269 F. Supp. 3d 1059
S.D. Cal.2017Background
- Plaintiff Charles Erhart, a former BofI internal auditor, alleges he discovered and reported suspected fraud and improper conduct by senior management (including questionable CEO deposits and failure to produce SEC subpoenaed files).
- Erhart alleges he submitted whistleblower tips to the SEC and reported concerns to the OCC and internal supervisors; soon after, he experienced threats, access to his work computer and files, adverse performance actions, attempted termination, and eventual discharge.
- BofI countersued alleging Erhart disclosed confidential information and deleted files; BofI moves to dismiss several claims and to strike portions of the FAC.
- The court previously dismissed federal whistleblower claims with leave to amend; Erhart filed a First Amended Complaint and BofI renewed its motion.
- The court evaluates federal pleading standards (Twombly/Iqbal) and Sarbanes-Oxley/Dodd-Frank protected-activity standards (reasonable-belief test adopted by ARB and applied by the court).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Erhart sufficiently alleges protected activity under Sarbanes-Oxley (18 U.S.C. §1514A) | Erhart alleges he reasonably (subjectively and objectively) believed management conduct (e.g., CEO depositing third-party checks, withholding subpoenaed files) violated bank and securities fraud statutes and reported to regulators. | BofI argues Erhart still fails to allege he believed the conduct violated statutes enumerated in §1514A and thus did not engage in protected activity. | Court: Denied dismissal — Erhart adequately pleaded a reasonable belief of fraud, knowledge by employer, adverse actions, and causation. |
| Whether Dodd-Frank (15 U.S.C. §78u-6) protects Erhart’s disclosures | Erhart relies on his Sarbanes-Oxley disclosures and two tips to the SEC; in Ninth Circuit, Dodd-Frank can incorporate SOX disclosures not made directly to SEC. | BofI argues Dodd-Frank protects only disclosures made to the SEC (narrow view). | Court: Denied dismissal — under Ninth Circuit precedent (Somers) Erhart plausibly states a Dodd-Frank retaliation claim. |
| Whether CMIA claim (Cal. Civ. Code §§56–56.37) is pleaded | Erhart alleges disclosure by BofI that his ‘‘psychiatric medical leave’’ undermined credibility; contends medical confidentiality violated. | BofI contends no protected "medical information" was alleged to have been received from a healthcare provider as required by CMIA. | Court: Grant dismissal with leave to amend — Erhart failed to allege he received or provided medical information from a healthcare provider under CMIA. |
| Whether breach of implied covenant claim survives | Erhart alleges an agreement guaranteeing the ability to perform audit duties without fear and not be terminated for reporting misconduct. | BofI argues employment was at-will and no express or adequately pleaded implied contract limited termination rights. | Court: Grant dismissal with leave to amend — Erhart did not overcome at-will presumption or plead facts supporting an implied contract. |
| Whether intentional infliction of emotional distress (IIED) claim is barred | Erhart alleges threats, harassment, and severe emotional distress arising from employer retaliation. | BofI argues IIED is barred by California workers’ compensation exclusivity because conduct occurred in the employment context and does not exceed employment risks. | Court: Grant dismissal with leave to amend — IIED barred by exclusivity; public-policy/Tameny exception does not save separate IIED claim. |
| Whether defamation claim is pleaded with required specificity | Erhart alleges BofI agents publicly accused him of colluding with short sellers and causing negative press, harming reputation and employment prospects. | BofI contends allegations lack specificity as to statements, speakers, recipients, and timing. | Court: Denied dismissal — allegations identify speakers, statements, and publication sufficiently to state a defamation claim. |
| Whether numerous factual allegations should be stricken under Rule 12(f) | N/A (Erhart opposes striking) | BofI seeks to strike categories: alleged wrongdoing descriptions, exhaustion-related facts, and confidential material disclosures as immaterial/impertinent. | Court: Denied motion to strike — allegations relevant to claims and defenses, public disclosure already occurred, and striking premature. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts need not accept legal conclusions)
- Van Asdale v. Int’l Game Tech., 577 F.3d 989 (9th Cir. 2009) (prima facie elements and causation in SOX retaliation claims)
- Somers v. Digital Realty Tr. Inc., 850 F.3d 1045 (9th Cir. 2017) (Dodd-Frank protects SOX disclosures not made directly to SEC under Ninth Circuit precedent)
- United States v. Rizk, 660 F.3d 1125 (9th Cir. 2011) (elements and circumstantial proof of bank fraud)
- Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53 (2006) (standard for materially adverse actions in retaliation context)
- Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317 (2000) (at-will employment presumption and limits on implied covenant claims)
- Shoemaker v. Myers, 52 Cal.3d 1 (1990) (whistleblower retaliation falls within workers’ compensation risks)
- Miklosy v. Regents of Univ. of Cal., 44 Cal.4th 876 (2008) (limits on workers’ compensation exclusivity and Tameny public-policy exception)
- Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) (leave to amend and pleading sufficiency guidance)
- Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990) (workers’ compensation does not bar federal statutory rights)