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SOX Act Preempts Privileged Communication in Whistleblower Case

Whistleblowers are an important asset in fraud litigation because they provide insider information that would not otherwise be available to regulators, law enforcers, and private attorneys. Because whistleblowers are so important, they are protected under statutes such as the False Claims and Dodd-Frank Act. Sometimes, this protection even supersedes the confidential and privileged communications restrictions that otherwise restrict what a whistleblower can divulge. In fact, when Bio-Rad Laboratories Inc. ("Bio-Rad") tried to block its former general counsel, Sanford Wadler ("Wadler"), from providing evidence, arguing it was privileged information, Chief Magistrate Judge Joseph C. Spero of the Northern District of California found the information admissible under the Sarbanes-Oxley Act ("SOX Act").

Wadler claimed that Bio-Rad illegally retaliated against him for raising concerns about its Foreign Corrupt Practices Act compliance in China. Bio-Rad tried to prevent Wadler from using certain evidence arguing, among other things, that the evidence was attorney-client privileged information and thus protected from disclosure.

The SOX Act requires senior management certify the accuracy of its financial statements, and establishes internal auditing, management controls, and allows for whistleblowers to report on the adequacy of these controls. In other words, the SOX Act was designed to encourage employees to report failures free from retaliation. Even by employees whose information would otherwise be protected from disclosure. Thus, Judge Spero decided the SOX Act, and federal common law, preempts California's rules on attorney-client privilege. Moreover, Judge Spero found that Bio-Rad already waived privilege to much of the evidence by offering communications between Wadler, Bio-Rad, and outside counsel regarding Wadler's FCPA concerns.

In support of Wadler, the U.S. Securities and Exchange Commission filed an amicus brief suggesting the claims should not be tossed over confidentiality concerns and, instead, the Court should use sealing orders and other protective measures. Judge Spero regarded the suggestion as optimal because it would protect the information while allowing Wadler to establish his claims.

The legal team at SFMS has significant experience litigating whistleblower matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier (nlussier@sfmslaw.com) or Chiharu Sekino (csekino@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com

SOURCES

Lowrey, Brandon. "Bio-Rad Can't Block Ex-GC's Evidence In Retaliation Trial." Law360. Last modified December 22, 2016.

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