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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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CHARLES MATTHEW ERHART, Plaintiff,
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Case No. 15-cv-02287-BAS-NLS consolidated with 15-cv-02353-BAS-NLS ORDER GRANTING IN PART AND DENYING IN PART BOFI FEDERAL BANK’S MOTION FOR SUMMARY ADJUDICATION OF CHARLES MATTHEW ERHART’S TWELFTH THROUGH TWENTY-FOURTH AFFIRMATIVE DEFENSES
v. BOFI HOLDING, INC.,
17
Defendant.
18 19 20
[ECF No. 45 (in 15-cv-02353)] 21 22
BOFI FEDERAL BANK, Plaintiff,
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v. CHARLES MATTHEW ERHART, Defendant.
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I.
INTRODUCTION
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These consolidated actions revolve around whistleblower protections under
3
federal and state law. BofI Federal Bank employed Charles Matthew Erhart as an
4
internal auditor at its headquarters in San Diego, California. After Erhart discovered
5
conduct he believed to be wrongful, he reported it to the United States Department
6
of the Treasury’s Office of the Comptroller of the Currency—BofI’s principal
7
regulator. He later filed an action against BofI under federal and state law
8
whistleblower protection provisions alleging BofI retaliated against him for reporting
9
unlawful conduct to the government.
10
The next day, The New York Times published an article titled Ex-Auditor Sues
11
Bank of Internet. The share price of BofI’s publicly-traded holding company
12
plummeted thirty percent. A few days later, BofI brought a countersuit against Erhart
13
alleging he violated California state law and the Computer Fraud and Abuse Act by
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publishing BofI’s confidential information and deleting hundreds of files from his
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company-issued laptop. The Court consolidated BofI’s countersuit with Erhart's
16
whistleblower retaliation action.
17
BofI now moves in its countersuit for summary adjudication of thirteen of
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Erhart’s affirmative defenses, all of which relate to whistleblower protections. (ECF
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No. 45.)1 Erhart opposes. (ECF No. 67.) After hearing oral argument, the Court
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GRANTS IN PART and DENIES IN PART BofI’s motion for the following
21
reasons.
22 23
II.
BACKGROUND
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A.
25
BofI is a financial services company headquartered in San Diego, California.
26
(Tolla Decl. ¶ 3, ECF No. 7-4.) On September 23, 2013, Erhart started working for
27 28
Confidentiality Clause
The parties briefed BofI’s motion before the Court consolidated BofI’s countersuit with Erhart’s whistleblower retaliation action. Therefore, unless otherwise noted, the Court’s Electronic Case Filing citations are to documents filed in BofI’s countersuit—Case No. 15-cv-02353. –2– 15cv2287 1
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BofI as an internal auditor. (Durrans Decl. ¶ 5, ECF No. 7-5; Erhart Decl. ¶ 5, ECF
2
No. 67-5.) As an internal auditor, Erhart had access to information BofI treated as
3
proprietary and confidential. (Tolla Decl. ¶ 6, ECF No. 7-4.) This information
4
included consumer banking information, nonpublic communications between BofI
5
and its regulators, communications between BofI’s attorneys and its agents, internal
6
audit findings, and BofI’s employees’ personal information. (Id.)
7
To safeguard this information, BofI required Erhart to execute an Employee
8
Confidentiality, Non-Disclosure, and Non-Recruitment Agreement (“Confidentiality
9
Agreement”) as a condition of his employment. (Joint Statement of Undisputed Facts
10
(“JSUF”) ¶ 15; Confidentiality Agreement, BofI’s App. Exs., Ex. 6, ECF No. 7-14.)
11
This agreement forbids the unauthorized disclosure of BofI’s “Trade Secrets” and
12
“Confidential Information.” (Confidentiality Agreement § 2.) The Confidentiality
13
Agreement defines “Trade Secrets” by incorporating California law,2 whereas
14
“Confidential Information” is defined as information that is “proprietary and
15
confidential in nature.” (Id.) For these two types of information, Erhart agreed that:
16
[A]t any time during [his] term of employment or following the termination of [his] employment with BofI, whether voluntary or involuntary, [he] shall not, except as required in the conduct of BofI’s business or as authorized in writing by BofI, use, publish or disclose any of BofI’s Trade Secrets and/or Confidential Information in any manner whatsoever.
17 18 19 20
(Id. § 2.E.)
21
Further, Erhart agreed that if his employment with BofI was terminated for any
22
reason, he would promptly:
23
//
24
//
25 California, which has adopted the Uniform Trade Secrets Act, defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Cal. Civ. Code § 3426.1(d). –3– 15cv2287 2
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Inform BofI of and deliver to BofI all records, files, electronic data . . . and the like in [his] possession, custody or control that contain any of BofI’s Trade Secrets or Confidential Information which [Erhart] prepared, used, or came in contact with while employed by BofI . . . . (Id. § 7.A.)
5
Erhart’s Use of BofI’s Information
6
B.
7
In the course of performing his work as an internal auditor, Erhart claims he
8
repeatedly encountered conduct he believed to be wrongful. (See generally Erhart
9
Decl. ¶¶ 9–75, ECF No. 67-5.) One instance of believed wrongdoing involved a
10
subpoena BofI received from the Securities and Exchange Commission (“SEC”). (Id.
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¶ 26.) Erhart believed the bank failed to disclose information to the SEC when it
12
responded to the subpoena. (Id. ¶ 27.) On January 14, 2015, Erhart contacted the SEC
13
regarding the subpoena. (JSUF ¶ 1.) He did so “to be sure it was aware of the
14
situation.” (Erhart Decl. ¶ 29, ECF No. 67-5.) Further, on February 20, 2015, Erhart
15
contacted the SEC regarding a BofI loan customer. (JSUF ¶ 2; see also Erhart E-mail,
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Towill Reply Decl. ¶ 2, Ex. A, ECF No. 72-2.) Erhart contacted the SEC because he
17
believed the “suspicious” loan customer was operating as an unregistered investment
18
advisor. (Erhart Decl. ¶ 31, ECF No. 67-5.) In doing so, he disclosed confidential
19
information about the customer to the SEC. (See Erhart E-mail, Towill Reply Decl.
20
¶ 2, Ex. A, ECF No. 72-2.)
21
Further, during his employment as an internal auditor, “Erhart used his
22
personal g-mail account to e-mail files containing confidential BofI information that
23
was stored on BofI electronic media to his personal g-mail address.” (JSUF ¶ 3.) He
24
also “printed copies of BofI documents, including customer bank account
25
information and internal audit reports.” (Id. ¶ 4.) In addition, Erhart “downloaded to
26
his personal computer BofI files, including [supervisory communications from
27
BofI’s principal regulator], audit communications, audit reports and backup
28
information, law enforcement and SEC inquiries regarding a BofI customer, account –4–
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information, wire transfer details, account lists, and portions of loan files.” (Id. ¶ 5.)
2
Approximately sixteen months after he joined BofI, Erhart believed his job
3
was in jeopardy. (Erhart Decl. ¶ 47, ECF No. 67-5.) In a recent performance
4
evaluation, Erhart’s rating had been downgraded, with his bonus adversely affected.
5
(Id. ¶ 25.) BofI identified Erhart’s practice of preserving audit findings in writing as
6
a performance issue. (Id.) Erhart states BofI had repeatedly directed internal audit
7
staff to not create written evidence of believed non-compliance and illegal conduct.
8
(Id. ¶¶ 15, 24.) One of BofI’s senior vice presidents walked by Erhart’s workstation
9
and stated, in the presence of others, “If [Erhart] continues to turn over rocks,
10
eventually he is going to find a snake and he’s going to get bit.” (Id. ¶ 47.)
11
Then, on March 5, 2015, BofI’s Vice President-Internal Audit—Erhart’s
12
supervisor—resigned abruptly. (Ball Decl. ¶ 8, ECF No. 22; Erhart Decl. ¶ 51, ECF
13
No. 67-5.) The next day, Erhart “felt very unwell” and “called off sick.” (Erhart Decl.
14
¶ 53, ECF No. 67-5.) Erhart requested, and was granted by BofI, an unpaid leave of
15
absence pursuant to the Family Medical Leave Act and the California Family Rights
16
Act beginning on March 6, 2015. (Durrans Decl. ¶ 15, ECF No. 7-5.)
17
At this time, Erhart “became extremely concerned that the Bank would try to
18
destroy the records of wrongdoing that [he] had placed on the Bank’s computers.”
19
(Erhart Decl. ¶ 55, ECF No. 67-5.) On March 6, 2015, Erhart sent an e-mail to his
20
mother that included “a spreadsheet that contained BofI customer social security
21
numbers.” (JSUF ¶ 6.) He states he sent the information to her for safekeeping.
22
(Erhart Decl. ¶ 77, ECF No. 67-5.) Erhart’s mother briefly accessed the e-mail, but
23
she did not forward it or otherwise share it with anyone. (Pamela Erhart Dep. 36:8–
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24, 58:2–15, ECF No. 67-7.)
25
Erhart also contacted the Denver Regional Office of the United States
26
Department of the Treasury’s Office of the Comptroller of the Currency (“OCC”)—
27
BofI Federal Bank’s principal regulator. (Erhart Decl. ¶ 55, ECF No. 67-5.) After
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Erhart spoke with the OCC by phone, (id. ¶ 65), he later “provided documentary –5–
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evidence to the OCC that he claims supports his allegations of wrongdoing by BofI,”
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(JSUF ¶ 7). Further, on March 12, 2015, “Erhart downloaded to a personal USB drive
3
BofI files, including OCC supervisory information, audit findings, draft audit
4
committee meeting minutes, wire transfer details, and bank account information.”
5
(Id. ¶ 8.) Erhart also used his live-in girlfriend’s computer to “access some BofI
6
documents.” (Erhart Decl. ¶ 3, ECF No. 67-3.) He used her computer because it had
7
software that he did not have installed on his computer. (Id.) Erhart’s girlfriend never
8
viewed any of the BofI information placed on her computer, and she did not forward
9
the information to anyone. (Cornell Decl. ¶ 2, ECF No. 67-2.)
10 11
C.
Procedural History
12
On April 14, 2015, Erhart filed a whistleblower protection complaint with the
13
Occupational Safety and Health Administration. (JSUF ¶ 9.) Several months later,
14
Erhart commenced his whistleblower retaliation action in this Court. (ECF No. 1 in
15
Case No. 15-cv-02287.) In his Complaint, Erhart alleges BofI retaliated against him
16
for reporting conduct he believed to be wrongful to the government. (Id.) Several
17
days later, BofI filed its countersuit against Erhart. (ECF No. 1.) In its First Amended
18
Complaint, BofI brings claims against Erhart for: (1) breach of contract; (2)
19
conversion; (3) breach of the duty of loyalty; (4) negligence; (5) fraud; (6) violation
20
of California Penal Code Section 502; (7) violation of the Computer Fraud and Abuse
21
Act, 18 U.S.C. § 1030(a)(5); and (8) unfair business practices in violation of
22
California Business & Professions Code Section 17220. (ECF No. 12.) On January
23
4, 2016, Erhart answered BofI’s amended complaint, raising fifty-two affirmative
24
defenses. (ECF No. 23.) The present motion concerns thirteen of these fifty-two
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affirmative defenses. (ECF No. 45.)
26
//
27
//
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// –6–
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III.
LEGAL STANDARD
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“A party may move for summary judgment, identifying each claim or
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defense—or the part of each claim or defense—on which summary judgment is
4
sought.” Fed. R. Civ. P. 56(a). Summary judgment is appropriate where the moving
5
party demonstrates the absence of a genuine issue of material fact and entitlement to
6
judgment as a matter of law. Id.; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322
7
(1986). A fact is material when, under the governing substantive law, it could affect
8
the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
9
A dispute about a material fact is genuine if “the evidence is such that a reasonable
10
jury could return a verdict for the nonmoving party.” Id.
11
A party seeking summary judgment always bears the initial burden of
12
establishing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323.
13
The moving party can satisfy this burden in two ways: (1) by presenting evidence
14
that negates an essential element of the nonmoving party’s case; or (2) by
15
demonstrating that the nonmoving party failed to make a showing sufficient to
16
establish an element essential to that party’s case on which that party will bear the
17
burden of proof at trial. Id. at 322–23. “Disputes over irrelevant or unnecessary facts
18
will not preclude a grant of summary judgment.” T.W. Elec. Serv., Inc. v. Pac. Elec.
19
Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987).
20
If the moving party meets this initial burden, the nonmoving party cannot
21
defeat summary judgment merely by demonstrating “that there is some metaphysical
22
doubt as to the material facts.” Matsushita Electric Indus. Co. v. Zenith Radio Corp.,
23
475 U.S. 574, 586 (1986); see also Triton Energy Corp. v. Square D Co., 68 F.3d
24
1216, 1221 (9th Cir. 1995) (citing Anderson, 477 U.S. at 252) (“The mere existence
25
of a scintilla of evidence in support of the nonmoving party’s position is not
26
sufficient.”). Rather, the nonmoving party must “go beyond the pleadings and by . .
27
. the ‘depositions, answers to interrogatories, and admissions on file,’ designate
28
‘specific facts showing that there is a genuine issue for trial.’” Celotex, 477 U.S. at –7–
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324 (quoting former Fed. R. Civ. P. 56(e)).
2
When making this determination, the court must view all inferences drawn
3
from the underlying facts in the light most favorable to the nonmoving party.
4
Matsushita, 475 U.S. at 587. “Credibility determinations, the weighing of the
5
evidence, and the drawing of legitimate inferences from the facts are jury functions,
6
not those of a judge, [when] he [or she] is ruling on a motion for summary judgment.”
7
Anderson, 477 U.S. at 255.
8 9
IV.
ANALYSIS
10
BofI seeks to extinguish thirteen of Erhart’s affirmative defenses—all of
11
which relate to whistleblower protections. (Mot. 1:1–13, ECF No. 45-1.) These
12
defenses invoke a variety of statutes, including the Sarbanes–Oxley Act of 2002, the
13
Fair Credit Reporting Act, and California Labor Code Section 1102.5. (Answer ¶¶
14
111–123, ECF No. 23.) For each defense, Erhart alleges he cannot be held liable on
15
BofI’s claims because he was engaged in protected activity as a whistleblower under
16
the identified statute. (Id.) Several of these defenses, however, are based on statutes
17
that do not contain whistleblower protections. Further, two of Erhart’s defenses are
18
redundant of his other defenses. The Court addresses these sets of defenses first. The
19
Court then turns to Erhart’s remaining whistleblower defenses.
20 21
A.
Nonexistent Defenses
22
Erhart’s Fourteenth, Fifteenth, Twenty-First, and Twenty-Second Affirmative
23
Defenses allege his actions “constituted protected activity as a whistleblower” under
24
the following authority: (1) laws and regulations administered by the OCC, (2) laws
25
and regulations administered by the Internal Revenue Service, (3) the Gramm–
26
Leach–Billey Act, and (4) the Fair Credit Reporting Act. (Answer ¶¶ 113–114, 120–
27
121.) BofI argues these defenses fail as a matter of law because the identified
28
authorities do not contain express whistleblower protections. (Mot. 19:5–21:13.) At –8–
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oral argument, Erhart agreed. Accordingly, the Court will grant BofI’s request for
2
summary adjudication of Erhart’s Fourteenth, Fifteenth, Twenty-First, and Twenty-
3
Second Affirmative Defenses.
4 5
B.
Redundant Defenses
6
Erhart’s Thirteenth Affirmative Defense alleges his conduct “constituted
7
protected activity as a whistleblower under the Dodd–Frank Act.” (Answer ¶ 112.)
8
The Dodd–Frank Wall Street Reform and Consumer Protection Act created a
9
whistleblower protection and reward program that the SEC is responsible for
10
administering. 15 U.S.C. §78u-6. A separate defense, Erhart’s Eighteenth
11
Affirmative Defense, seeks protection under the same authority by referencing laws
12
and regulations administered by the SEC. (Answer ¶ 117.) Thus, Erhart’s Eighteenth
13
Affirmative Defense is redundant.
14
In addition, in his Sixteenth Affirmative Defense, Erhart alleges his conduct
15
“constituted protected activity as a whistleblower” under laws and regulations
16
administered by the Consumer Financial Protection Bureau. (Answer ¶ 115.) His
17
Seventeenth Affirmative Defense invokes the same authority. (Id. ¶ 116.) Therefore,
18
Erhart’s Seventeenth Affirmative Defense is also redundant.
19
BofI recognizes these defenses are redundant, but it does not seek to dispose
20
of them on that basis. (See Mot. 14:24–27, 15:25–27.) That said, this Court may “act
21
on its own” to “strike from a pleading . . . any redundant . . . matter.” See Fed. R.
22
Civ. P. 12(f)(1). Because Erhart’s Seventeenth and Eighteenth Affirmative Defenses
23
are redundant, the Court concludes it is appropriate to strike them from his Answer.
24
See id.
25
//
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//
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//
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// –9–
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C.
Whistleblower Protection Defenses
2
The remaining defenses BofI challenges share a common characteristic: each
3
defense invokes a law that contains or incorporates protections for whistleblowers.3
4 5 6 7 8
The Court construes Erhart’s defenses as invoking the following laws and anti-retaliation provisions: 3
Defense No.
12
Sarbanes–Oxley Act of 2002
13
Dodd–Frank Wall Street Reform and Consumer Protection Act
9 10 11
Identified Law
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Anti-Retaliation Provision
General Description
Prohibits retaliation against a covered person who reports conduct reasonably 18 U.S.C. § 1514A believed to be, inter alia, mail fraud, wire fraud, bank fraud, or securities fraud Prohibits retaliation against a covered person who reports conduct reasonably 15 U.S.C. § 78u-6 believed to be a possible securities law violation or makes disclosures under Sarbanes–Oxley’s provision
13 14 15
16
16
Consumer Financial Protection Bureau Administered Laws and Regulations (Consumer Financial Protection Act)
12 U.S.C. § 5567
Prohibits retaliation against a covered person who reports violations of laws subject to the Consumer Financial Protection Bureau’s jurisdiction or violations of its regulations
31 U.S.C. § 5328
Prohibits retaliation against a covered person who reports violations of bank recordkeeping and reporting requirements and anti-money laundering provisions
12 U.S.C. § 1831j
Prohibits retaliation against a covered person who reports a possible violation of law, “gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety”
17 18
19
Bank Secrecy Act
19 20 21 22
20
23 24 25
Federal Deposit Insurance Corporation Administered Laws and Regulations (Financial Institutions Reform, Recovery, and Enforcement Act)
23
California Labor Code Section 1102.5
Cal. Labor Code § 1102.5(b)
24
Common Law
Not Applicable
26 27 28 – 10 –
Prohibits retaliation against a covered person who reports violations of state or federal law May prohibit imposing tort or contract liability on a whistleblower where doing so would be against public policy 15cv2287
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BofI argues all of these defenses fail because at least some of Erhart’s conduct
2
cannot be considered protected whistleblower activity as a matter of law.
3
Whether Erhart’s defenses fail necessarily depends on the claims they are
4
being asserted against. Although BofI asserts a variety of tort, contract, and statutory
5
claims against him, Erhart mainly focuses on demonstrating that his defenses may
6
defeat BofI’s first claim for breach of contract in his opposition. (See Opp’n 1:18–
7
27, 4:2–5:8, 8:17–22.) The Court will primarily analyze Erhart’s defenses in the
8
context of this claim because it provides a framework for addressing the public
9
policy issues raised by Erhart.
10 11
1.
Breach of the Confidentiality Agreement
12
BofI’s first claim for breach of contract is based on the Confidentiality
13
Agreement executed by Erhart at the start of his employment. (First Am. Compl. ¶¶
14
47–53.) It is undisputed that California state law governs this agreement.
15
(Confidentiality Agreement § 12.) To prevail on a claim for breach of contract under
16
California law, “the plaintiff must prove (1) the contract, (2) the plaintiff’s
17
performance of the contract or excuse for nonperformance, (3) the defendant’s
18
breach, and (4) the resulting damage to the plaintiff.” Richman v. Hartley, 224 Cal.
19
App. 4th 1182, 1186 (2014).
20
Erhart’s whistleblower defenses allege Erhart cannot be held liable on BofI’s
21
claim because the law protects Erhart’s conduct. Stated differently, these defenses
22
allege enforcing the Confidentiality Agreement in these circumstances would be
23
illegal. If “the illegality of a contract does not appear from the face of the complaint
24
it becomes a matter of affirmative defense . . . . And in such case the burden of proof
25
is on the defendant.” Fellom v. Adams, 274 Cal. App. 2d 855, 863 (1969) (quoting
26
Eaton v. Brock, 124 Cal. App. 2d 10, 13 (1954)); see also Sweeney v. KANS, Inc.,
27
247 Cal. App. 2d 475, 480 (1966) (“Defendant’s contention of illegality is, of course,
28
an affirmative defense. The burden of establishing this defense was, therefore, on – 11 –
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the defendant.”). Here, the illegality of the Confidentiality Agreement does not
2
appear on the face of BofI’s First Amended Complaint. (See First Am. Compl. ¶¶ 7–
3
46.) For instance, BofI does not allege that it is seeking to enforce the agreement
4
despite that Erhart was using BofI’s confidential information to support his reports
5
of believed wrongdoing to the government. (See id.) Thus, the Court construes
6
Erhart’s whistleblower defenses as each raising a variation of the affirmative defense
7
of illegality—the position that enforcing the Confidentiality Agreement would be
8
against public policy.
9
“The law has a long history of recognizing the general rule that certain
10
contracts, though properly entered into in all other respects, will not be enforced, or
11
at least will not be enforced fully, if found to be contrary to public policy.” Kashani
12
v. Tsann Kuen China Enter. Co., 118 Cal. App. 4th 531, 540 (2004) (alteration
13
omitted) (quoting 15-79 Corbin on Contracts § 79.1 (2003)); see also Lee On v.
14
Long, 37 Cal. 2d 499, 502 (1951) (“No principle of law is better settled than that a
15
party to an illegal contract cannot come into a court of law and ask to have his illegal
16
objects carried out[.]”). To determine whether a contract is unenforceable based on
17
public policy, California courts “essentially engage in a weighing process, balancing
18
the interests of enforcing the contract with those interests against enforcement.”
19
Rosen v. State Farm Gen. Ins. Co., 30 Cal. 4th 1070, 1082 (2003). Accordingly, “the
20
question of whether a contract provision is illegal or contrary to public policy ‘is a
21
question of law to be determined from the circumstances of each particular case.’”
22
Brisbane Lodging, L.P. v. Webcor Builders, Inc., 216 Cal. App. 4th 1249, 1256–57
23
(2013) (quoting Jackson v. Rogers & Wells, 210 Cal. App. 3d 336, 349–350 (1989)).
24
However, California courts have cautioned that the “power to void a contract should
25
be exercised only where the case is free from doubt.” Kaufman v. Goldman, 195 Cal.
26
App. 4th 734, 746 (2011) (citing City of Santa Barbara v. Superior Court, 41 Cal.
27
4th 747, 777 n.53 (2007)).
28
// – 12 –
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In making this determination under California law, courts have often relied on
2
Section 178 of the Restatement (Second) of Contracts. See, e.g., Kashani, 118 Cal.
3
App. 4th at 551; Cariveau v. Halferty, 83 Cal. App. 4th 126, 131–32 (2000); Bovard
4
v. Am. Horse Enters., Inc., 201 Cal. App. 3d 832, 840 (1988). This section states: “A
5
promise or other term of an agreement is unenforceable on grounds of public policy
6
if legislation provides that it is unenforceable or the interest in its enforcement is
7
clearly outweighed in the circumstances by a public policy against the enforcement
8
of such terms.” Restatement (Second) of Contracts § 178 (1981). The Restatement
9
lists a series of factors to be considered when making this determination, including
10
“any special public interest in the enforcement of the particular term” and the
11
strength of the public policy against enforcement of the term “as manifested by
12
legislation or judicial decisions.” Id.
13
The public policy advanced to prevent the enforcement of a contract term may
14
be based on a variety of sources. E.g., Kashani, 118 Cal. App. 4th at 542 (“For
15
purposes of illegality, the ‘law’ is a broad term.”). It may be based on the “policy
16
expressed in a statute” or “may be implied from the language of such statute[.]”
17
Cariveau, 83 Cal. App. 4th at 132. A public policy may also “be enunciated in
18
administrative regulations that serve the statutory objective.” Green v. Ralee Eng’g
19
Co., 19 Cal. 4th 66, 80 (1998). In addition, “California law includes federal law.”
20
Kashani, 118 Cal. App. 4th at 543 (citing People v. Sischo, 23 Cal. 2d 478, 491
21
(1943)). Thus, California courts have refused to enforce contract terms in light of
22
public policies that are based on federal statutes, regulations, and rules. See
23
generally, Green, 19 Cal. 4th 66 (Federal Aviation Administration regulations);
24
Cariveau, 83 Cal. App. 4th 126 (federal securities law and rules); Kashani, 118 Cal.
25
App. 4th 531 (executive orders promulgated under the International Emergency
26
Economy Powers Act, 50 U.S.C. § 1701).
27
//
28
// – 13 –
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1
For example, a settlement agreement’s confidentiality clause that prohibits a
2
securities customer “from discussing the selling agent’s misconduct with regulatory
3
authorities” is unenforceable on grounds of federal public policy. Cariveau, 83 Cal.
4
App. 4th at 128. In Cariveau, a securities agent subject to the rules of the National
5
Association of Securities Dealers, Inc. (“NASD”) recommended inappropriate
6
investments to an investor. Id. at 128. As a condition to returning the investor’s
7
money, the agent required the investor to enter into a settlement agreement providing
8
that “the underlying events resulting in the negotiation of this Agreement shall
9
remain . . . confidential . . . and shall not be disclosed . . . to any public or private
10
person or entity, or to any administrative, law enforcement or regulatory agency.”
11
Id. at 129. The investor later wrote a letter to the agent’s employer, which led to the
12
agent’s termination, an NASD investigation, and NASD sanctions against the agent.
13
Id. at 130. The agent responded by suing the investor for breach of contract based
14
on the investor’s disclosure of information in violation of the settlement agreement’s
15
confidentiality clause. Id.
16
“The trial court refused to enforce the clause on grounds of public policy,”
17
and the California Court of Appeal affirmed. Cariveau, 83 Cal. App. 4th at 128. In
18
doing so, the court looked to the former NASD Rules of Fair Practice, which “are
19
derived from, and carry out the purposes of, the Securities Exchange Act of 1934.”
20
Id. at 133. These rules “require[d] reporting outside business activities to a member’s
21
employer so that the employer can maintain effective oversight of the activities. The
22
rules also encourage[d] aggrieved investors to report wrongdoing so that the
23
integrity of the system is preserved.” Id. Because these rules served statutory
24
objectives, they were “a valid source of public policy.” Id. at 134. In weighing the
25
interest in enforcing the settlement agreement against the public policy, the court
26
noted “[t]he only interest appellant identifies in support of the contract term is the
27
general policy in favor of promoting the settlement of disputes.” Id. at 136.
28
Balancing against this interest was “the policy of maintaining an honest and fair – 14 –
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1
national marketplace in securities,” which “has been declared as a ‘national public
2
interest’ in the Securities Exchange Act of 1934.” Id. (citing 15 U.S.C. § 78b). After
3
applying the factors in Section 178 of the Restatement (Second) of Contracts and
4
reasoning that the “inclusion of a restrictive confidentiality clause in the [Settlement]
5
Agreement . . . is an instance of misconduct in itself,” the court concluded the
6
agreement was unenforceable on grounds of public policy. Id. at 137–38.
7
Here, as mentioned above, Erhart argues his affirmative defenses should
8
survive summary adjudication because the Confidentiality Agreement is
9
unenforceable on public policy grounds. (Opp’n 4:1–5:28.) Accordingly, the Court
10
considers the interest in enforcing the Confidentiality Agreement, the public policy
11
against enforcement, and whether the public policy clearly outweighs the interest in
12
favor of enforcement.
13
a.
14
Interest in the Enforcement of the Confidentiality Agreement
15 16
The Court starts by weighing “the interest in the enforcement” of the
17
Confidentiality Agreement. See Restatement (Second) of Contracts § 178 (1981).
18
The Court finds there is a strong interest in enforcing the Confidentiality Agreement
19
because it serves several legitimate interests. First, enforcing the Confidentiality
20
Agreement supports the “longstanding established public policy in California which
21
respects and promotes the freedom of private parties to contract.” Brisbane Lodging,
22
216 Cal. App. 4th at 1262; see also Carma Developers (Cal.), Inc. v. Marathon Dev.
23
Cal., Inc., 2 Cal. 4th 342, 363 (1992) (citing In re Garcelon’s Estate, 104 Cal. 570,
24
591 (1894)) (“[I]f there is one thing which more than another public policy requires,
25
it is that [persons] of full age and competent understanding shall have the utmost
26
liberty of contract, and that their contracts when entered into freely and voluntarily
27
shall be held sacred, and shall be enforced by courts of justice.”).
28
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1
Second, enforcing the Confidentiality Agreement furthers the “significant
2
government interests” promoted by legal protection of trade secrets. See DVD Copy
3
Control Ass’n, Inc. v. Bunner, 31 Cal. 4th 864, 885 (2003). These interests include
4
promoting the sharing of knowledge, incentivizing innovation, and maintaining
5
commercial ethics. Id. at 880–81. Although trade secret and contract law provide
6
separate remedies, see Cal. Civ. Code § 3426.7(b), the two are often intertwined. To
7
obtain trade secret protection, information must be “the subject of efforts that are
8
reasonable under the circumstances to maintain its secrecy.” Cal. Civ. Code §
9
3426.1(d). One reasonable step to ensure secrecy is to require “employees to sign
10
confidentiality agreements” because they can be used to prevent the disclosure of
11
trade secret information. See Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443,
12
1454 (2002) (citing MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 521
13
(9th Cir.1993)); see also Alan J. Tracey, The Contract in the Trade Secret Ballroom-
14
A Forgotten Dance Partner?, 16 Tex. Intell. Prop. L.J. 47, 48–51 (2007)
15
(summarizing the value of non-disclosure agreements in connection with the
16
Uniform Trade Secrets Act). Here, at least some of BofI’s files taken by Erhart, such
17
as BofI’s Fiscal 2015 Strategic Plan, contain information likely entitled to trade
18
secret protection. See, e.g., Whyte, 101 Cal. App. 4th at 1456 (holding company’s
19
strategic plan documents are trade secrets under California law). Thus, allowing BofI
20
to enforce the Confidentiality Agreement where Erhart has appropriated documents
21
with trade secret information furthers the interests promoted by legal protection of
22
trade secrets.
23
Third, enforcing the Confidentiality Agreement serves the government
24
interest in protecting nonpublic personal information possessed by BofI. Under 15
25
U.S.C. § 6801, “[i]t is the policy of Congress that each financial institution has an
26
affirmative and continuing obligation to respect the privacy of its customers and to
27
protect the security and confidentiality of those customers’ nonpublic personal
28
information.” It is undisputed that Erhart appropriated files containing customers’ – 16 –
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1
nonpublic personal information. He sent an e-mail from his personal e-mail account
2
to a third party, his mother, containing a spreadsheet with BofI customers’ social
3
security numbers. (JSUF ¶ 6.) Thus, enforcing the Confidentiality Agreement
4
furthers this interest.
5
Fourth, BofI has an interest in protecting other confidential business
6
information that may not qualify for trade secret protection. See O’Day v. McDonnell
7
Douglas Helicopter Co., 79 F.3d 756, 763 (9th Cir. 1996) (recognizing an
8
employer’s “strong interest” in discouraging an employee from taking sensitive
9
personnel documents, “copying those documents and showing them to a co-worker”
10
in the context of a retaliation claim under the Age Discrimination in Employment
11
Act); see also Winston Research Corp. v. Minn. Mining & Mfg. Co., 350 F.2d 134,
12
138 (9th Cir. 1965) (“Unless protection is given against unauthorized disclosure of
13
confidential business information by employees, employee-employer relationships
14
will be demoralized [and] employers will be compelled to limit communication
15
among employees with a consequent loss in efficiency . . . .”). Enforcing the
16
Confidentiality Agreement furthers this interest as well.
17 18
Based on the foregoing, the Court concludes there is a significant interest in the enforcement of the Confidentiality Agreement.
19 20 21
b.
Public Policy against Enforcement of the Confidentiality Agreement
22
Next, the Court weighs the “public policy against enforcement” of the
23
Confidentiality Agreement. See Restatement (Second) of Contracts § 178 (1981).
24
Both California state and federal law, including those laws specifically identified by
25
Erhart’s defenses, reflect the strong public policy in favor of protecting
26
whistleblowers. California Labor Code Section 1102.5(b), invoked by Erhart’s
27
Twenty-Third Affirmative Defense, is “California’s general whistleblower statute.”
28
Carter v. Escondido Union High Sch. Dist., 148 Cal. App. 4th 922, 933 (2007). It – 17 –
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1
forbids retaliation against an employee who discloses “information to a government
2
or law enforcement agency, where the employee has reasonable cause to believe that
3
the information discloses a violation of state or federal statute, or a violation or
4
noncompliance with a state or federal rule or regulation.” Cal. Labor Code §
5
1102.5(b). “This provision reflects the broad public policy interest in encouraging
6
workplace whistle blowers to report unlawful acts without fearing retaliation.”
7
Green, 19 Cal. 4th at 77.
8
This policy is similarly reflected in federal law invoked by Erhart’s other
9
whistleblower defenses. Under Sarbanes–Oxley’s anti-retaliation provision, raised
10
by Erhart’s Twelfth Affirmative Defense, no covered company may retaliate against
11
an employee who provides certain information to “a Federal regulatory or law
12
enforcement agency” or “a person with supervisory authority over the employee . . .
13
.” 18 U.S.C. § 1514A; see also Lawson v. FMR LLC, 134 S. Ct. 1158, 1161 (2014)
14
(discussing the public purpose underlying Sarbanes–Oxley and its anti-retaliation
15
provision). This provision demonstrates the “public policy in favor of
16
whistleblowers in securities cases.” See In re JDS Uniphase Corp. Sec. Litig., 238
17
F. Supp. 2d 1127, 1136 (N.D. Cal. 2002). Dodd–Frank’s whistleblower protection
18
program, 15 U.S.C. § 78u–6, which contains an “anti-retaliation provision [that]
19
appears to sweep more broadly” than Sarbanes–Oxley’s provision and is identified
20
in Erhart’s Thirteenth Affirmative Defense, also reflects the strong public policy in
21
favor of protecting whistleblowers. See Wadler v. Bio-Rad Labs., Inc., 141 F. Supp.
22
3d 1005, 1014 (N.D. Cal. 2015). Regulations promulgated under Dodd–Frank
23
expressly preclude parties, including employers, from interfering with Dodd–
24
Frank’s whistleblower program. Specifically, Rule 21F-17(a) states:
25 26 27 28
No person may take any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications. 17 C.F.R. § 240.21F-17; see also Richard Moberly et al., De Facto Gag Clauses: – 18 –
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1
The Legality of Employment Agreements That Undermine Dodd-Frank’s
2
Whistleblower Provisions, 30 ABA J. Lab. & Emp. L. 87, 87–92 (2014) (discussing
3
Dodd–Frank’s whistleblower program and SEC Rule 21F-17).
4 5
Accordingly, both federal and state law reflect a strong public policy in favor of whistleblowing and protecting whistleblowers from retaliation.
6 7
c.
Balancing the Enforcement Interest and Public Policy
8
Last, the Court considers whether the interest in the enforcement of the
9
Confidentiality Agreement is “clearly outweighed in the circumstances by a public
10
policy against the enforcement” of the agreement. See Restatement (Second) of
11
Contracts § 178 (1981). In these circumstances, Erhart engaged in a variety of
12
conduct where he used information that he gained access to during his employment.
13
Hence, the Court considers separately below whether the public policy in favor of
14
whistleblower protection clearly outweighs the interest in the enforcement of the
15
Confidentiality Agreement as to Erhart’s conduct in (1) providing information to the
16
government, (2) appropriating BofI’s files, (3) sending BofI’s information to his
17
mother and placing BofI’s information on his live-in girlfriend’s computer, (4)
18
purportedly providing information to the press, and (5) disclosing information in his
19
publicly-filed whistleblower retaliation complaint.
20 21
Erhart’s Communications with the Government
22
The Court first considers Erhart’s conduct in providing information to the
23
government—the SEC and the OCC. (See JSUF ¶¶ 1, 2, 7.) Erhart disclosed BofI’s
24
information to the government in reporting believed wrongdoing at the bank. (See
25
id. ¶¶ 1, 2.) Viewing the evidence in the light most favorable to Erhart, this conduct
26
qualifies for protection under one or more of the whistleblower protection provisions
27
relied upon by the Court as sources of public policy. See, e.g., Cal. Lab. Code §
28
1102.5(b). In addition, any attempt to enforce the agreement as to this conduct would – 19 –
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1
violate the SEC’s rule prohibiting BofI from “enforcing, or threatening to enforce, a
2
confidentiality agreement” to impede Erhart from communicating with the SEC. See
3
17 C.F.R. § 240.21F-17. Consequently, as to these actions, the public policy in favor
4
of whistleblower protection clearly outweighs the interest in the enforcement of the
5
agreement, and the agreement is unenforceable. See Cariveau, 83 Cal. App. 4th at
6
138; see also Green, 19 Cal. 4th at 77.
7
Erhart’s Appropriation of BofI’s Files
8 9
Next, the Court considers Erhart’s conduct in appropriating various files from
10
BofI. (See JSUF ¶¶ 3–5, 7.) In light of the strong interests in favor of enforcing
11
confidentiality agreements and the public policy of whistleblower protection, courts
12
are split on whether confidentiality agreements should be enforced in contexts
13
involving comparable conduct.4 For example, in JDS Uniphase Corp. v. Jennings,
14
473 F. Supp. 2d 697, 702 (E.D. Va. 2007), the court applied California law and
15
enforced a confidentiality agreement despite the employee’s counterclaim for
16
whistleblower retaliation under Sarbanes–Oxley. The court reasoned that the public
17
policy in favor of whistleblowing cannot “fairly be said to authorize disgruntled
18
employees to pilfer a wheelbarrow full of an employer’s proprietary documents in
19
violation of their contract merely because it might help them blow the whistle on an
20
employer’s violations of law, real or imagined.” Id. In the court’s view:
21 22 23 24 25 26 27 28
Endorsing such theft or conversion would effectively invalidate most confidentiality agreements, as employees would feel free to haul away proprietary documents, computers, or hard drives, in contravention of their confidentiality agreements, knowing they could later argue they needed the documents to pursue suits against employers under a variety 4
Compare Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1062 (9th Cir. 2011); Zahodnick v. Int’l Bus. Machines Corp., 135 F.3d 911, 915 (4th Cir. 1997); and JDS Uniphase Corp. v. Jennings, 473 F. Supp. 2d 697, 702 (E.D. Va. 2007); with Shmushkovich v. Home Bound Healthcare, Inc., No. 12 C 2924, 2015 WL 3896947, at *1 (N.D. Ill. June 23, 2015); Siebert v. Gene Sec. Network, Inc., No. 11-CV-01987-JST, 2013 WL 5645309, at *8 (N.D. Cal. Oct. 16, 2013); and U.S. ex rel. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1039 (C.D. Cal. 2012). – 20 – 15cv2287
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of statutes protecting employees from retaliation for publicly reporting wrongdoing, such as Sarbanes–Oxley (18 U.S.C. § 1514A), the False Claims Act (31 U.S.C. § 3730), . . . or other statutes prohibiting retaliation for activity in opposition to discrimination.
1 2 3 4
Id.
5
Other courts, particularly in the context of actions brought under the False
6
Claims Act, have refused to enforce a confidentiality agreement on public policy
7
grounds. In Ruhe, the district court declined to strike exhibits appended to the
8
relators’ complaint that the defendant argued were taken and disclosed in violation
9
of non-disclosure agreements. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1038–
10 11 12 13 14 15
39 (C.D. Cal. 2012). The court explained that: Relators sought to expose a fraud against the government and limited their taking to documents relevant to the alleged fraud. Thus, this taking and publication was not wrongful, even in light of nondisclosure agreements, given “the strong public policy in favor of protecting whistleblowers who report fraud against the government.” Obviously, the strong public policy would be thwarted if [the defendant] could silence whistleblowers and compel them to be complicit in potentially fraudulent conduct.
16 17
Id. at 1039 (citation omitted) (quoting United States v. Cancer Treatment Ctrs. of
18
Am., 350 F. Supp. 2d 765, 773 (N.D. Ill. 2004)); see also Siebert v. Gene Sec.
19
Network, Inc., No. 11-CV-01987-JST, 2013 WL 5645309, at *8 (N.D. Cal. Oct. 16,
20
2013) (“The Court agrees that any alleged obligation by [the relator] not to retain or
21
disclose the confidential documents that form the basis of this action is
22
unenforceable as a matter of public policy because it would frustrate Congress’
23
purpose in enacting the False Claims Act.”).
24
In Cafasso, United States ex rel. v. General Dynamics C4 Systems Inc., 637
25
F.3d 1047, 1062 (9th Cir. 2011), the Ninth Circuit stated there is “some merit” in a
26
public policy exception to a confidentiality agreement. There, the relator Cafasso
27
executed a confidentiality agreement at the start of her employment that contained a
28
confidentiality provision similar to that agreed to by Erhart. See id. at 1061. After – 21 –
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1
Cafasso copied various documents and instituted a False Claims Act (“FCA”) case
2
against her former employer after her termination, the employer counterclaimed that
3
Cafasso’s “appropriation of electronic documents and files” violated the
4
confidentiality agreement. Id. The district court granted summary judgment in favor
5
of the employer. Id.
6
On appeal, Cafasso, like Erhart, admitted to appropriating files covered by the
7
confidentiality agreement but, also like Erhart, argued for a public policy exception
8
to the enforcement of the contract. Cafasso, 637 F.3d at 1061–62. The Ninth Circuit
9
declined to decide whether to adopt an exception, but, in recognizing that a public
10
policy exception had “some merit,” the Ninth Circuit forecasted that “[e]ven were
11
we to adopt such an exception, it would not cover Cafasso’s conduct given her vast
12
and indiscriminate appropriation” of files. Id. at 1062. The court noted that “Cafasso
13
copied nearly eleven gigabytes of data—tens of thousands of pages,” and “she
14
scanned only file names and ‘did not look at any individual documents at all.’” Id.
15
“An exception broad enough to protect the scope of Cafasso’s massive document
16
gather in this case would make all confidentiality agreements unenforceable as long
17
as the employee later files a qui tam action.” Id. (citing JDS Uniphase Corp, 473 F.
18
Supp. 2d at 702). In affirming the district court, the Ninth Circuit provided the
19
following guidance:
20 21 22 23 24 25 26
Were we to adopt a public policy exception to confidentiality agreements to protect relators—a matter we reserve for another day—those asserting its protection would need to justify why removal of the documents was reasonably necessary to pursue an FCA claim . . . . The need to facilitate valid claims does not justify the wholesale stripping of a company’s confidential documents. Although courts perhaps should consider in particular instances for particular documents whether confidentiality policies must give way to the needs of FCA litigation for the public’s interest, Cafasso’s grabbing of tens of thousands of documents here is overbroad and unreasonable, and cannot be sustained by reference to a public policy exception.
27
Id.; see also Richard Moberly et al., De Facto Gag Clauses: The Legality of
28
Employment Agreements That Undermine Dodd-Frank’s Whistleblower Provisions, – 22 –
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1
30 ABA J. Lab. & Emp. L. 87, 113 (2014) (citing In re JDS Uniphase Corp. Secs.
2
Litig., 238 F. Supp. 2d 1127, 1136 (N.D. Cal. 2002)) (noting courts “recognize that
3
the federal interest in whistleblowing can trump employers’ otherwise legitimate
4
desire to protect confidential documents when there is a reasonable connection
5
between the documents and the alleged securities violation”).
6
Here, the Court concludes there is merit to a public policy exception to
7
confidentiality agreements to protect whistleblowers who appropriate company
8
documents. As discussed above, the Court recognizes the strong interest in the
9
enforcement of confidentiality agreements like the one signed by Erhart. But at the
10
same time, whistleblowers often need documentary evidence to substantiate their
11
allegations. As several commentators have noted in the context of whistleblower tips
12
submitted to the SEC:
13
Relevant documents taken from an employer not only can provide potentially valuable evidence of a possible securities violation, but also can help the SEC confirm the veracity of the whistleblower’s information and better distinguish between tips that warrant significant attention and those that do not. This is a critical function because the SEC received over 3,200 tips through the SEC Whistleblower Program in fiscal year 2013 alone, and receives tens of thousands of other tips and referrals through other means, such as investor complaints.
14 15 16 17 18 19 20
Richard Moberly et al., De Facto Gag Clauses: The Legality of Employment
21
Agreements That Undermine Dodd-Frank’s Whistleblower Provisions, 30 ABA J.
22
Lab. & Emp. L. 87, 115 (2014). Allowing a whistleblower to appropriate documents
23
supporting believed wrongdoing also mitigates the possibility that evidence of the
24
wrongdoing will be destroyed before an investigation can be conducted. Cf. United
25
States v. Arthur Andersen, LLP, 374 F.3d 281, 286 (5th Cir. 2004) (discussing
26
accounting firm Arthur Andersen’s shredding of two tons of documents on the eve
27
of the SEC’s investigation into Enron), reversed on other grounds at 544 U.S. 696.
28
// – 23 –
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1
Further, the qualified approach forecasted by the Ninth Circuit strikes an
2
appropriate balance between these interests. This type of “more nuanced approach”
3
focuses on “the nexus between the confidential documents in question and the
4
misconduct alleged by the whistleblower.” See Richard Moberly et al., De Facto
5
Gag Clauses: The Legality of Employment Agreements That Undermine Dodd-
6
Frank’s Whistleblower Provisions, 30 ABA J. Lab. & Emp. L. 87, 110 (2014). Under
7
this approach, the burden is on the party seeking to invoke the public policy
8
exception “to justify why removal of the documents was reasonably necessary” to
9
support the allegations of wrongdoing. See Cafasso, 637 F.3d at 1062. In this Court’s
10
view, this determination is a question of fact, but one that can be made as a matter
11
of law when a reasonable jury could only reach one conclusion. See id. (“Even were
12
we to adopt such an exception, it would not cover Cafasso’s conduct given her vast
13
and indiscriminate appropriation of [company] files.”).
14
In this case, Erhart states he “was very careful in [selecting] the information
15
[he] accessed and turned over. Each document was specifically related to one of the
16
allegations of wrongdoing [he] had discussed with [his supervisor] and then reported
17
to federal law enforcement.” (Erhart Decl. ¶ 79, ECF No. 67-5.) Further, Erhart
18
states “every document” he used was one he “had properly accessed in the course of
19
performing [his] work as an internal auditor,” as directed by his immediate
20
supervisor. (Id.) The Court, having previously reviewed lists of files taken by Erhart,
21
notes many do appear to be related to his allegations of believed wrongdoing. (See
22
ECF No. 21.)
23
Viewing the evidence in the light most favorable to Erhart, summary
24
adjudication of his defenses based on this conduct is not warranted. BofI has not
25
demonstrated Erhart engaged in a “wholesale stripping of [BofI]’s confidential
26
documents”—or that his appropriation of its files was “vast and indiscriminate.” See
27
Cafasso, 637 F.3d at 1062. Thus, it is possible that a public policy exception may
28
cover Erhart’s conduct, and there is a genuine issue for trial as to whether Erhart’s – 24 –
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1
removal of documents was “reasonably necessary” to support his allegations of
2
wrongdoing. See Cafasso, 637 F.3d at 1062. This issue may also be inextricably
3
intertwined with whether a jury concludes Erhart’s beliefs of wrongdoing were
4
reasonable. In sum, to the extent BofI’s claim is predicated on Erhart’s appropriation
5
of files to support his allegations of believed wrongdoing, his whistleblower
6
defenses survive BofI’s request for summary adjudication.
7 8
Erhart’s Transmission of Confidential
9
Information to His Mother and Use of Live-in
10
Girlfriend’s Computer
11
The Court turns to Erhart’s conduct in e-mailing confidential information to
12
his mother and using his live-in girlfriend’s computer to access BofI documents.
13
(JSUF ¶¶ 6, 13–14.) In a different procedural context, the Fourth Circuit discussed
14
analogous conduct in Deltek, Inc. v. Department of Labor, Administrative Review
15
Board, 649 F. App’x 320, 324 (4th Cir. 2016). There, the plaintiff alleged she was
16
terminated in violation of Sarbanes–Oxley’s whistleblower protection provision, 18
17
U.S.C. § 1514A. Id. at 322. The defendant employer discovered that the plaintiff had
18
e-mailed company documents to her home e-mail account, which was shared by her
19
husband, in violation of her employment contract and company policies. Id. at 332.
20
Thus, the company argued the after-acquired evidence doctrine applied. Id. at 331.
21
This doctrine allows an employer in a retaliation case to limit its liability if evidence
22
discovered after termination would have led to the termination had the company
23
known of the evidence earlier. Id.; see also McKennon v. Nashville Banner Pub. Co.,
24
513 U.S. 352, 361–62 (1995). The Administrative Law Judge (“ALJ”) rejected the
25
defendant’s argument, however, and the Department of Labor’s Administrative
26
Review Board affirmed. Deltek, 649 Fed. App’x at 332.
27
Under the deferential substantial evidence standard, the Fourth Circuit
28
affirmed. Deltek, 649 Fed. App’x at 331–33. The court noted that the ALJ made – 25 –
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1
“specific findings, affirmed by the Board, that [the plaintiff] forwarded to her home
2
account only documents that were relevant to her whistleblowing reports; that when
3
she did so, she had a reasonable concern that the documents might be shredded by
4
[company] employees or otherwise destroyed; and that [the plaintiff’s] motivation
5
for forwarding the documents was ‘to support her [Sarbanes–Oxley] allegations.’”
6
Id. at 332 (third alteration in original). The court also noted the plaintiff, after
7
complaining of retaliation to the company’s general counsel, had been directed to
8
gather information to support her internal complaint. Id. “[I]n light of the specific
9
factual findings of the ALJ and the Board,” the Fourth Circuit agreed that the
10
plaintiff’s “effort to protect select relevant documents” would not have justified her
11
termination, and it affirmed. Id.
12
The Ninth Circuit’s decision in O’Day v. McDonnell Douglas Helicopter Co.,
13
79 F.3d 756, 763 (9th Cir. 1996), discussed contrasting circumstances in another
14
context. In that case, the plaintiff brought suit alleging employment discrimination
15
under the Age Discrimination in Employment Act (“ADEA”). Id. at 765. He “was
16
convinced he had been denied [a] promotion and laid off because of his age.” Id. at
17
758. “The evening after he was denied the promotion,” the plaintiff “searched his
18
supervisor’s office. Ostensibly, he was looking for his own personnel file (to which
19
access was restricted), but while he was rummaging through his supervisor’s desk,
20
[the plaintiff] came across other documents he found interesting, including his
21
supervisor’s promotion recommendations and a handwritten list ranking employees
22
for layoff (a so-called ‘totem’ list).” Id. The plaintiff “photocopied the handwritten
23
‘totem’ list along with several other documents, and later showed them to another
24
employee who had been slated for layoff.” Id.
25
After the defendant discovered these actions in discovery, the company,
26
similar to the defendant in Deltek, argued the plaintiff’s later-discovered misconduct
27
“absolved the company of all liability for its alleged discrimination.” O’Day, 79 F.3d
28
at 758. In response, the plaintiff claimed he was engaged in protected activity under – 26 –
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1
the ADEA’s opposition clause, which “protects reasonable attempts to contest an
2
employer’s discriminatory practices.” Id. at 763. In applying a balancing test, the
3
court concluded the plaintiff’s conduct was not protected activity. Id. It reasoned the
4
plaintiff “committed a serious breach of trust, not only in rummaging through his
5
supervisor’s office for confidential documents, but also in copying those documents
6
and showing them to a co-worker.” Id. Further, although the plaintiff had an interest
7
in preserving evidence of the defendant’s unlawful employment practices, that
8
interest did not “explain why he showed the purloined documents to a co-worker
9
who had been slated for lay-off, or why he felt compelled to preserve evidence of
10
[the defendant’s] lay-off decisions,” given that he had not yet been laid off. Id. Thus,
11
the court rejected the plaintiff’s protected activity argument. Id. at 764.
12
Here, it is undisputed that Erhart sent an e-mail to his mother that included a
13
spreadsheet containing BofI customers’ social security numbers. (JSUF ¶ 6.)
14
Although this e-mail was briefly accessed by his mother, she did not print it, forward
15
it, or otherwise provide it to anyone. (Pamela Erhart Dep. 36:8–24, 58:2–15, ECF
16
No. 67-7.) In his declaration, Erhart states he was “fearful that the Bank would delete
17
or alter material information, based on what [he’d] seen management do in the past.”
18
(Erhart Decl. ¶ 76, ECF No. 67-5.) In addition, Erhart states he was informed that
19
the bank was breaking into the locked cabinets and computer at his workstation,
20
where he had documented instances of believed wrongdoing. (Id. ¶¶ 46, 55–56.)
21
Further, around this time, Erhart states he “feared upper management had accessed
22
[his] work laptop remotely.” (Id. ¶ 57.) Thus, Erhart states he sent his mother “a copy
23
of some information to hold for safekeeping because [he] was fearful, in case
24
something happened to [him] or that information.” (Id. ¶ 77.) Viewing the evidence
25
in the light most favorable to Erhart, the Court concludes a factfinder could
26
determine that the information transmitted by Erhart was relevant to his
27
whistleblower reports, that this information was transmitted because he had a
28
reasonable concern the information might be destroyed, and that Erhart’s motivation – 27 –
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1
for forwarding the information was to support his allegations of wrongdoing. See
2
Deltek, 649 Fed. App’x at 331–32. Moreover, unlike the circumstances in O’Day,
3
where the plaintiff showed a confidential layoff list to an employee who was slated
4
to be laid off, there is no evidence of a competing motive for Erhart’s transmission
5
of confidential bank information to his mother—she had no reason to personally
6
benefit from receiving this information.
7
If the jury concludes Erhart’s conduct was to protect relevant information
8
from what he reasonably perceived was a risk of destruction, then the public policy
9
in favor of whistleblowing clearly outweighs the interest in enforcement of the
10
Confidentiality Agreement in these specific circumstances—rendering the
11
agreement unenforceable. If, however, the opposite determination is reached, the
12
calculus shifts in favor of enforcement, and BofI may recover for breach of the
13
Confidentiality Agreement.
14
Further, it is undisputed that Erhart used his live-in girlfriend’s computer to
15
access BofI documents. (JSUF ¶ 13.) Erhart used the computer, which was in his
16
home, “to access some BofI documents.” (Erhart Decl. ¶ 3, ECF No. 67-3.) His
17
girlfriend never looked at any BofI information Erhart “may have placed on [her]
18
computer for his viewing purposes.” (Cornell ¶ 2.) She did not share the information
19
with anyone. (Id.) The Court similarly concludes Erhart has made a sufficient
20
showing that his use of the computer to access BofI documents as part of his
21
reporting of believed wrongdoing may be found to be protected activity.
22
Accordingly, because Erhart has made a sufficient showing that this conduct
23
may be protected, the Court will not summarily adjudicate Erhart’s whistleblower
24
defenses on this basis.
25
//
26
//
27
//
28
// – 28 –
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1
Erhart’s and His Counsel’s Purported
2
Disclosures to the Press
3
BofI also argues Erhart disclosed confidential information to The New York
4
Times prior to his counsel transmitting a copy of his whistleblower retaliation
5
complaint. (See Mot. 9:8–17.) In Tides v. Boeing Co., 644 F.3d 809, 811 (9th Cir.
6
2011), the Ninth Circuit held “[l]eaks to the media” are not protected by Sarbanes–
7
Oxley’s anti-retaliation provision—the statute invoked in Erhart’s Twelfth
8
Affirmative Defense. The putative-whistleblower plaintiffs in Tides argued that their
9
disclosures to the Post-Intelligencer were protected by Sarbanes–Oxley “because
10
reports to the media may eventually ‘cause information to be provided’ to members
11
of Congress or federal law enforcement or regulatory agencies.” Id. at 815. The court
12
“decline[d] to adopt such a boundless interpretation of the statute.” Id. It reasoned
13
that Sarbanes–Oxley’s anti-retaliation provision “protects employees of public
14
companies from retaliation only when they” provide information to “one of three
15
individuals or entities: (1) a federal regulatory or law enforcement agency, (2) a
16
member or committee of Congress, or (3) a supervisor or other individual who has
17
the authority to investigate, discover or terminate such misconduct.” Id. (citing 18
18
U.S.C. § 1514A(a)(1)). “Members of the media are not included. If Congress wanted
19
to protect reports to the media under § 1514A(a)(1), it could have listed the media
20
as one of the entities to which protected reports may be made. Or, it could have
21
protected ‘any disclosure’ of specified information[.]” Id. This conclusion is in
22
contrast to a government whistleblower statute that was not implicated in Tides, the
23
Whistleblower Protection Act, 5 U.S.C. § 2302, which protects any disclosure of
24
specified information. Id. Thus, “[w]hen Congress wants to protect the disclosure of
25
any information to any entity, it knows how to do so.” Id.
26
Although the plain meaning of the statute was dispositive, the Ninth Circuit
27
also noted “we can sleep well knowing” that the legislative history of Sarbanes–
28
Oxley’s anti-retaliation provision reinforces the conclusion that disclosures to the – 29 –
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1
media are not protected. Tides, 644 F.3d at 816. The Senate Judiciary Committee
2
“explained that the whistleblower provision was intended to protect ‘employees . . .
3
who report acts of fraud to federal officials with the authority to remedy the
4
wrongdoing or to supervisors or appropriate individuals within their company.” Id.
5
(quoting S. Rep. No. 107–146, at 5 (2002)). The provision “protects employees
6
‘when they take lawful acts to disclose information or otherwise assist . . . federal
7
regulators, Congress, or their supervisors . . . .” Id. (quoting S. Rep. No. 107–146, at
8
18–19 (2002)). Thus, disclosures to the media are not protected. Id.
9
The plain meaning reasoning in Tides is equally applicable to all of the other
10
whistleblower protection provisions invoked by Erhart. Consequently, none of these
11
provisions protects disclosures to the press.
12
Here, however, BofI has not established that it is undisputed that Erhart or his
13
counsel provided confidential information to the press. BofI only submits evidence
14
demonstrating Erhart and his counsel communicated with a reporter—not that they
15
disclosed confidential information to the reporter. Further, Erhart and his counsel
16
dispute BofI’s claim. (Gillam Decl. ¶ 9, ECF No. 67-1, Erhart Decl. ¶ 13, ECF No.
17
67-6.) Thus, at this point, Erhart is not relying on his whistleblower protection
18
defenses to protect any alleged disclosures to the press. That said, if BofI establishes
19
Erhart disclosed confidential information to the press, Erhart will not be able to raise
20
these whistleblower defenses as to this conduct because leaks to the media are not
21
protected. See Tides, 644 F.3d at 810–11.
22 23
Erhart’s Disclosure of BofI’s Information in His
24
Whistleblower Retaliation Complaint
25
Last, BofI argues Erhart disclosed its confidential information in his publicly-
26
filed whistleblower retaliation complaint. (Mot. 7:13–8:23.) After hearing oral
27
argument on this point, the Court concludes this issue turns on whether it was
28
reasonably necessary for Erhart to disclose this information in his complaint to – 30 –
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1
pursue his whistleblower retaliation claims.
2
Erhart’s whistleblower retaliation action relies upon, among others, Sarbanes–
3
Oxley’s and Dodd–Frank’s provisions that authorize a private right of action against
4
employers that retaliate against whistleblowers. See 15 U.S.C. § 78u-6(h)(1)(B); 18
5
U.S.C. § 1514A(b). To proceed under these provisions, Erhart must plausibly allege
6
that he engaged in protected activity under the respective statutes. See, e.g., Tides,
7
644 F.3d at 814; 17 C.F.R. § 240.21F-2. Meaning, for Sarbanes–Oxley’s provision,
8
Erhart must allege that he “provide[d] information . . . regarding any conduct which
9
[he] reasonably believe[d] constitutes a violation of section 1341 [mail fraud], 1343
10
[wire fraud], 1344 [bank fraud], or 1348 [securities or commodities fraud], any rule
11
or regulation of the Securities and Exchange Commission, or any provision of
12
Federal law relating to fraud against shareholders . . . .” See 18 U.S.C. § 1514A.
13
Similarly, for Dodd–Frank’s provision, Erhart must allege that he had a “reasonable
14
belief that the information [he was] providing relate[d] to a possible securities law
15
violation . . . or . . . a possible violation of the provisions” enumerated in Sarbanes–
16
Oxley’s anti-retaliation provision. See 17 C.F.R. § 240.21F-2.
17
Accordingly, Erhart must include factual allegations regarding his believed
18
wrongdoing in his complaint to state a claim for whistleblower retaliation under
19
Sarbanes–Oxley and Dodd–Frank. Yet, the broad provisions in the Confidentiality
20
Agreement appear to apply to much of the information Erhart relies upon for his
21
allegations. In the Court’s view, these confidentiality obligations must give way to
22
allow Erhart enough leeway to allege and pursue his whistleblower retaliation
23
claims. At the same time, Erhart should not be able to disclose any of BofI’s
24
information in his complaint simply because he is pursuing a whistleblower
25
retaliation claim. Rather, like the approach taken by the Court with Erhart’s
26
appropriation of BofI’s documents, Erhart should be permitted to disclose BofI’s
27
information in his complaint if doing so was “reasonably necessary” to pursue his
28
retaliation claim. See Cafasso, 637 F.3d at 1062; see also Ruhe, 929 F. Supp. 2d – 31 –
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1
1033, 1039 (citing Cancer Treatment Ctrs. of Am., 350 F.Supp.2d at 773) (noting in
2
a False Claims Act case that the publication of confidential documents in the
3
relator’s complaint “was not wrongful, even in light of nondisclosure agreements,
4
given ‘the strong public policy in favor of protecting whistleblowers who report
5
fraud against the government’”); cf. Wadler v. Bio–Rad Labs., Inc., --- F. Supp. 3d -
6
--, 2016 WL 7369246, at *14 (N.D. Cal. 2016) (concluding former general counsel
7
was permitted to rely on privileged communications and confidential information
8
that was “reasonably necessary” to his claims and defenses in his whistleblower
9
retaliation action).
10
Ultimately, this determination, like Erhart’s appropriation of files, turns on
11
issues of fact. BofI argues Erhart disclosed confidential information to inflict
12
maximum damage on the company and “benefit short sellers at the Bank’s expense,”
13
not simply to pursue his whistleblower retaliation claims. (See Reply 3:6–8.)
14
However, BofI has not met its initial burden of demonstrating there is no genuine
15
issue of material fact as to this conduct. Therefore, summary adjudication of Erhart’s
16
whistleblower defenses on this basis is not appropriate.
17 18
2.
Remaining Claims
19
Thus far, the Court’s analysis has focused on considering Erhart’s public
20
policy arguments in the context of BofI’s breach of contract claim. Summarily
21
adjudicating Erhart’s defenses in the context of this claim is not appropriate, and the
22
Court reaches the same conclusion for BofI’s remaining claims. For example, BofI
23
asserts various tort claims against Erhart, including conversion and breach of the
24
duty of loyalty. For these claims, the Court construes Erhart’s defenses as raising a
25
defense of justification or privilege. “A privileged act is by definition one for which
26
the actor is absolved of any tort liability, whether premised on the theory of
27
negligence or of intent.” Gilmore v. Superior Court, 230 Cal. App. 3d 416, 421
28
(1991); see also Restatement (Second) of Torts § 890 (1979) (defining “privilege” – 32 –
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1
as denoting “the fact that conduct that under ordinary circumstances would subject
2
the actor to liability, under particular circumstances does not subject him to the
3
liability”). “When the correlation between justifiability and privilege is
4
acknowledged, it inevitably follows that [a] plaintiff’s cause of action cannot be
5
sustained.” Id. at 420. A privilege or justification may arise by statute. See, e.g., 2
6
Cal. Affirmative Def. § 41:1 (2d ed.).
7
It is implicit in the various whistleblower protection provisions that if an
8
employee is permitted to provide information regarding believed wrongdoing to the
9
government, including documents, the employer cannot then seek to impose tort
10
liability on the employee for the same conduct. The public policy considerations
11
underpinning the Court’s contract analysis would similarly influence its analysis
12
under tort law.5 Consequently, for the same reasons discussed above, the Court
13
concludes summary adjudication of Erhart’s defenses in the context of BofI’s
14
remaining claims is not warranted.
15 16
V.
CONCLUSION
17
In light of the foregoing, the Court GRANTS IN PART and DENIES IN
18
PART BofI’s motion for summary adjudication of thirteen of Erhart’s affirmative
19
defenses. (ECF No. 45 in Case No. 15-cv-02287.) Erhart’s Fourteenth, Fifteenth,
20
Twenty-First, and Twenty-Second Affirmative Defenses fail as a matter of law.
21
These defenses invoke protections for whistleblowers, but Erhart concedes these
22
protections do not exist. Therefore, the Court summarily adjudicates these defenses
23
in BofI’s favor. In addition, the Court strikes Erhart’s Seventeenth and Eighteenth
24 BofI also brings a claim under the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. (First Am. Compl. ¶¶ 89–95). Because neither party substantively addresses this claim, the Court does not wade into the potential issues arising from the intersection of this claim and Erhart’s whistleblower defenses. See, e.g., United States v. Nosal, 844 F.3d 1024, 1032 (9th Cir. 2016) (discussing CFAA generally); see also Connor C. Turpan, Whistleblower? More Like Cybercriminal: The Computer Fraud and Abuse Act As Applied to Sarbanes-Oxley Whistleblowers, 42 Rutgers Computer & Tech. L.J. 120, 121–23 (2016) (discussing employers’ use of the CFAA to deter whistleblower retaliation claims). – 33 – 15cv2287 5
25 26 27 28
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1
Affirmative Defenses from his Answer because these defenses are redundant of
2
Erhart’s other defenses. Further, the Court denies BofI’s request for summary
3
adjudication of Erhart’s Twelfth, Thirteenth, Sixteenth, Nineteenth, Twentieth,
4
Twenty-Third, and Twenty-Fourth Affirmative Defenses.
5
IT IS SO ORDERED.
6 7
DATED: February 14, 2017
8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 34 –
15cv2287
