Whistleblower Can Sue Board Members

     SAN FRANCISCO (CN) – In a “close call,” a federal judge ruled that individual directors of Bio-Rad Laboratories can be held liable for firing a whistleblower, former general counsel Sanford Wadler.
     Wadler sued Bio-Rad Laboratories and its board of directors in May, claiming they canned him for refusing to go along with a coverup of bribery in China.
     Wadler said he began investigating the company’s Chinese operations after learning that overseas employees and agents had bribed government officials in Russia, Thailand and Vietnam to win public contracts for medical diagnostic equipment.
     Bio-Rad agreed in 2014 to pay $55.1 million in fines for violating the Foreign Corrupt Practices Act, in nonprosecution agreements with the SEC and Department of Justice.
     Bio-Rad claimed its board members could not be held individually liable for Wadler’s firing, as whistleblower protections in the Dodd-Frank and Sarbanes-Oxley laws do not explicitly name “directors” among those who can violate the laws.
     But on Friday, while acknowledging that the laws were vague, U.S. District Judge Joseph Spero said Congress intended the laws to included directors.
     ” Congress’s failure to expressly include directors in the list of those who may be individually liable under Sarbanes-Oxley does not support the conclusion that it intended to shield directors who engage in retaliatory conduct from individual liability,” Spero wrote.
     The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act does include the word “employer” in its list, however ambiguously, Spero said. He found that legislative intent seems to point toward enacting more stringent means of protecting whistleblowers.
     “In this context, the suggestion that Congress, when it enacted Dodd-Frank, intended to exclude liability on the part of individuals who retaliate against whistleblowers – which had been a key feature of Sarbanes-Oxley aimed at increasing accountability at the top levels of corporations – is implausible,” Spero wrote. “The court concludes that Congress’s failure to expressly include directors in the list of those who may be individually liable under Sarbanes-Oxley does not support the conclusion that it intended to shield directors who engage in retaliatory conduct from individual liability.”
     Nonetheless, Spero ruled that Wadler can bring a Sarbanes-Oxley claim only against CEO Norman Schwartz, as only Schwartz was given timely notice of Wadler’s original administrative complaint. The remaining board members were added to the complaint after the 180-day limit period had ended.
     Spero rejected Bio-Rad’s major assertion, that Wadler failed to merit protection under Dodd-Frank since he didn’t share information with the SEC during its investigation. Wadler alleged in his lawsuit that he was shut out of the investigation despite his objections.
     Spero said this does not defeat Wadler’s claim, siding with the SEC’s view of a “permissible construction” of Dodd-Frank that incentivizes reporting of illegal activities and deters employers from retaliation.
     He dismissed with prejudice directors Louis Drapeau, Alice N. Schwartz, Albert J. Hillman and Deborah J. Neff from the Sarbanes-Oxley claim, but denied all other aspects of the motion to dismiss.

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