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1 Case:-cv-0-JCS Document Filed0// Page of MICHAEL VON LOEWENFELDT () KEVIN B. CLUNE () KENNETH NABITY () KERR & WAGSTAFFE LLP Mission Street, th Floor San Francisco, CA - Telephone: () -00 Fax: () mvl@kerrwagstaffe.com clune@kerrwagstaffe.com nabity@kerrwagstaffe.com Attorneys for Plaintiff SANFORD WADLER UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION SANFORD S. WADLER, an individual, v. Plaintiff, BIO-RAD LABORATORIES, INC., a Delaware Corporation; NORMAN SCHWARTZ; LOUIS DRAPEAU; ALICE N. SCHWARTZ; ALBERT J. HILLMAN; DEBORAH J. NEFF, Defendants. Case No. :-cv-0-jcs PLAINTIFF SANFORD S. WADLER S OPPOSITION TO DEFENDANTS MOTION TO DISMISS DATE: September, TIME: :0 AM DEPT: Courtroom G, th Floor JUDGE: Hon. Joseph C. Spero TRIAL: [None set] Case No. :-cv-0-jcs

2 Case:-cv-0-JCS Document Filed0// Page of TABLE OF CONTENTS Page I. INTRODUCTION... II. BACKGROUND & FACTS... A. Wadler Provides Dedicated and Accomplished Service to Bio-Rad for Several Decades... B. Wadler Uncovers Evidence of Widespread Illegal Activity Regarding Bio- Rad s Operations in China... C. Wadler Refuses to Participate in FCPA Violations and the Related Coverup and Is Terminated for Doing So... D. Wadler Promptly Exhausts his SOX Claim... III. LEGAL STANDARD... IV. ANALYSIS... A. Bio-Rad s Corporate Directors and Officers Are Individually Liable Under Both SOX and Dodd-Frank.... SOX Provides for Individual Liability of Bio-Rad s Corporate Officers and Directors.... Dodd-Frank, Which Closely Mirrors the Provisions of SOX, Likewise Provides for Individual Liability.... Wadler Timely Asserted his SOX Claims Against the Individual Officers and Directors, as the DOL Has Already Held... 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... C. Wadler Has Stated a Valid Claim Under California Labor Code Section 0.(c)... V. CONCLUSION... Case No. :-cv-0-jcs i

3 Case:-cv-0-JCS Document Filed0// Page of TABLE OF AUTHORITIES Page Case No. :-cv-0-jcs Cases Ahmad v. Morgan Stanley & Co., F. Supp. d (S.D.N.Y. )... Arnold v. Soc y for Sav. Bancorp, Inc., A.d (Del. )... Asadi v. G.E. Energy (USA), L.L.C., F.d (th Cir. )..., Azim v. Tortoise Capital Advisors, LLC, WL 0 (D. Kan. Feb., )..., Banko v. Apple Inc., F. Supp. d (N.D. Cal. )..., Bostwick v. Watertown Unified Sch. Dist., WL 0 (E.D. Wis. Feb., )... Boucher v. Shaw, F.d (th Cir. 0)... Bridges v. McDonald s Corp., 0 WL (N.D. Ill. Dec., 0)... Bury v. Force Prot., Inc., WL (D.S.C. June, )... Bussing v. COR Clearing, LLC, F. Supp. d (D. Neb. )...,, Casissa v. First Republic Bank, WL (N.D. Cal. July, )... Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., U.S. ()..., Cloke-Brown v. Bank of Tokyo-Mitsubishi UFJ. Ltd., WL (S.D.N.Y. Feb., )... Conley v. Yellow Freight Sys., Inc., F. Supp. d (E.D. Tenn. 0)... Connolly v. Remkes, WL (N.D. Cal. Oct., )...,,, Cook v. Brewer, F.d 0 (th Cir. )... ii

4 Case:-cv-0-JCS Document Filed0// Page of Donovan v. Royal Logging Co., F.d (th Cir. )... Ellington v. Giacoumakis, F. Supp. d (D. Mass. )..., Fed. Exp. Corp. v. Holowecki, U.S. (0)... Ferretti v. Pfizer Inc., WL 00 (N.D. Cal. Jan., )..., Genberg v. Porter, F. Supp. d (D. Colo. )... Guifu Li v. A Perfect Day Franchise, Inc, F.R.D. (N.D. Cal. )... Heinemann v. Howe & Rusling, 0 F. Supp. d (W.D.N.Y. 0)... Irizarry v. Catsimatidis, F.d (d Cir. )... Jones v. Southpeak Interactive Corp. of Delaware, F.d (th Cir. )..., Khazin v. TD Ameritrade Holding Corp., WL 00 (D.N.J. Mar., )... King v. Burwell, S. Ct. 0 ()... Kramer v. Trans-Lux Corp., WL (D. Conn. Sept., )..., Lambert v. Ackerley, 0 F.d (th Cir. )... Lawson v. FMR LLC, S. Ct. ()... Miller v. Maxwell s Int l Inc., F.d (th Cir. )... Murray v. UBS Secs., LLC, WL 00 (S.D.N.Y. May, )... Navarro v. Encino Motorcars, LLC, 0 F.d (th Cir. )... Newman v. Metro. Life Ins. Co., WL 0 (D. Mass. Jan., )... Case No. :-cv-0-jcs iii

5 Case:-cv-0-JCS Document Filed0// Page of Nollner v. S. Baptist Convention, Inc., F. Supp. d (M.D. Tenn. )... Preschooler II v. Clark Cnty. Sch. Bd. of Trustees, F.d (th Cir. 0)... Rosenblum v. Thomson Reuters (Markets) LLC, F. Supp. d (S.D.N.Y. )... Sharkey v. O Neal, F.d (th Cir. )... Shroyer v. New Cingular Wireless Servs., Inc., F.d (th Cir. )... Skidmore v. Swift & Co., U.S. ()... Somers v. Digital Realty Trust, Inc., WL (N.D. Cal. July, )...,,,,, Sosa v. Hiraoka, F.d (th Cir. 0)... Thomas v. City of Beaverton, F.d 0 (th Cir. 0)... Walsh v. Nevada Dep t of Human Res., F.d (th Cir. 0)... Wiest v. Lynch., F. Supp. d (E.D. Pa. )... Wilson v. United States, 0 F.d (th Cir. )... Wood v. Dow Chem. Co., F. Supp. d (E.D. Mich. )... Yang v. Navigators Group,Inc., F. Supp. d, - (S.D.N.Y. )... Yates v. United States, S. Ct. ()... Case No. :-cv-0-jcs Statutes U.S.C. dd-... U.S.C. ff... U.S.C. u-...,, U.S.C. A...,,, iv

6 Case:-cv-0-JCS Document Filed0// Page of Cal. Lab. Code Other Authorities Cong. Rec. S-0... Black s Law Dictionary (th ed. 0)... Gagnier v. Steinmann Transpiration, Inc., No. -STA-, WL, at *, n. (DOL Sec y July, )... In re Evans, ARB No. 0-0, WL (DOL Admin. Rev. Bd. July, )... Leznik v. Nektar Therapeutics, Inc., ALJ No. 0-SOX-000, 0 WL (ALJ Nov., 0)... Restatement (Third) of Agency (0).0 cmt. f()... SEC Interpretive Release, 0 FR -0, Release No. - (Filed Aug, )..., Regulations C.F.R..... C.F.R. 0.F-... C.F.R , Fed. Reg. 00 (June, )... Case No. :-cv-0-jcs v

7 Case:-cv-0-JCS Document Filed0// Page of 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 irrelevant to the instant motion (see Defs. Mot. to Dismiss at n., ECF No. ), 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). 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. 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.) 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 -year retention of him obviously suggests otherwise. 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. -.) Case No. :-cv-0-jcs

8 Case:-cv-0-JCS Document Filed0// Page of 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 years. (Compl..) Bio-Rad is a Fortune 00 company that manufactures and sells life-sciences-related products and equipment around the globe. (Id..) 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., U.S.C. dd-; ff; see also Compl.. B. WADLER UNCOVERS EVIDENCE OF WIDESPREAD ILLEGAL ACTIVITY REGARDING BIO-RAD S OPERATIONS IN CHINA In 0, Bio-Rad became aware of widespread FCPA violations around the globe. (Compl..) It recently admitted the existence of such violations in a consent decree and agreed to pay $. million in fines for this conduct as it related to Bio-Rad s operations in Thailand, Vietnam, and Russia. (Compl. - & Ex. A.) After these initial FCPA violations first came to light in 0, and in the course of a royalty audit in, 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. -.) 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..) Those concerns were validated when the exceedingly few documents that he actually was able to ultimately uncover Case No. :-cv-0-jcs

9 Case:-cv-0-JCS Document Filed0// Page of demonstrated unambiguous evidence of bribery. (Id..) 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..) 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..) 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..) Wadler then went directly to the Audit Committee of the Board of Directors. (Id..) 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. 0-.) 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. 0.) 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..) 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..) The company also refused to send anyone to China to look for documents, even after the CFO specifically requested that they do so. (Id..) Case No. :-cv-0-jcs

10 Case:-cv-0-JCS Document Filed0// Page of 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. -.) It also did so shortly after Wadler expressed his concerns about his exclusion from the FCPA investigation. (See id..) 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), Louis Drapeau, Albert Hillman, and Deborah Neff. (Id..) 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..) Bio-Rad later admitted the veracity of his China-related allegations. (Id. (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..) Tellingly, the self-serving presentation Bio-Rad ultimately gave to the government had never been shown to Wadler himself. (See Compl. -, -.) 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. -, -.) 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 K Report, 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.) Case No. :-cv-0-jcs

11 Case:-cv-0-JCS Document Filed0// Page of 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,, alleging that he was terminated for engaging in protected activity under SOX. (Wadler DOL Compl. -, ECF No..) As his initial complaint correctly stated, Wadler was the Executive Vice President, Secretary, and General Counsel of Bio-Rad. (Id. at.) 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 -.) Because SOX does not require that whistleblower retaliation complaints adhere to any particular format, see C.F.R. 0.(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,.) 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.) 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., Cover Letter from L. Inscoe to J. Paul, 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 Page references in this Opposition are to the page number of the documents themselves (not the ECF number) unless otherwise noted. Case No. :-cv-0-jcs

12 Case:-cv-0-JCS Document Filed0// Page of 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 -, 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. -), 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 (b)() motion tests the legal sufficiency of a claim. Cook v. Brewer, F.d 0, 0 (th Cir. ). 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., F.d, (th Cir. ). Case No. :-cv-0-jcs

13 Case:-cv-0-JCS Document Filed0// Page of IV. ANALYSIS A. BIO-RAD S CORPORATE DIRECTORS AND OFFICERS ARE INDIVIDUALLY LIABLE UNDER BOTH SOX AND DODD-FRANK. 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. U.S.C. A(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 A. See, e.g., Lawson v. FMR LLC, S. Ct. () (Ginsburg, J, writing for the majority) (holding that SOX imposes personal liability on officers and employees of both private and public companies); id. at (emphasis added) (Sotomayor, J., dissenting) (arguing that A 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., F. Supp. d, (N.D. Ga. 0) ( regulations implementing SOX... provide for individual liability.... ); Wiest v. Lynch., F. Supp. d,, - (E.D. Pa. ) (holding that an individual could be personally liable for retaliation); Bury v. Force Prot., Inc., No. :0-0-DCN-BM, WL, at * & n. (D.S.C. June, ) ( Individual liability is permitted under SOX. ). Thus, there is no question that individuals can be liable See also, e.g., Wood v. Dow Chem. Co., F. Supp. d, 0 (E.D. Mich. ); Bridges v. McDonald s Corp., No. 0-CV-0, 0 WL, at * (N.D. Ill. Dec., 0) ( regulations implementing SOX... provide for individual liability... ); Newman v. Metro. Life Ins. Co., No. -CV-0, WL 0, at * (D. Mass. Jan., ); Cloke-Brown v. Bank of Tokyo-Mitsubishi UFJ. Ltd., No. Civ. (LTS), WL, at * (S.D.N.Y. Feb., ) ( 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. 0-SOX-000, 0 WL, at * (ALJ Nov., 0) Case No. :-cv-0-jcs

14 Case:-cv-0-JCS Document Filed0// Page of under SOX. Board members are not specially exempted from liability under SOX when they actually engage in retaliatory conduct, as they did here. Section A 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. U.S.C. A (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 (th ed. 0). 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 ), 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, F.d, -, (th Cir. ) (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. ). 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. Case No. :-cv-0-jcs

15 Case:-cv-0-JCS Document Filed0// Page of 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., A.d, (Del. ); see also Restatement (Third) of Agency (0).0 cmt. f()( [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. 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, F.R.D., (N.D. Cal. ) ( [A]n individual officer, 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, 0 F. Supp. d, (W.D.N.Y. 0) (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. -C-, WL 0, at * (E.D. Wis. Feb., ) ( 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. ). Case No. :-cv-0-jcs

16 Case:-cv-0-JCS Document Filed0// Page of 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, F.d, 0- (th Cir. 0) ( 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 A 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. -.) 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., F.d at -,. 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..) SOX expressly lists officers in its recitation of liable parties. U.S.C. A(a); see also Southpeak Interactive Corp., F.d at (affirming a jury verdict holding a CEO liable for retaliation under A 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. Case No. :-cv-0-jcs

17 Case:-cv-0-JCS Document Filed0// Page of. 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.... U.S.C. u- (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, F.d, (d Cir. ). Yet, the term includes individuals who actually control the specific employment relationship at issue. Lambert v. Ackerley, 0 F.d, - (th Cir. ). 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. 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 wellsettled 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, 0 F.d, (th Cir. ). Here, as numerous courts have recognized, the entire purpose of Dodd-Frank was to expand upon the 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., F.d, (th Cir. ) (Title VII); Walsh v. Nevada Dep t of Human Res., F.d, (th Cir. 0) (ADA). No similar minimum-number requirement applies to the definition of employer under Dodd-Frank (or SOX or the FLSA, for that matter). Case No. :-cv-0-jcs

18 Case:-cv-0-JCS Document Filed0// Page of protections of Sarbanes-Oxley. Somers v. Digital Realty Trust, Inc., No. C--0 EMC, WL, at * (N.D. Cal. July, ) (quoting Kramer v. Trans-Lux Corp., No. :CV SRU, WL, at * (D. Conn. Sept., )). 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 0 days to between six and ten years. Somers, WL, at *; see also Cong. Rec. S-0 (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 ), 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. 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. -- KHV, WL 0, at * (D. Kan. Feb., ). 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, F. Supp. d,, (D. Neb. ); Ellington v. Giacoumakis, F. Supp. d, (D. Mass. ). 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. 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]. U.S.C. A. Thus, nothing about SOX s detailed list of potential defendants suggests that the term employer refers exclusively to a corporate entity. Case No. :-cv-0-jcs

19 Case:-cv-0-JCS Document Filed0// Page of. 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. SOX does not require that whistleblower retaliation complaints adhere to any particular format. See C.F.R. 0.(b); In re Evans, ARB No. 0-0, WL, at * (DOL Admin. Rev. Bd. July, ) ( 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, F.d, - (th Cir. 0) ( 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., F.d, (th Cir. ) ( 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.,, ECF No..) 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. 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. U.S.C. u- (h)(b)(i), (iii). Defendants likewise do not dispute that Wadler timely filed his SOX claim against Bio-Rad. Case No. :-cv-0-jcs

20 Case:-cv-0-JCS Document Filed0// Page of.) 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., Cover Letter from L. Inscoe to J. Paul, 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 -, 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. -STA-, WL, at *, n. (DOL Sec y July, ) (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 ), 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. Case No. :-cv-0-jcs

21 Case:-cv-0-JCS Document Filed0// Page of 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), 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 by adding Section F to the Securities Exchange Act of. See Section F, codified at U.S.C. u-. 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, WL, at *. On the one hand, Dodd-Frank states that [t]he term whistleblower means any individual who provides, or 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. U.S.C. u- (a)() (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 0 ( U.S.C. et seq.), this chapter, including section j-(m) of this title, section (e) of Title, and any other law, rule, or regulation subject to the jurisdiction of the Commission. U.S.C. u-(h)()(a)(iii) (emphasis added). SOX, in turn, clearly protects internal whistleblowers. U.S.C. A(a)()(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 See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., U.S., (). Case No. :-cv-0-jcs

22 Case:-cv-0-JCS Document Filed0// Page of the authority to investigate, discover, or terminate misconduct). ). Thus, Section F(h)()(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 F(a)() requires the person report to the Commission. Somers, WL, at * (citations omitted, alterations in original); see also Connolly v. Remkes, No. :-CV-0-LHK, WL, at * (N.D. Cal. Oct., ) (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,, stating that you are a whistleblower if... You provide that information in a manner described in Section F(h)()(A) of the Exchange Act ( U.S.C. u-(h)()(a)). C.F.R. 0.F-. Thus, by providing that an individual is a whistleblower if they provide information in a manner described in subsection (iii) of section u-(h)()(a), Rule F-(b)() stipulates that the whistleblowing-protection program of [Dodd-Frank] does not require an employee to report violations directly to the SEC. Somers, WL, at *; see also Connolly, WL, at *; Asadi v. G.E. Energy (USA), L.L.C., F.d, (th Cir. ) (noting the SEC s position on this issue); SEC Securities Whistleblower Incentives and Protections, Fed. Reg. 00, 0 (June, ) (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. ). And just recently on August,, 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 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. -, at (d. Cir. Feb., ), filed in this action as ECF No. - (hereinafter SEC Amicus Brief ). Wadler concurs in the SEC s request that it be allowed to file such a brief (and related FRAP j letters), and agrees with the SEC s substantive analysis. Case No. :-cv-0-jcs

23 Case:-cv-0-JCS Document Filed0// Page of who comes immediately to the Commission. Interpretation of the SEC s Whistleblower Rules Under Section of the Securities and Exchange Act of, 0 FR -0, Release No. - (Filed Aug, ) (hereinafter SEC Interpretive Release). The SEC s interpretation is entitled to Chevron deference. See generally Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., U.S., (). 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, 0 F.d, (th Cir. ) (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 u-(a)() and u-(h)()(a)(iii) which counsels in favor of deferring to the SEC s interpretation of Dodd-Frank. Connolly, WL, at * (collecting cases); see Somers, WL, at *; see also id. at *- (discussing at length numerous examples of why the statute creates ambiguity). That ambiguity exists not only because of the language of the conflicting Even in the absence of the SEC s existing legislative rule (codified in C.F.R. 0.F-), to which Chevron deference is required, the SEC s August, 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, U.S., (0); see also Skidmore v. Swift & Co., U.S., - (). See also Peters v. LifeLock Inc., No. :-cv-00, No., slip op. - (D. Ariz. Sept., ), filed in this matter by the SEC as ECF No. -; Yang v. Navigators Group,Inc., F. Supp. d, - (S.D.N.Y. ); Khazin v. TD Ameritrade Holding Corp., No. -, WL 00, at *- (D.N.J. Mar., ), aff d on other grounds, F.d (d Cir. ); Ahmad v. Morgan Stanley & Co., F. Supp. d, n. (S.D.N.Y. ); Case No. :-cv-0-jcs

24 Case:-cv-0-JCS Document Filed0// Page of 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 U.S.C. u-(h)()(a). Id. at *- ; see also SEC Amicus Brief -, ECF No. -. 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., F.d at 0; Banko v. Apple Inc., F. Supp. d, (N.D. Cal. ). But those decisions were rendered at a time when [v]ery few courts [had] considered this issue. Banko, F. Supp. d at. And numerous judges have since rejected their reasoning, as has the SEC. Connolly, WL, at * (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, F. Supp. d, - (S.D.N.Y. ); Ellington v. Giacoumakis, F. Supp. d, - (D. Mass. ); Murray v. UBS Secs., LLC, No. Civ., WL 00, at *- (S.D.N.Y. May, ); Genberg v. Porter, F. Supp. d, 0-0 (D. Colo. ), appeal dismissed in relevant part, Fed. App x (th Cir. ); Kramer v. Trans-Lux Corp., No. Civ., WL, at *- (D. Conn. Sept., ); Nollner v. S. Baptist Convention, Inc., F. Supp. d, - (M.D. Tenn. ); see also Bussing v. COR Clearing, LLC, F. Supp. d, - (D. Neb. ); Azim v. Tortoise Capital Advisors, LLC, No. -, WL 0, at *- (D. Kan. Feb., ), objections overruled, WL (D. Kan. Sept., ). Courts have pointed to other anomalies as well that further demonstrate the statute is ambiguous. See, e.g., Somers, WL, at * ( Congress s express mention of section j- 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 j- and its scheme of internal reports would be undermined. ); id. at * ( Applying the narrow definition of whistleblower from Section F(a)() 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]. ). Case No. :-cv-0-jcs

25 Case:-cv-0-JCS Document Filed0// Page of 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, 0 FR -0; SEC Amicus Brief -, ECF No. -. 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 U.S.C. u-(a)() is, by itself, straightforward. See F.d at ( 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, S. Ct. 0, (). 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, S. Ct., - (). 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, WL, 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. F.d at. 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, ECF No. -. Case No. :-cv-0-jcs