M L K B. C K N KERR & WAGSTAFFE LLP · Case No. 3:15-cv-02356-JCS PLAINTIFF SANFORD S. WADLER’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS DATE: September 4, 2015 TIME: 9:30

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Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

MICHAEL VON LOEWENFELDT (178665) KEVIN B. CLUNE (248681) KENNETH NABITY (287927) KERR & WAGSTAFFE LLP 101 Mission Street, 18th Floor San Francisco, CA 94105-1727 Telephone: (415) 371-8500 Fax: (415) 371-0500 Email: [email protected] Email: [email protected] Email: [email protected] Attorneys for Plaintiff SANFORD WADLER

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

SANFORD S. WADLER, an individual,

Plaintiff,

v. BIO-RAD LABORATORIES, INC., a Delaware Corporation; NORMAN SCHWARTZ; LOUIS DRAPEAU; ALICE N. SCHWARTZ; ALBERT J. HILLMAN; DEBORAH J. NEFF,

Defendants.

Case No. 3:15-cv-02356-JCS

PLAINTIFF SANFORD S. WADLER’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

DATE: September 4, 2015 TIME: 9:30 AM DEPT: Courtroom G, 15th Floor JUDGE: Hon. Joseph C. Spero

TRIAL: [None set]

Case3:15-cv-02356-JCS Document35 Filed08/11/15 Page1 of 31

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i Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

TABLE OF CONTENTS

Page

I. INTRODUCTION ............................................................................................................ 1

II. BACKGROUND & FACTS ............................................................................................. 2

A. Wadler Provides Dedicated and Accomplished Service to Bio-Rad for Several Decades .................................................................................................... 2

B. Wadler Uncovers Evidence of Widespread Illegal Activity Regarding Bio-Rad’s Operations in China .................................................................................... 2

C. Wadler Refuses to Participate in FCPA Violations and the Related Cover-up and Is Terminated for Doing So ....................................................................... 3

D. Wadler Promptly Exhausts his SOX Claim .......................................................... 5

III. LEGAL STANDARD ....................................................................................................... 6

IV. ANALYSIS ....................................................................................................................... 7

A. Bio-Rad’s Corporate Directors and Officers Are Individually Liable Under Both SOX and Dodd-Frank .................................................................................. 7

1. SOX Provides for Individual Liability of Bio-Rad’s Corporate Officers and Directors ...............................................................................7

2. Dodd-Frank, Which Closely Mirrors the Provisions of SOX, Likewise Provides for Individual Liability .............................................11

3. Wadler Timely Asserted his SOX Claims Against the Individual Officers and Directors, as the DOL Has Already Held ..........................13

B. As the Majority of Courts have Held, Wadler Did not Have to Blow the Whistle Directly to the SEC to State a Claim under Dodd-Frank ...................... 15

C. Wadler Has Stated a Valid Claim Under California Labor Code Section 1102.5(c) ............................................................................................................. 20

V. CONCLUSION ............................................................................................................... 25


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ii Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

TABLE OF AUTHORITIES

Page

Cases

Ahmad v. Morgan Stanley & Co., 2 F. Supp. 3d 491 (S.D.N.Y. 2014) ................................................................................. 17

Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533 (Del. 1996) ................................................................................................. 9

Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) .................................................................................... 16, 18

Azim v. Tortoise Capital Advisors, LLC, 2014 WL 707235 (D. Kan. Feb. 24, 2014) ............................................................... 12, 18

Banko v. Apple Inc., 20 F. Supp. 3d 749 (N.D. Cal. 2013) ........................................................................ 18, 24

Bostwick v. Watertown Unified Sch. Dist., 2015 WL 520701 (E.D. Wis. Feb. 9, 2015) ...................................................................... 9

Boucher v. Shaw, 572 F.3d 1087 (9th Cir. 2009) ........................................................................................ 10

Bridges v. McDonald’s Corp., 2009 WL 5126962 (N.D. Ill. Dec. 21, 2009) .................................................................... 7

Bury v. Force Prot., Inc., 2011 WL 2935916 (D.S.C. June 27, 2011)....................................................................... 7

Bussing v. COR Clearing, LLC, 20 F. Supp. 3d 719 (D. Neb. 2014) ..................................................................... 12, 18, 20

Casissa v. First Republic Bank, 2010 WL 2836896 (N.D. Cal. July 19, 2010) ................................................................. 21

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) .................................................................................................. 15, 17

Cloke-Brown v. Bank of Tokyo-Mitsubishi UFJ. Ltd., 2011 WL 666187 (S.D.N.Y. Feb. 9, 2011) ....................................................................... 7

Conley v. Yellow Freight Sys., Inc., 521 F. Supp. 2d 713 (E.D. Tenn. 2007) .......................................................................... 23

Connolly v. Remkes, 2014 WL 5473144 (N.D. Cal. Oct. 28, 2014) ............................................... 16, 17, 18, 19

Cook v. Brewer, 637 F.3d 1002 (9th Cir. 2011) .......................................................................................... 6


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iii Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

Donovan v. Royal Logging Co., 645 F.2d 822 (9th Cir. 1981) .......................................................................................... 13

Ellington v. Giacoumakis, 977 F. Supp. 2d 42 (D. Mass. 2013) ......................................................................... 12, 18

Fed. Exp. Corp. v. Holowecki, 552 U.S. 389 (2008) ........................................................................................................ 17

Ferretti v. Pfizer Inc., 2013 WL 140088 (N.D. Cal. Jan. 10, 2013) ............................................................. 21, 23

Genberg v. Porter, 935 F. Supp. 2d 1094 (D. Colo. 2013) ............................................................................ 18

Guifu Li v. A Perfect Day Franchise, Inc, 281 F.R.D. 373 (N.D. Cal. 2012) ...................................................................................... 9

Heinemann v. Howe & Rusling, 260 F. Supp. 2d 592 (W.D.N.Y. 2003) ............................................................................. 9

Irizarry v. Catsimatidis, 722 F.3d 99 (2d Cir. 2013).............................................................................................. 11

Jones v. Southpeak Interactive Corp. of Delaware, 777 F.3d 658 (4th Cir. 2015) ...................................................................................... 8, 10

Khazin v. TD Ameritrade Holding Corp., 2014 WL 940703 (D.N.J. Mar. 11, 2014) ....................................................................... 17

King v. Burwell, 135 S. Ct. 2480 (2015) .................................................................................................... 19

Kramer v. Trans-Lux Corp., 2012 WL 4444820 (D. Conn. Sept. 25, 2012) .......................................................... 12, 18

Lambert v. Ackerley, 180 F.3d 997 (9th Cir. 1999) .......................................................................................... 11

Lawson v. FMR LLC, 134 S. Ct. 1158 (2014) ...................................................................................................... 7

Miller v. Maxwell’s Int’l Inc., 991 F.2d 583 (9th Cir. 1993) .......................................................................................... 11

Murray v. UBS Secs., LLC, 2013 WL 2190084 (S.D.N.Y. May 21, 2013) ................................................................ 18

Navarro v. Encino Motorcars, LLC, 780 F.3d 1267 (9th Cir. 2015) ........................................................................................ 17

Newman v. Metro. Life Ins. Co., 2015 WL 275703 (D. Mass. Jan. 21, 2015) ...................................................................... 7


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iv Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986 (M.D. Tenn. 2012) ......................................................................... 18

Preschooler II v. Clark Cnty. Sch. Bd. of Trustees, 479 F.3d 1175 (9th Cir. 2007) ........................................................................................ 21

Rosenblum v. Thomson Reuters (Markets) LLC, 984 F. Supp. 2d 141 (S.D.N.Y. 2013) ............................................................................. 18

Sharkey v. O’Neal, 778 F.3d 767 (9th Cir. 2015) .......................................................................................... 24

Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035 (9th Cir. 2010) .......................................................................................... 6

Skidmore v. Swift & Co., 323 U.S. 134 (1944) ........................................................................................................ 17

Somers v. Digital Realty Trust, Inc., 2015 WL 4483955 (N.D. Cal. July 22, 2015) ................................... 12, 15, 16, 17, 18, 20

Sosa v. Hiraoka, 920 F.2d 1451 (9th Cir. 1990) ........................................................................................ 13

Thomas v. City of Beaverton, 379 F.3d 802 (9th Cir. 2004) .......................................................................................... 23

Walsh v. Nevada Dep’t of Human Res., 471 F.3d 1033 (9th Cir. 2006) ........................................................................................ 11

Wiest v. Lynch., 15 F. Supp. 3d 543 (E.D. Pa. 2014) .................................................................................. 7

Wilson v. United States, 250 F.2d 312 (9th Cir. 1957) .......................................................................................... 11

Wood v. Dow Chem. Co., 72 F. Supp. 3d 777 (E.D. Mich. 2014) .............................................................................. 7

Yang v. Navigators Group,Inc., 18 F. Supp. 3d 519, 531-534 (S.D.N.Y. 2014) ............................................................... 17

Yates v. United States, 135 S. Ct. 1074 (2015) .................................................................................................... 19

Statutes

15 U.S.C. § 78dd-2 ....................................................................................................................... 2

15 U.S.C. § 78ff ............................................................................................................................ 2

15 U.S.C. § 78u-6 ........................................................................................................... 11, 13, 15

18 U.S.C. § 1514A ...................................................................................................... 7, 10, 12, 15


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v Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

Cal. Lab. Code § 1102.5 ............................................................................................................. 21

Other Authorities

156 Cong. Rec. S3147-02 ........................................................................................................... 12

Black’s Law Dictionary 72 (9th ed. 2009) .................................................................................... 8

Gagnier v. Steinmann Transpiration, Inc., No. 91-STA-46, 1992 WL 752768, at *2, n. 4 (DOL Sec’y July 29, 1992) ................... 14

In re Evans, ARB No. 08-059, 2012 WL 3164358 (DOL Admin. Rev. Bd. July 31, 2012) .............. 13

Leznik v. Nektar Therapeutics, Inc., ALJ No. 2006-SOX-00093, 2007 WL 5596626 (ALJ Nov. 16, 2007) ............................ 7

Restatement (Third) of Agency (2006) § 1.01 cmt. f(2) ............................................................... 9

SEC Interpretive Release, 80 FR 47829-01, Release No. 34-75592 (Filed Aug 4, 2015) .................................. 17, 19

Regulations

17 C.F.R. § 205.3 ........................................................................................................................ 22

17 C.F.R. § 240.21F-2 ................................................................................................................ 16

29 C.F.R. § 1980.103 .............................................................................................................. 5, 13

76 Fed. Reg. 34300 (June 13, 2011) ........................................................................................... 16


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1 Case No. 3:15-cv-02356-JCS PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

I. INTRODUCTION

Defendants do not attempt to dispute the vast majority of Plaintiff Sanford S. Wadler’s

claims in this lawsuit. For example, Defendants do not dispute that Wadler has stated a valid

claim against the company under the Sarbanes Oxley Act (“SOX”) for terminating him because

he uncovered evidence of widespread bribery, books-and-records, and similar Foreign Corrupt

Practices Act (“FCPA”) violations concerning Bio-Rad’s massive China operations. They

likewise do not dispute that Wadler has stated valid claims against the company under California

law for wrongful termination in violation of public policy and for not properly paying him all

wages (and associated penalties) when due.

Instead, after identifying factual disputes that even they admit are wholly irrelevant1 to

the instant motion (see Defs.’ Mot. to Dismiss at 1 n.1, ECF No. 24), Defendants nitpick just

some of his remaining theories of legal recovery, and even then mostly just with respect to the

Individual Defendants (as opposed to the corporation itself).2 In making their arguments,

Defendants repeatedly ask this Court to disagree with the majority of other courts, the Securities

and Exchange Commission, and the Department of Labor and, instead, to adopt the narrowest

possible reading of statutes and procedures clearly designed to deter and punish precisely the sort

of conduct Defendants engaged in here. None of Defendants’ self-serving arguments have merit,

and the Court should deny their motion to dismiss in full.

1 Defendants do not actually substantiate any of their baseless ad hominem attacks against Wadler, such as their assertion that that Wadler was terminated for “caus[ing] disruption” to the company through his “damaging” conduct—unless, of course, they are referring to his whistleblowing. (See Defs.’ Mot. to Dismiss 1.) Instead, Defendants merely borrow from the standard playbook of every employer sued for whistleblower retaliation of attacking the employee for having the gall to expose the employer’s misconduct. Even then, Defendants only do so with boilerplate assertions (albeit couched in hyperbolic rhetoric) that Plaintiff was a substandard employee, even though their 25-year retention of him obviously suggests otherwise.

2 The Individual Defendants are Bio-Rad CEO and Chairman Norman Schwartz and Board members Alice N. Schwartz, Louis Drapeau, Albert Hillman, and Deborah Neff. (Compl. ¶¶ 8-10.)


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II. BACKGROUND & FACTS

A. WADLER PROVIDES DEDICATED AND ACCOMPLISHED SERVICE TO BIO-RAD FOR SEVERAL DECADES

Wadler was employed as Bio-Rad’s general counsel for nearly 25 years. (Compl. ¶ 2.)

Bio-Rad is a Fortune 1000 company that manufactures and sells life-sciences-related products

and equipment around the globe. (Id. ¶ 4.) Because Bio-Rad sells many of its products abroad

to hospitals, universities, and similar public entities and officials, it must abide by the terms of

the FCPA. Among other things, that law forbids the company or its agents from engaging in

bribery and kickback schemes involving public officials and requires that companies maintain

accurate accounting records and put in place adequate internal controls or face significant fines

and possible criminal punishment. See, e.g., 15 U.S.C. §§ 78dd-2; 78ff; see also Compl. ¶ 6.

B. WADLER UNCOVERS EVIDENCE OF WIDESPREAD ILLEGAL ACTIVITY REGARDING BIO-RAD’S OPERATIONS IN CHINA

In 2009, Bio-Rad became aware of widespread FCPA violations around the globe.

(Compl. ¶ 14.) It recently admitted the existence of such violations in a consent decree and

agreed to pay $55.1 million in fines for this conduct as it related to Bio-Rad’s operations in

Thailand, Vietnam, and Russia. (Compl. ¶¶ 14-15 & Ex. A.)

After these initial FCPA violations first came to light in 2009, and in the course of a

royalty audit in 2011, Wadler discovered evidence of similar widespread FCPA violations

concerning Bio-Rad’s operations in China—a country with significantly greater amounts of Bio-

Rad sales than Thailand, Russia, or Vietnam and where Bio-Rad’s outside investigators had

previously determined (incorrectly, as it turned out) that there had been no FCPA violations. (Id.

¶¶ 19-20.) Wadler discovered that, although the company conducted hundreds of millions of

dollars’ worth of business in that country, which is notorious for its widespread corruption, there

was virtually no documentation supporting Bio-Rad’s China-related sales. (Id.) In addition to

being concerned that the sheer dearth of documentation itself violated the FCPA’s recordkeeping

provisions, Wadler expressed his worry that the lack of documentation suggested an intentional

and widespread effort to affirmatively hide evidence of bribery. (Id. ¶ 22.) Those concerns were

validated when the exceedingly few documents that he actually was able to ultimately uncover


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demonstrated unambiguous evidence of bribery. (Id. ¶ 24.) He also discovered that certain

standard FCPA compliance language in Bio-Rad’s contracts had been surreptitiously removed

from the company’s Chinese contracts. (Id. ¶ 27.)

C. WADLER REFUSES TO PARTICIPATE IN FCPA VIOLATIONS AND THE RELATED COVER-UP AND IS TERMINATED FOR DOING SO

Wadler brought his concerns to the highest levels of management but was consistently

rebuffed in his attempts to gain additional information. “Wadler repeatedly tried to obtain

documents from Bio-Rad’s CEO, CFO, and other key executives, but despite indicating that they

would assist in tracking down such documents, these executives repeatedly failed to do so.”

(Compl. ¶ 21.) Instead, they simply “stonewall[ed]” him, and refused to take any meaningful

steps to actually obtain any relevant documentation, leading Wadler to reasonably conclude that

“management was intentionally blocking his efforts to uncover evidence of bribery and related

misconduct.” (Id. ¶ 28.) Wadler then went directly to the Audit Committee of the Board of

Directors. (Id. ¶ 29.) Unfortunately, the Audit Committee likewise took steps designed to block

Wadler’s efforts at uncovering the truth in the hopes that everyone would just move on and not

actually expose the full extent of the misconduct. (Id. ¶¶ 30-33.) Over Wadler’s objections,

Bio-Rad re-hired the very same law firm—Steptoe & Johnson—that had initially (and

incorrectly) determined that there was no evidence of bribery or books-and-records violations in

China. (Id. ¶ 30.) Steptoe & Johnson then did exactly what the Audit Committee wanted:

generated a white-washed report that cleared Bio-Rad of liability despite Wadler’s repeated

insistence of blatant FCPA and books-and-records violations. (Id. ¶ 32.) Wadler persisted in

challenging Steptoe & Johnson’s conclusions, pointing out in a meeting with the company’s

outside auditors that “thirty percent of the documents concerning Bio-Rad’s China operations

that he had reviewed contained discrepancies related to the shipment volume.” (Id.) In response,

Steptoe & Johnson admitted that it had “simply not addressed those issues” and then “effectively

shut [him] out of the investigation over his repeated objections that he should be included.” (Id.

¶ 33.) The company also refused to send anyone to China to look for documents, even after the

CFO specifically requested that they do so. (Id. ¶ 31.)


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Then, after over a quarter century of dedicated service and despite never being told that

his work was deficient (and, indeed, having recently received a positive performance review),

Bio-Rad abruptly terminated Wadler. Conspicuously, it did so shortly before the company was

to give a presentation on FCPA-related issues to the SEC and DOJ regarding Bio-Rad’s China

operations. (Compl. ¶¶ 35-37.)3 It also did so shortly after Wadler expressed his concerns about

his exclusion from the FCPA investigation. (See id. ¶ 33.)

Bio-Rad terminated Wadler through action of the full Board of Directors. That Board

included CEO and Chairman Norman Schwartz, as well as Board members Alice Schwartz

(Norman’s mother, a founder, and controlling shareholder of the company),4 Louis Drapeau,

Albert Hillman, and Deborah Neff. (Id. ¶ 38.) The Board and its CEO did so with full

awareness of Wadler’s repeated efforts to uncover the full extent of Bio-Rad’s misconduct in

China and his refusal to turn a blind eye towards the unlawful activities or participate in efforts

to cover them up. (Id.) Indeed, as alleged in the Complaint, they fired Wadler precisely because

of Wadler’s refusal to acquiesce in this unlawful activity. (Id. ¶ 39.)

Bio-Rad later admitted the veracity of his China-related allegations. (Id. ¶ 34 (noting that

Bio-Rad’s SEC statements “admitted publicly that it was, in fact, engaging in some of the very

misconduct Wadler had complained about” concerning Bio-Rad’s operations in China).) Its

outside auditors Ernst & Young also resigned, presumably due to “material deficiencies and

substantial disagreement between the auditors and Bio-Rad’s senior leadership.” (Id. ¶ 44.)

3 Tellingly, the “self-serving” presentation Bio-Rad ultimately gave to the government had never been shown to Wadler himself. (See Compl. ¶¶ 32-33, 41-43.) Like the Steptoe & Johnson review that preceded it, the presentation failed to adequately address the full extent of evidence pointing to substantial amounts of bribery occurring in China. (See id. ¶¶ 29-33, 41-43.)

4 Norman and Alice Schwartz also have substantial control over the company because they own “[a] significant majority of [Bio-Rad’s] voting stock.” (Bio-Rad 2015 10K Report 18, RJN Ex. A.) “[T]he Schwartz family is able to elect a majority of the directors, effect fundamental changes in [Bio-Rad’s] direction and control matters affecting [the Company] including the allocation of business opportunities that may be suitable for [the] company.” (Id.)


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D. WADLER PROMPTLY EXHAUSTS HIS SOX CLAIM

Wadler filed his initial complaint with the Department of Labor’s Occupational Safety &

Health Administration (“DOL”) by fax on November 29, 2013, alleging that he was terminated

for engaging in protected activity under SOX. (Wadler DOL Compl. 1-5, ECF No. 26.)5 As his

initial complaint correctly stated, Wadler was the Executive Vice President, Secretary, and

General Counsel of Bio-Rad. (Id. at 1.) Wadler has consistently alleged that he was terminated

in violation of SOX for, among other things, uncovering and attempting to investigate fully a

widespread scheme of bribery and related books-and-records violations regarding Bio-Rad’s

operations in China, and providing information to his superiors—including CEO and Chairman

of the Board Norman Schwartz, as well as the Board of Directors’ Audit Committee—regarding

this illegal activity. (Id. at 2-5.)

Because SOX does not require that whistleblower retaliation complaints adhere to any

particular format, see 29 C.F.R. § 1980.103(b), Wadler did not put his complaint on pleading

paper, and thus did not formally identify any particular Defendants in any caption as

Respondents. (See generally id.) But he clearly noted that this Complaint was, at a minimum,

“against Bio-Rad Laboratories” and that his termination had been effectuated by CEO and

Chairman of the Board Norman Schwartz. (Id. at 1, 5.) His Complaint also discussed the

conduct of Bio-Rad Board member Alice Schwartz and the three other Board members in

relation to his retaliation claims. (Id. at 1.)

The individual members of Bio-Rad’s Board of Directors have also been aware of, and

consistently involved in, the proceedings since the DOL complaint was filed. For example, CEO

and Chairman of the Board Norman Schwartz and Board member Louis Drapeau submitted

declarations in support of Bio-Rad’s position. (See, e.g., Jan. 28, 2014 Cover Letter from L.

Inscoe to J. Paul 1, Request for Judicial Notice (“RJN”) Ex. B.) Other members of the Board

would have likewise been kept abreast of developments in this case, not only because of their

5 Page references in this Opposition are to the page number of the documents themselves (not the ECF number) unless otherwise noted.


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supervisory role over the company generally but also because they were the ones who

specifically decided to terminate him, and thus were known key fact witnesses. Indeed, each of

them is independently listed on the “List of Relevant Management Witnesses” Bio-Rad filed in

these DOL proceedings. (Bio-Rad’s List of Relevant Management Witnesses 1-2, RJN Ex. C.)

Although Wadler provided sufficient notice to the individual Bio-Rad officers and

directors listed in the DOL Complaint that they were defendants, in an abundance of caution

Wadler also filed a motion for leave to amend his complaint to clarify his position and ensure

that there was absolutely no confusion on this issue. (Wadler’s Mot. for Leave to Amend DOL

Compl., RJN Ex. D; Wadler’s Supp. Mem. ISO Mot. for Leave to Amend DOL Compl., RJN Ex.

E.) Over Bio-Rad’s objection (ECF No. 25-3), the DOL held that Wadler could proceed with his

amended complaint specifically identifying all of the Defendants. (Correspondence from

Investigator S. Kamlet to J. Freedland, et al., RJN Ex. F.) Several months later, and after Wadler

could not wait any longer for the administrative proceedings to conclude given the potential

expiration of statutes of limitations on his related state-law claims, he removed his SOX claim to

federal court. The Department of Labor then “approved” of Wadler’s timely removal, finding

that any delay in the Agency’s resolution of the matter was not due to any bad faith on the part of

Wadler or his counsel. (Letter from Joshua B. Paul to M. von Loewenfeldt et al., RJN Ex.G.)

III. LEGAL STANDARD

“A Rule 12(b)(6) motion tests the legal sufficiency of a claim.” Cook v. Brewer, 637

F.3d 1002, 1004 (9th Cir. 2011). “A claim may be dismissed only if it appears beyond doubt that

the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.”

Id. (emphasis added, citations and internal quotations omitted). “To survive a motion to dismiss,

a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that

is plausible on its face.” Id. (citations and internal quotations omitted). “A claim has facial

plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Id. (citations and internal

quotations omitted); see also Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035,

1041 (9th Cir. 2010).


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IV. ANALYSIS

A. BIO-RAD’S CORPORATE DIRECTORS AND OFFICERS ARE INDIVIDUALLY LIABLE UNDER BOTH SOX AND DODD-FRANK

1. SOX Provides for Individual Liability of Bio-Rad’s Corporate Officers and Directors

The Bio-Rad corporate officers and directors listed in the Complaint are proper

defendants under SOX. As an initial matter, there is no doubt that individuals can be held

personally liable under SOX if they engage in the relevant retaliatory acts. Indeed, the plain

language of the SOX retaliation statute unambiguously states as much. It provides that

“officer[s], employee[s], contractor[s], subcontractor[s], or agent[s]” can violate the Act in

addition to the “company” itself. 18 U.S.C. § 1514A(a). Thus, it is perhaps unsurprising that

courts—including the U.S. Supreme Court—have uniformly held that individuals can be

personally liable under Section 1514A. See, e.g., Lawson v. FMR LLC, 134 S. Ct. 1158 (2014)

(Ginsburg, J, writing for the majority) (holding that SOX imposes “personal liability” on officers

and employees of both private and public companies); id. at 1179 (emphasis added) (Sotomayor ,

J., dissenting) (arguing that § 1514A “prohibit[s] the public company and the listed

representatives—all of whom act on the company’s behalf—from retaliating against just the

public company’s employees.” (emphasis added)); Bozeman v. Per-Se Technologies, Inc., 456

F. Supp. 2d 1282, 1357 (N.D. Ga. 2006) (“regulations implementing SOX . . . provide for

individual liability. . . .”); Wiest v. Lynch., 15 F. Supp. 3d 543, 558, 572-74 (E.D. Pa. 2014)

(holding that an individual could be personally liable for retaliation); Bury v. Force Prot., Inc.,

No. 2:09-1708-DCN-BM, 2011 WL 2935916, at *1 & n.5 (D.S.C. June 27, 2011) (“Individual

liability is permitted under SOX.”).6 Thus, there is no question that individuals can be liable

6 See also, e.g., Wood v. Dow Chem. Co., 72 F. Supp. 3d 777, 790 (E.D. Mich. 2014); Bridges v. McDonald’s Corp., No. 09-CV-1880, 2009 WL 5126962, at *3 (N.D. Ill. Dec. 21, 2009) (“regulations implementing SOX . . . provide for individual liability. . .”); Newman v. Metro. Life Ins. Co., No. 12-CV-10078, 2015 WL 275703, at *4 (D. Mass. Jan. 21, 2015); Cloke-Brown v. Bank of Tokyo-Mitsubishi UFJ. Ltd., No. 10 Civ. 2249 (LTS), 2011 WL 666187, at *8 (S.D.N.Y. Feb. 9, 2011) (“Plaintiff has . . . stated a prima facie case of retaliation under SOX against [two individual] Defendants [as well as the company].”); Leznik v. Nektar Therapeutics, Inc., ALJ No. 2006-SOX-00093, 2007 WL 5596626, at *11 (ALJ Nov. 16, 2007)


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under SOX.

Board members are not specially exempted from liability under SOX when they actually

engage in retaliatory conduct, as they did here.7 Section 1514A’s statutory language expressly

includes as potential defendants in SOX actions not just an “officer, employee, contractor, [or]

subcontractor,” but also an “agent of such company.” 18 U.S.C. § 1514A (emphasis added).

The term “agent” is necessarily broad enough to include members of the Board of Directors who

actually engaged in retaliatory conduct. Black’s Law Dictionary, for example, defines “agent” as

“[o]ne who is authorized to act for or in place of another; a representative.” Black’s Law

Dictionary 72 (9th ed. 2009). Board members, who after all are responsible for making the most

important decisions for a company, are clearly authorized to act on behalf of the company and

thus qualify as “agents.” Thus, where a board terminates an employee, the board and its

constituent members are necessarily agents of the company and, as such, can be held liable under

SOX for that conduct.

Although Bio-Rad strangely claims that it was “unable to locate a single Sarbanes-Oxley

. . . case in which a director was held liable as a defendant” (Defs. Mot. to Dismiss 5), it neglects

to mention that precisely such authority was provided to the company (and the DOL) when Bio-

Rad made—and lost—this very argument in prior administrative proceedings. As Wadler

previously pointed out in briefing before the DOL (RJN Ex. D), the Fourth Circuit has explicitly

held that individual board members are liable when they retaliate against an employee for

blowing the whistle. Jones v. Southpeak Interactive Corp. of Delaware, 777 F.3d 658, 663-64,

675 (4th Cir. 2015) (affirming a jury verdict finding a chairman of a company’s board of

directors individually liable because he was “involved in the decision to fire Appellee” by voting

(“The SOX Act imposes individual liability when a decision maker retaliates against an employee because she engaged in protected conduct.”).

7 Wadler does not contend that all board members are necessarily liable under SOX for all retaliatory acts of a corporation simply because they serve on the board. Instead, he contends that such persons are individually liable when, under the specific facts at issue, the board members themselves engaged in retaliatory conduct, as Bio-Rad’s Board members did here by terminating Wadler.


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with the other members of the board to terminate the employee in retaliation for SOX-protected

conduct). Unsurprisingly, no court has held that members of a company’s board of directors are

somehow privileged to commit SOX violations as a matter of law.

Further, Bio-Rad’s citation of generic corporations law cases and principles having

nothing to do with SOX or employee retaliation statutes in no way suggests that Bio-Rad’s

directors are somehow immune from liability here. The single, state-law decision Defendants

cite (which, in turn, relies on a Restatement) merely holds that a corporation cannot be held

vicariously liable for a director’s breach of his fiduciary duties for purposes of shareholder suits

against the corporation. Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533, 539 (Del. 1996);

see also Restatement (Third) of Agency (2006) § 1.01 cmt. f(2)(“[S]hareholders ordinarily do not

have a right to control directors by giving binding instructions to them.”). Unlike in Arnold,

there is no question that the corporation here—Bio-Rad—is directly liable for the retaliatory

conduct Wadler alleges under SOX’s plain terms, and the issue of the corporation’s vicarious

liability is simply not at play. Further, Arnold does not suggest that directors themselves are

immune from liability for their own actions.8

Nor would it make any sense as a matter of public policy to immunize the very

individuals who actually retaliated against a whistleblower simply because the company decided

to effectuate the adverse employment action through its board. Indeed, such a counter-intuitive

approach would be entirely inconsistent with how federal law treats similar liability for directors

in the employment context who actually exercise control over specific employees. Guifu Li v. A

Perfect Day Franchise, Inc, 281 F.R.D. 373, 397 (N.D. Cal. 2012) (“[A]n individual officer,

8 Defendants also imply, because their retaliation was put up to a group vote, that no individual can be personally responsible for his or her participation in that decision. But that argument has repeatedly been rejected by the federal courts in the context of employee retaliation claims. Heinemann v. Howe & Rusling, 260 F. Supp. 2d 592, 595 (W.D.N.Y. 2003) (noting that the individual defendants “made the decision to terminate plaintiff’s employment” and “[t]hat they did so as a group does not alter that fact.”); Bostwick v. Watertown Unified Sch. Dist., No. 13-C-1036, 2015 WL 520701, at *8 (E.D. Wis. Feb. 9, 2015) (“Lapin can be individually liable because she directly participated in the Board’s vote to terminate Bostwick’s employment in her capacity as Board President.”).


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director, or supervisor may be held liable as an employer under the FLSA where the evidence

supports a determination that the individual exercised economic and operational control over the

employment relationship.” (emphasis added)); see also Boucher v. Shaw, 572 F.3d 1087, 1090-

91 (9th Cir. 2009) (“Where an individual exercises ‘control over the nature and structure of the

employment relationship,’ or ‘economic control’ over the relationship, that individual is an

employer within the meaning of the [FLSA], and is subject to liability.”) As such, there is no

special exemption from individual liability under SOX for retaliators who happen to be members

of a company’s board, and Section 1514A’s language referring to “agents” of such corporations

includes directors as potential defendants, particularly where they actually control the

employment relationship, as they do here.

Wadler has alleged more than enough facts to establish personal liability for each of the

particular Bio-Rad Board members because he alleges they both knew of his protected activity

and specifically terminated him because of it. (See, e.g., Compl. ¶¶ 38-39.) Thus, as in

Southpeak Interactive Corp., each of the Board members here can be held individually liable

under SOX because they were the ones who actually engaged in the retaliatory conduct by firing

him. See Southpeak Interactive Corp., 777 F.3d at 663-64, 675.

Finally, it is important to note that one of the Individual Defendants—Norman

Schwartz—is also an officer of the company, as its CEO. (Compl. ¶ 8.) SOX expressly lists

“officers” in its recitation of liable parties. 18 U.S.C. § 1514A(a); see also Southpeak Interactive

Corp., 777 F.3d at 675 (affirming a jury verdict holding a CEO liable for retaliation under §

1514A as an officer). Thus, even under Bio-Rad’s exotic (and incorrect) theory of director

liability, in no event can Mr. Schwartz escape liability under SOX simply because he also asked

others to ratify his unlawful decision to terminate Wadler.

As such, the motion to dismiss the SOX claim as to the Individual Defendants should be

denied.


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2. Dodd-Frank, Which Closely Mirrors the Provisions of SOX, Likewise Provides for Individual Liability

Like SOX, Dodd-Frank provides for individual liability, as the only case law to address

this issue has held. Dodd-Frank provides that “[n]o employer may discharge, demote, suspend,

threaten, harass, directly or indirectly, or in any other manner discriminate against, a

whistleblower in the terms and conditions of employment because of any lawful act done by the

whistleblower . . . .” 15 U.S.C. § 78u-6 (emphasis added). Admittedly, Dodd-Frank itself does

not define “employer.” But properly interpreted, “employer” in Dodd-Frank includes

individuals, as discussed in detail below.

First, analogous federal statutory schemes using similar words have been read to provide

for individual liability. Specifically, the anti-retaliation provision in the FLSA likewise uses the

generic term “employer,” without defining what it means “in the first instance.” Irizarry v.

Catsimatidis, 722 F.3d 99, 103 (2d Cir. 2013). Yet, the term includes individuals who actually

control the specific employment relationship at issue. Lambert v. Ackerley, 180 F.3d 997, 1011-

12 (9th Cir. 1999). Thus, an interpretation of “employer” that includes individual defendants for

purposes of a similar retaliation provision in Dodd-Frank is consistent with how courts have

previously defined the term in related contexts.9

Second, Dodd-Frank should be read to include individual liability because of Dodd-

Frank’s close connection to SOX, which unambiguously provides for such liability. It is a “well-

settled rule of statutory construction that statutes dealing with the same general subject matter are

to be construed in pari materia” or, in other words, construed together and harmonized if

possible. See, e.g., Wilson v. United States, 250 F.2d 312, 320 (9th Cir. 1957). Here, as

numerous courts have recognized, the entire purpose of Dodd-Frank was to “expand upon the

9 While it is true that “employer” under Title VII and the ADA has been held to exclude individuals, that is only because those statutes expressly exempt “employers” that fall below a certain “minimum number” of employees—and thus Congress cannot possibly have intended “employer” to include individuals when the statute is read as a whole. Miller v. Maxwell’s Int’l Inc., 991 F.2d 583, 587 (9th Cir. 1993) (Title VII); Walsh v. Nevada Dep’t of Human Res., 471 F.3d 1033, 1038 (9th Cir. 2006) (ADA). No similar minimum-number requirement applies to the definition of “employer” under Dodd-Frank (or SOX or the FLSA, for that matter).


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protections of Sarbanes-Oxley.” Somers v. Digital Realty Trust, Inc., No. C-14-5180 EMC,

2015 WL 4483955, at *12 (N.D. Cal. July 22, 2015) (quoting Kramer v. Trans-Lux Corp., No.

3:11CV1424 SRU, 2012 WL 4444820, at *5 (D. Conn. Sept. 25, 2012)). Dodd-Frank did so by,

among other things, providing recovery for twice the amount of back pay, allowing a

whistleblower to file a federal lawsuit without first administratively exhausting his or her claims

before the Department of Labor, and dramatically expanding the statute of limitations from 180

days to between six and ten years. Somers, 2015 WL 4483955, at *4; see also 156 Cong. Rec.

S3147-02 (Statements of Sen. Menendez). Given that Dodd-Frank was intended to expand upon

SOX’s protections, and SOX unambiguously provides for individual liability (see discussion

supra page 7), there is no reason to think that Congress wanted to somehow reduce the pool of

potential wrongdoers against whom whistleblower retaliation claims could be brought. 10

Third and finally, the only case to have squarely considered this issue has held that Dodd-

Frank does allow for individual liability. Azim v. Tortoise Capital Advisors, LLC, No. 13-2267-

KHV, 2014 WL 707235, at *3 (D. Kan. Feb. 24, 2014). In addition, at least two cases have

imposed liability under Dodd-Frank against individual defendants for whistleblower retaliation,

albeit without expressly analyzing the issue. Bussing v. COR Clearing, LLC, 20 F. Supp. 3d

719, 726, 735 (D. Neb. 2014); Ellington v. Giacoumakis, 977 F. Supp. 2d 42, 43 (D. Mass.

2013). Thus, the only legal authority regarding this issue expressly holds or implicitly suggests

that individuals can be liable under Dodd-Frank for their retaliatory acts, just as they are under

the FLSA and SOX. These Defendants here should likewise be individually held accountable

under Dodd-Frank for their wrongful acts.

10 Importantly, SOX itself did not use terminology suggesting that an “employer” is synonymous with a “corporation.” Instead, it used the more specific term “corporation” and stated that such a “corporation” can be liable for whistleblower retaliation in addition to “officer[s], employee[s], contractor[s], subcontractor[s], or agent[s].” 18 U.S.C. § 1514A. Thus, nothing about SOX’s detailed list of potential defendants suggests that the term “employer” refers exclusively to a corporate entity.


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3. Wadler Timely Asserted his SOX Claims Against the Individual Officers and Directors, as the DOL Has Already Held

As the DOL itself has already held when this very issue was briefed to it earlier this year,

Wadler’s initial complaint was sufficient to name the individuals as defendants for his SOX

claim.11 SOX does not require that whistleblower retaliation complaints adhere to any particular

format. See 29 C.F.R. § 1980.103(b); In re Evans, ARB No. 08-059, 2012 WL 3164358, at *4

(DOL Admin. Rev. Bd. July 31, 2012) (“Unlike in federal court, there is no pleading requirement

for whistleblower complaints investigated by OSHA or litigated within the Office of

Administrative Law Judges (OALJ).”); cf. Sosa v. Hiraoka, 920 F.2d 1451, 1458-59 (9th Cir.

1990) (“‘Title VII charges can be brought against persons not named in an E.E.O.C. complaint as

long as they were involved in the acts giving rise to the E.E.O.C. claims.’ Further, where the

EEOC or defendants themselves ‘should have anticipated’ that the claimant would name those

defendants in a Title VII suit, the court has jurisdiction over those defendants even though they

were not named in the EEOC charge.” (citations omitted)). While it is true that Wadler did not

style his complaint on pleading paper, and thus admittedly did not formally list any particular

Defendants in any “caption” (as one might do in federal court), such formalities were not

required. Donovan v. Royal Logging Co., 645 F.2d 822, 826 (9th Cir. 1981) (“It is settled that

administrative pleadings are liberally construed and easily amended. The most important

characteristic of administrative pleadings is their unimportance.” (citations omitted)).

The Individual Defendants here never dispute that they have had ample notice of

Wadler’s claims since the outset. Wadler’s DOL Complaint clearly indicated that it was, at a

minimum, “against Bio-Rad Laboratories” and that his termination had been effectuated by CEO

and Chairman of the Board Norman Schwartz. (Wadler DOL Compl. 1, 5, ECF No. 26.) His

Complaint also discussed the conduct of Bio-Rad Board member (and controlling shareholder)

Alice Schwartz and the three other Board members in relation to his retaliation claims. (See id.

11 Defendants do not contest that Wadler timely filed his claim against the Individual Defendants under Dodd-Frank, which contains no similar administrative exhaustion requirement and has a six-to-ten-year statute of limitations. 15 U.S.C. § 78u-6 (h)(B)(i), (iii). Defendants likewise do not dispute that Wadler timely filed his SOX claim against Bio-Rad.


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1.) Mr. Schwartz and Mr. Drapeau have been aware of and involved in the proceedings from the

beginning. Indeed, each have submitted declarations in support of Bio-Rad’s position. (See,

e.g., Jan. 28, 2014 Cover Letter from L. Inscoe to J. Paul 1, RJN Ex. B.) As members of the

Board, Mr. Hillman, Ms. Neff, and Ms. Schwartz inevitably would have also received immediate

notice of Wadler’s DOL complaint through the normal course of their duties. They also would

inevitably have known about the proceedings, given that they were key fact witnesses—the

individuals who actually terminated him. Indeed, Bio-Rad individually listed each of these

Board members in its List of Relevant Management Witnesses submitted in this action. (Bio-

Rad’s List of Relevant Management Witnesses 1-2, RJN Ex. C.) Thus, there are no concerns of

surprise or unfair prejudice because each Bio-Rad Board member was fully aware of the DOL

complaint since this matter’s inception, particularly given that they should have known since the

very outset that they were defendants in this action. See Gagnier v. Steinmann Transpiration,

Inc., No. 91-STA-46, 1992 WL 752768, at *2, n. 4 (DOL Sec’y July 29, 1992) (allowing

amendment to add individual defendants where the individuals “were specifically referenced in

the charges set forth in the complainant’s formal complaint, participated in the investigation, and

were notified of the proceedings.”).

While Defendants coyly argue that “Wadler’s Motion to Amend the DOL Complaint did

not cure” the supposed failure to name the Individual Defendants (Defs.’ Mot to Dismiss 6), they

neglect to mention that the DOL itself granted that very motion after extensive briefing by both

sides on this very issue. (Correspondence from Investigator S. Kamlet to J. Freedland, et al.,

RJN Ex. F; see also Wadler’s Mot. for Leave to Amend DOL Compl., RJN Ex. D; Wadler’s

Supp. Mem. ISO Mot. for Leave to Amend DOL Compl., RJN Ex. E.) The DOL did so

precisely because of the “liberal” standards applicable in such administrative proceedings.

(Correspondence from Investigator S. Kamlet to J. Freedland, et al., RJN Ex. F.) And it later

“approved” Wadler’s removal, noting that it was timely under SOX. (Correspondence from

Investigator J. Paul to M. von Loewenfeldt, et al., RJN Ex. G.) Thus, Wadler’s SOX complaint

against the Individual Defendants was timely filed and removed to this Court, as the DOL

already held.


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B. AS THE MAJORITY OF COURTS HAVE HELD, WADLER DID NOT HAVE TO BLOW THE WHISTLE DIRECTLY TO THE SEC TO STATE A CLAIM UNDER DODD-FRANK

Bio-Rad’s Motion does not dispute that Wadler qualifies as a whistleblower under SOX.

Instead it claims that Wadler should not be deemed a whistleblower under related provisions of

Dodd-Frank because he complained about securities violations internally. In taking this position,

Bio-Rad asks this Court to disagree not only with the position of the SEC itself (to which

Chevron deference is required),12 but also with that of the large majority of courts that have

considered this issue, including the majority of judges in the Northern District of California.

There is no reason for this Court to adopt Bio-Rad’s crabbed, and distinctly minority, view.

Dodd-Frank created a whistleblower program in 2010 by adding Section 21F to the

Securities Exchange Act of 1934. See Section 21F, codified at 15 U.S.C. § 78u-6. As most

recently explained in a reasoned decision by Judge Chen of this District, analyzing this very

issue in depth, the various provisions of Dodd-Frank contain an inherent tension. Somers, 2015

WL 4483955, at *4. On the one hand, Dodd-Frank states that “[t]he term ‘whistleblower’ means

any individual who provides, or 2 or more individuals acting jointly who provide, information

relating to a violation of the securities laws to the Commission, in a manner established, by rule

or regulation, by the Commission.” 15 U.S.C. § 78u-6 (a)(6) (emphasis added). On the other

hand, Dodd-Frank’s anti-retaliation provision clearly contemplates protection for individuals

who blow the whistle internally on corporate malfeasance. Specifically, it bars retaliation

“because of any lawful act done by the whistleblower . . . in making disclosures that are required

or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter,

including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or

regulation subject to the jurisdiction of the Commission.” 15 U.S.C. § 78u-6(h)(1)(A)(iii)

(emphasis added). SOX, in turn, clearly protects internal whistleblowers. 18 U.S.C. §

1514A(a)(1)(C) (protecting individuals who make protected disclosures to “a person with

supervisory authority over the employee (or such other person working for the employer who has

12 See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 865 (1984).


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the authority to investigate, discover, or terminate misconduct).”). Thus, “Section

21F(h)(1)(A)(iii) appears to be ‘in direct conflict with [Dodd-Frank’s] definition of a

whistleblower because [subsection (iii)] provides protection to persons who have not disclosed

information to the SEC,’ while Section 21F(a)(6) requires the person report to the Commission.”

Somers, 2015 WL 4483955, at *7 (citations omitted, alterations in original); see also Connolly v.

Remkes, No. 5:14-CV-01344-LHK, 2014 WL 5473144, at *5 (N.D. Cal. Oct. 28, 2014)

(discussing the same issue in depth).

The SEC has officially interpreted Dodd-Frank to apply to internal whistleblowing. It

first promulgated final rules, effective August 12, 2011, stating that “you are a whistleblower if .

. . You provide that information in a manner described in Section 21F(h)(1)(A) of the Exchange

Act (15 U.S.C. 78u-6(h)(1)(A)).” 17 C.F.R. § 240.21F-2. “Thus, by providing that an individual

is a ‘whistleblower if’ they ‘provide information in a manner described in’ subsection (iii) of

section 78u-6(h)(1)(A), Rule 21F-2(b)(1) stipulates that the whistleblowing-protection program

of [Dodd-Frank] does not require an employee to report violations directly to the SEC.” Somers,

2015 WL 4483955, at *5; see also Connolly, 2014 WL 5473144, at *4; Asadi v. G.E. Energy

(USA), L.L.C., 720 F.3d 620, 629 (5th Cir. 2013) (noting the SEC’s position on this issue); SEC

Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300, 34304 (June 13, 2011)

(comments to final rule) (“[T]he statutory anti-retaliation protections apply to three different

categories of whistleblowers, and the third category includes individuals who report to persons or

governmental authorities other than the Commission.”).13 And just recently on August 4, 2015,

the SEC also issued an interpretive release, making it abundantly clear that “an individual who

reports internally and suffers employment retaliation will be no less protected than an individual

13 The SEC has also moved to intervene in this case in support of Wadler’s position, and seeks to file in this Court its detailed and reasoned brief on the same issue that it previously submitted to the Second Circuit. Brief of the Securities and Exchange Commission, as Amicus Curiae in Support of the Appellant, Berman v. Neo@Ogilvy, LLC, No. 14-4626, at 27 (2d. Cir. Feb. 6, 2015), filed in this action as ECF No. 29-1 (hereinafter “SEC Amicus Brief”). Wadler concurs in the SEC’s request that it be allowed to file such a brief (and related FRAP 28j letters), and agrees with the SEC’s substantive analysis.


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who comes immediately to the Commission.” Interpretation of the SEC’s Whistleblower Rules

Under Section 21 of the Securities and Exchange Act of 1934, 80 FR 47829-01, Release No. 34-

75592 (Filed Aug 4, 2015) (hereinafter SEC Interpretive Release).

The SEC’s interpretation is entitled to Chevron deference. 14 See generally Chevron,

U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 865 (1984). The determination of

whether Chevron deference applies requires a familiar two-step inquiry:

At step one, we ask whether Congress has directly spoken to the precise question at issue. If so, then the inquiry is over, and we must give effect to the unambiguously expressed intent of Congress. But if the statute is silent or ambiguous, then we must determine, before step two, what level of deference applies. If we determine that Chevron deference applies, then we move to step two, where we will defer to the agency’s interpretation if it is based on a permissible construction of the statute.

Navarro v. Encino Motorcars, LLC, 780 F.3d 1267, 1271 (9th Cir. 2015) (citations and internal

quotation omitted).

Regarding step-one of Chevron’s analysis, Congress did not unambiguously exclude

internal whistleblowers from protection under Dodd-Frank, particularly when its statutory

provisions are read in context of the overall statutory scheme, as this Court must. As a “large

majority of district courts” have held, there is “ambiguity in the interplay between §§ 78u-6(a)(6)

and 78u-6(h)(1)(A)(iii)” which counsels in favor of “deferring to the SEC’s interpretation of

Dodd-Frank.” Connolly, 2014 WL 5473144, at *5 (collecting cases); see Somers, 2015 WL

4483955, at *6; see also id. at *6-12 (discussing at length numerous examples of why the statute

creates ambiguity).15 That ambiguity exists not only because of the language of the conflicting

14 Even in the absence of the SEC’s existing legislative rule (codified in 7 C.F.R. § 240.21F-2), to which Chevron deference is required, the SEC’s August 4, 2015 Interpretive Release would still be entitled to “a measure of respect” as “a body of experience and informed judgment to which courts and litigants may properly resort for guidance,” albeit under the less deferential Skidmore standard. Fed. Exp. Corp. v. Holowecki, 552 U.S. 389, 399 (2008); see also Skidmore v. Swift & Co., 323 U.S. 134, 135-36 (1944).

15 See also Peters v. LifeLock Inc., No. 2:14-cv-00576, No. 47, slip op. 6-13 (D. Ariz. Sept. 19, 2014), filed in this matter by the SEC as ECF No. 29-4; Yang v. Navigators Group,Inc., 18 F. Supp. 3d 519, 531-34 (S.D.N.Y. 2014); Khazin v. TD Ameritrade Holding Corp., No. 13-4149, 2014 WL 940703, at *3-6 (D.N.J. Mar. 11, 2014), aff’d on other grounds, 773 F.3d 488 (3d Cir. 2014); Ahmad v. Morgan Stanley & Co., 2 F. Supp. 3d 491, 496 n.5 (S.D.N.Y. 2014);


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provisions discussed above (which protect “whistleblowers” who make only internal disclosures)

but also because Bio-Rad’s preferred alternate construction itself would render the words “to the

Commission” superfluous in subsections (i) and (ii) of 18 U.S.C. §§ 78u-6(h)(1)(A). Id. at *8-

10; see also SEC Amicus Brief 21-22, ECF No. 29-1.16

It is true that a small number of courts, including an appellate decision from the Fifth

Circuit and a single decision from the Northern District of California that came down shortly

after that Fifth Circuit decision, came to a different result. See, e.g., Asadi., 720 F.3d at 630;

Banko v. Apple Inc., 20 F. Supp. 3d 749, 756 (N.D. Cal. 2013). But those decisions were

rendered at a time when “[v]ery few courts [had] considered this issue.” Banko, 20 F. Supp. 3d

at 755. And numerous judges have since rejected their reasoning, as has the SEC. Connolly,

2014 WL 5473144, at *5 (noting that “a large majority of district courts before and after Asadi

have taken a different position”).

The reasoning of the few minority courts was unpersuasive when these early opinions

were rendered and has only fared worse over time. Initially, although Banko opined that “neither

the district court opinions [discussed earlier in the opinion], nor plaintiff’s papers, invoke any

Rosenblum v. Thomson Reuters (Markets) LLC, 984 F. Supp. 2d 141, 146-48 (S.D.N.Y. 2013); Ellington v. Giacoumakis, 977 F. Supp. 2d 42, 44-46 (D. Mass. 2013); Murray v. UBS Secs., LLC, No. 12 Civ. 5914, 2013 WL 2190084, at *3-7 (S.D.N.Y. May 21, 2013); Genberg v. Porter, 935 F. Supp. 2d 1094, 1106-07 (D. Colo. 2013), appeal dismissed in relevant part, 566 Fed. App’x 719 (10th Cir. 2014); Kramer v. Trans-Lux Corp., No. 11 Civ. 1424, 2012 WL 4444820, at *3-5 (D. Conn. Sept. 25, 2012); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, 993-95 (M.D. Tenn. 2012); see also Bussing v. COR Clearing, LLC, 20 F. Supp. 3d 719, 727-35 (D. Neb. 2014); Azim v. Tortoise Capital Advisors, LLC, No. 13-2267, 2014 WL 707235, at *1-3 (D. Kan. Feb. 24, 2014), objections overruled, 2014 WL 4352069 (D. Kan. Sept. 2, 2014).

16 Courts have pointed to other anomalies as well that further demonstrate the statute is ambiguous. See, e.g., Somers, 2015 WL 4483955, at *9 (“Congress’s express mention of section 78j-1 in subsection (iii) of the Dodd-Frank whistleblower protection provision would seem to indicate that Congress wished to cover auditors who made required internal reports about illegal acts. Yet if this Court is required to limit Dodd-Frank’s protection to those who report to the SEC, nearly all of the conduct “required” under section 78j-1 and its scheme of internal reports would be undermined.”); id. at *10 (“Applying the narrow definition of “whistleblower” from Section 21F(a)(6) to attorneys who have made required internal reports under Sarbanes-Oxley would leave such lawyers largely (if not entirely) unprotected from retaliation under [Dodd-Frank].”).


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authority suggesting the SEC issued this regulation because of ambiguity in the statute,” the SEC

has since explicitly made it abundantly clear that that is precisely why it adopted such

regulations. See, e.g., SEC Interpretive Release, 80 FR 47829-01; SEC Amicus Brief 27-28,

ECF No. 29-1.

Perhaps more importantly, recent Supreme Court precedent has substantially undermined

the reasoning of these early opinions. Asadi and its progeny claim that the statute is not

ambiguous because the definition of “whistleblower” in 15 U.S.C. § 78u-6(a)(6) is, by itself,

straightforward. See 720 F.3d at 622 (“If the statutory text is unambiguous, our inquiry begins

and ends with the text.”). But those cases never fully grappled with the ambiguity their

interpretation creates for the statutory scheme as a whole. And, as the Supreme Court famously

held in the most recent challenge to the Affordable Care Act, the failure to adequately consider

how such a seemingly straightforward interpretation of a term affects the overall statutory

scheme is improper. See King v. Burwell, 135 S. Ct. 2480, 2489 (2015). That is because

“oftentimes the ‘meaning—or ambiguity—of certain words or phrases may only become evident

when placed in context.” Id. (holding that the seemingly straightforward phrase “Exchange

established by the State” was ambiguous in context with the overall statutory scheme); see also

Yates v. United States, 135 S. Ct. 1074, 1081-82 (2015).17

Defendants’ bald assertion that there is no ambiguity whatsoever is belied by both the

language of the statutes themselves and the mountain of judicial decisions squarely holding that

such an ambiguity exists. This Court should hold, as the substantial majority of courts who

actually reached this issue have held, that “these portions of Dodd-Frank are—at minimum—

susceptible to more than one interpretation when read together.” Connolly, 2014 WL 5473144,

17 Asadi posits a convoluted hypothetical where subsection (A)(iii) is supposedly not rendered superfluous where a whistleblower, unbeknownst to the employer, provides information to the SEC and is retaliated against anyway for internal complaints disconnected from any reporting to the Commission. 720 F.3d at 627. But there is no reason to think that Congress intended to adopt such a limited, and frankly bizarre, position in subsection (A)(iii). Indeed, as the SEC persuasively argued in its amicus brief, it is unclear that such an employer could even be held liable in this esoteric situation given the lack of any possible intent to retaliate on the basis of any report to the SEC. SEC Amicus Brief 23, ECF No. 29-1.


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at *6. Thus, the first requirement for Chevron deference is met.

Regarding whether deference is required under step two of the Chevron framework, “[a]s

every court that has considered Chevron step-two has concluded, the answer to that question is

‘yes.’” Somers, 2015 WL 4483955, at *12 (collecting cases). The SEC’s interpretation

protecting internal whistleblowers removes the tension between the two provisions discussed

above; it is in line with Dodd-Frank’s broader legislative scheme to encourage greater reporting

of illegal acts; it encourages parity between internal and external reporting (and thus avoids a

situation where the benefits of internal reporting are foregone altogether in favor of reporting to

the SEC); and it avoids a significant weakening of Dodd-Frank’s deterrence effect on those who

might retaliate against internal whistleblowers, particularly before they even have the time to go

to the SEC directly. Id at *12-13 (discussing these policies in detail); see also Bussing, 20 F.

Supp. 3d at 733 (“Nor is it logical to conclude that Congress intended to encourage an across-

the-board departure from the general practice of first making an internal report. . . . Requiring

employees to report first to the SEC would also risk frustrating companies’ internal compliance

programs, and could deter whistleblowers from participating in internal investigations.”).

Further, and especially relevant to this attorney-whistleblowing case, limiting protections to

external whistleblowers would also leave “lawyers largely (if not entirely) unprotected from

retaliation under [Dodd-Frank],” which clearly contravenes Dodd-Frank’s many measures

designed to encourage attorneys, in particular, to report securities law violations. Somers, 2015

WL 4483955, at *10. Thus, as every court to reach this second phase of the analysis has held,

the SEC’s interpretation is at the very least reasonable (and, indeed, preferable). Accordingly,

Chevron deference is required, and Wadler has stated a valid Dodd-Frank claim even if he did

not first complain to the SEC.

C. WADLER HAS STATED A VALID CLAIM UNDER CALIFORNIA LABOR CODE SECTION 1102.5(C)

Wadler has plead sufficient facts to state a valid claim against Bio-Rad under California

Labor Code Section 1102.5, particularly when considered under the deferential standard of


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review for Rule 12(b)(6) motions. Bio-Rad’s arguments to the contrary are unavailing.18

Initially, Bio-Rad argues that Wadler cannot state a cause of action under Labor Code

Section 1102.5(b) because he does not allege that, prior to his termination, he made disclosures

to law enforcement authorities. (Defs.’ Mot. to Dismiss 10, ECF No 24.) But, as Bio-Rad

appears to concede, Labor Code Section 1102.5(c) does not require any outside disclosure to

government or law enforcement entities. Instead, it generally prohibits retaliation “against an

employee for refusing to participate in an activity that would result in a violation of state or

federal statute, or a violation or noncompliance with a state or federal rule or regulation,”

irrespective of whether the employee also made an external complaint to the government. Cal.

Lab. Code § 1102.5(c); see also Ferretti v. Pfizer Inc., No. 11-CV-04486, 2013 WL 140088, at

*8-9 (N.D. Cal. Jan. 10, 2013) (finding a 1102.5(c) violation for internal-only complaints);

Casissa v. First Republic Bank, No. C 09-04129 CW, 2010 WL 2836896, at *4 (N.D. Cal. July

19, 2010) (same).

Bio-Rad next argues that Wadler has not alleged a violation of Labor Code Section

1102.5(c) because he supposedly did not “refuse” to do anything. (Defs.’ Mot. to Dismiss 11-

12.) This argument is likewise misplaced for several reasons. First, as stated in Wadler’s

Complaint, he “refused to aid and [abet] or be an accessory after the fact to criminal violations of

the FCPA and the Sarbanes-Oxley Act.” (Compl. ¶ 72.) Although, Bio-Rad argues that these

allegations are “only general and conclusory,” Wadler presented more than enough facts to flesh

out these claims in vivid detail—indeed, far more detail than is required given the liberal notice-

pleading requirements. See Preschooler II v. Clark Cnty. Sch. Bd. of Trustees, 479 F.3d 1175,

1183 (9th Cir. 2007) (Whether a plaintiff “ultimately will be able to establish the claimed

18 Although the caption of the Complaint lists 1102.5 as the Third Cause of Action (Compl. P. 1), and the Third Cause of Action in fact contains all of the elements for an 1102.5 claim (id. ¶¶ 67-72), there was admittedly a typographical error that inadvertently omitted a citation to the specific Labor Code statute in the heading of the Cause of Action (id. p. 12) and instead repeated the heading for wrongful discharge in violation of public policy. To the extent the Court believes it is necessary to formally amend the complaint to avoid any confusion created by this typographical error, Plaintiff respectfully requests leave to amend.


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knowledge or ‘blind eye’ acquiescence in the alleged abuse is uncertain, but given the liberal

requirements of notice pleading, no further specificity is expected of the complaint.”). Wadler

specifically discovered evidence suggestive of widespread FCPA violations in China (which

came shortly after Bio-Rad unearthed—and subsequently admitted19—similar violations in

Russia, Thailand, and Vietnam). (Compl. ¶¶ 16-18.) As an example of this sufficient proof,

Wadler could not find “virtually any documents” evidencing Bio-Rad’s China-related sales,”

despite Bio-Rad’s hundreds of millions of dollars’ worth of business in the country, which is

notorious for its rampant corruption. (Id. ¶ 21.) Wadler was concerned that the sheer lack of

documents itself constituted a major FCPA violation and that the astounding dearth of

documents was highly suggestive of extensive bribery. (Id. ¶ 22.) Wadler repeatedly expressed

his concerns about widespread and endemic corruption in Bio-Rad’s China operations to the

CEO, CFO, and other members of senior management. (Id. ¶¶ 21, 28.) In response, Wadler was

“stonewall[ed],” and the internal investigators refused to take any meaningful steps to actually

obtain relevant documentation, leading Wadler to reasonably conclude that “management was

intentionally blocking his efforts to uncover evidence of bribery and related misconduct.” (Id. ¶

28.) After these high level officers repeatedly denied his requests to obtain proper records, and

consistent with his mandatory reporting obligations under federal securities laws, see, e.g., 17

C.F.R. § 205.3(b), Wadler went directly to the Audit Committee of the Board of Directors. (Id. ¶

29.) Just like the other members of senior management, the Audit Committee took steps

designed to block Wadler’s efforts at uncovering the truth in the hopes that he would cease his

efforts and fail to actually expose the full extent of the misconduct. (Id. ¶¶ 30-33.) Despite

Wadler’s objections, Bio-Rad re-hired Steptoe & Johnson—the very same law firm that initially

(and incorrectly) found no issues or irregularities with the China-related business records. (Id. ¶

30.) The firm again generated a report clearing Bio-Rad of liability, despite Wadler’s repeated

insistence of blatant—and ultimately admitted—FCPA and books-and-records violations. (Id. ¶¶

19 Bio-Rad agreed to pay $55.1 million in fines for this misconduct. (Comp. ¶¶ 45-47 & Ex. A.)


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32, 46-47.) Wadler protested the firm’s conclusions, explaining that “thirty percent of the

documents concerning Bio-Rad’s China operations that he had reviewed contained discrepancies

related to the shipment volume.” (Id. ¶ 32.) Steptoe & Johnson rebuffed Wadler’s challenges,

admitting that it had “simply not addressed those issues.” (Id. ¶ 33.) Shortly afterwards, both

the investigating firm and the company “effectively shut [Wadler] out of the investigation over

his repeated objections that he should be included.” (Id.) The company also refused to send

anyone to China to look for documents. (Id. ¶ 31.)

In short, Wadler repeatedly attempted to fulfil his mandatory reporting obligations under

federal securities laws to uncover (and report) potential FCPA violations, but was thwarted at

every turn by all levels of Bio-Rad’s corporate governance. Wadler made it abundantly clear

that he was refusing to acquiesce in any attempt to sweep these potentially ruinous accusations

under the rug (by simply deferring to others, who had clearly indicated that they would never

fully investigate the matters), and Bio-Rad terminated Wadler for having the temerity to refuse to

go along with that plan. (Id. ¶ 39.)

Second, Bio-Rad is incorrect that, unless Bio-Rad explicitly asked Wadler to violate the

law and unless Wadler expressly refused to do so, the Court should ignore the obvious import of

their interactions. Employers rarely state their illicit motivations explicitly and federal courts are

not required to be blind to how humans actually interact. Thomas v. City of Beaverton, 379 F.3d

802, 809 (9th Cir. 2004) (“Although Thomas did not explicitly tell Miller that she believed

Miller was unlawfully retaliating against Perry, an employee need not expressly accuse her

supervisor or employer of illegal activity. Rather, she may convey an implicit message of

disapproval of the illegality of the activity through her conduct by refusing to facilitate or

participate in it.”); Conley v. Yellow Freight Sys., Inc., 521 F. Supp. 2d 713, 728 (E.D. Tenn.

2007) (rejecting the argument that an employer can avoid liability for refusal to participate in

illegal activity if “it never explicitly asked [the plaintiff] to . . . conduct any illegal activity.”); see

also Ferretti, 2013 WL 140088, at *8-9 (request for a transfer to a different department without

any explicit refusal to follow a specific order or instruction was sufficient to constitute refusal for

purposes of 1102.5(c)). Here Wadler’s conduct demonstrated his repeated and vehement refusal


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to participate in the efforts by the CEO, CFO, Audit Committee of the Board, Steptoe &

Johnson, and others’ clear direction that Wadler stop pushing for further investigation into FCPA

and books-and-records violations, and instead leave the task to others who would never actually

follow through.

Tellingly, Bio-Rad cites no case even suggesting a contrary conclusion. In the only case

Bio-Rad cites on this issue, the plaintiff was able to demonstrate a claim under 1102.5(c), as Bio-

Rad concedes. (Defs.’ Mot. to Dismiss 11 (discussing Banko, 20 F. Supp. 3d at 752-53).)

Further, the claims made here and the claims made in Banko are materially different. This case

concerns sweeping allegations of widespread misconduct involving hundreds of millions of

dollars in sales and Wadler’s repeated insistence that he not be a party to covering up extensive

evidence of bribery. The claim of the plaintiff in Banko involved something so mundane as

complaining to human resources about another employee’s failure to properly fill out an expense

report after his supervisor indicated he wanted to ignore the issue. Banko says nothing

whatsoever about what type of conduct constitutes sufficient “refusal” under 1102.5(c), much

less suggest that Wadler’s conduct did not amount to a sufficient “refusal” to qualify for

protection under that statute.

Thus, Wadler has sufficiently pled a violation of California Labor Code Section 1102.5

here for his refusal to discontinue his investigations into Bio-Rad’s misconduct—misconduct

Bio-Rad eventually admitted occurred. (See Compl. ¶¶ 46-47.) To the extent the Court believes

the articulation of additional facts is warranted to spell out Wadler’s refusal to be complicit with

Bio-Rad’s misconduct even further, the Court should grant leave to amend.20 Sharkey v. O’Neal,

778 F.3d 767, 774 (9th Cir. 2015) (“Rule 15(a) declares that leave to amend shall be freely given

when justice so requires; this mandate is to be heeded.” (citation omitted)).

20 Wadler notes that he has been exceedingly careful to protect Bio-Rad’s attorney-client privilege and related confidentiality concerns in his pleadings. Should the Court determine that additional factual allegations are needed, there is substantial additional detail known to Wadler that could be added to a sealed pleading.


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V. CONCLUSION

For the foregoing reasons, Bio-Rad’s motion to dismiss should be denied in full. Even if

the Court grants any portion of the motion to dismiss, Wadler should be granted leave to amend.

Date: August 11, 2015 KERR & WAGSTAFFE LLP

By /s/ Kevin B. Clune

KEVIN B. CLUNE Attorneys for Plaintiff SANFORD WADLER


Documents

M L K B. C K N KERR & WAGSTAFFE LLP · Case No. 3:15-cv-02356-JCS PLAINTIFF SANFORD S. WADLER’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS DATE: September 4, 2015 TIME: 9:30