Whistleblower sues bank employer. $1.5M. San Diego County.
Bank auditor is fired after he reports to outside governmental agencies his beliefs of wrongdoing by the bank.
- Case Name: Charles Matthew Erhart v. BofI Holding Inc.
- Court and Case Number: U.S. District Court for the Southern District of California / CV-15-02287-BAS-NLS
- Date of Verdict or Judgment: Wednesday, May 18, 2022
- Date Action was Filed: Tuesday, October 13, 2015
- Type of Action: Defamation, Emotional Distress, Employment, Whistleblower, Wrongful Termination
- Judge or Arbitrator(s): Hon. Cynthia Bashant
- Plaintiffs: Charles Matthew Erhart, auditor, 35
- Defendants: BofI Federal Bank now known as Axos Bank
- Type of Result: Jury Verdict
- Gross Verdict or Award: $1,500,000. The jury was hung on punitive damages, which will be retried.
- Award as to each Defendant:
Plaintiff prevailed on his claims for violations of the whistleblower protection provisions Sarbanes-Oxley Act of 2002, California Labor Code § 1102.5, wrongful termination in violation of public policy, as well as on one of his four claims of defamatory statements. The jury also found for plaintiff on all six of the bank’s counterclaims.
The jury found retaliation based on Mr. Erhart’s belief of wrongdoing and listed each of these as a basis for liability: • the existence of documents responsive to an SEC subpoena for which it told the SEC it had none • the existence of a host of loans to criminals and foreign nationals including Politically Exposed Persons under the Bank Secrecy Act • failure to disclose to regulators accounts with no Tax Identification Numbers • failure to disclose to regulators criminal subpoenas • violation of California law for recording phone calls to lottery winners and recipients of structured settlements • high levels of deposit concentration not being properly disclosed • failure to disclose to regulators a list of high-risk customers with cash cards • failure to disclose the existence of an audit under the Flood Disaster Protection Act • CEO Greg Garrabrants’ depositing of third-party checks into his personal account • untimely 401(k) payments to employee accounts.
There was no finding that BofI Federal Bank actually committed any acts of wrongdoing that Mr. Erhart raised to the regulators.
- Non-Economic Damages:
- Punitive Damages:
The jury found that the bank acted with malice, fraud, or oppression, entitling plaintiff to seek an award of punitive damages. The jury was not able to reach unanimity on whether to award punitive damages or, if so, the amount to be awarded; this resulted in a mistrial. The retrial of that phase will begin on August 23, 2022.
- Trial or Arbitration Time: 4 weeks
- Jury Deliberation Time: 8 hours
- Jury Polls: 10-0
- Attorney for the Plaintiff:
The Gillam Law Firm by Carol Gillam and Sara Heum, Los Angeles.
- Attorney for the Defendant:
Sheppard Mullin by Polly Towill, Marty Katz and Heather Plocky, Los Angeles.
- Defendant's Technical Expert(s):
Matthew Armstrong, computer forensics.
Facts and Background
- Facts and Background:
Plaintiff worked as an internal auditor at BofI Federal Bank (now Axos Bank) until he was terminated for failure to return to work after expiration of his medical leave. This followed his report of multiple instances of alleged wrongdoing by the bank to management, the Office of the Comptroller of the Currency (“OCC”), OSHA and the SEC.
Plaintiff was hired September 23, 2013. He began to discover what he believed to be wrongdoing around December 2013 and later in 2014 through early 2015. On March 6, 2015, the day after his supervisor, the head of Audit, abruptly resigned, plaintiff called out sick. That morning the company went through his files (as defendant company testified) as to allegedly find his past due and incomplete audits. They found various memoranda including his review of the CEO’s account. Defendant company management decided to terminate him. However, the company never delivered the termination paperwork to plaintiff and, by March 9, 2015, plaintiff had communicated to the defendant company that he was sick and seeking medical leave. Plaintiff was put on FMLA leave thereafter.
During the week of March 9 the defendant company became aware plaintiff was communicating with regulators. The company also knew that he had gone to OSHA in April. Plaintiff had contacted the SEC beginning in February 2015. Plaintiff alleged he was terminated on March 6, 2015, as well as on June 9, 2015. After his FMLA leave expired, the defendant company officially terminated him on June 9, 2015, claiming to job abandonment.
Plaintiff filed a complaint in October 2015 in U.S. District Court for the Southern District of California for retaliation under Sarbanes-Oxley, California Labor Code Section 1102.5, and the common law claims of wrongful termination in violation of public policy and defamation.
Defendant countersued him for six violations including conversion and violations of the Computer Fraud and Abuse Act and California Penal Code Section 502.
- Plaintiff's Contentions:
After reporting misconduct, plaintiff alleged that he was threatened by a senior vice president that if he “continues to turn over rocks, eventually he’s going to find a snake and he’s going to get bit.” After the head of internal audit resigned, bank management immediately prepared to terminate plaintiff after learning of his whistleblowing.
That after plaintiff went out on medical leave and the defendant bank discovered he had gone to regulators, the bank threatened to send San Diego police after plaintiff, made a series of defamatory statements about him, and terminated him.
- Defendant's Contentions:
That plaintiff was not performing his job responsibilities, failed to complete audits assigned to him, and did not have a reasonable belief that the areas of wrongdoing he alleged were violations of the law. That plaintiff refused to respond to communications and refused to return to work at a critical juncture of the OCC examination.
In addition, the bank brought claims against plaintiff associated with his taking, retention, dissemination and deletion of confidential company documents and confidential customer information.
Injuries and Other Damages
Emotional distress, harm to reputation.