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CALIFORNIA CORPORATE & SECURITIES LAW

Does Whistleblower Protection Extend To Disclosures To Your Mom Or The Press?

California and federal law establish ample protections for whistleblowers.  These protections can be found in numerous laws, including the Sarbanes-Oxley Act, the Dodd-Frank Act, and Section 1102.5 of the California Labor Code.  Whistleblowing typically involves the disclosure of someone else’s confidential information and that disclosure may constitute the breach of a confidentiality agreement.  Thus, a whistleblower may find himself or herself on the receiving end of a breach of contract suit.  Such is the case in Erhart v. BOFI Holding, Inc., 2017 U.S. Dist. LEXIS 20959 (S.D. Cal. Feb. 14, 2017).

The plaintiff in Erhart had worked as an internal auditor at a bank.  After discovering allegedly wrongful conduct, the plaintiff reported it to the government and then filed a lawsuit alleging unlawful retaliation.  The bank then countersued.  In ruling on the bank’s motion for summary adjudication of the plaintiff’s affirmative whistleblower protection defenses, Judge Cynthia Ann Bashant weighed the government’s “significant interest” in enforcing the bank’s confidentiality agreement with the plaintiff against the “strong public policy in favor of whistleblowing and whistleblower protections.  Judge Bashant did not weigh these interests in the abstract.  Rather, she considered the whistleblower’s communications in the following contexts:

Communications to the government.  Judge Bashant found that the public interest in favor of whistleblower protection outweighs the interest in enforcement of the confidentiality agreement.

Appropriation of the bank’s files.  Judge Bashant found that a public policy exception to enforcement of confidentiality agreements exists because whistleblowers “often need documentary evidence to substantiate their allegations” and allowing appropriation of documents “mitigates the possibility that evidence will be destroyed”.   Accordingly, she found that “it is possible that a public policy exception may cover Erhart’s conduct, and there is a genuine issue for trial as to whether Erhart’s removal of documents was ‘reasonably necessary’ to support the allegations of wrongdoing”.

Communications to Mom and use of live-in girlfriend’s computer.  Judge Bashant also concluded that this was a question best left for trial – “If the jury concludes Erhart’s conduct was to protect relevant information from what he reasonably perceived was a risk of destruction, then the public policy in favor of whistleblowing clearly outweighs the interest in enforcement . . .”.

Disclosure to the press.  The day after the plaintiff filed suit, The New York Times published a piece entitled Ex-Auditor Sues Bank of Internet.  A whistleblower may disclose confidential information for a number of different reasons.  He or she may be motivated, for example, by a desire for fame or a wish to hurt the subject or source of the information.  A whistleblower may also try to use the press to put pressure on the government to take action.  Judge Bashant found that none of the whistleblower provisions protects disclosures to the press and that the plaintiff would not be able to raise whistleblower defenses to leaks to the media.  However, she declined to grant the bank summary adjudication because she found that the bank had not established that it was undisputed that the plaintiff or his counsel provided confidential information to the press.

Disclosure in the complaint.  A plaintiff may view disclosure of confidential information as necessary to plead properly his or her retaliation claim.  A defendant may believe that the confidential information was included so as to inflict maximum damage.  In Erhart, Judge Bashant found that the existence of factual issues militated against granting summary adjudication.

 

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