Last month, a federal jury in San Francisco awarded $8 million to a former general counsel for life sciences company Bio-Rad who was terminated after raising concerns about possible Foreign Corrupt Practices Act (FCPA) violations by his employer. The verdict sent shockwaves through the legal community as it redefines the boundaries of general counsel privilege, and may spur others to act as whistleblowers themselves.
Bio-Rad Whistleblower Case: A Test of Privilege
Sanford Wadler had served as general counsel to Bio-Rad for 26 years when he told management he suspected incidents of bribery by the company in China, and that its policies lacked appropriate language barring such activities. He was ignored, and when he took the issue to the audit committee, he was fired shortly after. The audit committee's investigation cleared Bio-Rad of any wrongdoing, but Wadler still lost his job.
Wadler filed suit against Bio-Rad, alleging his dismissal was in retaliation for taking his concerns to the audit committee. Bio-Rad countered that Wadler had fabricated the whole thing in an attempt to make himself look better after the company was fined $55 million for FCPA violations in its dealings with Russia, Thailand, and Vietnam.
Critically, Bio-Rad also asked the court to bar Wadler from using privileged corporate documents as part of his case. Last December, however, U.S. Magistrate Judge Joseph C. Spero of the Northern District of California ruled that the whistleblower protections enshrined in the federal Sarbanes-Oxley Act took precedent over state laws regarding attorney-client privilege.
In his decision, Spero wrote: "To the extent that one of the methods Congress chose for achieving that objective was to afford protection from retaliation to those who comply with these reporting requirements, an ethical rule that deprives an attorney of such protection interferes with the methods by which Sarbanes-Oxley was designed to achieve its objective... In other words, this is a textbook example of 'obstacle preemption.'"
Spero's ruling proved fatal for Bio-Rad's case and ultimately led to the jury siding with Wadler and awarding him $2.96 million in back wages and $5 million in punitive damages. The trial itself took three weeks, but the jury came back after just three hours, apparently finding that Wadler's concerns about Bio-Rad's FCPA violations in China were valid and that he was terminated for bringing them to light.
Could More GC Whistleblowers Start Sounding the Alarm?
Whistleblower retaliation lawsuits brought by general counsel have always been exceedingly rare and few succeed. Most GCs would not file such a suit out of fear that attorney-client privilege would put key evidence out of reach - even if they had a strong case to make. The result is that many GCs may not bring corporate wrongdoing to light in the first place fearing they would have no recourse if they were terminated or faced other retaliation from an employer.
What Judge Spero's decision in the Bio-Rad case makes clear, however, is that general counsel are entitled to the same legal protections afforded to any other whistleblower. The obligation to report wrongdoing outweighs any right an employer might have to keeping evidence of its possible misdeeds under wraps. In addition, attorney-client privilege does not shield an employer from being called to account for retaliating against a whistleblower general counsel.
In-House Counsel: Know Your Rights
Hopefully, Sanford Wadler will serve as a shining example to other in-house counsel of the importance of doing the right thing, even if an employer retaliates. The Bio-Rad verdict has put all companies on notice that they cannot treat their lawyers any differently from another whistleblowing employee and hide behind attorney-client privilege to do so.
This is also good news for general counsel who want to take steps to escalate their concerns when management is not listening. Of course, any potential whistleblower should thoroughly understand his or her rights in this area, as well as what to do in the face of retaliation. An essential first step would be to discuss the matter, confidentially, with a lawyer who has broad experience advising whistleblowers before taking any action. It is always best to be armed with as much information as possible.