PASADENA, Calif. (CN) — In 2022, a San Diego jury found an ex-auditor at Axos Bank was fired in retaliation for reporting financial misconduct. On Wednesday, Axos told a Ninth Circuit panel the whistleblower was actually fired because he never returned from medical leave.
Charles Matthew Erhart, a former internal auditor at what then was called Bank of Internet, a digital, branchless bank, then headquartered in San Diego, sued the bank in 2015 claiming they violated the the Sarbanes-Oxley Act of 2002 — a federal law enacted to protect shareholders and employees in the wake of the Enron scandal — when they fired him for reporting misconduct allegations to the Office of Comptroller of the Currency.
Erhart claimed the bank broke a number of laws including illegally recording calls with people with structured settlements or lottery payments it tried to purchase, giving misleading responses to a subpoena from the Securities and Exchange Commission, failing to disclose subpoenas to the Office of the Comptroller of the Currency, handing out risky loans to criminals or “politically exposed” people and an incident where supervisors asked him to remove a finding from a report or mark it “attorney-client privileged” so it would not be discoverable should a class action be filed against the bank.
A jury sided with Erhart on a number of his claims, including that he was fired for blowing the whistle and that he reasonably believed the bank was breaking the law. Erhart was awarded $1 million in damages for emotional distress and $500,000 for harm for defamation.
John Landry of Sheppard Mullin, Axos’ attorney, had a different argument for why the bank fired Erhart.
“There was no explanation of his absence except for abandonment of his job,” Landry said in a Wednesday hearing set to be in the Ninth Circuit’s Pasadena courthouse that had to be moved to Zoom because of the still-raging Eaton Fire nearby.
Erhart was absent from work for 16 days without notifying his supervisor and that’s why he was fired, he added.
“He might have had reasons to not come back,” Landry said, “but he never advanced those theories in this case.”
Erhart’s claim that he developed anxiety, had sleepless nights and other problems from emotional distress were never tied to his whistleblowing or his firing in his testimony during trial, Landry noted.
Because of that, Axos wants the court to either lower Erhart’s emotional distress damages to something less than $200,000 or order a new trial.
When asked by U.S. Circuit Judge Mark Bennett, a Donald Trump appointee, if any evidence was presented that showed similarly situated Axos employees were treated any differently than Erhart, Landry said there wasn’t, but there was evidence that a reminder notice wasn’t sent to Erhart to return from medical leave.
“Given the evidence which in the light most favorable to the plaintiff demonstrated that there was significant unhappiness in some quarters of the bank with what the plaintiff had done, why wouldn’t the evidence of some different treatment allow the jury to reject as they did, this defense?” Bennett asked.
If there was any hostility toward Erhart and if his “protected activity” was a factor in his firing is a question of causation, which is adjudicated independently, Landry said. Whether not receiving any kind of notice to return from medical leave affected Erhart’s continued absence from work is a causation question, he added.
“The answer is clear, it did not account for his failure to appear on the first day he was supposed to appear, the second day, or the third day.” Landry said.
Evidence was presented at trial that Erhart did call in to his bosses to report he was sick and that his emotional distress was caused by his firing, said Carol Gillam of The Gillam Law Firm in Los Angeles, adding Axos’ appeal is based on a rejection of the lower court proceedings.
Erhart was nervous “that he would get bitten by a snake if he kept turning over rocks,” Gillam said, and noted Erhart testified that he didn’t go back to work because he thought he was already terminated.
“Did they think that if they told them the fantasy version of their trial over and over again, that someone would accept and believe it? Certainly Judge Bashant didn’t,” Gillam said, referring to U.S. District Judge Cynthia Bashant, a Barack Obama appointee who tried the case in San Diego federal court.
U.S. Circuit Judge Michelle Friedland, a Barack Obama appointee, and Bennett asked Gillam to cite pages in Erhart’s testimony where he said specifically that he developed emotional distress because of his firing and where he said he didn’t return to Axos because he thought he was already terminated. Gillam couldn’t provide the pages.
U.S. Circuit Judge Ronald Gould, a Bill Clinton appointee, said Gillam could submit the page numbers to the court’s clerk later.
“An employee who believes he was terminated does not apply for medical leave and extend that medical leave,” Landry countered.
The judges took the parties’ arguments under submission.
Axos Financial is known for giving high-cost mortgages to rich people who have been rejected by other banks, likd President-elect Donald Trump. According to The Guardian, Axos Financial has extended more than $400 million in loans to Trump, becoming one of his biggest financial backers.