Second Circuit Holds Dodd-Frank Whistleblower Provision Does Not Apply Extraterritorially

by Orrick - Global Employment Law Group
Contact

Last week, in Liu v. Siemens, AG, the Second Circuit held that the Dodd-Frank Act’s whistleblower retaliation provision (15 U.S.C. 78u-6(h)(1)) does not apply extraterritorially, in the first Second Circuit decision to address the international scope of Dodd-Frank’s whistleblower protections against retaliation. Liu, a citizen and resident of Taiwan, was a compliance officer for Siemens China Ltd., a wholly owned subsidiary of Siemens AG.  Siemens AG is a German corporation with shares listed on the New York Stock Exchange. Liu claimed Siemens wrongfully terminated his employment in retaliation for reporting that Siemens China Ltd. employees were making improper payments to Chinese officials in North Korea and China in connection with the sale of medical equipment in those countries, in violation of the Foreign Corrupt Practices Act (“FCPA”).

The district court dismissed Liu’s claims based on dual holdings that (1) Dodd-Frank’s whistleblower provision does not apply extraterritorially, and (2) Liu’s reporting of FCPA violations was not “required or protected” under the Sarbanes-Oxley Act. The district court declined to address Siemens’ additional argument (3) that Liu was not a protected “whistleblower” under Dodd-Frank because he only made reports internally to Siemens management and not to the SEC.

On appeal, the Second Circuit affirmed the dismissal of Liu’s complaint exclusively on the ground that Liu sought an extraterritorial application of the Dodd-Frank Act that could not be supported under Morrison v. Nat’l Australian Bank Ltd., 561 U.S. 247 (2010). The court first explained that the facts as alleged by Liu could not be construed to state a domestic application of the Dodd-Frank Act, rejecting Liu’s argument that Siemens’ listing of securities on an American exchange served to establish the requisite domestic link. “Far from helping Liu, Morrison establishes that where a plaintiff can point only to the fact that a defendant has listed securities on a U.S. exchange, and the complaint alleges no further meaningful relationship between the harm and those domestically listed securities, the listing of securities alone is the sort of ‘fleeting’ connection that ‘cannot overcome the presumption against extraterritoriality.’”

The court next analyzed whether Dodd-Frank’s antiretaliation provision had extraterritorial application and held that “there is absolutely nothing in the text of the provision… or in the legislative history of the Dodd-Frank Act, that suggests that Congress intended the antiretaliation provision to regulate the relationships between foreign employers and their foreign employees working outside the United States.” In response to Liu’s argument that the whistleblower bounty provisions of Dodd-Frank apply to foreign whistleblowers and that the retaliation provision should therefore be construed consistently, the Second Circuit explained, “even if we assume that the [SEC] regulations clearly apply the bounty program to whistleblowers located abroad and that some deference would be due such an agency interpretation, it would not follow that Congress intended the antiretaliation provision to apply similarly.”

In resting its holding exclusively on extraterritoriality grounds, the Second Circuit declined to reach at least two other important questions under Dodd-Frank that were raised on the appeal. First, the court did not address whether the district court correctly concluded that SOX’s whistleblower provision does not “require or protect” disclosures of FCPA violations. Second, the court did not weigh in on the much-debated question of whether internal reporting to company management is protected under Dodd-Frank, an issue that has split courts to date and for which the SEC submitted an amicus brief in support of such coverage. These questions will wait for another day.

In all, the Second Circuit’s decision in Liu offers a welcome, though not surprising, interpretation of Dodd-Frank’s whistleblower retaliation provisions for multinational companies doing business in New York that will no doubt influence other circuit courts faced with the issue in the future. While the retaliation protections of Dodd-Frank have been limited by this case, it is important to note that the ability to recover a bounty under Dodd-Frank for reporting wrongdoing to the SEC is not limited to whistleblowers within the United States. As the SEC’s annual reports of whistleblower activity have indicated, more than 10% of the 3,000 + tips received by the Office of the Whistleblower each year come in from whistleblowers located outside of the United States.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - Global Employment Law Group | Attorney Advertising

Written by:

Orrick - Global Employment Law Group
Contact
more
less

Orrick - Global Employment Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.