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Court Rules Directors Are Agents

Last August, I wrote that Magistrate Judge Joseph C. Spero would soon be deciding whether a director might be an agent of the corporation.  See Court Poised To Decide Whether Directors Are AgentsThe case, Wadler v. Bio-Rad Labs., Inc., 2015 U.S. Dist. LEXIS 144468 (N.D. Cal. Oct. 23, 2015), involves the plaintiff's complaint that he was wrongfully terminated in retaliation for investigating and reporting to the corporation's upper-level management possible violations of the Foreign Corrupt Practices Act ("FCPA") in China.  The plaintiff argued that the corporation and its directors were liable for retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act, and California state law (Cal. Lab. Code § 1102.5).  Moving to dismiss the case, the defendants argued, among other things, that the Sarbanes-Oxley Act only prohibits retaliation by an "officer, employee, contractor, subcontractor, or agent" of the corporation.  18 U.S.C. § 1514A(a).  Directors aren't specifically named, so they could be liable only if they fell within the category of "agent".

Finding the meaning of the term "agent" to be ambiguous, Magistrate Judge Spero ruled that "the context and broad purpose of Sarbanes-Oxley support the conclusion that a director may be held individually liable as an 'agent' under that provision".  He found that excluding directors from the definition of "agent" would "would permit a corporation's board members to fire high-level employees (like the whistleblower in the Enron case) for whistleblowing even though the exact same conduct on the part of a corporation's managers would give rise to individual liability".

I disagree with the ruling.  Congress certainly could have included directors in the list, but it didn't.  Even if the purposes of the Sarbanes-Oxley Act would be advanced by including directors, the proper role of the court is not to fix Congress' handiwork.  When a court reads what isn't written into a statute, it:

  • infringes on the separation of powers by de facto legislating;
  • encourages sloppy drafting by Congress; and
  • promotes uncertainty in the law.


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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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