Erhart v. Bofi Holding Inc.

MOTION to Dismiss First, Second, Fourth, Seventh, Eighth and Ninth Claims in the First Amended Complaint, MOTION to Strike Under FRCP 12

S.D. Cal.October 31, 2016

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479720760.1 BOFI'S NOTICE OF MOTION AND MOTION TO DISMISS AND/OR STRIKE CLAIMS IN ERHART'S FIRST AMENDED COMPLAINT SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership Including Professional Corporations POLLY TOWILL, Cal. Bar No. 120420 ptowill@sheppardmullin.com ANDRE J. CRONTHALL, Cal. Bar No. 117088 acronthall@sheppardmullin.com 333 South Hope Street, 43rd Floor Los Angeles, California 90071-1422 Telephone: 213.620.1780 Facsimile: 213.620.1398 Attorneys for Defendant BofI HOLDING, INC. and Plaintiff BofI FEDERAL BANK UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA CHARLES MATTHEW ERHART, an individual, Plaintiff, v. BofI HOLDING, INC., an entity d/b/a BOFI FEDERAL BANK and BANK OF THE INTERNET, Defendant. Case No. 15-cv-2287-BAS-NLS consolidated with 15-cv-2353-BAS-NLS DEFENDANT BOFI HOLDING, INC.'S NOTICE OF MOTION AND MOTION TO DISMISS PLAINTIFF'S FIRST, SECOND, FOURTH, SEVENTH, EIGHTH AND NINTH CLAIMS IN THE FIRST AMENDED COMPLAINT UNDER FED. R. CIV. P. 12(B)(6) AND MOTION TO STRIKE UNDER FED. R. CIV. P 12(F) Date: December 12, 2016 NO ORAL ARGUMENT UNLESS REQUESTED BY THE COURT Hon. Cynthia Bashant (Schwartz Courthouse, Courtroom 4B) BofI FEDERAL BANK, a federal savings bank Plaintiff, v. CHARLES MATTHEW ERHART, an individual, Defendant. Case 3:15-cv-02287-BAS-NLS Document 35 Filed 10/31/16 Page 1 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- SMRH:479720760.1 REPLY IN SUPPORT OF MOTION FOR CLARIFICATION OR, ALTERNATIVELY, RECONSIDERATION OF THE COURT'S PRELIMINARY INJUNCTION RULING TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on December 12, 2016, or as soon thereafter as the matter may be heard in the Courtroom of the Honorable Cynthia Bashant, United States District Judge for the Southern District of California, located at 333 W Broadway #420, San Diego, CA 92101, defendant BofI Holding, Inc. (“BofI”) will and hereby does move the Court pursuant to Fed. R. Civ. P 12(b)(6) for an order dismissing the following claims in plaintiff Charles Matthew Erhart’s (“Erhart”) First Amended Complaint ("FAC"). 1. The first and second claims for violations of the Sarbanes-Oxley Act (“SOX”) and the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) on the ground that Erhart fails to allege violations that he reasonably believed relate to one of the categories of fraud or securities violations covered by SOX and/or Dodd-Frank and otherwise fail to state a valid claim. 2. The fourth claim for violation of the Confidentiality of Medical Information Act (“CMIA”) on the ground that Erhart fails to identify any disclosed medical information. 3. The seventh claim for breach of the implied covenant of good faith and fair dealing on the ground that there is no cognizable contract underlying Erhart's claim. 4. The eighth claim for intentional infliction of emotional distress on the grounds that it is barred by the Workers’ Compensation Act and otherwise fails to state a cause of action by not alleging facts showing the requisite extreme and outrageous conduct. 5. The ninth claim for defamation on the ground that Erhart’s conclusory allegations do not adequately specify the defamatory statements allegedly made, the identity of the speaker, or the substance of the alleged statements in sufficient detail. BofI also moves to strike Paragraphs 9-21, 26-45, 49-52, and 70 of the FAC under Fed. R. Civ. P 12(f) on the grounds that they are immaterial and impertinent: Case 3:15-cv-02287-BAS-NLS Document 35 Filed 10/31/16 Page 2 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- SMRH:479720760.1 BOFI'S NOTICE OF MOTION AND MOTION TO DISMISS AND/OR STRIKE CLAIMS IN ERHART'S FIRST AMENDED COMPLAINT  Erhart’s allegation that Bank callers were violating California Penal Code § 632 by failing to notify potential customers that they were being recorded on phone calls from the Bank; (FAC, ¶¶ 9-13).  Erhart’s allegations relating to a meeting with the Bank’s CLO, Eshel Bar-Adon regarding California Penal Code § 632, that was covered by attorney-client privilege; (FAC, ¶ 16).  Erhart’s allegation that he “reasonably understood. . . that senior Bank management, at the CFO level and above, may be falsifying the Company’s financials”; (FAC, ¶ 17).  Erhart’s allegation that the Bank had made untimely 401(k) contributions to employee accounts; (FAC, ¶ 18).  Erhart’s allegation that “the Board did not actually approve the Fiscal 2015 Strategic Plan on July 7, 2014 or at any later date”; (FAC, ¶¶ 19- 21).  Erhart’s allegations relating to the investment advisory firm ETIA LLC, which contain confidential client information and was covered by attorney-client privilege; (FAC, ¶¶ 26-31).  Erhart’s allegation that he notified the SEC about a supposedly suspicious customer he believed was operating as an unregistered broker/investment advisor; (FAC, ¶ 31).  Erhart’s allegation that “the Bank responded to the [Office of the Comptroller of the Currency] that there were no accounts without [tax identification numbers]”; (FAC, ¶ 32).  Erhart’s allegation that the Bank falsely claimed that it had not received any correspondence with federal and state banking agencies and law enforcement, including subpoenas, in response to a request from the Office of the Comptroller of the Currency; (FAC, ¶ 33). Case 3:15-cv-02287-BAS-NLS Document 35 Filed 10/31/16 Page 3 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3- SMRH:479720760.1 BOFI'S NOTICE OF MOTION AND MOTION TO DISMISS AND/OR STRIKE CLAIMS IN ERHART'S FIRST AMENDED COMPLAINT  Erhart’s allegation that “the Bank was making substantial loans to foreign nationals including Politically Exposed Persons (‘PEP’s) in potential violation of BSA/Know Your Customer Rules;” (FAC, ¶ 34).  Erhart’s allegation that “SVP Tolla had repeatedly changed the findings on numerous reports required under the Bank Secrecy Act’s Quality Control (‘QC’) requirements;” (FAC, ¶ 35).  Erhart’s allegation that “the Bank recently calculated Allowance for Loan and Lease Losses (‘ALLL’) to exclude unfunded commitments for lines of credit;” (FAC, ¶ 36).  Erhart’s allegation that he investigated and verified negative findings in a Flood Disaster Protection Act Audit and presented them to management; (FAC, ¶¶ 37-39).  Erhart’s allegation that he prepared a report that was not presented to the Audit Committee regarding a list of High Risk Customers; (FAC, ¶¶ 40-43).  Erhart’s allegations relating to the bank account of the Bank’s CEO, which contain confidential client information; (FAC, ¶ 44).  Erhart’s allegation that the brother of the Bank’s CEO “had a balance of approximately $4 million” and that Erhart “could find no evidence of how he had come legally into possession of the $4 million;” (FAC, ¶ 45).  Erhart’s allegations relating to the resignation of John Ball, which contain confidential employee information; (FAC, ¶¶ 50-52).  Erhart’s allegation related to communications with Eshel Bar-Adon that were covered by attorney-client privilege; (FAC, ¶ 70). BofI’s Motion is based on this Notice, Defendant’s Memorandum of Points and Authorities and the Declaration of Andre J. Cronthall submitted herewith, all pleadings and documents on file herein, and on such other arguments as may be Case 3:15-cv-02287-BAS-NLS Document 35 Filed 10/31/16 Page 4 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4- SMRH:479720760.1 BOFI'S NOTICE OF MOTION AND MOTION TO DISMISS AND/OR STRIKE CLAIMS IN ERHART'S FIRST AMENDED COMPLAINT presented at or before the hearing on this matter. This motion is made following the conference of counsel that took place on October 26, 2016. (Declaration of Andre J. Cronthall, ¶ 4.) Dated: October 31, 2016 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP By /s/ Polly Towill POLLY TOWILL ptowill@sheppardmullin.com Attorneys for Defendant BofI HOLDING, INC. and Plaintiff BofI FEDERAL BANK Case 3:15-cv-02287-BAS-NLS Document 35 Filed 10/31/16 Page 5 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership Including Professional Corporations POLLY TOWILL, Cal. Bar No. 120420 ptowill@sheppardmullin.com ANDRE J. CRONTHALL, Cal. Bar No. 117088 acronthall@sheppardmullin.com 333 South Hope Street, 43rd Floor Los Angeles, California 90071-1422 Telephone: 213.620.1780 Facsimile: 213.620.1398 Attorneys for Defendant BofI HOLDING, INC. and Plaintiff BofI FEDERAL BANK UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA CHARLES MATTHEW ERHART, an individual, Plaintiff, v. BofI HOLDING, INC., an entity d/b/a BOFI FEDERAL BANK and BANK OF THE INTERNET, Defendant. Case No. 15-cv-2287-BAS-NLS consolidated with 15-cv-2353-BAS-NLS MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT BOFI HOLDING, INC.'S MOTION TO DISMISS PLAINTIFF'S FIRST, SECOND, FOURTH, SEVENTH, EIGHTH AND NINTH CLAIMS UNDER FED. R. CIV. P. 12(B)(6) AND MOTION TO STRIKE UNDER FED. R. CIV. P 12(F) Date: December 12, 2016 NO ORAL ARGUMENT UNLESS REQUESTED BY THE COURT Courtroom 4B Hon. Cynthia Bashant (Schwartz Courthouse, Courtroom 4B) BofI FEDERAL BANK, a federal savings bank Plaintiff, v. CHARLES MATTHEW ERHART, an individual, Defendant. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 1 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -i- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY OF ARGUMENT ............................... 1 II. STATEMENT OF RELEVANT ALLEGATIONS .......................................... 3 III. ARGUMENT .................................................................................................... 7 A. Legal Standard Regarding Motions to Dismiss and to Strike. ................ 7 1. Rule 12(b)(6) Motion to Dismiss. ................................................. 7 2. Rule 12(f) Motion to Strike. ......................................................... 7 B. Erhart's First and Second Claims Should be Dismissed Because He Fails to Allege Facts Showing That He Qualifies as a Whistleblower Under SOX and Dodd-Frank. ......................................... 8 1. The Elements of a Whistleblower Claim under SOX. ................. 8 2. The Elements of a Whistleblower Claim Under Dodd- Frank. .......................................................................................... 10 3. Erhart Yet Again Fails to Plead the Required Elements of SOX or Dodd-Frank. .................................................................. 11 a. Erhart Fails To Tether The Alleged Wrongdoing To a Violation of the SOX Listed Categories. ....................... 11 b. Erhart Fails to Allege He Reported Many of the Alleged Incidents of Wrongdoing. ................................... 16 c. Erhart Fails to Plead How Any Alleged Retaliation was Motivated by his Reporting. ...................................... 18 C. Erhart's Fourth Claim for Violation of the Confidentiality of Medical Information Act Should Be Dismissed. .................................. 18 D. Erhart's Seventh Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing Should Be Dismissed. ............................ 19 E. Erhart's Eighth Claim for Intentional Infliction of Emotional Distress Should Be Dismissed. ............................................................. 20 1. Erhart's Claim For Intentional Infliction of Emotional Distress Is Preempted By The Exclusivity Of The Workers' Compensation Act ....................................................... 20 2. Erhart Fails To Allege "Extreme and Outrageous" Conduct Required To Maintain an IIED Claim ........................................ 21 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 2 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -ii- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT F. Erhart's Ninth Claim for Defamation Should Be Dismissed for Lack of Sufficient Specificity. .............................................................. 22 G. Erhart's Immaterial and Impertinent Allegations Should Be Stricken. ................................................................................................ 23 1. Erhart Does Not Allege, for the Majority of His Allegations, that He Engaged in Protected Activity. .................. 23 2. Because Erhart Failed to Exhaust His Administrative Remedies for Numerous Allegations in the FAC, As Required by SOX, Those Allegations Cannot Form the Basis of His Complaint and Should be Stricken. ....................... 24 3. Many of Erhart's Allegations Contain Immaterial and Impertinent Confidential Information. ....................................... 25 IV. CONCLUSION ............................................................................................... 25 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 3 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iii- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT TABLE OF AUTHORITIES Page(s) Cases Asadi v. G.E. Energy (USA), L.L.C. 720 F.3d 620 (5th Cir. 2013) ................................................................................ 10 Balistreri v. Pacifica Police Dept. 901 F.2d 696 (9th Cir. 1988) .................................................................................. 7 Banko v. Apple Inc. 20 F. Supp. 749 (N.D. Cal. 2013) ......................................................................... 10 Beacom v. Oracle America, Inc. 825 F.3d 376 (8th Cir. 2016) ................................................................................ 12 Bozeman v. Per-Se Technologies, Inc. 456 F. Supp. 2d 1282 (N.D. Ga. 2006) ................................................................ 24 Buscemi v. McDonnell Douglas Corp. 736 F.2d 1348 (9th Cir. 1984) .............................................................................. 21 Chabra v. S. Monterey Cnty. Mem’l Hosp., Inc. 1994 WL 564566 (N.D. Cal. Oct. 3, 1994) .......................................................... 22 Cole v. Fair Oaks Fire Prot. Dist. 43 Cal. 3d 148 (1987) ........................................................................................... 20 Davies v. Broadcom Corp. 2015 WL 5545513 (C.D. Cal. Sept. 8, 2015) ....................................................... 10 Deirmenjian v. Deutsche Bank, A.G. 526 F. Supp.2d 1068 (C.D. Cal. 2007) ................................................................... 7 Fantasy, Inc., v. Fogerty 984 F.2d 1524 (9th Cir. 1993) ............................................................................ 7, 8 Guz v. Bechtel Nat. Inc. 24 Cal. 4th 317 (2000) .......................................................................................... 19 Holland v. BP Am., Inc. 2012 WL 761980 (E.D. Cal. Mar. 7, 2012) .......................................................... 19 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 4 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iv- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Huntongdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc. 129 Cal. App. 4th 1228 (2005) ............................................................................. 21 Jacobson v. Schwarzenegger 357 F. Supp. 2d 1198 (C.D. Cal. 2004) ................................................................ 22 Janken v. GM Hughes Electronics 46 Cal. App. 4th 55 (1996) ................................................................................... 21 Jones v. Home Fed. Bank 2010 U.S. Dist. LEXIS 3579 (D. Idaho Jan. 14, 2010) ........................................ 24 Lopez v. Charles Schwab & Co., Inc. 118 Cal. App. 4th 1224 (2004) ............................................................................. 19 McClendon v. Hewlett-Packard Co. 2005 U.S. Dist. LEXIS 29449 (D. Idaho Oct. 27, 2005) ..................................... 24 Milosky v. Regents of the University of California 44 Cal. 4th 876 (2008) .......................................................................................... 20 Nielsen v. AECOM Tech. Corp. 762 F.3d 214 (2d Cir. 2014) ..................................................................... 11, 12, 16 Pereira v. United States 347 U.S. 1 (1954) ................................................................................................. 13 Racine & Laramie, Ltd. V. Dep’t of Parks and Recreation 11 Cal. App. 4th 1026 (1992) ............................................................................... 19 Rhinehimer v. U.S. Bancorp Invs., Inc. 787 F.3d 797 (6th Cir. 2015) .................................................................................. 9 Sclauch v. Hartford Accident & Indemnity Co. 146 Cal. App. 3d 926 (1983) ................................................................................ 21 Shoemaker v. Myers 52 Cal. 3d 1 (1990) ............................................................................................... 20 Sidney-Vinstein v. A.H. Robbins Co. 697 F.2d 880 (9th Cir. 1983) .................................................................................. 7 Sipe v. Countrywide Bank 690 F.Supp.2d 1141 (E.D. Cal. 2010) .................................................................. 19 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 5 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -v- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Somers v. Digital Realty Trust, Inc. 2015 WL 4483955 (N.D. Cal. July 22, 2015) ...................................................... 10 Sylvester v. Parexel Int’l LLC Docket No. 07-123, 32 IER Cases 497, 2011 WL 2165854, (U.S. Dept. of Labor May 25, 2011) ................................................................................ 9 Tides v. The Boeing Co. 644 F.3d 809 (9th Cir. 2011) .................................................................................. 8 Trusz v. UBS Realty Investors 2010 WL 1287148 (D. Conn. Mar. 30, 2010) ...................................................... 24 United States v. Gordon 780 F.2d 1165 (5th Cir. 1986) .............................................................................. 13 United States v. Miller 70 F.3d 1353 (1995) ............................................................................................. 14 United States v. Wise 553 F.2d 1173 (8th Cir. 1977) .............................................................................. 13 Unterberger v. Red Bull North America Inc. 162 Cal. App. 4th 414 (2008) ............................................................................... 21 Van Asdale v. Int’l Game Tech. 577 F.3d 989 (9th Cir. 2009) ............................................................................ 8, 14 Vasquez v. Franklin Management Real Estate Fund, Inc. 222 Cal. App. 4th 819 (2013) ............................................................................... 21 Wiest v. Lynch 710 F. 3d 121 (3d Cir. 2013) ................................................................................ 12 Wiggins v. ING U.S., Inc. 2015 U.S. Dist. LEXIS 167362 (D. Conn. Dec. 15, 2015) ............................ 12, 13 Willis v. Vie Fin. Grp. 2004 WL 1774575 (E.D. Pa. Aug. 6, 2004) ......................................................... 24 Statutes 15 U.S.C.§ 78u-6(a)(6) .............................................................................................. 10 15 U.S.C. § 78u-6(h)(1)(A) ....................................................................................... 10 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 6 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -vi- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT 18 U.S.C. § 1514A ................................................................................................. 8, 24 Cal. Civ. Code § 56.05(j) ........................................................................................... 18 Cal. Civ. Code § 56.20(c) .......................................................................................... 18 Cal. Lab Code § 1102.5 ............................................................................................. 23 Cal. Lab Code § 2922 ................................................................................................ 19 Cal. Lab Code § 3600(a) ............................................................................................ 20 Cal. Lab Code § 3601 ................................................................................................ 20 Cal. Lab Code § 3602(a) ............................................................................................ 20 Cal. Lab Code § 5300 ................................................................................................ 20 Other Authorities S. D. Cal. Local Rule 15.1(c)....................................................................................... 3 Fed. R. Civ. Proc. 12(b)(6) .......................................................................................... 7 Fed. R. Civ. Proc. 12(f) ................................................................................................ 7 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 7 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT I. INTRODUCTION AND SUMMARY OF ARGUMENT Plaintiff Charles Matthew Erhart alleges that BofI Holding, Inc. (incorrectly sued herein as d/b/a BofI Federal Bank and Bank of the Internet; hereinafter “BofI”), retaliated against him after he supposedly “blew the whistle” concerning a hodge podge of alleged wrongdoing by BofI. In fact, as his insufficient pleading demonstrates, Erhart and his counsel have slung a multitude of salacious but factually deficient (and false as BofI will prove, if necessary) allegations against BofI in their ill-conceived effort to damage BofI and somehow extract money to which they are not entitled. Despite having ample opportunity and clear guidance from the Court to properly allege his purported whistleblower retaliation claims, Erhart’s First Amended Complaint (”FAC”) shows he is simply unable to do so. Accordingly, Erhart’s FAC should be dismissed. The Court’s September 26, 2016 order dismissed Erhart’s first and second claims for whistleblower retaliation under SOX and Dodd-Frank because Erhart failed to “tether[] the conduct Sarbanes-Oxley and Dodd-Frank seek to uncover and prevent - fraud against shareholders, wire fraud, bank fraud, and the other violations of law these statutes encompass” to the allegations of wrongdoing set forth in his complaint. In a thorough opinion, the Court laid out the minimum requirements necessary to state a valid whistleblower retaliation claim under SOX and Dodd- Frank, namely that Erhart must plead an objectively reasonable belief that the violations he claims to have reported fall within one of the categories of fraud listed in SOX and Dodd-Frank, and that such reporting was connected to an “unfavorable personnel action” against him. While the Court noted that Erhart “need not prove these laws were being violated,” he must at least “plausibly allege a reasonable belief that they were being violated or that he was providing information relating to a possible securities law violation.” (Dkt No. 22, p. 32.) Despite being given clear instructions from the Court regarding what he must do to adequately plead a claim for whistleblower retaliation under SOX and Dodd- Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 8 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Frank, Erhart has once again failed to do so. Instead, Erhart submitted a nearly identical complaint with only two relevant modifications. He first added a new paragraph 74A, in which he lists each of the fifteen allegations of wrongdoing already asserted both in the original complaint and again in the FAC, followed by a laundry list of statutes and regulations he claims the conduct violates, without any identification or explanation as to which statutes or regulations pertain to which alleged act of wrongdoing and why. Erhart also adds identical paragraphs 77A and 91A, in which he states his belief that all of the “actions listed above violated federal statutes, rules and regulations” and that BofI was committing every type of fraud listed under SOX simply because BofI is “heavily regulated.” These additions to the FAC fall well short of the “reasonably believes” standard set forth by the Court, requiring a “tethering” of the allegations to the specified categories of fraud under SOX and Dodd-Frank, as well as sufficient detail to allow the Court to determine whether Erhart’s claimed belief is objectively reasonable. Instead, Erhart has once again “hand[ed] the Court a fifteen page fact pattern and ask[ed] it to specify what conduct could be believed to be ‘a violation of section 1341 [mail fraud], 1342 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.’” (Dkt No. 22, p. 25.) Further, just as with the original Complaint, Erhart again fails to allege (with just a few exceptions) that the incidents were reported as required. Notably, not even one of the alleged incidents involved the bank fraud or securities violations that are essential to a claim under the whistleblower protection provisions of SOX and Dodd-Frank. Moreover, Erhart does not allege that reporting these items contributed to an adverse employment action against him. Erhart simply asserts broadly that he “reported each of these matters to appropriate government agencies as a whistleblower in April 2015.” (FAC, ¶ 46). He fails to allege, as he must, facts showing that BofI knew or suspected that he reported the requisite fraudulent Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 9 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT conduct or securities violations and, for that reason, retaliated against him. Further, none of the alleged conduct was mentioned in Erhart’s OSHA charge, which is an essential precondition to raising them here. While, to date, the focus of this action has centered on the only two federal claims at issue, Erhart’s SOX and Dodd-Frank whistleblower retaliation claims, Erhart also has asserted a number of state law claims pursuant to the Court’s supplemental jurisdiction. BofI’s prior motion to dismiss identified the numerous deficiencies in these causes of action; however, the Court did not reach these claims after dismissing the federal claims and declining to exercise supplemental jurisdiction. Since BofI believes the Court, once again, will not reach these issues because of Erhart’s failure to adequately amend his two federal claims, the Court should once again decline to exercise supplemental jurisdiction and dismiss these claims. Should the Court reach these issues, however, the Court will find that they also fail to state claims as a matter of law. II. STATEMENT OF RELEVANT ALLEGATIONS On September 26, 2016, the Court granted in part and denied in part BofI’s motion to dismiss Erhart’s complaint, which was originally filed on October 13, 2015, dismissing Erhart’s first and second claims for whistleblower retaliation under SOX and Dodd-Frank, and dismissing the remainder of his claims after declining to exercise supplemental jurisdiction. (Dkt No. 22, p. 32.) The Court afforded Erhart the opportunity to file an amended complaint to cure the defects in his original complaint. (Id.) On October 17, 2016, Erhart filed the FAC. Aside from a few gratuitous “digs” at BofI, the FAC contains no substantive changes to his first and second claims under SOX and Dodd-Frank, respectively. Erhart also failed to provide a red-line of the Complaint and the FAC, as required by Local Rule 15.1(c). The FAC alleges the same fifteen (15) instances of purported improper conduct by BofI that Erhart asserted in the original complaint, without modification. Instead of repeating its discussion of those alleged incidents from its earlier motion Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 10 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT to dismiss, BofI submits the following chart listing each allegation and depicting how each one fails to satisfy the relevant pleading requirements: Description of Alleged Violation Failure to Identify A Fraud Under SOX/Dodd- Frank Failure to Report Alleged Violation Failure to Allege Reporting Motivated Retaliation Failure to Include in OSHA Charge BofI failed to notify potential customers that they were being recorded on phone calls from BofI. (FAC, ¶ 13). X X X BofI altered financials because BofI's Chief Credit Officer mentioned that "he is not responsible for any of the Bank's numbers after they are turned over to the Chief Financial Officer." (FAC, ¶ 17.) X X X X BofI made untimely 401(k) contributions to employee accounts. (FAC, ¶ 18). X X X X BofI failed to approve the Fiscal 2015 Strategic Plan. (FAC, ¶¶ 19-21). X X X X A small number of depositors accounted for a significant percentage of BofI's deposits. (FAC, ¶ 22-24). X X Erhart's performance evaluation was downgraded, supposedly because of Erhart putting findings in writing. (FAC, ¶ 25). X X X BofI had information concerning a customer loan responsive to a confidential SEC subpoena that BofI did not disclose. (FAC, ¶ 26-31A.) X X Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 11 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Description of Alleged Violation Failure to Identify A Fraud Under SOX/Dodd- Frank Failure to Report Alleged Violation Failure to Allege Reporting Motivated Retaliation Failure to Include in OSHA Charge BofI incorrectly told the Office of the Comptroller of the Currency ("OCC") that there were no accounts with no Tax Identification Numbers ("TIN's"). (FAC, ¶ 32). X X X X BofI incorrectly told the OCC that it had not received certain documents received by BofI from banking agencies and law enforcement during a certain time frame, including subpoenas. (FAC, ¶ 33). X X X X BofI allegedly made loans to criminals and Politically Exposed Persons ("PEP's"). (FAC, ¶ 34). X X X X A Senior Vice President of BofI changed findings in certain reports required under the Bank Secrecy Act. (FAC, ¶ 35). X X X X Erhart claims to have discovered that BofI calculated Allowances for Loan and Lease Losses ("ALLL") to exclude unfunded commitments for lines of credit. (FAC, ¶ 36.) X X X X BofI management did not include issues Erhart identified regarding BofI's compliance with the Flood Disaster Protection Act ("FDPA") in the final audit report. (FAC, ¶¶ 37- 39). X X X Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 12 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Description of Alleged Violation Failure to Identify A Fraud Under SOX/Dodd- Frank Failure to Report Alleged Violation Failure to Allege Reporting Motivated Retaliation Failure to Include in OSHA Charge BofI revised a list of potential high risk customers provided by BofI vendor Global Cash Card, and then terminated the vendor. (FAC, ¶¶ 40-43). X X X BofI's CEO and his brother, Steven Garrabrants, may not have reported income to the IRS. (FAC, ¶¶ 44-45). X X X The FAC contains the exact same litany of contrived allegations of claimed wrongdoing that Erhart asserted in his original complaint. In stark contrast, Erhart’s vague OSHA complaint (the "OSHA Charge") filed on or about April 14, 2015, is less than six pages long and, despite having been prepared with his counsel’s assistance, contains very little detail regarding Erhart's allegations against BofI. For example, it states only in conclusory fashion that he believed "the Bank [was] committing securities fraud, wire fraud, mail fraud, fraud on its shareholders, violations of SEC rules and regulations, and other violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Sarbanes-Oxley Act," without explaining who allegedly did what, when or where. (Dkt No. 3-3, p. 4). OSHA took no action on Erhart's OSHA Charge. (FAC, ¶ 78). Yet again, Erhart attempts to conceal his failure to inform OSHA of the specific nature of his claims by asserting generically that he exhausted his administrative remedies. Erhart’s failure to report each of his allegations to OSHA is fatal to his claims here. The remainder of Erhart’s claims remain unchanged from the original complaint. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 13 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT III. ARGUMENT A. Legal Standard Regarding Motions to Dismiss and to Strike. 1. Rule 12(b)(6) Motion to Dismiss. A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in a complaint. Dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Deirmenjian v. Deutsche Bank, A.G., 526 F. Supp.2d 1068, 1073 (C.D. Cal. 2007), citing Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). As stated by this Court: “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” A court need not accept “legal conclusions” as true. Despite the deference the court must pay to the plaintiff’s allegations, it is not proper for the court to assume that “the [plaintiff] can prove facts that it has not alleged or that the defendants have violated the… law[] in ways that have not been alleged.” (Dkt No. 22, p. 14-15 (internal citations omitted).) A 12(b)(6) motion may be directed at fewer than all of the claims for relief raised. 2. Rule 12(f) Motion to Strike. A Rule 12(f) motion provides a mechanism by which a court may strike any fact alleged in a complaint that is "redundant, immaterial, impertinent, or scandal- lous," or any allegation that is legally defective and is not susceptible to dismissal through a motion under Rule 12(b)(6). Fantasy, Inc., v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517, 534-35 (1994). The function of a motion to strike is "to avoid the expenditure of time and money that may arise from litigating spurious issues by dispensing with those issues prior to trial." Sidney-Vinstein v. A.H. Robbins Co., 697 F.2d 880, 886 (9th Cir. 1983). Allegations are immaterial when they have "no essential or important relationship to the claim for relief or the defenses being pleaded." Fantasy, Inc., 984 Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 14 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT F.2d at 1528. Allegations are "impertinent" when they "do not pertain, and are not necessary, to the issues in question." Fantasy, Inc., 984 F.2d at 15287. B. Erhart's First and Second Claims Should be Dismissed Because He Fails to Allege Facts Showing That He Qualifies as a Whistleblower Under SOX and Dodd-Frank. 1. The Elements of a Whistleblower Claim under SOX. As recognized by this Court, to establish a prima facie violation of SOX's whistleblower provisions, a plaintiff must plead and prove, among other elements, that he engaged in a protected activity or conduct. Van Asdale v. Int'l Game Tech., 577 F.3d 989, 996 (9th Cir. 2009) (citing 29 C.F.R. § 1980.104(b)(1)(i)-(iv)); 18 U.S.C. § 1514A(a)(1). An employee has engaged in protected activity if he provided information or assistance concerning one or more of the following types of fraud: (i) mail fraud, (ii) wire fraud, (iii) bank fraud, (iv) securities fraud, (v) any rule or regulation of the SEC, or (vi) any Federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1). Additionally, the report must be made to a federal regulator or law enforcement agency, Congress, or a supervisor or other individual who has the authority to investigate the misconduct (the "SOX Complaint Recipient"). Id. Importantly, the Ninth Circuit has recognized that the categories of SOX Complaint Recipients that entitle a plaintiff to whistleblower protections are exclusive. See Tides v. The Boeing Co., 644 F.3d 809, 815 (9th Cir. 2011) (communications to people or organizations outside of those identified in 18 U.S.C. § 1514A(a)(1), such as the media, are insufficient to grant a plaintiff whistleblower protections). With respect to the requirement that the plaintiff demonstrate he engaged in protected activity, the Court adopted the “reasonable belief” standard set forth in Sylvester v. Parexel Int’l LLC, Docket No. 07-123, 32 IER Cases 497, 2011 WL 2165854, at *14-15 (U.S. Dept. of Labor May 25, 2011) (en banc) (“Sylvester”). (Dkt No. 22, p. 22). “To make this showing, the plaintiff must have a ‘subjective Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 15 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT belief’ that the challenged conduct violates a relevant law listed in 18 U.S.C. § 1514(a)(1), and this belief must be ‘objectively reasonable.’” (Dkt No. 22, p. 19 (quoting Sylvester, 2011 WL 2165854, at *12).) As the Court stated: “The subjective component is satisfied if the employee actually believed that the conduct complained of constituted a violation of relevant law.” Further, the objective component “is evaluated based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the aggrieved employee.” Id. at p. 22 (quoting Rhinehimer v. U.S. Bancorp Invs., Inc., 787 F.3d 797, 811 (6th Cir. 2015). Given Erhart’s position as an internal auditor, and previous experience at FINRA (FAC, ¶ 9), the objective belief element is a higher bar than that for an employee without such credentials. Considered in this light, Erhart’s failure to plead facts sufficient to satisfy this element is even more evident. Based upon this standard, the Court dismissed Erhart’s SOX claim in the original complaint. In so doing, the Court noted that: Erhart alleges he discovered and reported information regarding a torrent of conduct that runs the gamut from BofI allegedly recording phone calls without callers’ consent to hiding information from the OCC…. Nevertheless, Erhart’s Complaint does not adequately allege protected activity under Sarbanes-Oxley. Erhart relies on the assumption that a reasonable belief of any violation of law is sufficient to constitute protected activity under Sarbanes- Oxley. … Erhart never alleges in his Complaint that he believed any of BofI’s claimed wrongdoing constituted a violation of any of the categories of laws listed in 18 U.S.C. § 1514A(a)(1)…. Erhart must allege he ‘actually believed that the conduct complained of constituted a violation of relevant law….’ Erhart did not have to use legal terms of art or ‘cite a code section….’ Yet, he must still have reasonably believed the information he was reporting constituted the type of conduct forbidden by provisions listed in Sarbanes-Oxley. (Id., p. 23-25.) Instead, the Court found that Erhart had handed it a “fifteen page fact pattern” and asked the Court to figure out which violations he may have Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 16 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT alleged. (Id. at 25-26.) For these reasons, the Court determined that Erhart’s SOX claim failed on its face. Despite the Court’s detailed roadmap of what he would need to allege for his pleading to pass muster, Erhart’s FAC does nothing to specify how the alleged conduct violated any of the relevant statutes. 2. The Elements of a Whistleblower Claim Under Dodd-Frank. Dodd-Frank prohibits an employer from taking certain actions, including termination, against employees as a result of the employee providing (1) information to the SEC about securities law violations; (2) initiating, testifying in, or assisting in an investigation or judicial or administrative action of the SEC (inapplicable here because, per Erhart's pleading, no action was taken by the SEC); or (3) making disclosures "required or protected" under SOX (the six categories enumerated above). 15 U.S.C. § 78u-6(h)(1)(A)(i)-(iii). To be entitled to whistleblower protection under Dodd-Frank, an employee must provide the required information regarding a securities violation or one of the types of fraud specified in SOX. 15 U.S.C. § 78u-6(a)(6) and (h)(1)(A). There is a split of authority in this Circuit regarding whether Dodd-Frank requires the purported whistleblower to report directly to the SEC. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 625 (5th Cir. 2013); see also Davies v. Broadcom Corp., 2015 WL 5545513, at *4 (C.D. Cal. Sept. 8, 2015) (disagreeing with Somers v. Digital Realty Trust, Inc., 2015 WL 4483955 (N.D. Cal. July 22, 2015)) and Banko v. Apple Inc., 20 F. Supp. 749, 755-757 (N.D. Cal. 2013). For purposes of this motion, it is irrelevant which standard is applied because Erhart’s claim for whistleblower retaliation under Dodd-Frank fails regardless. In dismissing Erhart’s Dodd-Frank whistleblower retaliation claim in the original complaint, the Court found that the claim failed “[f]or largely the same reasons that Erhart fails to allege protected activity under Sarbanes-Oxley.” (Dkt No. 22, p. 29). The Court determined that, “like he does with his Sarbanes-Oxley Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 17 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -11 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT claim, Erhart punts this issue to the Court…. But it is not the Court’s role to review Erhart’s narrative of his discoveries at BofI and identify for him what information he believed at the time ‘relate[d] to a possible securities law violation… or… a possible violation of the provisions’ enumerated in Sarbanes-Oxley.” (Dkt No. 22, p. 29-30.) 3. Erhart Yet Again Fails to Plead the Required Elements of SOX or Dodd-Frank. The FAC asserts nearly identical SOX and Dodd-Frank claims as the ones the Court dismissed from Erhart’s original complaint. In fact, the only modification Erhart made was to add that he “reasonably and actually believed” that his laundry list of allegedly improper conduct “violated federal statutes, rules and regulations.” (FAC, ¶ 77A, 91A.) Erhart’s sole stated basis for his alleged “reasonable belief” that the conduct constituted a violation of one of the § 1514A categories is that “BofI was heavily regulated by a number of federal agencies.” (Id.) This minor addition utterly fails to show an objectively reasonable belief that the purported wrongdoing he allegedly reported violated one of the listed types of fraud under § 1514A. a. Erhart Fails To Tether The Alleged Wrongdoing To a Violation of the SOX Listed Categories. As noted by the Court, Erhart must make some connection between the alleged wrongdoing and one of the violations of law set forth in Section 1514A. (Dkt No. 22, p. 24 (citing Nielsen v. AECOM Tech. Corp., 762 F.3d 214, 221 n.6 (2d Cir. 2014) (“We note that the statute does require plausible allegations that the whistleblower reported information based on a reasonable belief that the employer violated one of the enumerated provisions set out in the statute…. [T]o be reasonable, the purported whistleblower’s belief cannot exist wholly untethered from these specific provisions.”)). For example, in Nielsen, the court rejected the plaintiff’s “conclusory statement” that he “reasonably believed that defendants were Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 18 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -12 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT committing fraud upon [their] shareholders and would likely continue violating the United States mail and wire fraud statutes by using telephone lines and emails in furtherance of the fraud.” Nielsen, 762 F.3d at 222. The Nielsen court determined that plaintiff’s belief was not objectively reasonable because the two types of SOX- eligible fraud alleged by plaintiff – wire and mail fraud – required a scheme to steal money or property and plaintiff had not pled any such allegations in his complaint. Id.1 In contrast, in Wiggins v. ING U.S., Inc., which followed the “reasonably believes” standard set forth in Sylvester, the plaintiff identified “a number of sets of actions taken by ING employees and, for each set, states Wiggins’s basis for believing that such action violated the statutes and rules the Amended complaint….” 2015 U.S. Dist. LEXIS 167362 at *14-15 (D. Conn. Dec. 15, 2015). For example, Wiggins alleged that she “believed that ING’s persistent determination of incorrect [Market Value Assessments] violated federal securities laws because she knew that federal securities laws required Defendants to maintain accurate books and records, establish adequate internal controls to ensure accurate reporting of financial information, and to act in the best interests of clients in accordance with fiduciary duty obligations.” Id. at *16-17. Wiggins’s other allegations of misconduct 1 See, also, Beacom v. Oracle America, Inc., 825 F.3d 376, 380-381 (8th Cir. 2016), (finding a former employee’s SOX claim failed because his belief that the company was defrauding its investors was objectively unreasonable, since as a company salesperson and shareholder, he would have understood the predictive nature of revenue projections and that $10 million was a minor discrepancy to a company, like his employer, that annually generated billions of dollars); Wiest v. Lynch, 710 F. 3d 121, 136 (3d Cir. 2013) (rejecting all but two allegations of protected activity because “[e]ven if the facts in the Complaint established that Wiest subjectively believed the expense request for the Venetian event could have violated provision in Section 806,…objectively, a reasonable person in Wiest’s position would not have believed that the expense request that initially lacked a detailed agenda and breakdown of expenses would constitute a violation of one of the provisions listed in Section 806.” Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 19 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -13 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT followed a similar structural approach – “first identifying the alleged action, then identifying why Wiggins thought such action violated a statute or rules covered by section 1514A.” Id. at *17. As such, the court determined Wiggins had adequately plead an objectively reasonable belief that she had reported alleged conduct that violated one of the listed categories of fraud. Id. at *22. Just as they were in the original complaint, the identical allegations in the FAC are simply too vague and too tenuous to support an objectively reasonable belief that the purported violations relate to any of the listed categories of fraud under § 1514A. First, Erhart fails to identify the type of fraud each incident supposedly entails. Instead, he has simply added Paragraph 74A in which he refers to all of the conduct set forth in the FAC and follows it with a laundry list of statutes and regulations and leaves it to BofI and the Court to guess which statutes or regulations might apply to which alleged incident of misconduct. (FAC, ¶ 74A.) This is precisely the type of improper pleading that resulted in dismissal of Erhart’s prior complaint. Even if Erhart’s recitation of statutes and regulations in Paragraph 74A could be construed as tethering the alleged misconduct to violations of mail fraud, wire fraud, bank fraud, securities fraud, an SEC rule or regulation, or shareholder fraud, Erhart fails to allege any facts to allow BofI or the Court to evaluate whether his belief was objectively reasonable.2 For example, 2 While Erhart is not required to specifically plead the elements of any particular type of fraud, he must provide some basis to understand how the alleged conduct relates to the particular type of violation. For example, mail fraud under 18 USC § 1341 requires a scheme to defraud, and the mailing of matter, etc. for purpose of executing the scheme. Pereira v. United States, 347 U.S. 1 (1954). Wire fraud under 18 USC § 1343 requires a scheme to defraud, and interstate communications in furtherance of the scheme. United States v. Wise, 553 F.2d 1173 (8th Cir. 1977); United States v. Gordon, 780 F.2d 1165 (5th Cir. 1986). Bank fraud under 18 USC § 1344 requires a scheme to defraud a financial institution or to obtain any of the moneys, funds, credits, assets, or securities, owned by or under the Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 20 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -14 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT  Erhart does not even attempt to explain why he believed untimely deposits to employees’ 401k accounts violated one of the listed types of fraud. (FAC, ¶ 18).  Erhart does not explain why he believed an alleged failure to notify callers that their calls were being recorded, an alleged violation of California Penal Code § 632, is one of the listed types of fraud. (FAC, ¶ 13).  Erhart does not allege facts supporting any plausible reason to believe the Chief Credit Officer’s alleged statement that “he is not responsible for any of the Bank’s numbers after they are turned over to the Chief Financial Officer” constituted a listed type of fraud. (FAC, ¶ 17.)  Erhart does not state how he could believe BofI’s alleged failure to approve the Fiscal 2015 Strategic Plan would be a violation of one of the listed categories of fraud. (FAC, ¶ 19-21.)  Erhart does not explain why he supposedly believed that having a small number of depositors who accounted for a significant percentage of BofI’s deposits would be a violation of one of the listed categories of fraud. (FAC, ¶ 22-24.)  Erhart fails to allege how an alleged response to a confidential third party SEC subpoena seeking information about a particular account number could reasonably be perceived as a SOX violation. (FAC, ¶ 26-31A.)  Erhart does not allege how any auditor reasonably could believe that a custody or control of a financial institution, by means of false or fraudulent pretenses, representations, or promises. United States v. Miller, 70 F.3d 1353 (1995). It is unheard of for a bank to knowingly intend to defraud itself. Securities fraud under 18 USC § 1348 requires a material misrepresentation or omission of fact, scienter, connected to the purchase or sale of a security, transaction and loss causation, and economic loss. Van Asdale, 557 F.3d at 1001. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 21 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -15 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT response to the OCC concerning accounts without TINs qualifies as a violation of the listed categories of fraud. (FAC, ¶ 32.)  Erhart fails to allege facts regarding why he believed that BofI’s alleged failure to disclose to the OCC grand jury or other subpoenas to which it was not a party constitutes a SOX violation. (FAC, ¶ 33).  Erhart does not explain why he reasonably believed that alleged loans to criminals or PEP’s constituted a SOX violation. (FAC, ¶ 34.)  Erhart fails to state why he believed, reasonably or otherwise, that changes allegedly made to certain BSA reports constituted a SOX violation. (FAC, ¶ 35.)  Erhart does not explain why he believed that management’s alleged failure to include Erhart’s findings in the FDPA audit report constituted a SOX violation. (FAC, ¶ 37-39.)  Erhart fails to allege how BofI’s alleged revision of a list of potential high risk customers provided by a vendor, and subsequent termination of the vendor, could be considered by anyone to be a violation of one of the listed categories of fraud. (FAC, ¶ 40-43.)  Erhart does not state how he reasonably could believe that Mr. Garrabrants’ alleged deposits of third-party checks into a personal account is one of the listed types of fraud. (FAC, ¶ 44). The only “justification” Erhart provides in his first and second claim is that he knew BofI is heavily regulated. (FAC, ¶ 77A, 91A.) The fact that BofI is a regulated entity is not a reasonable basis to believe that the conduct alleged by Erhart is a type of violation protected by SOX or Dodd-Frank. Furthermore, to the extent Erhart claims that his belief was reasonable based upon unspecified “guidance and instructions” from Jonathan Ball, (id., ¶ 74A), Erhart has failed to allege sufficient facts regarding the “guidance and instructions” he received to evaluate whether he reasonably relied upon it. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 22 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -16 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Erhart not only fails to tether any of these allegations to any of the enumerated violations, but he is unable to demonstrate that a “reasonable person in the same factual circumstances with the same training and experience” would reasonably believe that the aforementioned allegations constitute violations of mail fraud, wire fraud, bank fraud, securities fraud, a violation of an SEC rule or regulation, or shareholder fraud. Just as the plaintiff in Nielsen, did not “allege[] any facts plausibly suggesting that this supposed misconduct implicated any of the enumerated provisions in § 1514A” Erhart has similarly failed to plausibly allege that he, as a bank auditor, reasonably believed the conduct he complained of violated an enumerated provision. Nielsen, 762 F.3d at 223. b. Erhart Fails to Allege He Reported Many of the Alleged Incidents of Wrongdoing. Erhart also fails to allege, as he must, that he reported the fifteen alleged instances of wrongdoing. Erhart does not allege he reported the following incidents at all:  Allegedly falsified company financials. (FAC, ¶ 17).  Alleged untimely 401(k) contributions to employee accounts. (FAC, ¶ 18).  An alleged failure to approve the Fiscal 2015 Strategic Plan. (FAC, ¶¶ 19-21).  An alleged downgrade of his performance evaluation for putting findings in writing. (FAC, ¶ 25).  Alleged inaccurate communications to the OCC that there were no accounts without Tax Identification Numbers ("TIN's"). (FAC, ¶ 32).  An alleged failure to properly respond to the OCC regarding documents received from banking agencies and law enforcement during a certain time frame, including subpoenas. (FAC, ¶ 33.)  Alleged loans to criminals and PEP's in potential violation of "know Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 23 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -17 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT your customer" rules. (FAC, ¶ 34).  Alleged changes in findings in certain reports required under the Bank Secrecy Act. (FAC, ¶ 35).  Alleged calculations of ALLL to exclude unfunded commitments for lines of credit. (FAC, ¶ 36). Furthermore, Erhart only partially alleges that he reported the remaining incidents alleged in the FAC [as depicted on the chart on pages 4-6, supra]:  Erhart alleges discussing the alleged failure to disclose the recording of calls to customers with a management executive and BofI's Chief Legal Officer, thereby improperly referring to a privileged communication. (FAC, ¶ 16).  Erhart claims that he mentioned the issue of concentration of deposits in an email. (FAC, ¶ 22).  Erhart asserts that BofI's response to a subpoena for information concerning a loan customer was discussed with BofI's Chief Lending Officer and that he provided a "tip" to the SEC regarding the subpoena and a "suspicious loan customer." (FAC, ¶ 31).  Erhart alleges that he mentioned FDPA issues in an audit report that was revised by management. (FAC, ¶ 38).  Erhart claims that he was preparing to submit a list of "high risk customers" as an attachment to a report to the Audit Committee, but never did so. (FAC, ¶ 43).  Erhart asserts that he saved personal banking information concerning BofI's CEO on his computer because of an alleged concern that income wasn't being reported to the IRS, however, he does not allege actually reporting this information to anyone. (FAC, ¶ 45). Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 24 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -18 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT c. Erhart Fails to Plead How Any Alleged Retaliation was Motivated by his Reporting. Finally, even if the Court were to find that Erhart sufficiently pled that he reported these incidents, he still fails to allege how the reporting of such conduct, if any, played a role in his alleged constructive termination. Nor can he, given his failure to report many of the allegations to any required SOX Complaint Recipient. Even if Erhart’s allegations can be construed to allege he reported the alleged misconduct as required, his claims still fail because he does not allege BofI was aware of his reporting prior to allegedly retaliating against him. Once again, Erhart has not established that he engaged in protected activity or that it was a contributing factor to his alleged constructive termination. Accordingly, his first and second claims must be stricken. C. Erhart's Fourth Claim for Violation of the Confidentiality of Medical Information Act Should Be Dismissed.3 An employer violates the Confidentiality of Medical Information Act ("CMIA") when it "use[s], disclose[s], or knowingly permit[s] its employees or agents to use or disclose medical information which the employer possesses pertaining to its employees without the patient having first signed an authorization…." Cal. Civ. Code § 56.20(c). "Medical information" is "any individually identifiable information, in electronic or physical form, in possession of or derived from a provider of health care, health care service plan, pharmaceutical company, or contractor regarding a patient's medical history, mental or physical condition, or treatment." Cal. Civ. Code § 56.05(j). Erhart makes the conclusory claim that "[b]y the conduct alleged hereinabove, 3 Erhart’s fourth, seventh, eighth, and ninth claims are re-asserted without change from the original complaint. BofI renews its prior motion to dismiss with respect to these claims and incorporates by reference its arguments set forth therein (Dkt No. 3.) Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 25 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -19 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Defendant violated the CMIA." (FAC, ¶ 108). However, the only allegation having anything to do with medical information is the allegation that that SVP Tolla falsely stated that Erhart was on a "psychiatric medical leave." (FAC, ¶ 73). Such an allegation cannot support a violation of the CMIA because it fails to state that BofI disclosed information about his medical condition that was "in electronic or physical form" obtained from a medical provider. Cal. Civ. Code § 56.05(j). An alleged false statement concerning psychiatric leave does not qualify as "medical information" under the CMIA. Accordingly, the fourth claim should be dismissed in its entirety. D. Erhart's Seventh Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing Should Be Dismissed. Erhart does not and cannot allege a valid, binding agreement with BofI that would trigger an implied duty of good faith and fair dealing. "The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation and there is no obligation to deal fairly or in good faith absent an existing contract." Sipe v. Countrywide Bank, 690 F.Supp.2d 1141, 1160 (E.D. Cal. 2010) (internal quotation marks omitted) (citing Racine & Laramie, Ltd. v. Dep't of Parks and Recreation, 11 Cal.App.4th 1026, 1031–32 (1992)). A complaint must plead a valid contract underlying the claim for breach of the covenant of good faith and fair dealing, (id.), including "parties capable of contracting; the parties' consent; a lawful object; and sufficient cause or consideration." Holland v. BP Am., Inc., 2012 WL 761980, at *5 (E.D. Cal. Mar. 7, 2012) (citing Lopez v. Charles Schwab & CO., Inc., 118 Cal.App.4th 1224, 1230 (2004) and Cal. Civ. Code § 1550) (internal quotation marks omitted). Allegations of a general code of fair treatment in the employment context is not a cognizable contract under California law. Guz v. Bechtel Nat. Inc., 24 Cal. 4th 317, 348 (2000) (citing Cal. Lab. Code § 2922 for the proposition that absent special circumstances not alleged here, an employee is assumed to be at will and not subject to an implied covenant claim). Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 26 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -20 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT Erhart alleges nothing more than a general code of fair treatment. (FAC, ¶ 130.) Erhart's conclusory allegations of the existence of an "agreement" to treat him fairly are wholly insufficient to support a claim for breach of the implied covenant. Therefore, the seventh claim should be dismissed in its entirety. E. Erhart's Eighth Claim for Intentional Infliction of Emotional Distress Should Be Dismissed. 1. Erhart's Claim For Intentional Infliction of Emotional Distress Is Preempted By The Exclusivity Of The Workers' Compensation Act Plaintiff's claim for intentional infliction of emotional distress fails as a matter of law because the California Workers' Compensation Act ("WCA") provides the "sole and exclusive remedy of the employee" for injuries sustained in the workplace. See Cal. Lab. Code §§ 3600(a), 3601, 3602(a), 5300. The California Supreme Court has repeatedly affirmed this principle, holding that employee injuries stemming from even intentional employer misconduct such as whistleblower retaliation may not be the subject of a civil action, and a plaintiff's exclusive remedy is found under the WCA. See Milosky v. Regents of the University of California, 44 Cal. 4th 876, 902 (2008) (affirming dismissal of emotional distress claim, holding that any emotional distress caused by retaliation for whistleblowing is preempted by the exclusive remedies of the WCA); Shoemaker v. Myers, 52 Cal. 3d 1, 7, 17-20 (1990); Cole v. Fair Oaks Fire Prot. Dist., 43 Cal. 3d 148, 160 (1987). Erhart's IIED claim generally is based on all of the allegations "set forth hereinabove" in the Complaint, (FAC, ¶ 136), which concern purported comments or actions made during the normal course of the employment relationship that were allegedly communicated to Erhart second or third-hand by unnamed co-workers. (see, e.g., FAC, ¶¶ 56, 60, 61, 71 and 74.) Thus, his claim is barred by the WCA and should be dismissed. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 27 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -21 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT 2. Erhart Fails To Allege "Extreme and Outrageous" Conduct Required To Maintain an IIED Claim To state a cause of action for IIED a plaintiff must show: (1) extreme and outrageous conduct by the defendant; (2) the defendant's intention of causing or reckless disregard of the probability of causing emotional distress; (3) the plaintiff's suffering severe or extreme emotional distress; and (4) actual and proximate causation of the emotional distress by the defendant's outrageous conduct. Vasquez v. Franklin Management Real Estate Fund, Inc., 222 Cal. App. 4th 819, 832 (2013). To be deemed "outrageous," the conduct "'must be so extreme as to exceed all bounds of that usually tolerated in a civilized society.'" Id. (quoting Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc., 129 Cal. App. 4th 1228, 1259 (2005)). "In order to avoid a demurrer, the plaintiff must allege with 'great[] specificity' the acts which he or she believes are so extreme as to exceed all bounds of that usually tolerated in a civilized community. Id. (citing Schlauch v. Hartford Accident & Indemnity Co., 146 Cal. App. 3d 926, 936 (1983)). Personnel management activity is insufficient to support a claim for intentional infliction of emotional distress, even if improper motivation is alleged. Janken v. GM Hughes Electronics, 46 Cal. App. 4th 55, 80 (1996). Furthermore, terminating an employee is not "outrageous" conduct, even if the termination was based on pretext, without cause, and done in a "callous and insensitive manner." Buscemi v. McDonnell Douglas Corp., 736 F.2d 1348, 1352 (9th Cir. 1984). Similarly, "the termination of a business relationship, is, as [a] matter of law, not the type of 'outrageous' conduct that is required to support a cause of action for intentional infliction of emotional distress." Unterberger v. Red Bull North America Inc., 162 Cal. App. 4th 414, 423 (2008). Erhart's IIED claim is based on the circumstances of his alleged constructive termination, which is personnel management and not outrageous conduct for the purpose of assessing an IIED claim. Most of the alleged improper conduct consists Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 28 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -22 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT of comments made or actions taken outside of Erhart's presence while he was feeling "unwell" at home on "leave" and that were later allegedly communicated to him by unidentified "co-workers." (See FAC, ¶¶ 53-74.) Such second- or third- hand comments by co-workers cannot reasonably be considered "extreme and outrageous" and otherwise capable of inflicting severe emotional distress. The few communications allegedly mentioned in his presence (such as the “snakes” comment) do not begin to approach the threshold of extreme and outrageous conduct. As such, Erhart’s IIED claim should be dismissed. F. Erhart's Ninth Claim for Defamation Should Be Dismissed for Lack of Sufficient Specificity. "Under California law… the allegedly defamatory statement must be specifically identified, and the plaintiff must plead the substance of the statement…. '[G]eneral allegations of the defamatory statements' which do not identify the substance of what was said are insufficient." Jacobson v. Schwarzenegger, 357 F. Supp. 2d 1198, 1216 (C.D. Cal. 2004) (superseded by statute on other grounds) (internal citations omitted). Erhart fails to allege the substance of the allegedly defamatory statement(s), the identity of the person(s) who allegedly made the statement(s), the identity of any person(s) who heard or received the statement, or even when the statement(s) was made. (See FAC, ¶¶ 140, 142, 145.) This is entirely insufficient. Chabra v. S. Monterey Cnty. Mem'l Hosp., Inc., 1994 WL 564566, at *9, (N.D. Cal. Oct. 3, 1994) (dismissing a defamation claim based on inadequate allegations concerning the substance of the purported defamatory statements). Accordingly, Erhart's ninth claim for defamation should be dismissed. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 29 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -23 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT G. Erhart's Immaterial and Impertinent Allegations Should Be Stricken.4 1. Erhart Does Not Allege, for the Majority of His Allegations, that He Engaged in Protected Activity. Erhart has brought whistleblower claims under three statutes: SOX, Dodd- Frank and Cal. Lab Code § 1102.5. Under all three of these statutes, Erhart must plead that he engaged in protected activity. To have engaged in protected activity or conduct under SOX and, for purposes of this motion, Dodd-Frank, an employee must have provided information or assistance concerning specified types of fraud to a SOX Complaint Recipient. Under Cal. Lab. Code § 1102.5, an employee must disclose information to a government or law enforcement agency, "where the employee has reasonable cause to believe that the information discloses a violation of [a] state or federal statute, or a violation or noncompliance with a state or federal rule or regulation." Cal. Lab. Code § 1102.5(b). As set forth in the chart on pages 4-6, supra, Erhart fails to allege that, for the allegations set forth in paragraphs 17, 19-21, 32, 33, 34, 35, 36, and 45, he either: (1) made a report to a SOX Complaint Recipient for purposes of SOX; (2) made a report to the SEC for purposes of Dodd-Frank; or (3) made a report to a government or law enforcement agency for the purposes of Cal. Lab. Code § 1102.5. As a result, these allegations are immaterial to the FAC and should be stricken in their entirety. 4 BofI also renews its motion to strike on the grounds set forth in its original motion (Dkt No. 3) and incorporates by reference the arguments and authority set forth therein. BofI has re-asserted its argument in a more summary fashion here, rather than repeating the arguments verbatim. Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 30 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -24 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT 2. Because Erhart Failed to Exhaust His Administrative Remedies for Numerous Allegations in the FAC, As Required by SOX, Those Allegations Cannot Form the Basis of His Complaint and Should be Stricken. A claimant alleging discharge or other discrimination in violation of SOX must file a complaint with the Secretary of Labor within 180 days of the date the alleged violation occurred. 18 U.S.C. § 1514A(b)(2)(D). If the Secretary does not issue a final decision on the complaint within 180 days of filing with the Secretary of Labor, the claimant can then file a complaint in federal court. 18 U.S.C. § 1514A(b)(1)(B). District courts in the Ninth Circuit have found that a federal court "can only conduct a de novo review of those [SOX whistleblower] claims that have been administratively exhausted." Jones v. Home Fed. Bank, 2010 U.S. Dist. LEXIS 3579, *9 (D. Idaho Jan. 14, 2010); McClendon v. Hewlett-Packard Co., 2005 U.S. Dist. LEXIS 29449, at *12 (D. Idaho Oct. 27, 2005) ("[T]he Court finds that it can only review those separate and distinct claims asserted in McClendon's administrative [SOX] complaint."); see also Bozeman v. Per-Se Technologies, Inc., 456 F. Supp. 2d 1282, 1357 (N.D. Ga. 2006) ("A federal court "can only conduct a de novo review of those [SOX whistleblower] claims that have been administratively exhausted."). In order to exhaust administrative remedies, an OSHA complaint must include a "full statement of the acts and omissions, with pertinent dates, which are believed to constitute the violations." McClendon, 2005 U.S. Dist. LEXIS 29449, at *12 (internal quotation marks omitted). "[A]ll facts raised in a SOX claim in federal court must first be presented to OSHA, so that OSHA can adequately fulfill its statutory and regulatory review obligations." Trusz v. UBS Realty Investors, 2010 WL 1287148, at *4 (D. Conn. Mar. 30, 2010); see also Willis v. Vie Fin. Grp., 2004 WL 1774575, *6 (E.D. Pa. Aug. 6, 2004) (reasoning that the plaintiff's failure to include a claim in an administrative complaint with OSHA precluded pursuing that Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 31 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -25 SMRH:479738478.2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ERHART'S AMENDED COMPLAINT claim in court). A straightforward comparison of Erhart's OSHA Charge with his FAC reveals that Erhart failed to exhaust with respect to virtually all of his allegations. (See Dkt No. 3-3 (RJN iso BofI’s Motion to Dismiss Complaint), ¶¶ 24-27). Erhart's conclusory statement in Paragraph 8 of the Complaint that he "exhausted his administrative remedies" is patently untrue. Therefore, Paragraphs 9-21 and 31-43 of the FAC cannot be part of his SOX claim and are thus immaterial, wholly irrelevant and serve no legitimate purpose whatsoever and must be stricken. 3. Many of Erhart's Allegations Contain Immaterial and Impertinent Confidential Information. In addition to being immaterial, many of the allegations in Erhart's FAC were undoubtedly included for the sole purpose of embarrassing and harming BofI. While the substance and veracity of the allegations is certainly in dispute, there can be no doubt that Erhart has violated the privacy, confidentiality and attorney-client privilege rights of BofI's employees, clients, and business counterparties. For this additional reason, the Court should strike Paragraphs 16, 26-33, 39, 41, 44, 45, 49- 52, and 70. IV. CONCLUSION For the above reasons, BofI respectfully requests that this Court dismiss Erhart's first, second, fourth, seventh, eighth, and ninth claims, and/or strike Paragraphs 9-21, 26-45, 49-52, and 70 of the FAC because they are immaterial and impertinent given Erhart's unmeritorious and deficient allegations. Dated: October 31, 2016 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP By /s/ Polly Towill POLLY TOWILL Attorneys for Defendant BofI HOLDING, INC. and Plaintiff BofI FEDERAL BANK Email: ptowill@sheppardmullin.com Case 3:15-cv-02287-BAS-NLS Document 35-1 Filed 10/31/16 Page 32 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479720906.1 CRONTHALL DECL. IN SUPPORT OF MOTION TO DISMISS AND/OR STRIKE CLAIMS IN ERHART'S FIRST AMENDED COMPLAINT SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership Including Professional Corporations POLLY TOWILL, Cal. Bar No. 120420 ptowill@sheppardmullin.com ANDRE J. CRONTHALL, Cal. Bar No. 117088 acronthall@sheppardmullin.com 333 South Hope Street, 43rd Floor Los Angeles, California 90071-1422 Telephone: 213.620.1780 Facsimile: 213.620.1398 Attorneys for Defendant BofI HOLDING, INC. and Plaintiff BofI FEDERAL BANK UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA CHARLES MATTHEW ERHART, an individual, Plaintiff, v. BofI HOLDING, INC., an entity d/b/a BOFI FEDERAL BANK and BANK OF THE INTERNET, Defendant. Case No. 15-cv-2287-BAS-NLS consolidated with 15-cv-2353-BAS-NLS DECLARATION OF ANDRE J. CRONTHALL IN SUPPORT OF DEFENDANT BOFI HOLDING, INC.’S MOTION TO DISMISS PLAINTIFF’S FIRST, SECOND, FOURTH, SEVENTH, EIGHTH AND NINTH CLAIMS UNDER FED. R. CIV. P. 12(B)(6) AND MOTION TO STRIKE UNDER FED. R. CIV. P 12(F) Date: December 12, 2016 NO ORAL ARGUMENT UNLESS REQUESTED BY THE COURT Hon. Cynthia Bashant (Schwartz Courthouse, Courtroom 4B) BofI FEDERAL BANK, a federal savings bank Plaintiff, v. CHARLES MATTHEW ERHART, an individual, Defendant. Case 3:15-cv-02287-BAS-NLS Document 35-2 Filed 10/31/16 Page 1 of 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- SMRH:479720906.1 CRONTHALL DECL. IN SUPPORT OF MOTION TO DISMISS AND/OR STRIKE CLAIMS IN ERHART'S FIRST AMENDED COMPLAINT DECLARATION OF ANDRE J. CRONTHALL I, Andre J. Cronthall, declare as follows: 1. I am an attorney duly admitted to practice before this Court. I am a partner with Sheppard, Mullin, Richter & Hampton LLP, attorneys of record for Defendant BofI Holding, Inc. and Plaintiff BofI Federal Bank (collectively, “BofI”). If called as a witness, I could and would competently testify to all facts within my personal knowledge except where stated upon information and belief. 2. This declaration is submitted in support of BofI's Motion to Dismiss Portions of Plaintiff Charles Matthew Erhart's ("Erhart") First Amended Complaint. 3. Erhart did not provide a redline comparison with his First Amended Complaint showing the differences between the First Amended Complaint and the original Complaint. Attached hereto as Exhibit A is a true and correct copy of a redline comparison that was created at my direction based upon PDF versions of the original Complaint and First Amended Complaint. Because BofI does not have Word versions of the Complaint or First Amended Complaint, the redline of PDF comparisons, at times, shows changes to the document that were not, in fact, made. For example, the addition of paragraphs 31A, 74A, 74B, 77A and 91A cause the redline to show that later paragraphs were renumbered, which is not correct. Nevertheless, the redline comparison is helpful in easily identifying new or changed portions of the FAC and is provided for the Court’s convenience and reference. Case 3:15-cv-02287-BAS-NLS Document 35-2 Filed 10/31/16 Page 2 of 3 Case 3:15-cv-02287-BAS-NLS Document 35-2 Filed 10/31/16 Page 3 of 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -1- OLD: complaint.docx 101716 NEW: amended.docx FIRST AMENDED COMPLAINT FOR DAMAGES AND OTHER RELIEF 1. Whistleblower Retaliation in Violation of Sarbanes-Oxley Act 2. Whistleblower Retaliation in Violation of Dodd-Frank Act 3. Retaliation in Violation of Labor Code § 1102.5 4. Violation of California Medical Information Act 5. Wrongful Termination in Violation of Public Policy 6. Unfair Business Practices (Bus. & Prof. Code §§ 17200 et seq.) 7. Breach of Implied Covenant of Good Faith and Fair Dealing 8. Intentional Infliction of Emotional Distress 9. Defamation 10. Declaratory Relief JURY TRIAL DEMANDED Plaintiff CHARLES MATTHEW (“MATT”) ERHART, demanding a jury trial , alleges, on information and belief,amends his original complaint pursuant to court order granting leave to amend, to add and clarify its allegations, including new paragraphs 31 A, 74A, 74B, 77A and 91 A, and alleges the following in support of his complaintFirst Amended Complaint: JURISDICTION AND VENUE 1. This action arises under the whistleblower protection provisions of the Sarbanes- Oxley Act, 18 U.S.C. § 1514A et seq. and the whistleblower protection provisions of the Dodd-Frank Act, 15 U.S.C. § 17u-6 et seq. Jurisdiction is invoked pursuant to 28 U.S.C. § 1331, as well as under 28 U.S.C. § 1343(a)(4), and 28 U.S.C. §§ 2201 and 2202. This suit is authorized and instituted pursuant to the above federal statutes. The jurisdiction of this Court is invoked to secure protection of and to redress deprivation of rights secured by the Sarbanes-Oxley Act and the Dodd-Frank Act. This court has ancillary jurisdiction of the state law claims because they are sufficiently related to the federal claims. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 1 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -2- OLD: complaint.docx 101716 NEW: amended.docx 2. Venue is proper under 28 U.S.C. § 1391 because Defendant’s principal place of business is in this district. Venue is also proper because a substantial part of the events or omissions giving rise to the claim occurred in this judicial district. PARTIES 3. Plaintiff CHARLES MATTHEW (“MATT”) ERHART (hereinafter “Mr. Erhart” or “Plaintiff”) resides in San Diego County, California. He was hired by Defendant to perform work as an internal auditor in San Diego, California, performing audits of a variety of aspectsaspect of BOFI’s operations. For many reasons it is critical that Internal Audit be independent of management. Plaintiff performed his job competently at all relevant times. As the facts below will demonstrate, Plaintiff reasonably believed he uncovered numerous violations of federal and state law by BOFI , appropriately went up the chain of command to notify the Bank, and in all respects tried to get the Bank into compliance. Instead of being thanked by Bank management for his efforts, Plaintiff was repeatedly threatened, harassed and ultimately fired for trying to do the right thing. 4. At all material times to this action, Defendant BOFI HOLDING INC., an entity, d/b/a BOFI FEDERAL BANK and BANK OF THE INTERNET was a publicly traded company (NASDAQ symbol: BOFI) headquartered at 4350 La Jolla Village Drive, Suite 140, San Diego County, California 92122 (hereinafter “BOFI”, Defendant, or “the Bank”). BOFI is the holding company for BOFI Federal Bank. 5. BOFI boasts on its website (www.bofiholding.com) that its performance has it ranked #1 in the country among the largest public thrifts. Its assets exceed $5.8 billion. BOFI stock recently reached an all-time high of $143.92 per share just before the filing of the original complaint in this action. BofI boasts that it is #48 on Fortune Magazine’s fastest growing company list for 2016, and that its assets now exceed $7.2 billion. On information and belief, BOFI’s 2015 valuation iswas based, at least in part, upon inaccurate information being supplied by the Bank to the public and the regulators. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 2 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -3- OLD: complaint.docx 101716 NEW: amended.docx 6. BOFI is regulated by, among others, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), the Securities and Exchange Commission (“SEC), the Financial Industry Regulatory Authority (“FINRA”) and the Consumer Financial Protection Bureau (“CFPB”). 7. BOFI is subject to a variety of statutory schemes including, without limitation, the Bank Secrecy Act of 1970 (“BSA”), the USA PATRIOT Act including the Know Your Customer Rule (“KYC”), the Dodd-Frank Act, Sarbanes-Oxley Act of 2002 (“SOX”), the Securities Act of 1933 and the Securities Exchange Act of 1934. EXHAUSTION OF REMEDIES 8. Plaintiff timely filed complaints with federal agencies including the United States Department of Labor, Occupational Safety and Health Administration, and the SEC. More than 180 days have elapsed since filing those complaints. Plaintiff has therefore exhausted his administrative remedies. FACTUAL ALLEGATIONS RELEVANT TO ALL CAUSES OF ACTION The Structured Settlements and Lottery Audit 9. On or about September 23, 2013, Mr. Erhart started his employment at BOFI as an internal auditor, following a stint at FINRA. He reported to Jonathan Ball, Vice President, Internal Audit. 10. Higher than Mr. Ball in the Bank’s management was John Tolla, Senior Vice President Audit and Compliance, to whom the Audit Department was to report for administrative purposes only. This is critically important because of the need for Internal Audit to have independence to do its function without undue pressure from senior management. 11. On or about December 19, 2013, Plaintiff sent an Exit Meeting request for an audit he was completing, the Structured Settlements and Lottery internal audit. This is a standard procedure at the conclusion of an audit. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 3 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -4- OLD: complaint.docx 101716 NEW: amended.docx 12. One of BOFI’s unusual sources of revenue derives from purchasing structured settlements from plaintiffs in litigation, and lottery payments from winners of lotteries. BOFI, through its subsidiary Anfed Bank, has a team of callers who cold-call prospects with the goal of purchasing the income streams from these individuals, offering them a lump sum in lieu of the periodic payments they are receiving. BOFI also solicits this target group through a website, https://www.anfedbank.com/lottery-payments. 13. One of Plaintiff’s major findings in the audit was that BOFI’s callers were not notifying people they called that the calls were being recorded, in violation of California Penal Code § 632. 14. Approximately 15 minutes after Plaintiff sent the request for the Exit Meeting, the Chief Executive Officer of BOFI, called Plaintiff on his work phone. This is highly unusual and grossly inappropriate. 1514. Approximately 30 minutes after Plaintiff sent the request, Senior Vice President John Tolla called Plaintiff into his office and instructed him to never state in an audit report that the Bank violated a federal or state law. 1615. Approximately one hour after Plaintiff was called into Tolla’s office and given that instruction, Plaintiff was summoned to a second meeting with Eshel Bar-Adon, the Bank’s Chief Legal Officer, together with Plaintiff’s manager Jonathan Ball. Mr. Bar-Adon instructed Plaintiff and Mr. Ball to remove evidence of the violation of California Penal Code § 632 from the Structured Settlements and Lottery Audit. Again, this was grossly inappropriate conduct on the part of a senior officer of the Bank. Mr. Ball informed the Chief Legal Officer that Internal Audit could not do that. Then Mr. Bar-Adon instructed Plaintiff to mark the entire report “Attorney Client Privileged,” explaining that he was concerned the finding could be discoverable in class action litigation against the Bank, which would be expensive to defend. Plaintiff acceded to this order, but held fast in his refusal to remove the finding from the audit. Marking the report as “Attorney Client Privileged” could mean that the Bank would refuse to turn it over in litigation, hiding Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 4 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -5- OLD: complaint.docx 101716 NEW: amended.docx important evidence from litigants, counsel and courts. In addition, Mr. Bar-Adon instructed Plaintiff not to speak to an employee in the Structured Settlements and Lottery Department with whom he was friendly. Potentially Altered Financials 1716. In or about January 2014, Thomas Constantine, the Bank’s Chief Credit Officer, told Plaintiff, Jonathan Ball and others at a meeting that he is not responsible for any of the Bank’s numbers after they are turned over to the Chief Financial Officer, Andrew Micheletti. He reiterated that he could and would not vouch for the accuracy of the numbers once the CFO had them. Plaintiff reasonably understood this to mean that senior Bank management, at the CFO level and above, may be falsifying the Company’s financials. If so, that is a serious criminal offense. Untimely Contributions of Employee 401k Elective Deferrals 1817. In or about the middle of 2014 Plaintiff and a fellow employee in Internal Audit did a Payroll Audit. They found that the Bank had not been making timely deposits to employees’ 401k accounts for employee elective deferrals, contrary to law. Plaintiff found untimely deposits made (from 1-16 days late) for a total of 10 pay periods. When Plaintiff asked SVP Tolla about this, Tolla said it had to do with the H&R Block deal and moving around of assets. That deal had not even been approved yet and would not be for months. The answer made no sense. On information and belief an employee asked CFO Micheletti if the Bank would elect to self-report the problem to the Internal Revenue Service and Department of Labor to take corrective action. On information and belief no corrective action occurred. Fiscal 2015 Strategic Plan Not Properly Approved 1918. Plaintiff conducted the Fiscal 2014/2015 Business Plan Audit. During the October 30, 2014 Exit Meeting, CFO Micheletti and Chief Performance Officer Jan Durrans were present. Plaintiff had learned that the Strategic Plan had not been approved at any of the Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 5 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -6- OLD: complaint.docx 101716 NEW: amended.docx following Board of Directors meetings: May 1, 2014; July 2014; September 2014. Angela Lopez, Vice President of Corporate Governance and Corporate Secretary, wrote that the Board was dark in November and December, and that the revised budget might be submitted in January 2015. 2019. As of January 28, 2015, Derrick Walsh, Chief Accounting Officer, wrote that the strategic plan and budget for Fiscal 2015 were still not approved, due to an earnings call and other items “taking precedent, sorry.” 2120. Then, magically, amazingly, on or about February 10, 2015 CPO Durrans presented Internal Audit’s head Jonathan Ball with a document titled “Action by Unanimous Written Consent of the Board of Directors in Lieu of a Meeting” dated July 7, 2014, purporting to have approved the Fiscal 2015 strategic plan and budget seven months earlier. Each signature was copied and pasted, further proof that the Board did not actually approve the Fiscal 2015 Strategic Plan on July 7, 2014 or at any later date. Deposit Concentration Risk Findings 2221. On or about November 21, 2014, Plaintiff sent an email to the Bank’s Chief Risk Officer, Thomas Williams, in preparation for the upcoming Enterprise Risk Management (“ERM”) audit. Plaintiff asked whether Mr. Williams thought the Bank had a deposit concentration risk. This is a serious concern for a bank. Where a large percentage of its deposits are derived from a few depositors, sudden withdrawals can pose a serious challenge to a Bank’s ability to keep its doors open a well as maintain its compliance with regulators. 2322. Plaintiff was concerned and reported that a mere four customers accounted for approximately 25% of total deposits, and nine customers accounted for approximately 40% of total deposits. Plaintiff was aware that other banks had gotten into trouble with regulators for deposit concentration levels lower than this. Mr. Williams responded, but copied SVP John Tolla on the response. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 6 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -7- OLD: complaint.docx 101716 NEW: amended.docx 2423. SVP Tolla then summoned Plaintiff to his office (again) and, commenting on Plaintiff’s email to Mr. Williams, instructed Plaintiff not to put his concerns in writing: “Don’t send that in an email, go have the conversation.” Once again BOFI was instructing audit staff not to create written evidence of its non-compliance and illegal conduct. This inevitably compromises Internal Audit’s independence and represents a gross conflict of interest. Plaintiff’s Downgraded Performance Evaluation and Bonus 2524. In or about December 2014, Plaintiff received his performance review from Jonathan Ball. His rating was downgraded by SVP John Tolla, specifically referencing Plaintiff’s putting findings in writing. Furthermore, Mr. Tolla had complete discretion to determine bonuses, and Plaintiff’s bonus was adversely affected by Tolla’s rating and bonus decision. This is a direct conflict of interest to have someone in Tolla’s position able to reward and punish Internal Audit employees depending on how well they comply with upper management’s desires to hide illegalities and non-compliance. SEC Subpoena 2625. On or about December 12, 2014, the SEC served a subpoena on BOFI, requesting account identifying information for a certain investment advisory firm with initials ETIA LLC (“ETIA”). On or about December 18, 2014 the Bank responded to the SEC that it did not have any information regarding ETIA. 2726. In or about early January 2015, Plaintiff became aware of the SEC subpoena, and knew that the Bank did indeed have a loan file containing information regarding ETIA. Plaintiff further learned that a file had been created in response to the SEC subpoena, containing the information located regarding ETIA. In the course of investigating why the file was not turned over to the SEC in response to its subpoena, Plaintiff learned from a Bank employee (name with initials CT) that she had informed the Bank’s legal department of the existence of the file on or about December 17, 2014, before the Bank sent its response to the SEC denying the existence of any such files. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 7 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -8- OLD: complaint.docx 101716 NEW: amended.docx 2827. Approximately three hours after interviewing Bank employee CT, Plaintiff was informed by Mr. Ball, his boss, that the Bank’s Chief Lending Officer, Brian Swanson, was upset about the interview and said that Plaintiff should cease performing his duties to the extent they involved interviewing “his” employees. 2928. Shortly thereafter, Plaintiff placed a call to the SEC to be sure it was aware of the situation regarding the ETIA subpoena. 3029. A few days later, Plaintiff was called in (yet again) to SVP Tolla’s office, and told that he had handled the ETIA investigation wrong, that he should not have interviewed employee CT, but should have gone instead to Mr. Swanson. SVP Tolla told Plaintiff that there was nothing “nefarious” going on with respect to the subpoena. Plaintiff was upset at this inappropriate interference from upper management again, and asked his manager Mr. Ball whether he Plaintiff, in fact had done anything wrong. Mr. Ball reassured Plaintiff he had acted appropriately and that it was Mr. Tolla who was wrong. 3130. In or about February 2015, Plaintiff submitted two whistleblower tips to the SEC, one regarding the ETIA subpoena issue, and another regarding a suspicious loan customer, whom Plaintiff suspected of operating as an unregistered broker/investment advisor. He submitted them through his work computer, and BOFI had knowledge of his whistleblowing. 31A. On or about April 13, 2016, it was reported that the United States Attorney for the Southern District of New York and the Special Agent in Charge of the Department of Homeland Security announced the arrest of the Founder and Chief Operating Officer of Florida-based Elm Tree Investment Advisors LLC (ETIA) on charges that they engaged in a scheme to defraud investors out of more than $17 million. Failure to Disclose Accounts with No Tax Identification Numbers 3231. On or about January 15, 2015, the Bank’s principal regulator, the OCC (Office of the Comptroller of the Currency) requested information on Bank accounts with no Tax Identification Numbers (“TIN’s”). The Bank responded to the OCC that there were no Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 8 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -9- OLD: complaint.docx 101716 NEW: amended.docx accounts without TIN’s. This was knowingly false, as Plaintiff saw a spreadsheet in the BSA (“Bank Secrecy Act”) folder disclosing approximately 150-200 accounts where the borrower does not have a TIN. Failure to Disclose Grand Jury and Other Subpoenas 3332. In or about February 2015, the OCC requested that the Bank disclose all correspondence with federal and state banking agencies and law enforcement, to include any and all subpoenas, criminal or otherwise. The Bank responded that it had not received any such documents for the review period in question. This was false, as Plaintiff saw a BSA spreadsheet that identified many subpoenas, including from law enforcement agencies, grand juries, and even from the U.S. Department of the Treasury, of which OCC is a part. Furthermore, Plaintiff sat next to the Bank employee who received and logged in subpoenas, and heard comments about how many there were and how frequently the Bank was served with subpoenas. Failure to Disclose Loans to Criminals, Politically Exposed Persons 3433. In or about January 2015, Plaintiff conducted a Loan Origination Audit. He discovered that the Bank was making substantial loans to foreign nationals including Politically Exposed Persons (“PEP’s”) in potential violation of BSA/Know Your Customer rules. Plaintiff was able to readily uncover information that many of the borrowers were criminals, even notorious criminals, and other suspicious persons who put the bank at high risk for violating the Bank Secrecy Act’s Anti-Money Laundering Rules (“AML Rules”) as well as exposing the Bank to reputational risk. The purpose of the AML Rules is to help detect and report suspicious activity including the predicate acts to money laundering and terrorist financing. The PEP’s included very high level foreign officials from major oil- producing countries and war zones. SVP Tolla Materially Altered Bank Secrecy Act QC Findings Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 9 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -10- OLD: complaint.docx 101716 NEW: amended.docx 3534. In or about early 2015 Plaintiff discovered that SVP Tolla had repeatedly changed the findings on numerous reports required under the Bank Secrecy Act’s Quality Control (“QC”) requirements. BOFI Improperly Accounts for Allowances for Loan and Lease Losses 3635. In or about early 2015 Plaintiff discovered that the Bank recently calculated Allowances for Loan and Lease Losses (“ALLL”) to exclude unfunded commitments for lines of credit. The size of the unfunded commitments excluded from ALLL meant the ALLL may have been materially miscalculated, which could materially impact the Bank’s earnings. Material Omissions in FloorFlood Disaster Protection Act Audit (“FDPA”) 3736. Plaintiff was reassigned the FDPA Audit after another employee resigned. A previous Compliance employee had found issues with 49 of the 51 samples she pulled. That employee told Plaintiff she was so disgusted with the Bank’s nonexistent culture of compliance that she quit her job. Yet another employee previously produced a Compliance Review identifying many issues, and then resigned. Plaintiff discovered that the Bank had buried and never issued the reviews. 3837. Plaintiff investigated and verified the negative findings made by his predecessors. He presented them to management, who caused most of the negative findings to be excluded from the Audit Report, leaving in only a small fraction of the findings. 3938. The FDPA Audit was a matter of considerable interest to OCC examiners, from whom material information was purposely withheld. Global Cash Card Reviews for High Risk Customers 4039. During the week of January 26, 2015, Plaintiff and a coworker met with the Bank’s Deputy BSA Officer Third Parties to talk about Global Cash Card (“GCC”) Customer Identification Program (“CIP”) reviews for high-risk customers. On information and believe GCC is a vendor that provides cash cards that companies can issue to employees in lieu of traditional paychecks, or for other purposes. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 10 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -11- OLD: complaint.docx 101716 NEW: amended.docx 4140. On or about February 12, 2015, Plaintiff and a coworker prepared an Internal Audit Memorandum with their findings from the GCC review. The OCC, then conducting its onsite examination at BOFI, asked that third party vendors like GCC rate their customers. When the GCC high-risk customer list was initially presented to SVP John Tolla, approximately 30% of the customers on the list were “bad” – i.e., the verification process produced alerts. The list included at least one social security number (“SSN”) belonging to a deceased person, 30 SSN’s that could not be found in public records, scores of SSN’s that did not match the customer’s name or were issued before the customer’s date of birth was born, many had suspiciously high cash balances, even exceeding $70,000. 4241. SVP Tolla demanded that a new list be produced, and one was dutifully done that did not feature any “bad” Customer Identification Program (“CIP”) data. The original list with the “bad” data was not turned over to the OCC; the new, sanitized list was. BOFI then terminated its relationship with GCC, and SVP Tolla repeatedly instructed staff not to inform the OCC about why the relationship was terminated. On information and belief CEO Gregory Garrabrants was party to the discussion when the “bad” CIP data was first discovered and GCC provided the initial high-risk customer list to the Bank. 4342. Plaintiff and a coworker located the original high-risk customer list the Bank received from GCC, including the “bad” data. They attached it as an exhibit to the February 12 Memorandum, which was intended to be presented to the Audit Committee until the events described below prevented that from occurring. Plaintiff Finds Improprieties in the CEO’s Personal Accounts 4443. In early 2015 Plaintiff and others conducted a review of personal deposit accounts of senior management. In doing so Plaintiff discovered that CEO Gregory Garrabrants was depositing third-party checks for structured settlement annuity payments into a personal account, including nearly $100,000 in checks made payable to third parties. Plaintiff documented this in an internal audit memo to Jonathan Ball dated January 20, 2015. Plaintiff also learned that the issue of Mr. Garrabrants’ depositing of third-party checks Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 11 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -12- OLD: complaint.docx 101716 NEW: amended.docx had previously been raised to the Audit Committee before he started working at the Bank, and that restrictions were imposed on him. Plaintiff was concerned as to whether or not the CEO was reporting the income to the IRS. 4544. In the course of reviewing employee deposit accounts at the Bank, Plaintiff also discovered that the largest consumer account at the Bank has the Tax Identification Number (“TIN”) of the CEO’s brother, Steven Garrabrants. The account had a balance of approximately $4 million, and the CEO was the signer on the account. As Steven Garrabrants was a minor league baseball player earning poverty wages, Plaintiff could find no evidence of how he had come legally into possession of the $4 million wired into the account. From the foregoing, Plaintiff was concerned about whether CEO Garrabrants could be involved in tax evasion and/or money laundering. He saved the folder regarding this work in an Audit Department file on his work computer. Other Instances of Wrongdoing Uncovered by Plaintiff 4645. The foregoing instances described in Paragraphs 9-45 form an incomplete list of the instances of wrongdoing Plaintiff uncovered at the Bank. He documented these matters in files on BOFI’s computers and in locked file cabinets in his work space. In fact, the Bank’s Deputy BSA Officer stated, in front of others, that one problem with Plaintiff was that he was too good at his job. Plaintiff reported each of these matters to appropriate government agencies as a whistleblower in April 2015. SVP John Tolla’s Threat to Plaintiff 4746. On or about January 27, 2015, SVP John Tolla walked by Plaintiff working at his computer. He stated, in the presence of others, “If Matt [Plaintiff] continues to turn over rocks, eventually he is going to find a snake and he’s going to get bit.” Plaintiff reasonably viewed this as a direct and serious threat, and became concerned for his personal safety as well as for his job. 4847. On or about February 4, 2015, Plaintiff informed his manager, Mr. Ball, about the threat he had received from SVP Tolla. Mr. Ball asked Plaintiff if he wanted to bring the Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 12 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -13- OLD: complaint.docx 101716 NEW: amended.docx matter to the Bank’s Audit Committee. Plaintiff declined, because he was in the midst of conducting several investigations and audits, and feared that his work would come to an abrupt halt, without the Audit Committee or federal regulators being made aware of the Bank’s wrongdoing. BOFI Refuses To Let Employees Communicate Via Outlook (Email) 4948. On or about February 12, 2015, Plaintiff emailed an OCC Examiner who was onsite working on the BOFI examination. He informed the examiner that SVP Tolla told all members of the Internal Audit Department that week that they would no longer be permitted to use Microsoft Outlook to communicate. On information and belief SVP Tolla gave this directive did not want a paper trail regarding Bank improprieties. John Ball Abruptly Resigns After Refusing to Break the Law 5049. In or about late February 2015, during or after the OCC onsite examination, Plaintiff’s manager Mr. Ball informed the Internal Audit department that a meeting would be held to discuss major findings that needed to be presented to the Bank’s Audit Committee. This was a huge step. Mr. Ball felt that the level of wrongdoing at the Bank had become so egregious that the staff had no choice but to bring it up to the Audit Committee. The meeting was so sensitive that Mr. Ball turned up a radio so that the discussion could not be overheard outside his office. Mr. Ball said he planned to present memos from the Internal Audit staff, including Plaintiff, to the Audit Committee, documenting the wrongdoing. 5150. On or about March 5, 2015, Mr. Ball resigned abruptly after refusing an order from CEO Garrabrants to engage in what Mr. Ball reasonably viewed to be unlawful conduct to cover up the Bank’s wrongdoing. Mr. Ball had spent five years at the Bank. 5251. Shortly thereafter SVP Tolla came into the Bank’s offices and told the members of the Bank’s Audit and Compliance Department not to inform the OCC that Mr. Ball had resigned. Plaintiff and a coworker had already told the OCC examiners, however. CEO Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 13 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -14- OLD: complaint.docx 101716 NEW: amended.docx Garrabrants also grilled Internal Audit employees about why Ball had resigned, but the employees refused to state why. Plaintiff Becomes Ill and Calls Off Work 5352. Plaintiff became even more concerned for his well being after Mr. Ball’s sudden resignation. He felt very unwell and the following day, March 6, 2015, he called off sick. He informed a coworker in Internal Audit of his illness, and asked her to pass the word to SVP Tolla, since no one had yet taken Mr. Ball’s place as Plaintiff’s manager. 5453. On or about Friday, March 6, 2015, at approximately 7:30 am, Plaintiff’s coworker called Plaintiff and told him that SVP Tolla said Plaintiff was to attend a “non-optional” call with the OCC. The coworker confirmed she told Mr. Tolla he was off sick. She further informed him that SVP Tolla was going through Mr. Ball’s email and found the Internal Audit Memo Plaintiff and the worker wrote regarding the Global Cash Card High Risk Customer Review, described in Paragraphs 40-43 above. Tolla Breaks Into Plaintiff ’sPlaintiff’s Locked Cabinets and Computer 5554. Plaintiff became extremely concerned that the Bank would try to destroy the records of wrongdoing that Plaintiff had placed on the Bank’s computers. That same morning, March 6, 2015, he called the Denver Regional Office of the OCC and said he was seeking whistleblower protection. An appointment with the OCC was confirmed for Monday, March 9, 2015. 5655. Meantime, around 9:38 am that same Friday SVP Tolla was calling Plaintiff on his cell phone, instructing Plaintiff to call him. Later that same morning, Plaintiff heard from a coworker that “they opened up your computer” and a text stating: “Tolla is going crazy over here bro. Going through balls computer too. Fyi.” Plaintiff Engages in Whistleblowing to the OCC 5756. At approximately 11:27 am that same day Plaintiff emailed the OCC a copy of the Internal Audit Memo regarding the Global Cash Card High Risk Customer Review, which SVP Tolla had discovered that morning. Plaintiff wanted to be sure the OCC did not think Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 14 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -15- OLD: complaint.docx 101716 NEW: amended.docx it was Mr. Ball who was hiding information from them. He further disclosed that both the CEO and SVP Tolla had discovered the memo, and that he feared upper management had accessed his work laptop remotely. He informed the OCC that he would not return to work until he spoke with them at the appointed time the following Monday. 5857. Minutes later Plaintiff received a phone call from a coworker that SVP Tolla had a Bank employee open up the locked file cabinets at Plaintiff’s desk and was going through all the documents. The coworker further informed him that Tolla had found the expanded scope Internal Audit review of personal accounts of the CEO, which Plaintiff believed showed potential tax evasion, described in Paragraphs 44-45 above. 5958. SVP Tolla continued to call Plaintiff’s mobile phone repeatedly throughout that Friday, but did not leave any voicemails after the first one that morning. 6059. The following day, Saturday, March 7, 2015, Plaintiff received a text from a coworker telling Plaintiff that the CEO grilled her for nearly an hour about why Internal Audit was looking at his accounts. That coworker further stated, “We had an all hands yesterday where john [Tolla] and Greg [Garrabrants] spoke about you and Jon [Ball]. It was terrible.” BOFI Prepares to Terminate Plaintiff 6160. Meanwhile, as Plaintiff learned later, the Bank had a termination letter prepared that Friday, March 6, firing Plaintiff, that it attempted to deliver to Plaintiff. The letter ended up not being delivered to Plaintiff. On information and belief, the Bank also intended to and may have informed local police authorities that day that it wanted Plaintiff’s apartment searched and his computer seized and for him to be arrested. Plaintiff was extremely fearful. As it happened, the police did not arrive, at least not while Plaintiff was home, to his knowledge. 6261. However, on information and belief the Bank sent someone to Plaintiff’s residence that day to attempt to deliver the termination letter and recover Plaintiff’s work laptop. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 15 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -16- OLD: complaint.docx 101716 NEW: amended.docx 6362. By early Monday morning, March 9, 2015, Plaintiff had learned that SVP Tolla was falsely claiming to Plaintiff’s coworkers that the Bank had not heard from him for 48 hours and that this was grounds for termination. Plaintiff sent an email at 6:25 am to SVP Tolla and several others reminding Tolla that he had called off sick Friday and said would do so today, and was seeking an appointment with his physician to discuss a medical leave of absence. He stated, “I am in no mental state to discuss anything on the phone.” Plaintiff Turns Over Records to the OCC 6463. That same morning Plaintiff also heard from an OCC Attorney confirming that his communications with the OCC would be covered under the applicable whistleblower protection statute. 6564. That afternoon, March 9, Plaintiff had a lengthy phone call with the OCC, lasting nearly two hours. He was directed to bring any documents he had to their Carlsbad office the following morning. 6665. Meanwhile Plaintiff received text messages from a Bank employee trying to arrange to deliver an envelope to Plaintiff as well as retrieve his work laptop. On information and belief, the envelope contained his termination letter. 6766. On information and belief, it was highly unusual for the Bank to demand return of the work laptop of an employee who was out sick, even when the employee is on an extended medical leave under the Family Medical Leave Act (“FMLA) or the California Family Rights Act (“CFRA”), Rather, the Bank had decided to terminate Plaintiff and feared his disclosures to regulators, and wanted to seize the evidence before it could be turned over to regulators. 6867. The following morning, Tuesday, March 10, Plaintiff went to the OCC office in Carlsbad, turned over evidence, and then that day and the following he continued to fax documents that the OCC was unable to download and encrypt during the Carlsbad meeting. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 16 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -17- OLD: complaint.docx 101716 NEW: amended.docx 6968. On Wednesday, March 11, an OCC attorney confirmed to Plaintiff that he had received the documentation. He also told Plaintiff that the Bank had informed the OCC that it was going to call the San Diego police to go to Plaintiff’s residence and seize his computer. The Bank was obviously well aware of Plaintiff’s whistleblowing activities. 7069. On Thursday, March 12, Plaintiff went to BOFI to return the laptop. Mr. Bar-Adon, Chief Legal Officer, ordered him to come to a conference room to speak. Plaintiff reiterated he was in no mental state to speak to management. MR. Bar-Adon then claimed he was acting as General Counsel to the Audit Committee. Plaintiff continued to refuse to speak to him, but told him he would speak to the Audit Committee at a later time. That same day, a BOFI employee called Plaintiff and told him that an employee in Compliance had processed Plaintiff’s termination paperwork the previous week (believed to have occurred the previous Friday, March 6, 2015). Tolla and Garrabrants Make False Accusations About Plaintiff 7170. On or about Saturday, March 14, 2015, a BOFI employee told Plaintiff that SVP Tolla was telling employees that Plaintiff was responsible for a negative article about BOFI on the Seeking Apha website published December 2, 2014. SVP Tolla had actually called Plaintiff “Seeking Alpha” to his face the previous month. Plaintiff was not responsible for the article. 7271. Plaintiff submitted paperwork to BOFI for a medical leave of absence. He remained out until he was officially fired June 9, 2015. On information and belief during Plaintiff’s medical leave CEO Garrabrants grilled a coworker of Plaintiff’s about the extent of Plaintiff’s knowledge as compared with Ball’s on matters that could hurt the Bank. 7372. On or about April 10, 2015, two coworkers informed Plaintiff that SVP Tolla stated, at an “All Hands Meeting” of members of Audit and Compliance that any information Plaintiff provided to the OCC could not be considered credible because of Plaintiff’s “psychiatric medical leave.” This was false. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 17 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -18- OLD: complaint.docx 101716 NEW: amended.docx 7473. SVP Tolla and CEO Gregory Garrabrants told this same group of employees that Plaintiff’s whistleblowing activities were “malicious.” This was false. CEO Garrabrants also told Bank employees that he was going to “bury the BOFI whistleblower.” Plaintiff only hopes this is false. 74A. Plaintiff reasonably believed that BofI’s conduct, as alleged in paragraphs 9-74 above (including, without limitation, its denial of the existence of documents responsive to an SEC subpoena issued to BofI, its potentially altering of financial statements, its directives to employees not to communicate with OCC officials, its directive to mark files as attorney-client privileged to prevent their discovery in litigation, its directive to Plaintiff and others not to put material findings in writing, its directive not to disclose deposit concentration risk, its failure and refusal to disclose accounts lacking tax identification numbers to regulators, its failure and refusal to disclose the existence of grand jury and other subpoenas to regulators, its failure to disclose substantial loans to known criminals and politically exposed persons, its material alterations of the findings on numerous reports required under the Bank Secrecy Act’s Quality Control (“QC”) requirements, its exclusion of unfunded commitments for lines of credit from ALLL, its material omissions from Flood Disaster Protection Act audits, its material alterations of the GCC lists, the depositing of structured settlement checks in the CEO’s accounts, its directives to employees not to use Outlook to communicate on matters of concern to the OCC, its directive to employees not to inform the OCC that Jon Ball had resigned, and its threats of harm to Plaintiff) was a violation of Dodd-Frank, 15 USC § 78u, including the provision that makes it a criminal offense to fail and refuse to produce records responsive to an SEC subpoena, 17 USC § 78u(c), the provision that authorizes referrals to the Attorney General of the United States, 17 USC § 78u(d)(1), the provision that authorizes the imposition of civil penalties, 17 USC § 78u(d)(3), and the provision that allows the SEC to obtain financial records of a bank customer without prior notice to the customer, 17 USC § 78u(h)(2). Plaintiff further believed that because BofI’s stock is publicly traded, such Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 18 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -19- OLD: complaint.docx 101716 NEW: amended.docx conduct, including the denial of the existence of subpoenas, was a violation of section 19(b) of the Securities Act of 1933, 15 USC § 77m, and of section 21(b) of the Securities Exchange Act of 1934, 15 USC § 78a. Plaintiff also believed the Bank’s conduct was in violation of the mail fraud and wire fraud statutes, 18 USC §§ 1341 and 1343. Plaintiff also believed the Bank’s conduct was in violation of the bank fraud statute, 18 USC § 1344, and of the securities fraud statute found at 18 USC § 1348. Plaintiff further believed that the Bank’s conduct violated rules and regulations promulgated by the Securities and Exchange Commission including without limitation, those found in 17 CFR Parts 230 and 240. Plaintiff also believed that because BofI was regulated by so many different federal agencies, and because its stock was publicly traded, that additional federal statutes, rules and regulations were likely being violated, including without limitation, Rule 10b-5, 17 CFR § 240.10b-5. Plaintiff’s beliefs were reasonable under the circumstances, including based on guidance and instructions he received from his manager, Jonathan Ball. 74B. Within the past 12 months, Defendant, through SVP Tolla, CEO Garrabrants, and others, has continued to widely publish false and defamatory statements about Plaintiff, claiming that he has colluded and/or collaborated with “short sellers” of BofI’s stock, and that he was a dishonest and incompetent employee. As a result of this conduct, Plaintiff has been unable to retain employment, because of the notoriety of this case and the Bank’s allegations about him. 7574. As a result of Defendant’s actions, Plaintiff suffered substantial losses in earnings, medical and other employment benefits, severe physical and emotional distress, attorneys’ fees and other items of damage. FIRST CAUSE OF ACTION (Retaliation In Violation of the Sarbanes-Oxley Act - 18 USC § 1514A) 7675. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 19 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -20- OLD: complaint.docx 101716 NEW: amended.docx cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. In particular, Plaintiff incorporates the allegations of Paragraphs 31A, 74A and 74B. 7776. At all material times Section 806 of the Sarbanes Oxley Act of 2002 was in effect and binding on Defendant. It prohibits employers such as Defendant from discharging, constructively discharging, demoting, threatening, harassing or in any manner discriminating or retaliating against any employee because he or she provided information, caused information to be provided, or assisted in an investigation by a federal regulatory or law enforcement agency, or an internal investigation by the company relating to alleged mail fraud, wire fraud, bank fraud, securities fraud, violations of SEC rules and regulations or violations of federal law relating to fraud against shareholders. In addition, an employer may not discharge or in any manner retaliate against employee because he or she filed, caused to be filed, participated in, or assisted in a proceeding relating to alleged mail fraud, wire fraud, bank fraud, securities fraud, violations of SEC rules and regulations or violations of federal law relating to fraud against shareholders. If an employer takes retaliatory action against an employee because he or she engaged in any of these protected activities, the employee can file a complaint with the Secretary, United States Department of Labor, Occupational Safety and Health Administration (“OSHA”). 77A. Plaintiff actually and reasonably believed that the actions listed above violated federal statutes, rules and regulations. Because BofI was heavily regulated by a number of federal agencies, and because Plaintiff reasonably believed that BofI was committing a fraud on both its shareholders and its regulators, and because Plaintiff reasonably believed that such fraud constituted a violation of federal fraud statutes and regulations, including without limitation, the mail fraud, wire fraud, bank fraud and securities fraud statutes, Plaintiff is entitled to bring his claims here. 7877. Plaintiff timely filed a whistleblower complaint with OSHA, and 180 days have elapsed since filing that complaint. No decision has been issued by OSHA, and Plaintiff Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 20 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -21- OLD: complaint.docx 101716 NEW: amended.docx has not been the cause of any delay in the issuance of a decision. Accordingly Plaintiff is entitled to seek relief in district court by jury trial. Moreover, no predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section of SOX. 7978. Defendant harassed, threatened, discharged and retaliated against Plaintiff, and disclosed his entity as a whistleblower, after Plaintiff made oral and written complaints regarding what he reasonably believed to be illegal or unlawful conduct in violation of state and federal statutes, rules and regulations. Plaintiff made these complaints to his employer, by and through its agents and employees, as well as to the SEC, the OCC and OSHA. 8079. Plaintiff is informed and believes, and thereon alleges that because of his making complaints regarding Defendant’s illegal conduct and/or conduct Plaintiff reasonably believed to be illegal, Plaintiff was discharged from his employment and/or otherwise discriminated and retaliated against by Defendant after he had made the aforesaid complaints about illegal conduct. 8180. As a direct and proximate result of Defendant’s actions, Plaintiff has suffered and will continue to suffer pain and mental anguish and emotional distress. 8281. Plaintiff has further suffered and will continue to suffer a loss or earnings and other employment benefits, whereby Plaintiff is entitled to general compensatory damages in amounts to be proven at trial. 8382. Defendant’s actions constituted a willful violation of the above-mentioned federal laws and regulations. As a direct result, Plaintiff has suffered and continues to suffer substantial losses related to the loss of wages and is entitled to recover costs and expenses and attorney’s fees in seeking to compel Defendant to fully perform its obligations under state and federal law, in amounts according to proof at time of trial. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 21 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -22- OLD: complaint.docx 101716 NEW: amended.docx 8483. The conduct of Defendant described hereinabove was outrageous and was executed with malice, fraud and oppression, and with conscious disregard for Plaintiff’s rights, and further, with the intent, design and purpose of injuring Plaintiff. 8584. Defendant committed the acts alleged hereinabove by acting knowingly and willfully, with the wrongful and illegal deliberate intention of injuring Plaintiff, from improper motives amounting to malice, and in conscious disregard of Plaintiff’s rights. Plaintiff is thus entitled to recover nominal, actual, compensatory, punitive and exemplary damages in amounts according to proof at the time of trial, to the full extent allowable by law, in addition to any other remedies and damages allowable by law. 8685. As a proximate result of the actions and conduct described hereinabove, which constitute violations of Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”), Plaintiff has been damaged in an amount according to proof at the time of trial, and seeks make- whole relief, civil penalties and attorneys fees against Defendant pursuant to SOX. 8786. Wherefore Plaintiff prays for relief as stated in pertinent part hereinafter. SECOND CAUSE OF ACTION (Retaliation In Violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010- 15 USC § 78u-6(h)) 8887. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. In particular, Plaintiff incorporates the allegations of Paragraphs 31A, 74A and 74B. 8988. At all times material hereto, Section 78u-6 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) was in effect and binding on Defendant. It permits individuals who allege discharge or other discrimination to bring an action in United States District Court for relief. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 22 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -23- OLD: complaint.docx 101716 NEW: amended.docx 9089. Dodd-Frank prohibits employers from discharging, demoting, suspending, threatening, harassing, directly or indirectly, or in any other manner discriminating against whistleblowers in the terms and conditions of employment because of any lawful act done by the whistleblower in providing information to the SEC, in initiating, testifying in, or assisting in any investigation or judicial or administrative act of the SEC based upon or related to such information, or in making disclosures that are required or protected under SOX, Dodd-Frank, and any other law, rule or regulation subject to the jurisdiction of the SEC. 9190. Plaintiff is a whistleblower within the meaning of Dodd-Frank, as evidenced by his conduct described in Paragraphs 9-45 above. 91A. Plaintiff actually and reasonably believed that the actions listed above violated federal statutes, rules and regulations. Because BofI was heavily regulated by a number of federal agencies, and because Plaintiff reasonably believed that BofI was committing a fraud on both its shareholders and its regulators, and because Plaintiff reasonably believed that such fraud constituted a violation of federal fraud statutes and regulations, including without limitation, the mail fraud, wire fraud, bank fraud and securities fraud statutes, Plaintiff is entitled to bring his claims here. Plaintiff further believed that his disclosures to BofI management, to the Office of the Controller of the Currency, and to the Securities and Exchange Commission, and the retaliation he experienced because of same, entitle him to bring his claims here. 9291. Defendant harassed, threatened, discharged and retaliated against Plaintiff, and took other adverse actions against Plaintiff, including disclosing his entity as a whistleblower, after Plaintiff made oral and written complaints regarding what he reasonably believed to be illegal or unlawful conduct in violation of state and federal statutes, rules and regulations. Plaintiff made these complaints to his employer, by and through its agents and employees, as well as to the SEC, the OCC and OSHA. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 23 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -24- OLD: complaint.docx 101716 NEW: amended.docx 9392. Plaintiff is informed and believes, and thereon alleges that because of his making complaints regarding Defendant’s illegal conduct and/or conduct Plaintiff reasonably believed to be illegal, Plaintiff was discharged from his employment and/or otherwise discriminated and retaliated against by Defendant after he had made the aforesaid disclosures and complaints about illegal conduct. 9493. As a direct and proximate result of Defendant’s actions, Plaintiff has suffered and will continue to suffer pain and mental anguish and emotional distress. 9594. Plaintiff has further suffered and will continue to suffer a loss or earnings and other employment benefits, whereby Plaintiff is entitled to general compensatory damages in amounts to be proven at trial. 9695. Defendant’s actions constituted a willful violation of the above- mentioned federal laws and regulations. As a direct result, Plaintiff has suffered and continues to suffer substantial losses related to the loss of wages and is entitled to recover costs and expenses and attorney’s fees in seeking to compel Defendant to fully perform its obligations under state and federal law, in amounts according to proof at time of trial. 9796. The conduct of Defendant described hereinabove was outrageous and was executed with malice, fraud and oppression, and with conscious disregard for Plaintiff’s rights, and further, with the intent, design and purpose of injuring Plaintiff. 9897. As a proximate result of the actions and conduct described hereinabove, which constitute violations of Dodd-Frank, Plaintiff has been damaged in an amount according to proof at the time of trial, and seeks all relief allowable by law including without limitation double back pay, injunctive and declaratory relief, make-whole relief, civil penalties, litigation costs, expert witness fees and attorneys fees against Defendant pursuant to Dodd- Frank. 9998. Wherefore Plaintiff prays for relief as stated in pertinent part hereinafter. THIRD CAUSE OF ACTION (Retaliation in Violation of Labor Code § 1102.5) Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 24 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -25- OLD: complaint.docx 101716 NEW: amended.docx 10099. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 101100. At all times material to this Complaint, California Labor Code § 1102.5 was in effect and binding on Defendant. This section requires Defendant to refrain from retaliating against an employee for refusing to participate in an activity that he reasonably believes would result in a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. 102101. Plaintiff had a reasonable belief that Defendant was violating state and federal laws, and reported those violations to Defendant’s management as well as to law enforcement agencies and regulators, as Defendant well knew, and as alleged hereinabove. 103102. Defendant retaliated against Plaintiff for his whistleblowing, by harassing, threatening, and terminating him, among other things, all in violation of Labor Code § 1102.5. 104103. As a direct and proximate result of such retaliation, Plaintiff has been damaged in a sum according to proof. 105104. Plaintiff requests all available relief under Labor Code § 1102.5 including dam agesdamages and the imposition of a civil penalty of $10,000.00 for each violation. FOURTH CAUSE OF ACTION (Violation of California Medical Information Act - Civil Code § 56 et seq.) 106105. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 107106. At all times material hereto, the California Medical Information Act, California Civil Code § 56 et seq. (“CMIA”) was in effect and binding on Defendant. The Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 25 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -26- OLD: complaint.docx 101716 NEW: amended.docx CMIA places obligations and restrictions on California employers with respect to requests for medical information from employees. 108107. By the conduct alleged hereinabove, Defendant violated the CMIA. 109108. As a proximate result of Defendant’s actions, Plaintiff has suffered and continues to suffer substantial losses of earnings and other employment benefits and has suffered and continues to sufferduffer severe emotional distress, humiliation and mental anguish, all to his damage in an amount according to proof. 110109. Defendant’s actions were willful, malicious, fraudulent and oppressive, and committed with the wrongful intent to injury Plaintiff and in conscious disregard of Plaintiff’s rights. 111110. Wherefore Plaintiff seeks relief as set forth below including attorneys’ fees and costs pursuant to Civil Code § 56.35 and California Code of Civil Procedure § 1021.5. FIFTH CAUSE OF ACTION (Wrongful Termination In Violation of Public Policy) 112111. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 113112. At all times material hereto, Section 806 of the Sarbanes Oxley Act of 2002 was in effect and binding on Defendant. This law prohibits employers such as Defendant from discharging, constructively discharging, demoting, threatening, harassing or in any manner discriminating or retaliating against any employee because he or she provided information, caused information to be provided, or assisted in an investigation by a federal regulatory or law enforcement agency, or an internal investigation by the company relating to alleged mail fraud, wire fraud, bank fraud, securities fraud, violations of SEC rules and regulations or violations of federal law relating to fraud against shareholders. In addition, an employer may not discharge or in any manner retaliate against employee because he or Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 26 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -27- OLD: complaint.docx 101716 NEW: amended.docx she filed, caused to be filed, participated in, or assisted in a proceeding relating to alleged mail fraud, wire fraud, bank fraud, securities fraud, violations of SEC rules and regulations or violations of federal law relating to fraud against shareholders. 114113. At all times material hereto, Section 78u-6 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) was in effect and binding on Defendant. Dodd-Frank prohibits employers from discharging, demoting, suspending, threatening, harassing, directly or indirectly, or in any other manner discriminating against whistleblowers in the terms and conditions of employment because of any lawful act done by the whistleblower in providing information to the SEC, in initiating, testifying in, or assisting in any investigation or judicial or administrative act of the SEC based upon or related to such information, or in making disclosures that are required or protected under SOX, Dodd-Frank, and any other law, rule or regulation subject to the jurisdiction of the SEC. 115114. At all times mentioned in this complaint, California Labor Code Section 1102.5 was in full force and effect and was binding on Defendant. This law requires Defendant to refrain, among other things, from retaliating against employees who refuse to participate in or condone conduct they reasonably believe to violate state or federal law. 116115. At all times material hereto, the California Medical Information Act, California Civil Code § 56 et seq. (“CMIA”) was in effect and binding on Defendant. The CMIA places obligations and restrictions on California employers with respect to requests for medical information from employees. 117116. Title 18 USC § 1343 defines the crime of wire fraud under federal law, and provides in pertinent part: “Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money...…. by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 27 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -28- OLD: complaint.docx 101716 NEW: amended.docx signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.” 118117. Title 18 USC § 1341 defines the crime of mail fraud under federal law, and provides in pertinent part: “Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money...…. for the purpose of executing such scheme or artifice or attempting to do so, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, r deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both.” 119118. Article 1, Section 1 of the California Constitution provides that all people have a right to privacy, among other inalienable rights. The disclosure of a person’s private medical information without that person’s consent constitutes a violation of this constitutional right to privacy. 120119. California Business & Professions Code § 17200 provides that unfair competition shall mean any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising and any act prohibited by Section 17500, et seq., of the Business & Professions Code. Section 17203 of the Business & Professions Code provides that a court of competent jurisdiction may enjoin any conduct constituting unfair competition under § 17200. 121120. Each of the aforesaid laws is a fundamental policy of the State of California. 122121. Plaintiff believes and thereon allege that his whistleblowing, refusing to condone illegal activity, and engaging in protected activity, was or were a motivating factor in Defendant’s conduct as alleged hereinabove, including terminating Plaintiff. 123122. As a direct and proximate result of Defendant’s unlawful conduct, Plaintiff has sustained and continues to sustain physical injuries, pain and suffering, and extreme Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 28 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -29- OLD: complaint.docx 101716 NEW: amended.docx and severe mental anguish and emotional distress; and Plaintiff has suffered and continued to suffer a loss of earnings and other employment benefits. Plaintiff is thereby entitled to general and compensatory damages in amounts to be proven at trial. 124123. Defendant’s conduct as described above was willful, despicable, knowing, and intentional; accordingly, Plaintiff seeks an award of punitive and exemplary damages in an amount according to proof. SIXTH CAUSE OF ACTION (Unfair Business Practices - Bus. & Prof. Code § 17200 et seq.) 125124. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 126125. Defendant’s conduct as alleged above violates multiple state and federal laws and constitutes unlawful business practices within the meaning of California Business & Professions Code § 17200, et seq. 127126. Plaintiff is informed and believes and thereon alleges that Defendant continues to engage in some or all of the aforementioned unfair and unlawful business practices. 128127. Plaintiff seeks an injunction prohibiting Defendant from engaging in the unfair and unlawful conduct described herein. Plaintiff also seeks attorneys’ fees pursuant to the private attorney general doctrine, as codified in California Civil Code § 1021.5. SEVENTH CAUSE OF ACTION (Breach of Implied Covenant of Good Faith and Fair Dealing) 129128. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 29 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -30- OLD: complaint.docx 101716 NEW: amended.docx 130129. Plaintiff and Defendant had an agreement that Plaintiff would be able to perform the duties of an internal auditor in accordance with federal and state regulations and commonly understood business practices, without fear of losing his job, being threatened physically and otherwise, and without having his performance evaluation downgraded and bonus reduced because he spoke up about unlawful and improper practices at the Bank. The agreement between Plaintiff and Defendant contained an implied covenant of good faith and fair dealing, which obligated Defendant to perform the terms and conditions of the agreement fairly and in good faith and to refrain from doing any act that would deprive Plaintiff of the benefits of the agreement. 131130. Plaintiff has performed all conditions, covenants and promises required on his part to be performed in accordance with the terms and conditions of the agreement. 132131. Plaintiff is informed and believes, and thereon alleges, that Defendant knew Plaintiff had fulfilled, and was ready, willing and able to continue to fulfill all of his duties and conditions under the agreement. 133132. Defendant breached the implied covenant of good faith and fair dealing under the agreement by terminating Plaintiff without good cause. 134133. As a direct, foreseeable and proximate result of Defendant’s breach of the implied covenant, Plaintiff has suffered and sustained damages in an amount according to proof. EIGHTH CAUSE OF ACTION (Intentional Infliction of Emotional Distress) 135134. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 136135. Defendant engaged in outrageous conduct towards Plaintiff with the intention to cause, or with reckless disregard for the probability of causing, Plaintiff to Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 30 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -31- OLD: complaint.docx 101716 NEW: amended.docx suffer severe emotional distress, and with wanton and reckless disregard for the injurious result to Plaintiff, as set forth hereinabove. The conduct set forth hereinabove was extreme and outrageous and an abuse of the authority and position of Defendant. The above- described conduct was intended to cause severe emotional distress, or was done in conscious disregard of the probability of causing such distress. This conduct exceeded the inherent risks of employment and was not the sort of conduct normally expected from an employer. 137136. As a direct and proximate result of Defendant’s unlawful conduct, Plaintiff has sustained and continues to sustain pain and suffering, extreme and severe mental anguish and emotional distress; Plaintiff has incurred and will continue to incur medical expenses for treatment, and for incidental medical expenses; and Plaintiff has suffered and continues to suffer a loss of earnings and other employment benefits. Plaintiff is thereby entitled to general and compensatory damages in amounts to be proven at trial. 138137. Plaintiff is informed and believes and thereon alleges that Defendant and its managing agents, managers, officers, and/or directors committed the acts alleged herein maliciously, fraudulently, and oppressively, with the wrongful intention of injuring Plaintiff, and acted with an improper and evil motive amounting to malice or oppression, and in conscious disregard of Plaintiff’s rights. NINTH CAUSE OF ACTION (Defamation Per Se and Compelled Self-Defamation) 139138. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 140139. On information and belief, Defendant through its agents needlessly made defamatory statements about Plaintiff to numerous persons including coworkers, supervisors and prospective employers of Plaintiff. Information as to the specific identity Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 31 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -32- OLD: complaint.docx 101716 NEW: amended.docx of the persons publishing the relevant statements, and the recipients of the statements is in the hands of Defendant and other third parties, and will be subject to discovery. 141140. On information and belief, Plaintiff believes defamatory statements by Defendant and their agents were made orally. While defamatory statements may also have been made in writing, Plaintiff does not presently have information concerning written statements, which is in the hands of Defendant and of which Defendant have superior knowledge, as will be subject to discovery. 142141. Plaintiff does not presently have knowledge of the exact wording of the defamatory statements at issue, other than as alleged hereinabove, such information being in the hands of Defendant and third parties. On information and belief, the general substance of these defamatory statements includes false express and implied assertions also including insinuation and innuendo that Plaintiff’s performance was deficient, that he failed to perform his duties in a professional manner, that he was incompetent, that he suffered from a psychiatric illness, that he was trying maliciously to harm Defendant, that he was a criminal, and that Plaintiff was lying to federal regulators. 143142. Such assertions were intended as statements of fact and not opinion. 144143. Plaintiff is informed and believes that Defendant, by the herein-described acts, conspired to, and in fact, did negligently, recklessly, and intentionally caused excessive and unsolicited internal and external publications of defamation, of and concerning Plaintiff, to third persons and the community, and/or with a failure to investigate adequately or verify purported facts underlying the defamatory statements. 145144. The precise dates of these publications are not presently known to Plaintiff, as the information is in the hands of Defendant. However, Plaintiff is informed and believes the publications were published and foreseeably republished in or around November 2014, and after that date, to first cause, and then justify, Plaintiff’s wrongful and illegal termination, and to cause Plaintiff to be unable to secure new employment for a considerable period of time despite reasonable efforts to do so. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 32 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -33- OLD: complaint.docx 101716 NEW: amended.docx 146145. These publications were outrageous, negligent, reckless, intentional, and maliciously published and republished by Defendant, and each of them. Plaintiff is informed and believes that the negligent, reckless, and intentional publications by Defendant, and each of them, were and continue to be, foreseeably published and republished by Defendant, their agents and employees, recipients, and in the community. Plaintiffs hereby seek damages for these publications and all foreseeable republications discovered up to the time of trial. 147146. During the above-described time-frame, Defendant, including through its agents as set forth above, conspired to, and in fact, did negligently, recklessly, and intentionally cause excessive and unsolicited publication of defamation, of and concerning Plaintiff, to third persons, who had no need or desire to know. Those third person(s) to whom these Defendant published this defamation are believed to include, but are not limited to, other agents and employees of Defendant, and each of them, federal regulators, the San Diego Police, and the community, all of whom are known to Defendant, and each of them, but unknown at this time to Plaintiff. 148147. Further, Defendant had knowledge and/or reason to believe that Plaintiff would be under a strong compulsion and pressure to disclose the contents of these defamatory false statements to third persons, namely potential employers, colleagues, friends, family and other individuals, as he in fact did. 149148. The defamatory publications set forth above consisted of knowingly false and unprivileged communications, tending directly to injure Plaintiff and Plaintiff’s personal, business, and professional reputation. 150149. Plaintiff is informed, believes and fears that these false and defamatory per se statements, including statements regarding Plaintiff’s occupational, business, professional, and personal reputation, will continue to be published by Defendant, and each of them, and will be foreseeably republished by its recipients, all to the ongoing harm and injury to Plaintiff’s occupational, business, professional, and personal reputation. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 33 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -34- OLD: complaint.docx 101716 NEW: amended.docx Plaintiff also seeks redress in this action for all foreseeable re-publications, including his own compelled self-publicationself- publication of these defamatory statements. 151150. The defamatory meaning of all of the above-described false and defamatory statements and their reference to Plaintiff, were understood by these above-referenced third person recipients and other members of the community who are known to Defendant, and each of them, but unknown to Plaintiff at this time. 152151. None of Defendant’s defamatory publications and statements against Plaintiff referenced above is true. The above defamatory statements were understood as assertions of fact, and not as opinion. Plaintiff is informed and believes this defamation will continue to be negligently, recklessly, and intentionally published and foreseeably republished by Defendant, and each of them, and foreseeably republished by recipients of Defendant’s publications, thereby causing additional injury and damages for which Plaintiff seeks redress by this action. 153152. Each of these false defamatory per se publications (as set forth above) were negligently, recklessly, and intentionally published in a manner equaling malice and abuse of any alleged conditional privilege (which Plaintiff denies existed), since the publications, and each of them, were made with hatred, ill will, and an intent to vex, harass, annoy, and injure Plaintiff in order to justify the illegal and cruel actions of Defendant, to cause further damage to Plaintiff’s professional and personal reputation, to cause him to be fired, to justify his firing and to destroy his credibility in the federal and local law enforcement community. 154153. Each of these publications by Defendant, and each of them, was made with knowledge that no investigation supported the unsubstantiated and obviously false statements. Defendant published these statements knowing them to be false, unsubstantiated by any reasonable investigation and were the product of hostile witnesses. These acts of publication were known by Defendant, to be negligent to such a degree as to be reckless. In fact, not only did Defendant have no reasonable basis to believe these Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 34 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -35- OLD: complaint.docx 101716 NEW: amended.docx statements, but it also had no belief in the truth of these statements, and in fact knew the statements to be false. Defendant excessively, negligently, and recklessly published these statements to individuals with no need to know, and who made no inquiry, and who had a mere general or idle curiosity of this information. 155154. The above complained-of publications by Defendant were made with hatred and ill will towards Plaintiff and the design and intent to injure Plaintiff, Plaintiff’s good name, his reputation, employment and employability. Defendant published these statements, not with an intent to protect any interest intended to be protected by any privilege, but with negligence, recklessness and/or an intent to injure Plaintiff and destroy his reputation. Therefore, no privilege existed to protect Defendant from liability for any of these aforementioned publications or republications. 156155. As a proximate result of the publication and republication of these defamatory statements, and each of them, Plaintiff has suffered injury to his personal, business and professional reputation including suffering embarrassment, humiliation, severe emotional distress, shunning, anguish, fear, loss of employment, and employability, and significant economic loss in the form of lost wages and future earnings, all to Plaintiff’s economic, emotional, and general damage in an amount according to proof. 157156. Defendant committed the acts alleged herein recklessly, maliciously, fraudulently, and oppressively, with the wrongful intention of injuring Plaintiff, for an improper and evil motive amounting to malice (as described above), and which abused and/or prevented the existence of any conditional privilege, which in fact did not exist, and with a reckless and conscious disregard of Plaintiff’s rights. All actions of Defendant, its agents and employees, herein alleged were known, ratified and approved by Defendant. Plaintiff thus is entitled to recover punitive and exemplary damages from Defendant, for these wanton, obnoxious, and despicable acts in an amount according to proof at time of trial. TENTH CAUSE OF ACTION Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 35 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -36- OLD: complaint.docx 101716 NEW: amended.docx (Declaratory Relief) 158157. As a separate and distinct cause of action, Plaintiff complains and realleges all of the allegations contained in this complaint, and incorporates them by reference into this cause of action as though fully set forth herein, excepting those allegations which are inconsistent with this cause of action. 159158. A dispute and an actual controversy has arisen between the parties regarding the enforceability of a document purporting to compel Plaintiff to arbitrate certain claims against Defendant. 160159. Plaintiff asserts that under Armendariz v. Foundation HealthCare (2000) 24 Cal.4th 83 and its progeny, as well as under SOX and Dodd-Frank, and the public policies of California and the United States, that the document is unenforceable for a number of reasons as set forth in statutes and the case law. On information and belief Defendant asserts that the document is enforceable and that Plaintiff must bring his claims in arbitration. 161160. Plaintiff desires a judicial determination of the parties’ rights and obligations of the parties with respect to the document, and a declaration that the arbitration document is invalid because it lacks mutuality, is procedurally and substantively unconscionable, and violates public policy. 162161. A judicial declaration is necessary and appropriate at this time under the circumstances in order that Plaintiff may ascertain his rights and duties under the alleged arbitration agreement, and not be forced to forgo his constitutional right to a trial by jury. 163162. Plaintiff does not seek to avoid the alleged agreement to arbitrate unless the alleged arbitration agreement is declared invalid and/or unenforceable. PRAYER FOR RELIEF Wherefore, Plaintiff prays for judgment against Defendant as follows: 1. For compensatory damages, including lost wages, medical benefits and other employment benefits, according to proof; Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 36 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479531084.1 -37- OLD: complaint.docx 101716 NEW: amended.docx 2. For double back pay with interest; 3. For general, mental and emotional distress damages according to proof; 4. For punitive damages on each cause of action for which they are awardable; 5. For all civil penalties awardable; 6. For an award of interest, including prejudgment interest, at the legal rate; 7. For an award of litigation costs and attorneys' fees as awardable on each cause of action pursuant to SOX, Dodd-Frank, CMIA, the private attorney general doctrine, as codified in California Civil Code Section 1021.5, and any other available bases; 8. For an injunction ordering BOFI to cease and desist its unlawful practices; 7. For costs of suit incurred; 8. For a declaratory judgment that the alleged arbitration agreement is invalid because it lacks mutuality, is unconscionable, violates public policy and is prohibited under SOX and/or Dodd-Frank; and 9. For such other and further relief as the court deems just and proper. DEMAND FOR JURY TRIAL Plaintiff Charles Matthew Erhart hereby demands a jury trial on all issues so triable. Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 37 of 38 SMRH:479531084.1 -38- OLD: complaint.docx 101716 NEW: amended.docx Summary report: Litéra® Change-Pro TDC 7.5.0.185 Document comparison done on 10/17/2016 7:51:12 PM Style name: SMRH Standard Intelligent Table Comparison: Active Original filename: complaint.docx Modified filename: amended.docx Changes: Add 176 Delete 168 Move From 0 Move To 0 Table Insert 0 Table Delete 0 Table moves to 0 Table moves from 0 Embedded Graphics (Visio, ChemDraw, Images etc.) 0 Embedded Excel 0 Format changes 0 Total Changes: 344 Case 3:15-cv-02287-BAS-NLS Document 35-3 Filed 10/31/16 Page 38 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479381704.1 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership Including Professional Corporations POLLY TOWILL, Cal. Bar No. 120420 ptowill@sheppardmullin.com ANDRE J. CRONTHALL, Cal. Bar No. 117088 acronthall@sheppardmullin.com 333 South Hope Street, 43rd Floor Los Angeles, California 90071-1422 Telephone: 213.620.1780 Facsimile: 213.620.1398 Attorneys for Defendant BofI HOLDING, INC. and Plaintiff BofI FEDERAL BANK UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA CHARLES MATTHEW ERHART, an individual, Plaintiff, v. BofI HOLDING, INC., an entity d/b/a BOFI FEDERAL BANK and BANK OF THE INTERNET, Defendant. Case No. 15-cv-2287-BAS-NLS consolidated with 15-cv-2353-BAS-NLS PROOF OF SERVICE Hon. Cynthia Bashant (Schwartz Courthouse, Courtroom 4B) Magistrate Judge Nita L. Stormes 12th Floor (Carter/Keep), Suite 1210 BofI FEDERAL BANK, a federal savings bank Plaintiff, v. CHARLES MATTHEW ERHART, an individual, Defendant. Case 3:15-cv-02287-BAS-NLS Document 35-4 Filed 10/31/16 Page 1 of 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SMRH:479389598.1 PROOF OF SERVICE Charles Matthew Erhart v. BofI Holding, Inc. U.S.D.C., Southern District of California, Case No. 15-cv-2287-BAS-NLS consolidated with BofI Federal Bank v. Charles Matthew Erhart U.S.D.C., Southern District of California, Case No. 3:15-cv-2353-BAS-NLS PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES At the time of service, I was over 18 years of age and not a party to this action. I am employed in the County of Los Angeles, State of California. My business address is 333 South Hope Street, 43rd Floor, Los Angeles, California 90071-1422. On October 31, 2016, I served true copies of the following document(s) described as DEFENDANT BOFI HOLDING, INC.'S NOTICE OF MOTION AND MOTION TO DISMISS PLAINTIFF'S FIRST, SECOND, FOURTH, SEVENTH, EIGHTH AND NINTH CLAIMS IN THE FIRST AMENDED COMPLAINT UNDER FED. R. CIV. P. 12(B)(6) AND MOTION TO STRIKE UNDER FED. R. CIV. P 12(F); MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT BOFI HOLDING, INC.'S MOTION TO DISMISS PLAINTIFF'S FIRST, SECOND, FOURTH, SEVENTH, EIGHTH AND NINTH CLAIMS UNDER FED. R. CIV. P. 12(B)(6) AND MOTION TO STRIKE UNDER FED. R. CIV. P 12(F); DECLARATION OF ANDRE J. CRONTHALL IN SUPPORT OF DEFENDANT BOFI HOLDING, INC.’S MOTION TO DISMISS PLAINTIFF’S FIRST, SECOND, FOURTH, SEVENTH, EIGHTH AND NINTH CLAIMS UNDER FED. R. CIV. P. 12(B)(6) AND MOTION TO STRIKE UNDER FED. R. CIV. P 12(F) on the interested parties in this action as follows: Carol Gillam, Esq. The Gillam Law Firm 11620 Wilshire Blvd. Suite 900 Los Angeles, CA 90025 Tel (310) 203-9977; Fax (310) 203-9922 Email: carol@gillamlaw.com Attorneys for Charles Matthew Erhart BY CM/ECF NOTICE OF ELECTRONIC FILING: I electronically filed the document(s) with the Clerk of the Court by using the CM/ECF system. Participants in the case who are registered CM/ECF users will be served by the CM/ECF system. Participants in the case who are not registered CM/ECF users will be served by mail or by other means permitted by the court rules. Case 3:15-cv-02287-BAS-NLS Document 35-4 Filed 10/31/16 Page 2 of 3 Case 3:15-cv-02287-BAS-NLS Document 35-4 Filed 10/31/16 Page 3 of 3