Ninth Circuit Holds That Acts of Congress Do Not Constitute Rules or Regulations of the SEC for Purposes of Sarbanes-Oxley Whistleblower Claims

Skadden, Arps, Slate, Meagher & Flom LLP

Wadler v. Bio-Rad Labs., Inc., No. 17-16193 (9th Cir. Feb. 26, 2019)

The Ninth Circuit partially vacated a jury verdict against a medical research company in a whistleblower retaliation suit, holding that acts of Congress do not constitute “rule[s] or regulation[s] of the Securities and Exchange Commission” for purposes of determining whether an employee engaged in “protected activity” under the whistleblower protection provision of the Sarbanes-Oxley Act (SOX).

Section 806 of SOX provides that covered corporations may not retaliate against an employee who reports violations of various specified statutes as well as “any rule or regulation of the [SEC].” In this case, the jury found that Bio-Rad Laboratories, Inc. and its CEO violated SOX, the Dodd-Frank Act and California public policy by terminating the employment of the company’s former general counsel in retaliation for his internal report stating that he believed the company had violated the Foreign Corrupt Practices Act (FCPA) in China. On appeal, the defendants argued that the district court erred by instructing the jury that, for purposes of Section 806, rules or regulations of the SEC include the FCPA’s books-and-records and anti-bribery provisions.

The Ninth Circuit agreed. Interpreting the plain language of the statute, the court held that the text of Section 806 “is clear: an FCPA provision is not a ‘rule or regulation of the [SEC].’” The court explained that the “more natural” reading of the words “rule” and “regulation,” together and in context, is that they “refer only to administrative rules or regulations,” not statutes like the FCPA. The Ninth Circuit further held that the district court’s instructional error was not harmless and therefore remanded for the district court to determine whether a new trial was warranted.

This summary can be found in the June 2019 issue of Inside the Courts.