Sanford Wadler v. Bio-Rad Laboratories, Inc. ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SANFORD S. WADLER, No. 17-16193
Plaintiff-Appellee,
D.C. No.
v. 3:15-cv-02356-
JCS
BIO-RAD LABORATORIES, INC., a
Delaware Corporation; NORMAN
SCHWARTZ, OPINION
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of California
Joseph C. Spero, Magistrate Judge, Presiding
Argued and Submitted November 14, 2018
San Francisco, California
Filed February 26, 2019
Before: Susan P. Graber and Mark J. Bennett, Circuit
Judges, and Leslie E. Kobayashi, * District Judge.
Opinion by Judge Bennett
*
The Honorable Leslie E. Kobayashi, United States District Judge
for the District of Hawaii, sitting by designation.
2 WADLER V. BIO-RAD LABORATORIES
SUMMARY **
Labor Law
The panel vacated in part the district court’s judgment
after a jury trial, affirmed in part, and remanded in a
whistleblower retaliation suit.
The jury found that Bio-Rad Laboratories, Inc., and its
CEO violated the Sarbanes-Oxley Act, the Dodd-Frank Act,
and California public policy by terminating the employment
of Bio-Rad’s former general counsel, Sanford Wadler, in
retaliation for his internal report that he believed the
company had engaged in violations of the Foreign Corrupt
Practices Act in China.
Vacating the SOX verdict, the panel held that the district
court erred in instructing the jury that statutory provisions of
the FCPA constitute rules or regulations of the SEC for
purposes of whether Wadler engaged in protected activity
under SOX § 806. Because a properly instructed jury could
return a SOX verdict in favor of Wadler, the panel remanded
for the district court to determine whether a new trial was
warranted.
With respect to Wadler’s California public policy claim,
the panel concluded that the district court’s SOX
instructional error was harmless and therefore affirmed the
verdict and corresponding damages as to that claim.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WADLER V. BIO-RAD LABORATORIES 3
Addressing additional issues in a contemporaneously-
filed memorandum disposition, the panel also vacated the
district court’s Dodd-Frank verdict and remanded.
COUNSEL
Kathleen M. Sullivan (argued) and William B. Adams,
Quinn Emanuel Urquhart & Sullivan LLP, New York, New
York; Karin Kramer, Andrew P. March, and John M. Potter,
Quinn Emanuel Urquhart & Sullivan, LLP, San Francisco,
California; for Defendants-Appellants.
Michael John von Loewenfeldt (argued), Kenneth P. Nabity,
and James M. Wagstaffe, Kerr & Wagstaffe LLP, San
Francisco, California, for Plaintiff-Appellee.
OPINION
BENNETT, Circuit Judge:
In this whistleblower retaliation case, Bio-Rad
Laboratories, Inc. (“Bio-Rad” or “the Company”) and its
CEO, Norman Schwartz, appeal an $11 million jury verdict
in favor of Bio-Rad’s former general counsel, Sanford
Wadler. 1 The jury found that Defendants violated the
Sarbanes-Oxley Act (“SOX”), the Dodd-Frank Act, and
California public policy by terminating Wadler’s
employment in retaliation for his internal report that he
believed the Company had engaged in serious and prolonged
1
We refer to the Defendants collectively as “Bio-Rad” except when
necessary to distinguish between them.
4 WADLER V. BIO-RAD LABORATORIES
violations of the Foreign Corrupt Practices Act (“FCPA”) in
China.
On appeal, Defendants argue that the district court erred
by instructing the jury that statutory provisions of the FCPA
constitute “rule[s] or regulation[s] of the Securities and
Exchange Commission” (“SEC”) for purposes of whether
Wadler engaged in “protected activity” under SOX § 806,
18 U.S.C. § 1514A(a). We agree. We reject, however, Bio-
Rad’s argument that no properly instructed jury could return
a SOX verdict in favor of Wadler. Accordingly, we vacate
the SOX verdict and remand for the district court to
determine whether a new trial is warranted.
With respect to Wadler’s California public policy claim,
by contrast, we conclude that the district court’s SOX
instructional error was harmless and therefore we affirm the
verdict and corresponding damages as to that claim.
In a memorandum disposition filed this date, we
conclude that the instructional error was not harmless as to
the SOX claim. We also reject Bio-Rad’s challenges to the
district court’s evidentiary rulings and the sufficiency of the
evidence. Finally, we vacate with instructions to enter
judgment in favor of Bio-Rad as to the Dodd-Frank claim in
light of Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767,
778 (2018), which held that Dodd-Frank does not apply to
purely internal reports. We therefore also vacate the portion
of damages attributable solely to the Dodd-Frank verdict,
approximately $2.96 million plus interest.
Accordingly, we vacate in part, affirm in part, and
remand for consideration of whether a new trial is warranted
as to the SOX claim.
WADLER V. BIO-RAD LABORATORIES 5
I.
We must view the evidence at trial in the light most
favorable to the verdict. Shafer v. Cty. of Santa Barbara,
868 F.3d 1110, 1115 (9th Cir. 2017), cert. denied, 138 S. Ct.
2582 (2018). Because the jury returned a verdict in favor of
Wadler on all claims, we review the pertinent facts adduced
at trial in the light most favorable to him.
A.
The trial centered on a memorandum that Wadler
delivered to the Audit Committee of Bio-Rad’s Board of
Directors in February 2013 (the “Audit Committee Memo”
or “Memo”) and Schwartz’s subsequent decision to
terminate Wadler’s employment in June 2013. Wadler
stated in the Memo that he believed Bio-Rad employees in
China had violated the FCPA’s bribery and books-and-
records provisions, and that senior management was likely
complicit.
The factual basis for the Memo, and Wadler’s reasons
for writing it, can be traced back to 2009. In that year, Bio-
Rad’s internal audit team discovered that Bio-Rad salesmen
in Vietnam and Thailand had engaged in potential FCPA
violations. At Wadler’s recommendation, Bio-Rad hired
FCPA attorney Patrick Norton of Steptoe & Johnson to
investigate.
Norton reported his findings to Bio-Rad’s Board of
Directors in September 2011. Specifically, Norton reported
that he had found evidence that Bio-Rad employees were
violating the FCPA’s bribery and books-and-records
provisions in Vietnam, Thailand, and Russia. As for China,
Norton reported several “red flags,” including “[v]ery high,
unexplained commissions” and a “history of widespread
6 WADLER V. BIO-RAD LABORATORIES
corruption” in the country’s medical products market.
Norton reported, however, that “no evidence of improper
payments” had been found to date in China.
In June 2012, Wadler and Schwartz received the results
of a sales documentation audit that had been initiated at the
request of Bio-Rad’s licensor, Life Technologies, Inc. (“Life
Tech”). The audit, which covered the years 2006 to 2010,
revealed that Bio-Rad owed Life Tech around $30 million in
royalty obligations due to Bio-Rad’s missing documentation
of end-user prices for products primarily in the Chinese
market.
Wadler and John Cassingham, an in-house patent lawyer
who reported to Wadler, repeatedly attempted to obtain the
missing sales documents from China. In November 2012,
Cassingham finally succeeded in obtaining a complete set of
documents for a single transaction and sent those documents
to Wadler. Wadler testified that Cassingham thought the
documents showed bribery. Wadler further testified that he
subsequently told Schwartz about the potential bribery, but
Schwartz responded that he was not going to do anything
about it.
Wadler’s concerns increased as he and Cassingham
spoke to other employees. In December 2012, for example,
a senior Bio-Rad manager in China told Wadler that he had
never visited one of Bio-Rad’s main distributors to look for
documents, despite the distributor’s failure to comply with
Bio-Rad’s documentation requests. A different Bio-Rad
employee in China later told Cassingham (who in turn told
Wadler) about a widespread “under the covers” scheme in
which cover sheets on import/export documents were used
to show the official number of products while the shipments
themselves were padded with free extra products. Wadler
later obtained around 160 sets of Chinese sales documents,
WADLER V. BIO-RAD LABORATORIES 7
thirty percent of which showed the product-padding pattern
that fit the description of the “under the covers” scheme.
In January 2013, Wadler discovered that Bio-Rad
employees in China had entered into unauthorized contracts
with distributors. In the course of investigating those
contracts, Wadler learned that they were not accurate
translations of approved English-language distributor
contracts, but had instead been translated from an earlier
template that did not include FCPA compliance provisions.
Wadler’s junior attorneys also informed him that the
contracts provided for unauthorized “incentives payable in
free product – between 1–3% of sales if [salesmen] achieved
certain targets,” with a “financial impact of . . .
approximately one million dollars.”
B.
On February 8, 2013, Wadler delivered the Memo to the
Audit Committee, reporting his belief that there were
“serious and prolonged violations of the FCPA in Bio-Rad’s
business in China.” Wadler listed several sources of
concern: (1) a free-product scheme that “suggest[ed] several
possibilities for bribery”; (2) Bio-Rad’s inability to obtain
documents for the Life Tech audit, which “could itself be
considered a substantive and clear violation of [the FCPA’s]
books and records requirements”; and (3) the Chinese
distributor contracts without FCPA compliance language.
Wadler concluded that “these practices [we]re endemic and
that high levels of management within the company had to
know they were happening,” which, he continued, was why
he had not yet discussed his concerns with senior
management (including Schwartz).
Wadler recommended that Bio-Rad “promptly conduct
an in depth investigation into business practices in China”
8 WADLER V. BIO-RAD LABORATORIES
and that the Company report his suspicions to the
government and to the Company’s auditors. The Company’s
duty to report was “especially true,” he wrote, because it had
“meetings scheduled with the government agencies in late
February to discuss the ‘tone at the top’ in relationship to
penalties for the violations in Vietnam, Russia, Thailand and
Brazil.” Wadler opined that it “would deeply prejudice how
the government would view the company if we had
discussions about ‘tone at the top’ knowing that there [were]
potentially serious additional violations that were being
withheld.”
C.
In response to the Memo, the Audit Committee
authorized Wadler to hire Davis Polk & Wardwell to
investigate his concerns. On February 20, 2013, the
Chairman of the Audit Committee told Schwartz about the
Memo. Two days later Schwartz informed the head of Bio-
Rad’s human resources department that Wadler had “been
acting a little bizarre lately” and that Schwartz might “want
to put him on an administrative leave.” By March, Schwartz
had become “entirely frustrated” with Wadler but believed
that “he must stay in place until [an] FCPA settlement” with
the government was final.
Davis Polk reported the findings of its investigation to
Bio-Rad’s Board of Directors on June 4, 2013. Davis Polk
found that there was “no evidence to date of any violation—
or attempted violation—of the FCPA” in China. Schwartz
fired Wadler three days later. Bio-Rad later paid the
government a total of $55 million to resolve its investigation
into FCPA issues in Vietnam, Thailand, and Russia.
Nothing was paid as a result of any FCPA issues in China.
WADLER V. BIO-RAD LABORATORIES 9
II.
In May 2015, Wadler brought this action for
compensatory and punitive damages against the Company
and Schwartz. As relevant here, Wadler alleged violations
of SOX and Dodd-Frank as to both Defendants, and a
violation of California public policy under Tameny v.
Atlantic Richfield Co., 610 P.2d 1330, 1336–37 (Cal. 1980)
(the “Tameny” claim) against the Company only. The case
proceeded to a jury trial in January 2017.
At trial, Wadler set out to prove that Schwartz fired him
in retaliation for reporting alleged FCPA violations to the
Audit Committee, while Bio-Rad attempted to show that
Wadler was fired due to his poor performance and
dysfunctional relationship with management. Bio-Rad also
tried to show that Wadler wrote the Memo only because he
was concerned about his job security, and that it would have
been unreasonable for a general counsel in Wadler’s position
to believe that the Company had violated the FCPA in China.
At the close of trial, the judge gave several jury
instructions concerning when an employee engages in
“protected activity” for purposes of SOX, Tameny, and
Dodd-Frank. For each of the three claims, the instructions
stated that Wadler had to prove he engaged in protected
activity under SOX, which in turn depended on whether he
disclosed conduct that he reasonably believed violated a
“rule or regulation of the” SEC. The main instruction at
issue in this appeal, Instruction 21, stated that, under “the
rules and regulations of the [SEC] applicable to Bio-Rad,” it
is unlawful to (1) bribe a foreign official; (2) fail to keep
accurate and reasonably detailed books and records;
10 WADLER V. BIO-RAD LABORATORIES
(3) knowingly falsify books and records; and (4) knowingly
circumvent a system of internal accounting controls. 2
The jury returned a verdict in favor of Wadler on all three
claims. As to all three claims in general, the jury awarded
Wadler $2.96 million in compensatory damages for past
economic loss against both Defendants. The district court
doubled that amount under Dodd-Frank’s doubling
provision, 15 U.S.C. § 78u-6(h)(1)(C)(ii), resulting in a total
award of $5.92 million plus interest against Schwartz.
Because the jury also awarded Wadler $5 million in punitive
damages against the Company based on the Tameny claim,
the total award against the Company was $10.92 million plus
interest.
Bio-Rad subsequently filed a renewed motion for
judgment as a matter of law (“JMOL”) and a motion for new
trial. Bio-Rad argued, inter alia, that Wadler’s disclosure of
alleged FCPA violations was not protected activity under
SOX because provisions of the FCPA, a statute, do not
constitute SEC rules or regulations for purposes of SOX
§ 806. The district court denied Bio-Rad’s motions. The
court concluded that the FCPA is a “rule or regulation of the
SEC” for purposes of SOX because “the FCPA is an
amendment to the Securities . . . Exchange Act of 1934 and
is codified within it.” This appeal followed.
III.
We have jurisdiction under 28 U.S.C. § 1291 over the
appeal of the denial of a motion for new trial and renewed
2
For simplicity, throughout this opinion we refer to the books-and-
records provisions listed in paragraphs two and three of Instruction 21,
and the internal accounting controls provision in paragraph four of
Instruction 21, collectively as the “books-and-records” provisions.
WADLER V. BIO-RAD LABORATORIES 11
motion for JMOL, and the district court’s interlocutory
rulings at trial. See Hall v. City of Los Angeles, 697 F.3d
1059, 1070 (9th Cir. 2012). The district court had
jurisdiction under 28 U.S.C. §§ 1331 and 1367.
We review de novo whether a jury instruction correctly
states the law. Wilkerson v. Wheeler, 772 F.3d 834, 838 (9th
Cir. 2014). The denial of a motion for JMOL is also
reviewed de novo, Castro v. Cty. of Los Angeles, 833 F.3d
1060, 1066 (9th Cir. 2016), and the denial of a motion for
new trial is reviewed for abuse of discretion, Crowley v.
Epicept Corp., 883 F.3d 739, 748 (9th Cir. 2018) (per
curiam). We review de novo questions of statutory
interpretation. California v. Iipay Nation of Santa Ysabel,
898 F.3d 960, 964 (9th Cir. 2018).
IV.
A. The SOX Claim
Section 806 of SOX prohibits publicly traded companies
from retaliating against an employee who lawfully reports
any conduct which the employee reasonably
believes constitutes a violation of [18 U.S.C.]
section 1341 [mail fraud], 1343 [wire fraud],
1344 [bank fraud], or 1348 [securities fraud],
any rule or regulation of the Securities and
Exchange Commission, or any provision of
Federal law relating to fraud against
shareholders . . . .
18 U.S.C. § 1514A(a)(1). The question before us is whether
the district court erred by instructing the jury that, for
purposes of § 806, rules or regulations of the SEC include
the FCPA’s books-and-records provisions, 15 U.S.C.
12 WADLER V. BIO-RAD LABORATORIES
§ 78m(b)(5), (2)(A), and anti-bribery provision, id. § 78dd-
1(a). We conclude that the court erred. However, because a
properly instructed jury could return a verdict in Wadler’s
favor, we vacate the SOX verdict and remand for the district
court to consider whether a new trial is appropriate in light
of our decision to affirm the Tameny verdict.
1.
As a threshold matter, we consider whether Bio-Rad’s
claim of instructional error is properly before us with respect
to paragraphs two through four of Instruction 21 concerning
books and records. Wadler argues that Bio-Rad invited error
or waived the books-and-records part of its claim, in light of
Bio-Rad’s shifting positions in the district court. Bio-Rad
correctly conceded in the district court, and continues to
concede on appeal, that one of the FCPA books-and-records
provisions in Instruction 21 is also an SEC regulation within
the scope of § 806. See 17 C.F.R. § 240.13b2-1 (“No person
shall directly or indirectly, falsify or cause to be falsified,
any book, record or account . . . .”). At times, however, Bio-
Rad appeared to abandon a challenge to all three books-and-
records provisions listed in Instruction 21 by targeting only
the FCPA anti-bribery provision. Although Bio-Rad’s
position was not always clear, we conclude that its actions
did not rise to the level of invited error or waiver.
As for invited error, Bio-Rad originally objected to the
jury instructions on the ground that reporting any FCPA
violation is not SOX-protected activity. Although Bio-Rad
narrowed its objection at one point to only the anti-bribery
portion of the instructions, Bio-Rad expressly preserved its
original objection at the final jury instructions conference.
The district court then stated that Bio-Rad’s position that a
statute is not a rule or regulation for purposes of § 806 was
“very clear.” On this record, we cannot say that Bio-Rad
WADLER V. BIO-RAD LABORATORIES 13
was responsible for any error in the jury instructions. See
Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270 (9th Cir.),
amended by 289 F.3d 615 (9th Cir. 2002).
Bio-Rad also raised its present claim in the JMOL
briefing such that it is not waived on appeal. Bio-Rad
specifically argued, in its JMOL motion, that the FCPA is
not a rule or regulation of the SEC because it is a statute.
Even if Bio-Rad again limited the scope of that argument to
the anti-bribery context in its renewed JMOL motion, the
district court addressed the merits of the basic issue before
us now: whether any FCPA provision can be a rule or
regulation of the SEC for purposes of § 806. Accordingly,
that issue is properly before us. See True Health
Chiropractic, Inc. v. McKesson Corp., 896 F.3d 923, 930
(9th Cir. 2018), petition for cert. filed, ___ U.S.L.W. ___
(U.S. Jan. 25, 2019) (No. 18-987); see also Tarabochia v.
Adkins, 766 F.3d 1115, 1128 n.12 (9th Cir. 2014) (“[E]ven
if a party fails to raise an issue in the district court, we
generally will not deem the issue waived if the district court
actually considered it.”).
We therefore proceed to the merits of the issue raised on
appeal: whether Instruction 21 erroneously listed the
FCPA’s anti-bribery and books-and-records-provisions as
“rules or regulations of the SEC” under SOX § 806.
2.
In construing the provisions of a statute, “we begin with
well-settled canons of statutory interpretation.” Zazzali v.
United States (In re DBSI, Inc.), 869 F.3d 1004, 1010 (9th
Cir. 2017). “A primary canon of statutory interpretation is
that the plain language of a statute should be enforced
according to its terms, in light of its context.” ASARCO, LLC
v. Celanese Chem. Co., 792 F.3d 1203, 1210 (9th Cir. 2015).
14 WADLER V. BIO-RAD LABORATORIES
We also presume that Congress acts intentionally when it
uses particular wording in one part of a statute but omits it
in another. Dep’t of Homeland Sec. v. MacLean, 135 S. Ct.
913, 919 (2015). Thus, when a statute uses the phrase “law,
rule, or regulation” in one section but uses only “law” in a
different section, the word “law” does not encompass
administrative rules or regulations. Id. at 919–20; Dep’t of
Treasury, IRS v. Fed. Labor Relations Auth., 494 U.S. 922,
931–32 (1990).
Applying these principles here, we hold that § 806’s text
is clear: an FCPA provision is not a “rule or regulation of the
[SEC].” 18 U.S.C. § 1514A(a)(1). Although the words
“rule” and “regulation” could perhaps encompass a statute
when read in isolation, the more natural and plain reading of
these words together and in context is that they refer only to
administrative rules or regulations. That the phrase “rule or
regulation” is used in conjunction with an administrative
agency, the SEC, suggests that it encompasses only
administrative rules or regulations. Most notably, Congress
uses the phrase “any rule or regulation of the [SEC]” in the
same list in which it uses “any provision of Federal law
relating to fraud against shareholders,” id., which strongly
suggests that there is a difference between the meaning of
“rule or regulation” and “law.” See MacLean, 135 S. Ct. at919–20; Dep’t of Treasury, IRS, 494 U.S. at 931–32. The
most obvious explanation is that “law” encompasses
statutes, like the FCPA, whereas “rule or regulation” does
not.
We reject Wadler’s arguments for a different
interpretation. First, Wadler argues that “rule or regulation
of the SEC” should be broadly interpreted in light of SOX’s
remedial purpose of protecting employees who report
corporate misconduct. It is a “familiar canon of statutory
WADLER V. BIO-RAD LABORATORIES 15
construction that remedial legislation should be construed
broadly to effectuate its purposes,” Tcherepnin v. Knight,
389 U.S. 332, 336 (1967), but this canon should not be
“treated . . . as a substitute for a conclusion grounded in the
statute’s text and structure,” CTS Corp. v. Waldburger,
134 S. Ct. 2175, 2185 (2014).
Second, Wadler’s reliance on legislative history—in the
form of statements made on the Senate floor—is equally
unavailing. When, as here, “a statute’s language is plain and
unambiguous, our inquiry ends.” Christie v. Ga.-Pac. Co.,
898 F.3d 952, 958 (9th Cir. 2018).
In sum, statutory provisions of the FCPA, including the
three books-and-records provisions and anti-bribery
provision listed in Instruction 21, are not “rules or
regulations of the SEC” under SOX § 806. The district court
erred in instructing the jury otherwise. As noted above, in a
memorandum disposition filed this date, we conclude that
the instructional error was not harmless as to the SOX claim.
3.
Having found error that was not harmless, we must
determine the proper remedy. Bio-Rad argues that we must
reverse with instructions to enter judgment in its favor
because a properly instructed jury could not return a verdict
for Wadler. We disagree.
When a district court commits instructional error, we
reverse and direct entry of judgment if “the evidence
presented [at] trial would not suffice, as a matter of law, to
support a jury verdict under the properly formulated
[instruction].” Boyle v. United Techs. Corp., 487 U.S. 500,
513 (1988). Bio-Rad argues that there is insufficient
evidence to support a verdict based on properly formulated
16 WADLER V. BIO-RAD LABORATORIES
instructions. Although Bio-Rad acknowledges that
Instruction 21 properly lists a books-and-records
falsification provision as an SEC rule or regulation in light
of 17 C.F.R. § 240.13b2-1, Bio-Rad contends that there is
insufficient evidence to prove that Wadler reported conduct
that he reasonably believed violated that regulation.
Evidence is insufficient only “if, under the governing
law, there can be but one reasonable conclusion as to the
verdict.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
(1986). Conversely, if “reasonable minds could differ as to
the import of the evidence,” the evidence is sufficient. Id. at
250–51. Sufficiency is a low bar, especially because “we
must construe the facts in the light most favorable to the
jury’s verdict.” Shafer, 868 F.3d at 1115 (internal quotation
marks omitted).
This already low bar is further lowered by the
substantive law governing protected activity under § 806.
See Anderson, 477 U.S. at 250. In a new trial, Wadler would
not have to prove that he reported an actual violation. Van
Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir.
2009); Sylvester v. Parexel Int’l LLC, No. 07-123, 2011 WL
2517148, at *14 (Dep’t of Labor May 25, 2011) (en banc).
He would have to prove only that he “reasonably believed
that there might have been” a violation and that he was “fired
for even suggesting further inquiry.” Van Asdale, 577 F.3d
at 1001. We have referred to this standard as a “minimal
threshold requirement.” Id.Construing the facts in the light most favorable to the
verdict, a jury permissibly could find that Wadler satisfied
that minimal requirement. First, a reasonable jury could find
that the Audit Committee Memo suggested further inquiry
into whether Bio-Rad falsified books and records. The
Memo described many instances in which Bio-Rad’s
WADLER V. BIO-RAD LABORATORIES 17
shipping documents did not match the billing documents of
distributors or end-users. Although a jury could find that
such discrepancies did not raise books-and-records
concerns, or that they did not specifically implicate the
SEC’s falsification regulation, a reasonable jury also could
find that further inquiry was warranted with respect to
falsification.
Second, a reasonable jury could find that Wadler
reasonably believed that Bio-Rad had falsified books and
records. In a new trial, Wadler would have to prove that he
subjectively believed that the conduct described in the
Memo evidenced the falsification of books and records and
that his belief was objectively reasonable in the
circumstances. Van Asdale, 577 F.3d at 1000; Sylvester,
2011 WL 2517148, at *12. The objective reasonableness
component, the only component that Bio-Rad challenges on
appeal, “is evaluated based on the knowledge available to a
reasonable person in the same factual circumstances with the
same training and experience as the aggrieved employee.”
Sylvester, 2011 WL 2517148, at *12 (quoting Harp v.
Charter Commc’ns, Inc., 558 F.3d 722, 723 (7th Cir. 2009)).
“The reasonable belief standard requires an examination of
the reasonableness of a complainant’s beliefs, but not
whether the complainant actually communicated the
reasonableness of those beliefs to management or the
authorities.” Id. at *13.
There is sufficient evidence to support the objective
reasonableness of Wadler’s belief that Bio-Rad had falsified
books and records. Before he submitted the Audit
Committee Memo in February 2013, Wadler was aware of
Bio-Rad’s FCPA issues in several countries and the
numerous “red flags” in China. Wadler testified that
Cassingham thought the Life Tech audit documents showed
18 WADLER V. BIO-RAD LABORATORIES
bribery. Wadler also testified that a Bio-Rad employee
reported an “under the covers” scheme in which Bio-Rad
shipped free products. Finally, Wadler discovered Chinese
contracts without FCPA compliance language and with
unauthorized terms providing for free product incentives.
Bio-Rad argues that this evidence does not directly
implicate books-and-records falsification. A reasonable
jury, however, could find that a general counsel in Wadler’s
position reasonably believed that Bio-Rad was falsifying
books and records as part of its alleged FCPA violations in
China. While the evidence needed to support a
whistleblower’s reasonable belief will necessarily vary with
the circumstances, § 806 generally does not require an
employee to undertake an investigation before reporting his
concerns. See Van Asdale, 577 F.3d at 1002 (“Requiring an
employee to essentially prove the existence of fraud before
suggesting the need for an investigation would hardly be
consistent with Congress’s goal of encouraging
disclosure.”). Such a requirement would undermine the
purpose of SOX, particularly where, as here, a general
counsel reports his concerns to the Board of Directors
because he believes that senior management is complicit in
unlawful conduct. Wadler’s Audit Committee Memo
prompted further investigation, and the Audit Committee’s
Chair testified that he thought Wadler “did a terrific job” by
reporting his concerns. In these circumstances, there is
sufficient evidence to support a SOX verdict under a
properly formulated falsification instruction. 3 We therefore
3
Because the evidence at trial was even stronger with respect to the
other FCPA provisions listed in Instruction 21, we reject Bio-Rad’s
argument that the district court erred by concluding that substantial
evidence supports all three verdicts.
WADLER V. BIO-RAD LABORATORIES 19
do not reverse with instructions to direct entry of judgment
in Bio-Rad’s favor.
Accordingly, we vacate the SOX verdict against the
Company and Schwartz and remand for the district court to
consider whether a new trial is warranted. In light of our
decision below, affirming the Tameny verdict against the
Company and the corresponding verdict for compensatory
damages for past economic loss, the district court should
consider whether, and to what extent, any retrial would result
in an impermissible double recovery for the same injury. See
California v. Chevron Corp., 872 F.2d 1410, 1414 (9th Cir.
1989). The district court may also consider any other
reasons why our opinion might bar or obviate the need for a
SOX retrial, or might limit the issues in such a retrial. If a
new trial is warranted, the district court may consider in the
first instance whether to allow a “fraud against shareholders”
theory, as well as any other arguments consistent with this
opinion. See, e.g., Bator v. Hawaii, 39 F.3d 1021, 1030 n.9
(9th Cir. 1994).
B. The Tameny Claim
We now consider Bio-Rad’s challenge to the Tameny
verdict. Bio-Rad argues that the SOX instructional error
tainted the Tameny verdict because Wadler’s engaging in
protected activity under SOX was a predicate to his success
on the Tameny claim. However, Wadler contends that the
Tameny instruction, Instruction 27, referred to the SOX-
protected activity instructions simply to tell the jury that he
had to prove that he was retaliated against for reporting
conduct that he reasonably believed violated the FCPA
provisions in Instruction 21—not because SOX itself was a
necessary part of his Tameny theory at trial. We agree with
Wadler.
20 WADLER V. BIO-RAD LABORATORIES
Under California law, a Tameny claim must rely on a
“fundamental public policy” that is “tethered to” a
constitutional or statutory provision. Green v. Ralee Eng’g
Co., 960 P.2d 1046, 1048–49 (Cal. 1998). The California
Supreme Court has not decided whether SOX or the relevant
FCPA provisions are tethered to a fundamental public policy
for purposes of Tameny. Because the parties do not dispute
those questions, we will not decide them either. 4 Instead, we
assume without deciding that a plaintiff may state a Tameny
claim by alleging that he was retaliated against (1) for
engaging in SOX-protected activity or (2) for reporting
conduct that he reasonably believed violated the FCPA’s
bribery or books-and-records provisions, regardless of
whether that report is protected by SOX. See id. at 1051(recognizing that Tameny protects reporting “a statutory
violation for the public’s benefit”); id. at 1059 (“[A]n
employee need not prove an actual violation of law; it
suffices if the employer fired him for reporting his
‘reasonably based suspicions’ of illegal activity.”); Collier
v. Superior Court, 279 Cal. Rptr. 453, 458 (Ct. App. 1991)
(recognizing that Tameny protects reporting bribery).
Wadler properly raised a Tameny theory based on a
fundamental public policy tied to the FCPA, which was
independent of his claim under SOX. To begin with, the
Tameny portion of Wadler’s complaint referenced both the
FCPA and SOX. And, like his complaint, the first version
of Wadler’s proposed Tameny instruction referenced both
SOX and the FCPA. Most notably, just before trial, Bio-Rad
proposed a Tameny instruction that did not reference SOX at
4
Indeed, as we explain below, Bio-Rad proposed a jury instruction
in the district court suggesting that it accepted that the relevant FCPA
provisions are tethered to a fundamental public policy for purposes of
Tameny.
WADLER V. BIO-RAD LABORATORIES 21
all: “The plaintiff has the burden of proving . . . [t]hat Bio-
Rad discharged Plaintiff for making a report of what the
Plaintiff in good faith and reasonably believed was an FCPA
violation.” The judge then proposed a Tameny instruction
(Instruction 27) referencing only SOX. However, there is
nothing to suggest that the judge did so in order to remove
an FCPA-based Tameny theory from the case. To the
contrary, all available evidence indicates that the Tameny
instruction referred to protected activity under SOX simply
to present the jury with a single factual theory of Tameny
liability, which the parties understood could be based on a
fundamental public policy tied to either SOX or the FCPA.
As Wadler acknowledged in the district court, and as Bio-
Rad recognizes on appeal, there was “complete overlap
between the type of protected activity involved in [Wadler’s
Tameny] claim and his claim under the Sarbanes-Oxley
Act.” Considering the structure of the final jury instructions
and the record as a whole, we conclude that Wadler
presented the jury with a single factual theory of Tameny
liability, which turned on his report of alleged FCPA
violations and was not dependent on his claim under SOX.
Instruction 27 (the Tameny instruction) was the first in a
chain of cross-references that ultimately made the success of
Wadler’s Tameny claim dependent on whether Bio-Rad
retaliated against him for reporting conduct that he
reasonably believed violated the FCPA. Instruction 27 told
jurors that, to prevail on his Tameny claim, Wadler had to
prove that a motivating reason for his discharge was
engaging in protected activity under SOX. It then referred
jurors to the SOX instructions in order to determine if his
activity was protected.
Notably, jurors were instructed that, to prevail on a
Tameny claim, Wadler had to believe that one of the
22 WADLER V. BIO-RAD LABORATORIES
provisions listed in Instruction 21 (captioned “The Foreign
Corrupt Practices Act”) had been violated. Instruction 21
listed provisions of the FCPA: it is unlawful to (1) bribe a
foreign official; (2) fail to keep accurate and reasonably
detailed books and records; (3) knowingly falsify books and
records; and (4) knowingly circumvent a system of internal
accounting controls. Although this Instruction was
erroneous to the extent that it told jurors that a violation of
the FCPA was a rule or regulation of the SEC for the
purposes of SOX, as discussed supra, there is no dispute that
Instruction 21 correctly described the provisions of the
FCPA. See 15 U.S.C. § 78dd-1(a) (anti-bribery); id.
§ 78m(b)(2)(A) (keeping accurate books and records) &
(b)(5) (“knowingly circumvent . . . a system of internal
accounting controls” and “knowingly falsify any book,
record, or account.”). Thus, on the Tameny claim, jurors
were instructed that Wadler had to show that he had
reasonably believed Bio-Rad violated the provisions of the
FCPA listed in Instruction 21 and that Bio-Rad discharged
him for disclosing that belief.
Assuming, as we must, that the jury correctly followed
the cross-references in the instructions, Westinghouse Elec.
Corp. v. Gen. Circuit Breaker & Elec. Supply Inc., 106 F.3d
894, 901 (9th Cir. 1997), it necessarily found that Bio-Rad
violated Tameny with respect to the alleged FCPA
violations. We have repeatedly held that an instructional
error is harmless when the jury necessarily would have
reached the same verdict under a proper instruction. See
Snyder v. Freight, Constr., Gen. Drivers, Warehousemen &
Helpers, Local No. 287, 175 F.3d 680, 688–89, 688 n.12 (9th
Cir. 1999); United States v. Washington, 106 F.3d 1488,
1490 (9th Cir. 1997) (per curiam); Westinghouse Elec.
Corp., 106 F.3d at 902. In these circumstances, the SOX
instructional error was harmless as to the Tameny verdict
WADLER V. BIO-RAD LABORATORIES 23
because Wadler’s Tameny claim—that Bio-Rad retaliated
against him for reporting conduct that he reasonably
believed violated the FCPA—did not depend on SOX.
V.
In sum, on the SOX claim, we VACATE and REMAND
for the district court to consider whether a new trial is
warranted. On the Tameny claim, we AFFIRM the jury’s
verdict, which is against the Company only. We also
AFFIRM the corresponding award of compensatory and
punitive damages against the Company, except for the
portion of damages attributable to Dodd-Frank’s doubling
provision. As discussed in the memorandum filed this date,
we VACATE the Dodd-Frank verdict with instructions to
the district court to enter judgment in favor of the Company
and Schwartz on that claim.
VACATED in part, AFFIRMED in part, and
REMANDED. The parties shall bear their own costs on
appeal.