Federal Court Rules That Dodd-Frank Whistleblower ‎Protection Doesn’t Apply Internationally

| Jason M. Knott

A judge in the U.S. District Court for the Southern District of New York ruled Monday that the Dodd-Frank Act’s whistleblower protection provision does not protect an employee in China who was allegedly fired for raising concerns about corruption.  Judge William H. Pauley III found “no indication” that Congress wanted Dodd-Frank’s anti-retaliation provision to apply extraterritorially, and as a result invoked the “strong presumption” against the international application of U.S. laws.  Liu v. Siemens A.G., No. 13 Civ. 317 (WHP) (S.D.N.Y. Oct. 21, 2013).

The plaintiff in the case, Meng-Lin Liu, is a Taiwanese resident who worked as a compliance officer for Siemens China.  Liu alleged that he was fired after giving a speech, attended by the Siemens China CEO, in which he claimed that Siemens would lose 30% of its business if it started following its compliance guidelines.  Two months after his firing, Liu reported to the SEC that Siemens had violated the Foreign Corrupt Practices Act (FCPA).  He then brought his suit for whistleblower retaliation, asserting that although Siemens is a German company, it has listed American depository receipts on the New York Stock Exchange.

Siemens moved to dismiss, arguing that Dodd-Frank’s anti-retaliation provision (15 U.S.C. § 78u-6(h)(1)(A)) does not apply to foreign conduct between foreign persons.  Judge Pauley agreed.  Citing the Supreme Court case of Morrison v. National Australian Bank Ltd., he wrote that when a “statute gives no clear indication of an extraterritorial application, it has none.”  Further, he noted, other parts of Dodd-Frank permit SEC enforcement actions involving conduct outside the United States in some circumstances; if Dodd-Frank applied extraterritorially in every case, those sections would be “superfluous.” 

Judge Pauley rejected Liu’s attempt to rely on 17 C.F.R. § 240.21F-8(c)(2), an SEC regulation that prohibits members of foreign governments from receiving whistleblower bounties under Dodd-Frank.  Liu argued that the regulation wouldn’t exist unless foreign citizens could be whistleblowers who were protected from retaliation by the statute.  However, Judge Pauley disagreed, concluding that a whistleblower’s ability to receive a bounty under Dodd-Frank has no bearing on whether that same person is protected under the law’s separate anti-retaliation provision.

Liu’s complaint also failed on an alternative ground.  Under Dodd-Frank, an employee is only a protected whistleblower if he or she makes a disclosure that is required or protected by the Sarbanes-Oxley Act, the Securities Exchange Act of 1934, or SEC rules.  Judge Pauley agreed with Siemens that Liu’s disclosure of alleged FCPA violations did not fall into any of these categories.

Finally, Judge Pauley noted that Siemens had raised the issue of whether an employee can be protected from retaliation under Dodd-Frank if he or she doesn’t report a violation to the SEC until after the final retaliatory act.  He described the conflict between the Fifth Circuit’s holding in Asadi v. GE Energy that an employee must report to the SEC in order to obtain whistleblower protection and rulings by numerous federal district judges, who have concluded that direct reporting to the SEC is not required.  (We have discussed these decisions in prior posts here, here, and here.)  Because of the “other deficiencies in Liu’s complaint,” Judge Pauley found it unnecessary to “wade into” this morass of precedent.

Judge Pauley's opinion should bolster employers' confidence that the courts will not entertain whistleblower retaliation claims that are wholly foreign disputes.  However, the decision also accentuates that employers still need to be cautious of the incentive that Dodd-Frank provides to foreign whistleblowers, in the form of the bounty for whistleblowers who provide information to the SEC that leads to a successful enforcement action.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

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