Garrabrants v. Erhart

316 Cal.Rptr.3d 792

Gregory GARRABRANTS, Plaintiff and Respondent,

v.Charles Matthew ERHART, Defendant and Appellant.

D080136

D081154

Court of Appeal, Fourth District, Division 1.

Filed December 18, 2023

CONSOLIDATED APPEALS from a judgment and post-judgment order of the Superior Court of San Diego County, Ronald F. Frazier, Judge. Reversed and remanded. (Super. Ct. No. 37-2017-00039440-CU-NP-CTL)

The Gillam Law Firm, Carol Gillam, Sara Heum; Pine Tillett, Norman Pine, and Scott Tillett, for Defendant and Appellant.

Sheppard, Mullin, Richter & Hampton, Martin D. Katz, Polly Towill, Heather Plocky, and David M. Berger, for Plaintiff and Respondent.

CASTILLO, J.

INTRODUCTION

Charles Matthew Erhart was an internal auditor at BofI Federal Bank (BofI) who "blew the whistle" on his employer. Erhart copied, transmitted to multiple regulatory authorities, and subsequently retained various documents he believed evidenced possible wrongdoing, some of which contained the personal and confidential information of BofI’s Chief Executive Officer (CEO), Gregory Garrabrants. Garrabrants sued Erhart for accessing, taking, and subsequently retaining his personal information. By special verdict, a jury awarded Garrabrants $1,502 on claims for invasion of privacy, receiving stolen property in violation of Penal Code section 496 subdivision (a), and unauthorized access to computer data in violation of Penal Code section 502 subdivision (c). Post-judgment, the trial court awarded Garrabrants (1) costs totaling $65,887.34 as the prevailing party, and (2) attorney fees totaling $1,314,260 pursuant to Penal Code sections 496, subdivision (c) and 502, subdivision (e)(2).

In this consolidated appeal, Erhart seeks complete reversal of the judgment due to (1) purported prejudicial errors of law in the jury instructions, (2) the trial court’s refusal to instruct on requested "whistleblower" affirmative defenses, and (3) the court’s alleged abuse of discretion in restricting evidence of Erhart’s whistle-blowing activities. He also requests reversal of the award of costs and attorney fees to Garrabrants.

As to his appeal of the judgment, we conclude Erhart’s first argument is meritorious. In our view, the contested special instructions requested by Garrabrants contained erroneous statements of law. First, the trial court erred in instructing the jury that bank customers have an unqualified reasonable expectation of privacy in financial documents disclosed to banks. While California recognizes a constitutional right to privacy in financial matters, whether an expectation of privacy is reasonable in any given situation is a contextual and fact-specific determination. Second, the trial court erred in instructing the jury that Erhart’s whistleblower justification defense depended on proving at least one legally unsupported element. Third, the instructions given for Penal Code section 496 misstated the law by defining "theft" in a manner that essentially renders receiving stolen property a strict liability offense. Fourth, the special instruction on Penal Code section 502 erroneously removed from the jury’s consideration the foundational issue of whether Garrabrants "owned" the data about him residing in BofI’s computer systems such that he could pursue a civil action under the statute.

In light of the record evidence, we further conclude there is a reasonable possibility a jury could have found in Erhart’s favor on each of Garrabrants’ claims absent the erroneous instructions, making them prejudicial. We thus reverse the judgment in all respects, including its award of costs and fees to Garrabrants, and remand. We accordingly dismiss as moot Erhart’s appeal to the attendant award of costs and fees.

BACKGROUND

I.

At all relevant times, Garrabrants was CEO of BofI. Garrabrants was also a BofI customer.

In September 2013, Erhart joined BofI as a staff auditor. Erhart’s direct supervisor was Jonathan Ball.

Ball, together with an audit committee, designed internal audit plans for BofI. Ball assigned Erhart audits to perform from these plans. The audits’ purpose was to ensure BofI operated within the regulations governing banks.

To perform his assigned audits, Erhart had access to information in BofI’s systems, including customers’ confidential financial information. For security reasons, auditors’ access was limited to the information needed at any given time to perform their duties and was revoked once an audit was complete.

II.

Erhart eventually became concerned that BofI was withholding information from its regulators.

In February and March of 2015, Erhart brought home roughly 500 pages of hardcopy BofI documents evidencing "audit findings [he thought] would be concealed from the regulators." Erhart testified that "Ball never said to me directly ‘you need to take this information home,’" but he told Erhart "‘you need to have your files ready, prepared.’"

The Office of the Comptroller of the Currency (OCC) is the primary regulator of nationally chartered banks like BofI. The OCC conducted onsite examinations of BofI to verify its regulatory compliance.

The morning of March 5, 2015, during one such onsite examination, Garrabrants and Ball conversed in Ball’s office. Erhart could not hear the words spoken, but the meeting was "loud." Soon after, Erhart learned that Ball had resigned effective immediately.

Before abruptly leaving, Ball gave another BofI auditor a USB device containing copies of audits, which the auditor gave to Erhart. When he left work that day, Erhart took the USB device and his BofI laptop with him.

The next morning, Erhart informed a coworker he felt unwell and would miss work. The following workday, Erhart informed human resources he was "still not feeling well" and would not return to work until he had met with a doctor to discuss a medical leave of absence. Erhart went on medical leave and never returned to BofI.

III.

Meanwhile, the morning after Ball resigned, Erhart called an OCC whistleblower hotline and told an OCC attorney about Ball’s abrupt departure. They arranged to meet the following week, and the OCC attorney requested Erhart bring any physical and electronic files he had.

Before his meeting with the OCC, Erhart e-mailed the documents on the USB device from Ball to the OCC. For security reasons, Erhart’s BofI laptop could not download the data, so he used his personal e-mail account and his personal desktop computer to transmit the documents.

Erhart also prepared a summary of discussion points and sent it to the OCC before the meeting. Erhart used either his BofI computer or his then-partner’s laptop to create the notes, which contained confidential BofI information, including information concerning Garrabrants.

IV.

As requested, Erhart brought the hardcopy documents in his possession and his BofI laptop to the OCC meeting. During the meeting, Erhart gave the OCC copies or originals of some of the hardcopy documents he had collected in February and March.

The OCC asked him to download further documents from his BofI laptop to a CD-ROM, but Erhart could not due to the laptop’s security measures. Erhart also tried to send the documents from his BofI e-mail address on his BofI laptop but could not. So Erhart accessed his personal e-mail account on his BofI laptop and e-mailed the documents to the OCC. As relevant to this appeal, these documents included several tax-related documents for Garrabrants and his family, several of Garrabrants’ Form W-2s, one of Garrabrants’ earnings statements, documents pertaining to a trust associated with Garrabrants, Garrabrants’ account statements from another financial institution, and several records of copies of checks written on or deposited to accounts belonging to Garrabrants. Erhart obtained those documents from BofI systems and not Garrabrants personally. Erhart took and sent only "the documents that were associated with the issues" he raised with regulators.

After e-mailing the documents to the OCC, Erhart opened his personal e-mail account on his desktop computer and downloaded the documents to a USB device. His desktop lacked the software needed to open and view some of the documents, so he transferred the data from the USB device to his then-partner’s laptop. That way, he could view the documents and report Boil’s and Garrabrants’ alleged wrongdoing to other agencies, including the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS). He gave the USB device to his counsel, who reported to the SEC, the IRS, and the Occupational Safety and Health Administration on Erhart’s behalf in March or April of 2015.

Erhart retained the documents because he "felt that [he] would be destroying evidence" otherwise. It was "unclear" what he should do with them due to conflicting instructions. According to Erhart, neither BofI nor Garrabrants requested the data’s return.

Erhart ultimately gave the hardcopy documents to a digital forensics firm hired by BofI in November 2015. The documents he e-mailed to the OCC, including those about Garrabrants, remained in Erhart’s personal e-mail account until roughly November 2021, when his counsel instructed him to delete them. In November 2021, Erhart’s desktop computer and a USB device still housed recoverable files of some of the documents, including documents containing Garrabrants’ personal data.

V.

Two of the ten to fifteen issues Erhart raised with the OCC concerned Garrabrants. These issues were subsequently reported to the IRS as well.

A.

First, Erhart reported his suspicion that Garrabrants was not paying income tax on third-party checks he was depositing into his personal account at BofI.

BofI auditors performed quarterly audits of the accounts of randomly selected employees who banked with BofI for "suspicious" activity. Ball added Garrabrants’ name to one such audit after Erhart told him that checks payable to two third parties were being deposited into Garrabrants’ personal BofI account.

As part of his audit...