In a matter of first impression, the court in Wadler v. Bio-Rad Laboratories, Inc., 2015 U.S. Dist. LEXIS 144468 (N.D. Cal. October 23, 2015), ruled that directors who take retaliatory actions against a whistleblowing employee are subject to individual liability under the Sarbanes-Oxley Act of 2002 (SOX) and Dodd-Frank whistleblower provisions. In Wadler, Bio-Rad’s former general counsel sued Bio-Rad and members of its board of directors, alleging that he had been terminated in retaliation for investigating and reporting to senior management possible violations of the Foreign Corrupt Practices Act. Wadler contended that the decision to terminate him had been made by the full board and that certain board members had known that he had reported the alleged misconduct to his supervisors and others with investigative authority. The defendants sought to dismiss, arguing that neither SOX, nor Dodd-Frank, permit directors to be held personally liable for retaliation against whistleblowers.
With respect to Section 1514A of SOX, the court said the issue turned on whether the prohibition of retaliation by an “agent” of a public company included directors. The court concluded that the meaning of the word “agent” in the statute was ambiguous and sought to divine legislative intent. The court rejected the defendants’ argument that Congress had intended to exclude directors from individual liability. Ultimately, however, the court concluded that the SOX claims against the individual defendants other than the CEO were untimely because the plaintiff’s original administrative complaint to the U.S. Department of Labor did not provide those board members adequate notice that they would be sued in federal court.
With respect to the Dodd-Frank Act’s anti-retaliation provision, the court was required to interpret the meaning of the word “employer” because the statute simply precludes retaliation by an “employer.” The court found the term “employer” to be ambiguous and, again, the court saw nothing in the legislative history suggesting that Congress intended to eliminate individual liability for those who retaliate against whistleblowers. Noting that Dodd-Frank was clearly designed to increase whistleblower protection, the court thought a step as significant as removing individual liability would have been noted in the statute’s legislative history. Accordingly, the court ruled that directors may be held individually liable for retaliating against whistleblowers. In addition, the court joined the Second Circuit’s Berman v. Neo@Ogilvy decision in deferring to the SEC’s position that Dodd-Frank whistleblower protection extends to individuals who report suspected violations internally, as well as those who report to the SEC.
The court subsequently denied the defendants’ motion for certification of interlocutory appeal and stay of the matter pending such interlocutory appeal.