Can former in-house lawyers breach client privilege in whistleblower retaliation suits?

October 25, 2016

(Reuters) – The life sciences company Bio-Rad filed a fascinating motion last week in its former general counsel’s whistleblower retaliation suit against the company. Bio-Rad’s lawyers at Quinn Emanuel Urquhart & Sullivan and Latham & Watkins contend that the ex-GC, whose case is scheduled for trial in January, cannot disclose any information shielded by attorney-client privilege – which is basically all of the evidence former GC Sanford Wadler is relying on.

If Bio-Rad is right, it will be extraordinarily difficult for in-house lawyers in California to sue former employers for wrongful termination. Or to flip the scenario, employers will have an awful lot of leeway to get rid of whistleblowing lawyers.

The one-time Bio-Rad GC, Sanford Wadler, claims he was fired in 2013 after raising a stink within the company about possible Foreign Corrupt Practices Act (FCPA) violations by Bio-Rad employees in China. Bio-Rad and its outside lawyers from Steptoe & Johnson had already conducted an internal investigation of employees’ improper payments in Vietnam, Thailand and Russia, en route to a $55 million resolution of the U.S. government’s FCPA allegations in 2014. In response to Wadler’s concerns about corruption in China, the company brought Steptoe & Johnson back in for another round of investigation.

Wadler, according to an October 2015 opinion allowing his retaliation case to proceed, was worried that Steptoe had a conflict of interest because the firm didn’t uncover wrongdoing in China in its first engagement. When Steptoe reported to Bio-Rad that it had found no evidence of improper payments by Bio-Rad employees in China, Wadler refused to accept that conclusion. He insisted that he had reviewed documents that showed troubling discrepancies in Bio-Rad’s shipments to China.

Wadler, who had been the company’s general counsel for 25 years, was fired soon after his showdown with Steptoe. Represented by Kerr & Wagstaffe, he sued Bio-Rad and individual board members under Sarbanes-Oxley, Dodd-Frank and the California labor code, claiming that he was fired for blowing the whistle about FCPA violations in China. Bio-Rad has pointed out that its outside counsel from Steptoe and from Davis Polk & Wardwell thoroughly investigated the China allegations and found them meritless, as did the U.S. government, according to Bio-Rad. The company asserts that Wadler’s behavior after he first reported his suspicions about Chinese bribery was so “erratic and abusive” that he left Bio-Rad with no choice but to dump him.

U.S. Magistrate Judge Joseph Spero of San Francisco, who is overseeing the case, managed to delay the issue of whether Wadler can breach attorney client privilege by entering an order last November that permitted the two sides to produce discovery without Bio-Rad waiving its right to assert the privilege.

But Bio-Rad’s motion to exclude privileged evidence – including anticipated testimony from the outside lawyers who investigated Wadler’s claims of Chinese corruption as well as evidence from Wadler himself – said the day of reckoning on the privilege has come now that the case is headed for trial with “a witness list thick with lawyers without whom this story cannot be accurately told, and the need for both plaintiff and defendants to rely on copious confidential information.” According to the company, it may simply be impossible for Judge Spero to allow the case to be tried, given Wadler’s “ethical and statutory duties as a lawyer in California, and Bio-Rad’s right to both preserve the privileged and confidential status of its documents and information and fully defend itself in the litigation.”

Wadler, of course, is not the first in-house lawyer to sue a former employer for whistleblower retaliation. In fact, so many corporate lawyers have brought whistleblower suits that the employment firm Littler Mendelsohn did a whole study just on the cases. According to Littler, the issue of attorney client privilege in lawyers’ wrongful termination suits arises less often than you might think because the American Bar Association’s Model Rules of Professional Conduct allow in-house lawyers to disclose client confidences in order to establish a claim against their former employer. So in states that have adopted the ABA model rule, former in-house lawyers are not ethically barred from breaching client privilege (though, as the Littler study notes, “there is a distinction between the ethical rules and the substantive law regarding use of attorney-client and work-product privileged communications in litigation”).

California, where Bio-Rad is based and where Wadler was employed, has a much stricter restriction on client confidences. California lawyers are barred from breaching client privilege unless the attorney “reasonably believes the disclosure is necessary to prevent a criminal act that the attorney reasonably believes is likely to result in death of, or substantial bodily harm to, an individual.” As Bio-Rad explains in its motion to exclude privileged evidence in the Wadler case, that is a very high bar.

No reported decision, according to Bio-Rad’s lawyers, specifically addresses how to try a case that requires the disclosure of privileged evidence. The leading California Supreme Court decision, 1994’s General Dynamics v. Superior Court of San Bernardino, establishes an in-house lawyer’s right to sue for wrongful termination, but exhorts lawyers and judges to do whatever they can to preserve client confidentiality in the process. The “array of ad hoc measures” the state justices proposed in General Dynamics includes “the use of sealing and protective orders, limited admissibility of evidence, orders restricting the use of testimony in successive proceedings and, where appropriate, in camera proceedings.”

Bio-Rad, interestingly, did not ask in its motion for specific information to be excluded nor even for Wadler’s lawyers to specify the confidential materials and testimony they plan to elicit. It’s also interesting that the company waited until discovery in the case is pretty much concluded to assert attorney client privilege. Reading between the lines, the exclusion motion may have been a strategy suggested by Quinn Emanuel, which entered the litigation for Bio-Rad in September. Latham has been representing the company from the beginning of the case. I emailed John Potter of Quinn and Linda Inscoe of Latham but neither got back to me.

I’m guessing that Wadler’s lawyers from Kerr & Wagstaffe will argue that Bio-Rad not only waited too long to claim privilege but also that the company waived privilege by disclosing confidential information in its own filings in this case. Bio-Rad put expert witness reports on the merits of Wadler’s claims into the public record, for instance, when it moved to strike one of its former GC’s experts. Judge Spero may have to decide the extent to which Bio-Rad’s defense has compromised its privilege claim.

Wadler’s response to Bio-Rad’s exclusion motion is due in November.

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