Wadler v. Bio-Rad Labs., Inc.
| Decision Date | 23 October 2015 |
| Docket Number | Case No. 15-cv-02356-JCS |
| Citation | 141 F.Supp.3d 1005 |
| Court | U.S. District Court — Northern District of California |
| Parties | Sanford S. Wadler, Plaintiff, v. Bio-Rad Laboratories, Inc., et al., Defendants. |
Kevin Brooke Clune, Michael John von Loewenfeldt, Kenneth Paul Nabity, Kerr & Wagstaffe LLP, San Francisco, CA, for Plaintiff.
Linda M. Inscoe, James Jou Chang, Marcy Christina Priedeman, Robert E. Sims, Latham & Watkins, LLP, San Francisco, CA, Scott Curtis Jones, Latham and Watkins LLP, Washington, DC, for Defendants.
Plaintiff Sanford Wadler brings a whistleblower action against Defendants Bio-Rad Laboratories, Inc. ("Bio-Rad") and the individual members of Bio-Rad's Board of Directors, contending he was wrongfully terminated in retaliation for investigating and reporting to Bio-Rad's upper-level management possible violations of the Foreign Corrupt Practices Act ("FCPA") in China. Wadler asserts claims under the Sarbanes-Oxley Act, the Dodd-Frank Act, and California state law. Presently before the Court is Defendants' Motion to Dismiss the Complaint ("Motion"), which came on for hearing on September 4, 2015 at 9:30 a.m. The parties submitted supplemental briefs on September 25, 2015. For the reasons stated below, the Motion is GRANTED in part and DENIED in part.1
In the Complaint, Wadler alleges that he became Bio-Rad's general counsel in 1989 and served in that position for nearly 25 years. Compl. ¶ 2. According to Plaintiff, Bio-Rad is a Fortune 1000 company that manufactures and sells products and equipment around the world. Id . ¶ 6. Because Bio-Rad sells many of its products to hospitals, universities, and similar public entities and officials, it must abide by the terms of the FCPA, which "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." Id . ¶¶ 4, 6; Opposition at 2 (citing 15 U.S.C. §§ 78dd–2
, 78ff ).
Wadler alleges that "[i]n 2009, Bio-Rad's corporate officers became aware that certain of its employees and agents in Vietnam, Thailand, and Russia may have violated provisions of the FCPA." Id . ¶ 14. Bio-Rad "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." Id . ¶¶ 14-15. After discovering the illegal activities in Thailand, Vietnam and Russia, Bio-Rad hired the law firm Steptoe and Johnson LLP to investigate whether Bio-Rad employees were engaging in bribery in China—"a country where Bio-Rad had significantly greater amounts of sales than Thailand, Vietnam, or Russia and where corruption is notoriously widespread." Id . ¶¶ 16-17. According to Wadler, Steptoe & Johnson concluded that "there was no evidence of improper payments." Id . ¶ 17.
Wadler alleges that in 2011, he discovered that although Bio-Rad's sales in China were "in the hundreds of millions of dollars over a number of years," there was virtually no documentation supporting Bio-Rad's China-related sales. Id . ¶¶ 20-21. Wadler was concerned that the lack of documentation was a violation of the FCPA's record-keeping requirements and that it "suggested efforts to conceal violations of the FCPA's anti-bribery provisions." Id . ¶ 22. 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." Id ¶ 21. According to Wadler, in 2012, he was "finally able to uncover a few documents" and they provided "unambiguous evidence of potential bribery" by Bio-Rad in China. Id . ¶ 24. He also learned in early 2013 that "certain standard language concerning the need for FCPA compliance had been removed (without his knowledge or approval) from documents translated into Chinese and used for Bio-Rad's operations in China. Id . ¶ 27.
Wadler alleges that the CEO, CFO and other members of management repeatedly "stonewall[ed]" him, leading him to "become suspicious that corruption issues in China were known to senior management, and that management was intentionally blocking his efforts to uncover evidence of bribery and related misconduct." Id . ¶ 28.
Wadler alleges that he then took his concerns to the Audit Committee of the Board of Directors, which reengaged Steptoe and Johnson to investigate these violations. Id . ¶¶ 29-30. Wadler objected to the appointment of Steptoe and Johnson on the basis that it "had a clear conflict of interest," having failed to uncover in 2011 any FCPA violations in China; according to Wadler, "any finding in 2013 would have demonstrated Steptoe's prior malpractice." Id . ¶ 30.
Wadler alleges that Steptoe and Johnson again concluded that there was no evidence of improper payments in connection with Bio-Rad's China sales and reported its finding at a meeting in March 2013 between Bio-Rad, Steptoe and Johnson and its outside auditor, Ernst & Young. Id . ¶ 32. According to Wadler, he challenged this conclusion at the meeting and stated 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, the Steptoe and Johnson partner who had conducted the investigations in both 2011 and 2013 stated that he had "simply not addressed those issues." Id . Wadler alleges that he "was effectively shut out of the investigation over his repeated objections that he should be included." Id . ¶ 33.
Soon after the March 2013 meeting, on June 7, 2013, Bio-Rad terminated Wadler. Id . ¶ 35. The termination was "effectuated by the CEO" but the decision to terminate Wadler "was made by a vote of the entire Board." Id. In particular, Wadler alleges that Board members Louis Drapeau, Alice N. Schwartz, Albert J. Hillman and Deborah Neff made the decision to terminate Wadler and "were aware that Wadler had reported bribery, books-and-records violations, and related misconduct to persons with supervisory authority over him and to other persons at Bio-Rad who had the authority to investigate, discover, or terminate such misconduct." Id. ¶ 38. Wadler further alleges that he was terminated because he was investigating potential FCPA violations and because he reported his concerns "up the ladder" "when it became clear that the company was not taking reasonable steps to investigate and remedy FCPA violations." Id . ¶ 39.
Wadler alleges that throughout his employment he had always reported to the CEO, first David Schwartz and then Norman Schwartz, and that he had never been told that his work was deficient; in December 2012, Norman Schwartz gave Wadler a positive performance review, promoted him to Executive Vice President and gave him a raise. Id . ¶ 37. According to Wadler, at the time of his termination, Bio-Rad had been scheduled to give a report to the Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ") just a few weeks later "regarding the status of Bio-Rad's internal FCPA investigations." Id . ¶ 41. Bio-Rad's outside counsel, Davis Polk, gave the presentation at that meeting. Id . ¶ 42. According to Wadler, Bio-Rad was concerned that its termination of Wadler might reflect poorly on the company and therefore, it disclosed and attempted to rebut the concerns Wadler had expressed regarding possible FCPA violations in China. Id . Wadler alleges that "the presentation given to the SEC and the DOJ was a self-serving attempt to avoid potential negative repercussions regarding the improper activities Bio-Rad engaged in." Id .
Wadler alleges that Bio-Rad later "admitted publicly that it was, in fact, engaging in some of the very misconduct Wadler had complained about," disclosing in its March 8, 2013 10K statement with the SEC that it had "identified significant deficiencies in [its] internal control over financial reporting, including the unauthorized issuance of distributor contracts at [its] Chinese subsidiary, [its] lack of control over pricing and [its] ineffective methods of analyzing credit risk and in some instances, the lack of sufficient documentation for the time of revenue recognition." Id . ¶ 34 (internal quotations omitted). According to Wadler, Bio-Rad's outside auditors Ernst & Young also resigned. Id . ¶ 44. Wadler alleges on information and belief that "material deficiencies and substantial disagreement between the auditors and Bio-Rad's senior leadership contributed to the resignation of the auditors." Id .
Wadler asserts the following claims in his Complaint: 1) retaliation in violation of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A
(); 2) retaliation in violation of the Dodd-Frank Act, 15 U.S.C. § 78u–6 (); 3) Retaliation in Violation of California Labor Code section 1102.5 (Bio-Rad);2 4) wrongful termination in violation of public policy (Bio-Rad); 5) nonpayment of wages under California Labor Code sections 201, 227.3 (Bio-Rad); 6) waiting time penalties under California Labor Code section 203 (Bio-Rad).
On November 29, 2013, Wadler faxed his initial complaint, in the form of a letter, to the Department of Labor's Occupational Safety &Health Administration ("DOL"), alleging that he was terminated for engaging in protected activity under Sarbanes-Oxley. Id. ¶ 58; see also Declaration of Linda Inscoe in Support of Defendants' Motion to Dismiss ("Inscoe Decl."), Ex. A (DOL Complaint). The DOL Complaint states that it is "a complaint under the Sarbanes-Oxley Act against Bio-Rad Laboratories, Inc. in Hercules, CA." Id . at 1. The DOL Complaint goes...
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