Five Takeaways from the Second Circuit’s Dodd-Frank Decision in Liu v. Siemens

| Zuckerman Spaeder Team

Taiwan and Manhattan’s Foley Square are separated by 7,874 miles, and Taiwanese citizen Meng-Lin Liu couldn’t bridge the distance in federal court.  Liu sought to recover in Manhattan under the Dodd-Frank Act’s anti-retaliation provision (15 U.S.C. § 78u‐6(h)(1)).  However, on August 14, the Second Circuit, which sits in Foley Square, affirmed the dismissal of his whistleblower retaliation claim.  Liu v. Siemens AG, No. 13-4385-cv (2d Cir. Aug. 14, 2014).

As we previously described here, Liu’s case was relatively simple.  He alleged that he repeatedly told his superiors at Siemens in Asia, and the public, that Siemens was violating the Foreign Corrupt Practices Act (FCPA).  As a result, he claimed, Siemens demoted him, stripped him of his responsibilities, and eventually fired him with three months left on his contract.

Here are our five takeaways from the Second Circuit’s decision that the district court was justified in dismissing Liu’s claim:

  1. Liu’s allegations about his disclosures may or may not be true.  Regardless, we won’t learn the truth in U.S. federal court.  That’s because Liu’s claims were dismissed on a motion to dismiss, meaning that even if he could prove everything he says, he wouldn’t be able to recover in the U.S.
  2. According to the Second Circuit, the default rule is that U.S. laws like Dodd-Frank don’t apply extraterritorially.  And the court found nothing to suggest that Congress “intended the antiretaliation provision to regulate the relationships between foreign employers and their foreign employees working outside the United States.”
  3. Liu’s allegations that Siemens listed securities on the New York Stock Exchange wasn’t enough to show that Siemens committed a domestic violation of Dodd-Frank’s whistleblower retaliation provision.  This listing was “the sort of ‘fleeting’ connection that cannot overcome the presumption against extraterritoriality.”  In order to establish a domestic violation, Liu would have had to show a more “meaningful relationship between the harm and those domestically listed securities.”
  4. The court did not give much weight to the SEC’s decision to allow whistleblowers from outside the U.S. to receive bounties under Dodd-Frank (as opposed to pursuing anti-retaliation claims).  First, it said that the SEC couldn’t overcome the presumption against extraterritorial effect by regulation, if there was no evidence that Congress intended to refute that presumption.  Second, it wrote that “[p]roviding rewards to persons, foreign or domestic, who supply information about lawbreaking is far less intrusive into other countries’ sovereignty than seeking to regulate the employment practices of foreign companies with respect to the foreign nationals they employ in foreign countries.”  One wonders whether foreign companies would agree.
  5. Because of its ruling on extraterritorial application, the Second Circuit didn’t decide two other key issues.  First, the district court had decided that the Sarbanes-Oxley Act, which Dodd-Frank references in describing protected whistleblower disclosures, “does not ‘require or protect’ disclosures of FCPA violations.”  The Second Circuit didn’t touch this issue.  The court also didn’t address whether Liu’s internal reporting of alleged misconduct would qualify him as a “whistleblower,” regardless of whether he reported misconduct to the SEC.  (This is an important issue to the SEC: it submitted an amicus brief arguing that Liu would have qualified by reporting internally.  The Fifth Circuit, however, disagrees, as we discussed in our most recent post on the subject.)

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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