Wadler v. Bio-Rad Laboratories, Inc.
212 F.Supp.3d 829, 2016 U.S. Dist. LEXIS 176166, 2016 WL 7369246 (2016)
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Rule of Law:
Federal whistleblower protection laws, such as the Sarbanes-Oxley Act, preempt conflicting state attorney ethics rules that would otherwise prevent an in-house counsel from disclosing client confidences to prove a retaliatory discharge claim. Furthermore, a company waives attorney-client privilege regarding a subject matter when it selectively discloses privileged information to government agencies or in public court filings to its own advantage.
Facts:
- Sanford Wadler served as the general counsel for Bio-Rad Laboratories, Inc., a global manufacturer, for nearly 25 years.
- Bio-Rad is subject to the Foreign Corrupt Practices Act (FCPA), which prohibits bribing foreign officials.
- Wadler began investigating potential FCPA violations by Bio-Rad in China.
- Wadler reported his concerns about the potential violations to Bio-Rad's Audit Committee.
- Bio-Rad hired outside law firms, including Davis Polk & Wardwell (DPW), to investigate Wadler's allegations.
- DPW created a presentation for the Securities and Exchange Commission (SEC) concluding that Wadler's concerns about FCPA violations were unfounded.
- In June 2013, Bio-Rad terminated Wadler's employment.
Procedural Posture:
- Wadler filed a whistleblower retaliation complaint with the U.S. Department of Labor (DOL).
- Bio-Rad responded to the DOL complaint and submitted declarations from senior management justifying Wadler's termination.
- Bio-Rad's outside counsel presented a PowerPoint presentation to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) regarding its investigation into Wadler's claims.
- Wadler sued Bio-Rad in the U.S. District Court for the Northern District of California for retaliatory discharge under Sarbanes-Oxley and state law.
- Bio-Rad filed a motion to dismiss, which the court granted in part and denied in part.
- After the deadline for dispositive motions had passed, Bio-Rad filed a Motion to Exclude Protected Information, seeking to prevent Wadler from using virtually all evidence related to his work as general counsel.
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Issue:
Do California's strict attorney confidentiality rules and the attorney-client privilege prevent a former in-house general counsel from using confidential or privileged information to prove a federal retaliatory discharge claim brought under the Sarbanes-Oxley Act?
Opinions:
Majority - Spero, J.
No. California's attorney confidentiality rules do not prevent a former in-house counsel from using such information to prove a federal whistleblower claim, because federal law applies and permits such disclosures. First, in a case involving overlapping federal and state claims, federal common law of privilege governs, not state law. Federal common law, as interpreted by the Ninth Circuit in cases like Van Asdale, permits in-house counsel to use privileged information to the extent reasonably necessary to establish a retaliatory discharge claim under Sarbanes-Oxley, balancing the need for confidentiality with the attorney's right to maintain their suit. Second, federal regulations enacted under Sarbanes-Oxley (17 C.F.R. Part 205) explicitly preempt conflicting state ethics rules that would bar an attorney from using information to litigate their compliance with the Act's reporting requirements. Third, even if state rules applied, Bio-Rad waived the attorney-client privilege through its own actions. Bio-Rad waived privilege by disclosing the DPW Presentation to the SEC and DOJ, by aggressively litigating the merits in public filings before the Department of Labor, and by filing unredacted expert reports in the current action that detailed the very information it now seeks to protect. By using these investigations and communications as a sword to claim Wadler's concerns were baseless and he was fired for poor performance, Bio-Rad cannot now use privilege as a shield to prevent him from rebutting those claims.
Analysis:
This decision reinforces the strength of federal whistleblower protections for in-house attorneys, establishing that these federal interests can preempt even the strictest state-level attorney ethics rules on confidentiality. It affirms that federal courts will apply the more permissive federal common law of privilege in such cases, allowing attorneys to use otherwise privileged information necessary to prove their claims. The ruling also serves as a significant cautionary tale for corporations, demonstrating how an aggressive litigation strategy and selective disclosures to government agencies can result in a broad subject-matter waiver of attorney-client privilege, preventing the company from later shielding related communications.
