Two new Dodd-Frank decisions over the last week contain mixed results for employers.
In Liu v. Siemens A.G., Judge Pauley in the Southern District of New York held that Dodd-Frank’s anti-retaliation provision does not apply extraterritorially, following another district court case that reached the same conclusion several months ago. See Asadi v. G.E. Energy (USA), LLC, No. 4:12-345, 2012 WL 2522599 (S.D. Tex. June 28, 2013). (See Orrick’s prior blog post on Asadi). Liu, who was a Taiwanese resident, claimed that Siemens China terminated his employment for reporting alleged Foreign Corrupt Practices Act (FCPA) violations in China and North Korea. The court held that there was no indication that Congress intended Dodd-Frank’s anti-retaliation provision to apply to conduct occurring overseas. The court further noted that “[t]he fact that a person outside the United States may be a ‘whistleblower’ under Dodd-Frank does not compel the conclusion that he is protected by the Anti-Retaliation Provision.”
The court independently held that Liu’s reports of alleged FCPA violations to Siemens management were not covered by Dodd-Frank because “section 806 of Sarbanes-Oxley does not ‘require or protect’ disclosures of FCPA violations….” The court did not engage in much analysis on this point, apparently relying on the fact that Liu did not allege in his complaint that the FCPA violations at issue related to fraud against shareholders.
While this is an important win for employers in that it limits the number of individuals who can bring retaliation claims under Dodd-Frank in the U.S Federal Courts, the possibility is still there that the SEC could bring an enforcement action against a company that retaliated—even against a non-U.S. citizen. Additionally, the Dodd-Frank cash bounty incentives are still available to non-U.S. citizens who provide tips to the SEC. As the SEC has reported in their FY 2012 Report, more than 10 percent of the 3,000 tips received by the SEC Office of the Whistleblower came from individuals outside the United States.
In Ellington v. Giacoumakis, Judge Stearns in the District of Massachusetts held that an employee could be a covered “whistleblower” under Dodd-Frank’s anti-retaliation provision even though his employment was terminated before he made his report to the SEC, and even though his reporting internally to the company occurred before the passage of Dodd-Frank. The court adopted the broad definition of “whistleblower” promulgated by the SEC and relied upon by several district courts, and rejected the narrower analysis adopted by the Fifth Circuit in Asadi v. G.E. Energy (USA), LLC. In reaching its conclusion that Ellington was covered by the Act, the court stated, “It is apparent from the wording and positioning of § 78u-6(h)(1)(B)(i) that Congress intended that an employee terminated for reporting Sarbanes-Oxley violations to a supervisor or an outside compliance officer, and ultimately to the SEC, have a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice.” The court did not find persuasive the defendants’ argument that Dodd-Frank did not apply because Ellington’s alleged protected activity occurred prior to the Act’s passage, where his employment was terminated after the Act’s passage, and where there was no dispute that “after his termination, Ellington provided the SEC with a detailed report of NEINV’s alleged violations, assisted the SEC in its investigation of NEINV, and was the instigator of the SEC’s assessment of civil penalties against NEINV, all of which occurred after Dodd-Frank took effect.” Thus, the court denied the defendants’ motion to dismiss in that case.
The decisions in Liu and Ellington show that courts continue to reach widely divergent results in their interpretations of Dodd-Frank’s anti-retaliation provisions. It is therefore critical for employers to put their strongest arguments forward from the outset in defending these cases, in order to avoid the risk of reinstatement and double back-pay damages, among other remedies available to employees under Dodd-Frank.