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In-House Counsel Can Blow the Whistle with Privileged Information

By Michael J. Lorden

A recent multi-million dollar jury verdict in the Northern District of California begs the question: to what extent can in-house attorneys blow the whistle on their employer?  In Wadler v. Bio-Rad, the general counsel was terminated after internally reporting possible violations of the Foreign Corrupt Practices Act.  Before trial, the court held that the former general counsel would be permitted at trial to rely on some attorney-client privileged communications to establish his claims.  After hearing the evidence, the jury awarded $8 million to the whistleblowing general counsel.

Was this a rogue jury decision borne from inopportune circumstances or evidence of a growing trend to protect whistleblowing, even when the whistleblower’s job is to manage and investigate these activities, which they may learn about in privileged communications? 

In 1991, the Supreme Court of Illinois held in Balla v. Gambro, Inc. that in-house counsel generally cannot maintain a retaliatory discharge claim due to the employer’s protection under the attorney-client relationship.  Since then, however, many states have found that whistleblower protections extend to in-house counsel.  For example, in 1994, the Supreme Court of California held in General Dynamics Corp. v. Superior Court that in-house attorneys are afforded the same whistleblower protection as their non-attorney colleagues.  In 1995, the Supreme Court of Ohio held in the oft-cited Contreras v. Ferro Corporation, that a general counsel receiving and reporting information evidencing illegal activity would have been eligible for whistleblower protection had he strictly complied with the statute’s technical requirements.  

More recent decisions also show a trend towards protecting in-house counsel whistleblowers while limiting the reach of the attorney-client privilege.  In a 2002 decision styled Crews v. Buckman Labs. Int’l, Inc., the Supreme Court of Tennessee found the Supreme Court of Illinois’ Balla decision unpersuasive, and held that in-house counsel must be afforded the same whistleblower protections as other employees.  Similarly, in 2008, the Minnesota Court of Appeals rejected the argument that an in-house attorney is barred as a matter of law from bringing a whistleblower claim against a former employer.  That case, Heckman v. Zurich Holding Company, seemingly overturned the court’s 1991 decision in Michaelson v. Minnesota Mining & Manufacturing Company, which held that an in-house counsel may not raise whistleblower claims if information was derived from the attorney-client relationship.  

Moreover, in Willy v. Admin. Review Bd., the 5th Circuit Court of Appeals ruled that there was no rule or case law that imposed a per se ban on an in-house counsel using documents subject to the attorney-client privilege to formulate a federal whistleblower action.  Likewise, in 2009, the 9th Circuit held in Van Asdale v. Int'l Game Tech. that attorney-client confidentiality concerns did not warrant the dismissal of in-house attorneys’ retaliatory discharge claims.

As these examples show, the recent Wadler pre-trial ruling and jury verdict build upon a continued trend to protect in-house attorneys as whistleblowers, and in some circumstances, to allow them to use otherwise privileged information to build their claims.