United States: SDNY Says No Extraterritorial Application For Dodd-Frank Anti-Retaliation Provision

In Liu v. Siemens A.G., No. 13 Civ. 317 (WHP), slip op. (S.D.N.Y. Oct. 21, 2013), the U.S. District Court for the Southern District of New York held that the anti-retaliation protections found in Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 do not apply extraterritorially.  This blog posting summarizes the Court's decision and analyzes the impact for multinational employers.

Background

Plaintiff Meng-Lin Liu, a resident of Taiwan, worked as a compliance officer for the healthcare division of Siemens China ("Siemens"), a subsidiary of the German corporation Siemens A.G.  He alleges that, as part of a "kickback scheme," Siemens' health division routinely made inflated bids to sell medical imaging equipment to public hospitals in North Korea and China.  Allegedly, third-party intermediaries would purchase the equipment from Siemens at a low price, resell it to the hospital at an inflated price, and then remit a portion of the difference to the hospital officials who accepted the bids.

Over the course of his employment, Liu allegedly complained about these practices and tried to take corrective action.  For this, Liu claims that Siemens took several adverse employment actions against him, including giving him a negative performance evaluation, removing his oversight of compliance issues, and ultimately instructing him not to return to work for the remaining months of his employment contract.  Liu subsequently filed suit under Section 922 of Dodd-Frank, claiming that he was terminated for reporting possible violations of the Foreign Corrupt Practices Act ("FCPA").

Holding

The Court dismissed Liu's complaint on the grounds that Section 922 of Dodd-Frank does not apply extraterritorially.  To support this proposition, the Court noted that Section 922 is silent on extraterritoriality and "[w]hen a statute gives no clear indication of an extraterritorial application, it has none."  Morrison v. National Australian Bank, Ltd., 130 S. Ct. 2869 (2010).  Reinforcing this conclusion, the Court stressed, is that other provisions of Dodd-Frank, such as Section 929P(b), expressly provide for "some extraterritorial application."  The Court further noted that the only other case to address whether Section 922 applies extraterritorially—Asadi v. G.E. Energy (USA), LLC, No. 4:12-345, 2012 WL 2522599 (S.D. Tex. June 28, 2012)—also said that it did not.

The Court also rejected a number of Liu's argument.  First, Liu claimed that SEC regulation 17 C.F.R. 240.21F-8(c)(2) allows foreign employees to qualify as "whistleblowers" for purposes of receiving an award from the Securities Exchange Commission.  The Court found this contention "inapposite," clarifying that "[t]he issue is not whether persons located abroad can be 'whistleblowers' and thus eligible for whistleblower awards, but whether [Section 922] protections extend to overseas whistleblowers."

Liu also had argued that Morrison did not apply.  In that case, the Supreme Court concluded that Section 10(b) of the Securities Exchange Act of 1934 did not provide a cause of action for foreign plaintiffs who had purchased shares of common stock on a foreign exchange, whereas in the instant case, Liu contrasted, Siemens listed American Depository Receipts ("ADRs") on the New York Stock Exchange ("NYSE").  The Court disagreed with this attempted distinction, for not only did the issuer in Morrison also have ADRs that traded on the NYSE, but "[t]he idea that a foreign company is subject to U.S. Securities laws everywhere it conducts foreign transactions merely because it has 'listed' some securities in the United States is simply contrary to the spirit of Morrison."

In addition, Liu had argued that he was "required or protected" under Section 806 of the Sarbanes-Oxley Act of 2002 ("SOX") to disclose Siemens' alleged kickback scheme.  The Court differed, holding that Section 806 also does not apply extraterritorially and, therefore, could not protect Liu's disclosures.  In addition to the extraterritoriality issue, the Court also addressed the question of whether a disclosure of an alleged FCPA violation constitutes protected activity under SOX and found that it did not.

Takeaway

Multinational employers should be pleased that another court has ruled, quite definitively, that Section 922 does not have extraterritorial application.  Yet, Liu was a case brought by a Taiwanese resident against a German corporation for alleged corruption in China and North Korea stemming from the actions of its Chinese subsidiary.  Multinational employers should beware that a more balanced mix of domestic and foreign elements may bring the alleged conduct under the territorial scope of Section 922.  Indeed, within the last couple of years, whistleblower cases brought before the U.S. Department of Labor—i.e., Villanueva v. Core Labs. NV, Arb. Case No. 09-108 (ARB Dec. 22, 2011) and Dos Santos v. Delta Airlines, Inc., 2012-AIR-20 (ALJ Jan. 11, 2013)—have seen Administrative Law Judges and the Administrative Review Board take a "case-by-case" approach and engage in a "multi-factor inquiry" to determine whether an impermissible extraterritorial application is even necessary.  It is this uncertainty for which multinational employers should prepare in the future.

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