
Wallace v. Tesoro Corp.,
796 F.3d 468 (5th Cir. 2015) ........................................................................... 10
4
5
STATUTES 6 15 U.S.C. § 78 ........................................................................................................ 9, 10
7 17 C.F.R. § 240.21 ..................................................................................................... 10
8 18 U.S.C. § 1514.................................................................................................... 9, 10
9 Cal. Bus. & Prof. Code § 6068 .................................................................................. 12
10 Cal. R. Prof. Conduct 3 .............................................................................................. 12
11
12
OTHER AUTHORITIES 13 Clark & Moore, Financial Rewards for Whistleblowing Lawyers, 56 B.C. L.
Rev. 1697, 1714-15 (2015).............................................................................. 13
14
Corps. Comm. of the Bus. Law Section of the Cal. State Bar, Conflicting
Currents: The Obligation to Maintain Inviolate Client Confidences and
the New SEC Attorney Conduct Rules, 32 Pepp. L. Rev. 89, 115-16
16
(2004) .............................................................................................................. 13
15
17 SEC Release No. 34-64545 (May 25, 2011) ............................................................. 10
18
19
20
21
22
23
24
25
26
27
28
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1
2
INTRODUCTION
In 2001, the Department of Justice began a zealous and highly publicized program of
3 prosecuting public companies for Foreign Corrupt Practices Act (“FCPA”) violations. Both the
4 DOJ and the SEC meted out headline grabbing penalties in the tens of millions of dollars against
5 well-known companies, including some selling products in the same industry and the same markets
6 as Defendant Bio-Rad Laboratories, Inc. Notwithstanding the fact that the FCPA had been in
7 existence the entire time Plaintiff Sanford Wadler had been General Counsel for Defendant Bio-Rad
8 Laboratories, Inc., and had become a subject of substantial interest for lawyers representing global
9 companies, Plaintiff took no action to protect the company. He literally did nothing. Despite the
10 company’s growing international presence, Plaintiff:
11

did not educate himself about the law;
12

did not implement an FCPA compliance program;
13

did not conduct FCPA training sessions;
14

did not monitor his company’s compliance; and
15

did not heed the warning of outside counsel that Bio-Rad’s lawyers needed to pay
16
attention to FCPA issues and not “hide your head in the sand.”
17 Plaintiff—incredibly—has taken the position that the FCPA was no concern of his:
18
19
20
21
22
23
24
25
26
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1
Plaintiff’s malpractice carried profound consequences for Bio-Rad. In 2009, long after Bio-
2 Rad should have had FCPA programs and compliance training in place, an employee reported FCPA
3 violations in Vietnam. On the recommendation of Plaintiff, the company hired the international law
4 firm of Steptoe and Johnson to investigate the matter. Steptoe lawyer Patrick Norton, considered to
5 be at the top of the field, conducted a worldwide investigation,
6
and reported those to the government. The result was that Bio-Rad incurred a $55 million
7 FCPA fine and paid millions more in legal fees and costs associated with his extensive
8 investigation—all on Plaintiff’s watch.
9
The company should have fired Plaintiff right then and there for his breach of duty, a result
10 some at the company urged on Defendant, CEO Norman Schwartz. But Mr. Schwartz, perhaps
11 loyal to a fault, gave Plaintiff a second chance. Although Bio-Rad is a leading global company
12 providing innovative products in life sciences and clinical diagnostics, the company retains the best
13 virtues of a small family business and places a premium on loyalty to its employees, many of whom
14 have been with Bio-Rad for decades. Mr. Schwartz, the son of the founders and a mild-mannered
15 person, took into account Plaintiff’s tenure at the company and valued his skill in negotiating
16 business deals and allowed Plaintiff to stay.
17
Although Plaintiff kept his job after the initial FCPA debacle, the matter still loomed over
18 him as federal prosecutors continued their investigation throughout 2011 and 2012. Near the end
19 of 2012, the Department of Justice began to assess Plaintiff’s role as General Counsel in deterring
20 FCPA violations. In November 2012,
21
—a term used to define senior
22 management’s commitment to compliance with the law. Plaintiff was well aware that federal
23 prosecutors would want to know why the company’s General Counsel had done nothing to ensure
24 the company’s compliance for the 20 years prior to discovery of the violations. This development
25 caused Plaintiff to grow increasingly concerned about his personal situation and to look for ways to
26 justify himself to the federal prosecutors and to protect himself against a possible ruination of his
27 career.
28
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1
Plaintiff apparently decided the best way to present himself to the government was to show
2 he was ferreting out corruption at the company—even if there was none.
3
4
at least seven weeks before
5
, seven months before
6 he was fired, and, according to his own testimony, with no reason to think he would be fired.
7
the same attorney who contacted the company to
8 initiate settlement discussions just after he was fired, and filed the pre-requisite administrative
9 complaint on Plaintiff’s behalf with OSHA.
he invented a story of corruption
10 in Bio-Rad’s China facility—a story no one ever understood or bought.
11
At the same time Plaintiff was setting up his whistleblower claim, he began engaging in
12 conduct so seriously disruptive that by June 2013, Mr. Schwartz was left with no choice but to
13 terminate him. Over that seven month period, Plaintiff’s conduct became intolerable, creating a
14 toxic environment for virtually everyone who had to work with him. He went into rages at meetings,
15 screaming at people and pounding the table. One executive became so unnerved by his behavior,
16 she considered installing a home alarm system. By the time he was fired, Plaintiff had become so
17 obstreperous, uncooperative, and abusive, he had alienated and destroyed his relationships with
18 every single member of senior management, and had disrupted the company’s securities filings. A
19 small selection of executives and lower-level employees will describe what it was like to work with
20 Plaintiff during that period, which one described as a “terrible terrible time” at the company.
21
22
BRIEF EXPLANATION OF THE FCPA
The FCPA is directed at two kinds of conduct: (1) the failure to properly account for
23 transactions in foreign countries, known as “books and records violations;” and (2) bribery of
24 foreign officials. The SEC and the DOJ both have authority to enforce the Act. The overarching
25 purpose of the law is to prevent companies in the United States from bribing foreign officials.
26 Violations can result in civil and criminal penalties to both companies and individual employees.
27
Clouding determinations of whether violations have occurred is the fact that business
28 customs vary from one country to the next, as does the practice of documenting transactions and
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1 retaining records. Whereas companies in the United States generally understand the need for
2 limiting gifts to counterparties (especially where such counterparties have government affiliations),
3 and creating and keeping documents because of regulatory requirements and lawsuits, foreign
4 cultures do not necessarily dictate these same standards.
In many (especially non-Western)
5 countries, giving gifts is part of the cultural tradition. In addition, there are often no standards for
6 what records must be kept or for how long, or, if such standards exist, they are not enforced.
7 Similarly, foreign businesses commonly use middlemen to conduct transactions and do not concern
8 themselves with the conduct of those parties.
9
Because U.S. companies that conduct business abroad are bound to follow both U.S. laws
10 and the laws of the countries where they operate, it is vitally important that U.S. companies
11 promulgate FCPA compliance programs and train their foreign (and domestic) employees about
12 how to comply and how to keep records. Simply having a general English-language ethics policy
13 that prohibits “bribery,” for example, is not adequate because bribery is understood to mean different
14 things in different countries. What is clearly improper to a U.S. employee may be doing business
15 as usual in other cultures. Appropriate FCPA compliance and training programs spell out in great
16 detail precisely the kinds of practices that are considered illegal under the Act.
17
FACTS
18 I.
BIO-RAD GROWS AND CHANGES; PLAINTIFF DOES NOT
19
In 1987, when Bio-Rad hired Plaintiff, it was a small company with hardly any sales abroad;
20 in 2013, when it fired Plaintiff, Bio-Rad was a $2 billion global enterprise, with complex regulatory
21 obligations. In 1987, when Plaintiff joined the company, he was an IP lawyer who negotiated
22 business deals; in 2013, when the company fired Plaintiff, he was still an IP lawyer who negotiated
23 business deals. Therein lies the genesis of this dispute.
24
As the company grew and its legal needs expanded, Plaintiff failed to upgrade his skills. He
25 was an old school lawyer who came to work at 10:30 a.m. and began his day reading the Wall Street
26 Journal. He was not motivated to expand the scope of his expertise, despite the company’s
27 expanding needs. In contrast to his passive approach to his work, he was very proactive in
28 demanding more compensation. He incessantly complained about his salary and demanded he
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1 should be paid more, even though salary surveys showed he was compensated above market and his
2 performance evaluations were consistently middling, and sometimes below that.
3 II.
THE FIRST FCPA INVESTIGATION AND PLANNED MEETING WITH THE
4
GOVERNMENT
5
Plaintiff’s lackadaisical interest in the law beyond patents and related negotiations came into
6 sharp relief in 2009 with the first FCPA investigation.
Mr. Norton performed an initial
7 investigation, and, on behalf of the company, self-reported to the DOJ and SEC. The company
8 understood what it had to do and did it, with the full support of its CEO, Mr. Schwartz. This meant
9 Mr. Norton then spent over a year, and millions of dollars, investigating Bio-Rad’s conduct in five
10 countries: Vietnam, Russia, Thailand, China, and Brazil. In the course of this investigation,
11 Mr. Norton came to review Plaintiff’s performance as General Counsel. Mr. Norton will testify he
12 was shocked by how uninformed Plaintiff was about the FCPA, particularly given highly publicized
13 prosecutions of similar companies in recent years.
14
Mr. Norton’s investigation
15
16 His final report, which the government lauded for its thoroughness and candor, led to a penalty of
17 $14.35 million and disgorgement and prejudgment interest of $40.7 million, $55 million in all. But
18 beyond the money, this company, which is still a family enterprise that takes pride in doing the right
19 thing and conducting itself as an ethical business, was embarrassed. Mr. Schwartz considered the
20 event a “black eye” for the company.
21
After Bio-Rad self-reported through Mr. Norton, Mr. Norton transferred responsibility for
22 interactions with the government to the company’s corporate lawyers, Latham & Watkins. Latham
23 partner Douglas Greenburg led this effort.
24
25
26
27
28
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1 III.
PLAINTIFF PLOTS TO MAKE HIMSELF LOOK GOOD WITH THE
2
GOVERNMENT BY MANUFACTURING A BOGUS CLAIM ABOUT
3
CORRUPTION IN CHINA
4
It is in this exact time-frame
5
that Plaintiff began to hatch
6 a plan to divert attention from his own professional neglect. He purported to reinvent himself as
7 Bio-Rad’s FCPA hound dog, searching out corruption and thereby setting the right tone at the top
8 to tout to federal prosecutors.
—not with FCPA expertise,
9 because, between Steptoe and Latham, Plaintiff already had ready access to some of the top lawyers
10 in the field—
This was an
11 essential part of his plan to manufacture his whistleblower claim and to try to perfect it.
12
Plaintiff also needed tangible proof of his compliance efforts—something he could point to
13 showing he was taking affirmative steps on FCPA matters. At that time, he was working on settling
14 an audit claim with a licensor known as Life Technologies, concerning its sales in China. Bio-Rad
15 had encountered difficulty in obtaining documents to support the end user prices of its sales. Bio16 Rad’s own documentation on these transactions was robust and complete.
17
As those who had worked in China or had knowledge of Chinese business practices
18 understood, the inability to obtain documents was par for the course there; Chinese businesses do
19 not follow American record-keeping practices.
Their relationships with distributors and
20 import/export companies are unlike those in the United States. Third party companies in China feel
21 no obligation to spend their time looking for documents just because a corporation in Hercules,
22 California asked them to do so. Plaintiff, however, had no understanding of Chinese business
23 practices.
24
The Life Technologies audit had started two years earlier and, during that entire time, the
25 company had been unable to obtain all of the documentation it wanted from third parties. But now,
26 just when he needed to show the government he was on top of things, he began to make wild claims
27
28
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1
2
3
disproved by documents showing repeated attempts by various Bio-Rad
4 personnel to try to aid in the effort to find documents to support its position in the Life Technologies
5 audit, including CEO Schwartz. The company had an abiding interest in obtaining whatever
6 documentation it could to support its position in the Life Technologies matter and counter its
7
and the record shows Bio-Rad was active in pressing employees to do what they
8 could to obtain the records.
9
By November 1, 2012, the company obtained a set of documents for a single sale. After
10 Plaintiff
he seized on this documentation as his
11 evidence of corruption. But every lawyer who subsequently reviewed the documents
12
the Department of Justice, the SEC) not only
13 disagreed with Plaintiff’s assessment, they could not understand what he was talking about. Rather
14 than showing corruption, his allegations showed he was incapable of judging what was a normal
15 and lawful business practice, and what was a violation. This was not terribly surprising given that
16 he had no working knowledge of the FCPA and of business practices in China.
17
Although he had no basis to conclude he knew more than others about whether the
18 documents evidenced corruption, he did not ask anyone who might have been able to guide him.
19 He did not ask Latham & Watkins or Steptoe & Johnson. He did not even ask the company’s Chief
20 Compliance Officer, who had been hired after the first FCPA issue arose. He steered clear of anyone
21 who could have given him competent advice.
22
23
24
The document itself
25 is a Bio-Rad privileged document, and whether or not it comes into evidence has not yet been
26 decided. Suffice it to say it does not evidence corruption, but, because it came from the General
27 Counsel, the Audit Committee had no choice but to follow-up on its allegations.
28
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1
This time it was Davis Polk
2 & Wardwell.1
3
The testimony from the lead Davis Polk lawyer, Martine Beamon, does not help Plaintiff’s
4 case. Despite meeting for several hours with Plaintiff, Ms. Beamon, herself a former federal
5 prosecutor for the Southern District of New York who specializes in the FCPA,
6
Because there was
7 some urgency to meet an approaching disclosure deadline for an upcoming Form 10-K filing,
8
9
Mr. Norton completed a thorough investigation and
10
. Davis Polk also travelled to China, and
11 did its own investigation as well as a review of Mr. Norton’s work.
12
13
14
. The tone at the top
15 meeting had been delayed to late February at the government’s request, and
16
led to a further continuance. The government did not want to go forward with the
17 meeting until it knew the full scope of the problem. In the interim, the government reviewed the
18 matter and reached the same conclusion as everyone else: there was nothing there.
19
20
21
22
23
shows a General Counsel deliberately acting to set up the company.
24
25
26
1
Plaintiff’s decision to go to New York to seek counsel, despite the abundance of competent
27 counsel in the Bay Area, is consistent with his pattern of conducting whatever business he could in
28 the New York area, so he could do personal travel on the company’s travel dollar—New York
being one of his favorite destinations for personal reasons.
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1 IV.
PLAINTIFF’S UNPROFESSIONAL AND UNSTABLE BEHAVIOR
2
The evidence will show that at the same time he was facing the prospect of a sit-down with
3 federal prosecutors, and meeting with universal rejection of the China claim he had cooked up for
4 that same encounter, Plaintiff imploded. Although he had always been a difficult employee, he
5 suddenly became impossible. He was angry, explosive, and showed poor judgment. After he yelled
6 at the mild-mannered Mr. Schwartz at a meeting with him and other employees, his colleagues
7 discussed their belief that he was trying to get himself fired; they could see no other explanation for
8 his behavior. His demands became merciless, insisting that one employee who was recovering from
9 breast cancer treatment be “removed from his budget.” He denied a salary increase to the long-time
10 and well-liked head of the French legal department, even though the review her supervisor wrote
11 justified a raise; Plaintiff instead wanted her fired, despite the fact she recently had lost her husband.
12 When these human issues were brought to his attention, he said they were “not his problem.”
13
for the first time
14 in its history, to miss a 10-K filing, an event which had the potential to affect investor confidence
15 and stock price. After missing the 10-K filing deadline, Mr. Schwartz instituted daily morning
16 meetings to keep the process moving forward until the filing was made, but Plaintiff refused to
17 attend, an incredible act of insubordination in any context, but even more so here
18
19
Everyone—literally every percipient witness (except Plaintiff)—will testify that he created
20 chaos and fear and whatever his shortcomings had been in the past, what occurred during this period
21 reached a new and intolerable level of dysfunction. Nobody could work with him. Left with no
22 other choice, Mr. Schwartz terminated Plaintiff in June 2013.
23
LEGAL DISCUSSION
24 I.
PLAINTIFF’S CLAIMS
25
Plaintiff alleges three claims for retaliatory discharge, based on: (1) the Dodd-Frank Act, 15
26 U.S.C. § 78u-6; (2) the Sarbanes-Oxley Act (“SOX”), 18 U.S.C. § 1514A; and (3) California’s law
27 against termination in violation of public policy, generically known as a “Tameny” claim, see
28 Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167 (1980). The three claims all turn on the same issue,
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1 i.e., whether Plaintiff was fired in retaliation for blowing the whistle on purported FCPA violations
2 in China.
3
A.
4
Dodd-Frank prohibits adverse employment actions taken “because of” protected activity by
Dodd-Frank Act
5 a whistleblower. 15 U.S.C. § 78u-6(h)(1). The implementing regulations and an associated SEC
6 release explain the “because of” requirement. 17 C.F.R. §§ 240.21F-1 to 240.21F-17; SEC Release
7 No. 34-64545 (May 25, 2011). As set forth in the cases cited in the Release, the legal framework is
8 as follows: (1) the employee must first make a prima facie case that he engaged in protected activity,
9 suffered an adverse employment action, and that the action was causally connected to the protected
10 activity; (2) the burden then shifts to the employer to articulate a legitimate, non-retaliatory reason
11 for its employment decision; after which (3) the burden shifts back to the employee to show the
12 proffered legitimate reason is pretextual. See Release at 14 n.41.
13
B.
14
SOX is similar to Dodd-Frank. Plaintiff must prove by a preponderance of the evidence
SOX
15 that he was terminated because he engaged in protected activity. 18 U.S.C. § 1514A. Specifically,
16 Plaintiff must show that (1) he engaged in a protected activity or conduct; (2) Defendants knew or
17 suspected that Plaintiff engaged in protected activity; (3) Plaintiff suffered an unfavorable personnel
18 action; and (4) the unfavorable personnel action was taken “because of” Plaintiff's protected activity.
19 18 U.S.C. § 1514A(a); Univ. of Tex. Sw. Med. Ctr. v. Nassar, 133 S. Ct. 2517, 2528 (2013); Wallace
20 v. Tesoro Corp., 796 F.3d 468, 478 (5th Cir. 2015) (stating that a “causal link” is “a necessary
21 element of SOX retaliation”). The protected activity at issue in SOX must relate to a violation of
22 the securities laws, and Plaintiff must have “reasonably believe[d]” that the conduct amounted to a
23 violation. 18 U.S.C. § 1514A; Van Asdale v. Int’l Game Tech., 3:04-cv-0703, Dkt. 315, Instruction
24 15 (D. Nev. Feb. 8, 2011); Beacom v. Oracle Am., Inc., 825 F.3d 376, 380-81 (8th Cir. 2016) (belief
25 must be subjectively and objectively reasonable). If Plaintiff is able to satisfy these elements, the
26 burden then shifts to the company to prove by clear and convincing evidence that Plaintiff would
27 have been terminated regardless of the protected activity. Coppinger-Martin v. Solis, 627 F.3d 745,
28 750 (9th Cir. 2010).
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1
C.
2
Under California law governing whistleblower retaliation, Plaintiff must show that an
California Public Policy
3 illegitimate factor played a “‘motivating or substantial role’” in the decision to terminate his
4 employment. Grant-Burton v. Covenant Care, Inc., 99 Cal. App. 4th 1361, 1379 (2002) (citation
5 omitted). Similar to claims under Dodd-Frank and SOX, Plaintiff must prove by a preponderance
6 of the evidence that (1) he engaged in protected conduct; (2) Defendants subjected him to an adverse
7 employment action; and (3) there was a causal link between the protected activity and the adverse
8 employment action. Abdel v. Ikon Office Solutions, Inc., 2006 WL 2474331, *9 (N.D. Cal. Aug.
9 25, 2006) (Spero, J.). As above, Plaintiff must have had a subjectively and objectively reasonable
10 belief that he was reporting a violation of any rule or regulation of the Securities and Exchange
11 Commission. Id. If Plaintiff establishes a prima facie case, the burden shifts to Defendants to
12 present a legitimate, non-retaliatory reason for the adverse employment action. Id. The burden then
13 shifts back to Plaintiff to show that the non-retaliatory reason is “‘mere pretext.’” Id. (citation
14 omitted).
15 II.
PLAINTIFF WILL NOT BE ABLE TO SHOW HE ENGAGED IN PROTECTED
16
CONDUCT OR THAT HE WAS TERMINATED FOR DOING SO
17
Not only was no FCPA violation ever found in China, no knowledgeable person who looked
18 at the evidence concluded there was an FCPA violation there.
The
19
20 government looked at the company’s disclosures related to China and did not conclude there was an
21 issue. Although Bio-Rad disclosed the potential existence of problems in China in its delayed Form
22 10-K for 2012, it had no choice but to do so given that Plaintiff had raised the issue and an
23 investigation had begun. But the claims had no objective merit. As a result, Plaintiff cannot be
24 considered a whistleblower.
25
Under California law an employee engages in protected conduct when he makes a “good
26 faith” report that his employer has violated an important public policy. Freund v. Nycomed
27 Amersham, 347 F. 3d 752, 759 (9th Cir. 2003) (construing California law). In the Ninth Circuit, for
28 a claimant to be accorded whistleblower status, he must “have (1) a subjective belief that the conduct
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1 being reported violated a listed law, and (2) this belief must be objectively reasonable.” Van Asdale
2 v. Int’l Game Tech., 577 F. 3d 989, 1000 (9th Cir. 2009). The evidence shows Plaintiff cannot meet
3 these elements.
4
A.
Plaintiff Did Not Engage in Protected Conduct: California Ethical and
5
Statutory Rules for Attorneys Preclude Him from Being a Whistleblower
6
Plaintiff is duty-bound by the California Rules of Professional Conduct and California
7 statutory law not to act as a whistleblower against his former client, Bio-Rad. California’s rules
8 prohibiting an attorney from disclosing his client’s confidences—including to report wrongdoing—
9 are the strictest in the country. Absent a risk of “death” or “substantial bodily harm” to an individual,
10 attorneys bound by California laws and rules “shall not reveal” their clients’ confidential
11 information. Cal. Rule of Prof. Conduct 3-100. The California legislature recognized the risks that
12 could arise from such a restrictive rule, and assigned the burden entirely to attorneys; they are
13 required “[t]o maintain inviolate the confidence, and at every peril to himself or herself to preserve
14 the secrets, of his or her client.” Cal. Bus. & Prof. Code § 6068(e)(1) (emphasis added); see also
15 Elijah W. v. Superior Court, 216 Cal. App. 4th 140, 151 (2013) (duty of confidentiality is broader
16 than the attorney client privilege “and protects virtually everything the lawyer knows about the
17 client’s matter regardless of the source of the information”). If an in-house attorney becomes aware
18 of wrongdoing at his employer-client, he “shall not violate his or her duty of protecting all
19 confidential information” but instead may only report the perceived misconduct internally. Cal.
20 Rule of Prof. Conduct 3-600(B). If the company fails to act, the attorney still may not disclose the
21 client’s confidences; his response “is limited to [his] right, and, where appropriate, duty to resign.”
22 Id. at 3-600(C).
23
Courts and commentators have recognized that these rules prevent a general counsel from
24 acting as a whistleblower against his former client. In General Dynamics Corp. v. Superior Court,
25 7 Cal. 4th 1164 (1994), the California Supreme Court noted that an in-house attorney could pursue
26 a retaliatory discharge claim only if “it can be established without breaching the attorney client
27 privilege or unduly endangering the values lying at the heart of the professional relationship.” Id.
28 at 1170; see also Corps. Comm. of the Bus. Law Section of the Cal. State Bar, Conflicting Currents:
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1 The Obligation to Maintain Inviolate Client Confidences and the New SEC Attorney Conduct Rules,
2 32 Pepp. L. Rev. 89, 115-16 (2004) (noting that California State Bar and California government
3 both considered and rejected whistleblower exceptions to the duty of confidentiality, meaning “that
4 there has been no statutory or rule change that allows California attorneys to ‘blow the whistle’”);
5 Clark & Moore, Financial Rewards for Whistleblowing Lawyers, 56 B.C. L. Rev. 1697, 1714-15
6 (2015) (California “lack[s] any confidentiality exceptions for client fraud and monetary crimes”).
7 Plaintiff cannot pursue a whistleblower claim in violation of his ethical duties to Bio-Rad.
8
B.
9
Plaintiff will not be able to show
Plaintiff Cannot Establish a Subjective Belief of Illegal Activity
in good faith and with a subjective
10 belief of a violation. The evidence will be clear that
11 government prosecutors wanted to speak to him. With the meeting scheduled for late January, and
12 rushing to have something to show them, Plaintiff did not engage in the most basic due diligence
13 of his own concerns. He failed to confer with experts like Mr. Greenburg and Mr. Norton, who
14 could knowledgeably evaluate his alleged claim. Instead of conferring with the company’s FCPA
15 experts,
16
See Nance v. Time Warner Cable, Inc., 433
17 F. App’x 502, 503-04 (9th Cir. 2011) (no “subjective belief” where employee went months between
18 first orally raising a supposed violation and submitting a formal report). The evidence will show
19 Plaintiff was motivated not by good faith, but by a fear of consequences to himself for his own
20 failure as the company’s decades-long General Counsel to take any action to impose obligations
21 consistent with the FCPA on its foreign operations. The jury will have no doubt that what Plaintiff
22 portrays as a concern about the company was nothing more than concern for his own skin. His job
23 and his reputation at a minimum were at stake. Civil and criminal penalties were not out of the
24 question.
25
C.
26
Plaintiff also will not be able to show his complaint was objectively reasonable. There are
Plaintiff Cannot Satisfy the Element of Objective Reasonableness
27 no objective facts supporting his conclusions.
28
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1
The consent decree the company entered into does not point to
2 China as a site of FCPA violations.
3
On similar facts, courts have held the plaintiff did not meet the test for objective
4 reasonableness. In Harkness v. C-Bass Diamond, LLC, 2010 WL 997101, at *2, *5-6 (D. Md. Mar.
5 16, 2010), for example, plaintiff, a general counsel, became concerned that certain activities that
6 had occurred violated securities Regulation FD. Id. at *2. She told the CEO of her concerns, but
7 he responded that outside securities counsel had looked at the matter and found there was no
8 violation. Id. He asked her to prepare a report on the matter, and she did, but she persisted in
9 arguing there had been a violation. The relationship between GC and CEO deteriorated, and she
10 reported being isolated from senior management over the next year. Eventually the external audit
11 committee asked her if upper management exhibited a commitment to legal compliance and
12 ethics. She reported to the committee that she could not ensure compliance with securities laws
13 given her isolation. She was terminated two months later. The company argued the General
14 Counsel’s expressed concern about the violation of regulation FD was not objectively reasonable
15 and thus was not a protected activity. The court agreed, stating that this was not protected activity
16 because she should have known given her experience and available resources that no violation had
17 occurred.
Like Plaintiff, the plaintiff in Harkness spent time researching whistleblower
18 requirements, but not the underlying validity of the alleged violations she reported. Id. at *5. Also
19 like Plaintiff, the plaintiff in Harkness did not seek input from the company’s experienced outside
20 counsel or her own in-house colleagues (they all disagreed with her). Id. at *5-6.
21
Similarly, in Mann v. Fifth Third Bank, 2011 WL 1575537 (S.D. Oh. 2011), the court held
22 the plaintiff had not engaged in protected activity under SOX because his belief that the defendant
23 was committing shareholder fraud was not objectively reasonable. In reaching that conclusion, the
24 court noted that—like here—regulators were aware of the activities plaintiff complained about, but
25 took no action: “Though Plaintiff obviously subjectively believes he reported actions that
26 constituted shareholder fraud, the fact that the Federal Reserve regulators did not appear to consider
27 them violations militates against finding that belief objectively reasonable.” Id. at *11.
28
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1
Plaintiff may take the position that this Court already held, in its order on Bio-Rad’s Motion
2 to Dismiss, that Plaintiff engaged in protected activity. But the Court did not make a factual
3 determination about Plaintiff’s claim; it merely ruled on the legal sufficiency of the pleadings,
4 accepting, as it must, that all allegations in the complaint were true. We now know that Plaintiff’s
5 allegations have no evidentiary support. Further, with respect to his Dodd-Frank claim, the Court’s
6 ruling on the Motion to Dismiss addressed only whether Plaintiff could be deemed to engage in
7 protected conduct given that he made only an internal report to the Audit Committee and did not
8 report to the government. As the Court noted, there was a split of authority on this issue and the
9 Ninth Circuit had not ruled on it. The Court therefore held that an internal report was sufficient.
10 This issue was argued before the Ninth Circuit on November 16, 2016 in Somers v. Digital Realty
11 Trust, Inc., No. 15-17352. If the Court rules that a report to the government is necessary, Plaintiff’s
12 Dodd-Frank claim fails.
13 III.
BIO-RAD WILL BE ABLE TO SHOW—EASILY—THAT PLAINTIFF WAS
14
FIRED FOR LEGITIMATE BUSINESS REASONS
15
Unreasonable oppositional activity is a valid reason to terminate an employee, even one who
16 claims to have been fired for impermissible reasons. See Unt v. Aeorospace Corp., 765 F. 2d 1440,
17 1446 (9th Cir. 1985) (oppositional conduct in Title VII case). Oppositional activity includes
18 disruptive, disloyal and otherwise uncooperative conduct. See id.; Rosser v. Laborers’ Int’l Union
19 of N. Am., Local No. 438, 616 F.2d 221, 223 (5th Cir. 1980) (same). The evidence will show that
20 Plaintiff engaged in just this kind of conduct and will lead the jury to conclude that no reasonable
21 employer would or could have continued to employ Plaintiff; he was a nightmare employee. In other
22 words, even if, contrary to fact, there had been credence to Plaintiff’s claim, that did not immunize
23 his misconduct.
24
No employee can behave the way Plaintiff did in the final seven months of his employment
25 and expect to keep his job. And no responsible employer can allow an employee to perpetrate the
26 intimidation and obstructive behavior in which Plaintiff engaged. Companies have responsibilities
27 to other employees and to their stockholders, both of which Plaintiff imperiled. And although no
28 one will deny he had certain skills, his skill set was far too limited for the company Bio-Rad had
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1 become, and he showed no motivation to upgrade his knowledge base. He enjoyed the combination
2 of a large salary with stock options, and a pleasant routine of late mornings, a newspaper, and doing
3 work he already knew how to do, while ignoring those things that would have required him to
4 undertake an effort to learn and grow.
5 IV.
UNCLEAN HANDS BARS PLAINTIFF’S CLAIMS
6
Bio-Rad has pled a defense of unclean hands. This defense will bar any recovery by Plaintiff.
7 “[T]he equitable doctrine of unclean hands applies when a plaintiff has acted unconscionably, in
8 bad faith, or inequitably in the matter in which the plaintiff seeks relief.” Salas v. Sierra Chem. Co.,
9 59 Cal. 4th 407, 432 (2014). Further, “[t[he misconduct which brings the clean hands doctrine into
10 operation must relate directly to the transaction concerning which the complaint is made, i.e., it must
11 pertain to the very subject matter involved and affect the equitable relations between the litigants.”
12 Id. (internal quotation marks and citation omitted).
13
The evidence shows that Plaintiff’s derelictions of duty, which amount to both breach of
14 fiduciary duty and malpractice, and relate directly to the claims at issue, do—and should—bar his
15 claims. The idea that a General Counsel can utterly fail to protect the company against FCPA
16 claims, and then seek to be compensated for “discovering” FCPA violations not only loudly
17 bespeaks inequity, it creates perverse incentives. As Plaintiff’s own expert stated,
18
19
In Bio-Rad’s case, this included compliance
20 with the FCPA. Plaintiff-Rad failed to put an FCPA compliance program in place and failed to
21 enforce standards. The penalties the company paid to the government, and the the investigations by
22 outside counsel, cost the company $55 million in fines and millions more in legal fees and costs.
23 There is no reasonable argument to be made that Plaintiff should profit from this set of facts.
24
25
CONCLUSION
Whether Sanford Wadler deserved to be fired from Bio-Rad is not a close question. He
26 failed in his duty to the company as a lawyer. At a more elemental level, he double-crossed the
27 company that had compensated him more in some years than most jurors will receive during their
28 entire work life. He broke ties with every single executive in the company, giving the silent
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1 treatment to several. He berated subordinates, publicly and cruelly. He cost the company tens of
2 millions of dollars in fines and legal fees. He was tolerated for far too long, and kept in the fold
3 long after many were clamoring for his termination. June 7, 2013 was long past the time Plaintiff
4 should have been terminated. There is no merit whatsoever to his claim that he was fired for blowing
5 a whistle because his whistle signaled nothing more than disclosure of his intentionally cooked-up
6 claim. His claim will not succeed at trial.
7
8
DATED: November 21, 2016
9
QUINN EMANUEL URQUHART &
SULLIVAN, LLP
10
11
12
13
14
By
/s/ John M. Potter
John M. Potter
Attorneys for Defendants Bio-Rad Laboratories,
Inc.; Norman Schwartz; Louis Drapeau; Alice N.
Schwartz; Albert J. Hillman; Deborah J. Neff
15
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