Non-U.S. Whistleblower's Dodd-Frank Retaliation Claim Rejected

By Robert L. Hickok, Gay Parks Rainville, William Liess
Pepper Hamilton LLP
Sep 4, 2014

This article was originally published in the September 3, 2014 issue of The Legal Intelligencer, and is republished here with permission.

On Aug. 14, the U.S. Court of Appeals for the Second Circuit issued a decision that helps clarify the territorial reach of the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 USC Section 78u-6(h). In Liu Meng-Lin v. Siemens AG, No. 13-4385 (2d. Cir. Aug. 14, 2014), the court held that Congress did not intend the provision to apply extraterritorially to claims by a foreign whistleblower employed abroad by a foreign corporation where all events related to the whistleblower's disclosures occurred outside the United States. After affirming the district court's dismissal of Liu Meng-Lin's retaliation claim against Siemens AG on this ground, the court declined to address the additional argument advanced by Siemens that the Dodd-Frank anti-retaliation provision does not protect whistleblowers, like Liu, who fail to report potential securities violations to the U.S. Securities and Exchange Commission (SEC) before the alleged retaliation.


Liu is a citizen and resident of Taiwan who had been employed as a compliance officer for Siemens China Ltd., a Chinese subsidiary of Siemens, a German corporation with American depositary receipts listed on the New York Stock Exchange (NYSE) at that time. Liu brought a federal action against Siemens in the Southern District of New York alleging that Siemens demoted and ultimately fired him because he reported to a high-level executive in China that Siemens employees allegedly had engaged in indirect bribery of certain Chinese and North Korean foreign officials. He further claimed that, by firing him, Siemens violated Dodd-Frank's anti-retaliation provision. Significant to the Second Circuit's ultimate decision, "Liu [did] not plead that any of the events related to his firing—the allegedly corrupt conduct, Liu's discovery of that conduct, Liu's efforts to address the corrupt conduct through Siemens' internal protocols, or his subsequent mistreatment by Siemens—occurred within the territorial jurisdiction of the United States."

The district court, in Liu Meng-Lin v. Siemens AG, 978 F. Supp. 2d 325, 329-30 (S.D.N.Y. 2013), dismissed Liu's complaint after concluding, inter alia, that reporting of bribery (as purported violations of the Foreign Corrupt Practices Act) was not protected activity under Dodd-Frank, and that the Dodd-Frank anti-retaliation provision did not apply extraterritorially. Because of these deficiencies in Liu's complaint, the district court declined to "wade into th[e] debate" among the federal courts as to whether the Dodd-Frank anti-retaliation provision applies to plaintiffs who, like Liu, do not report alleged securities violations to the SEC until after the alleged retaliation.

The Second Circuit's Decision

A unanimous panel of the Second Circuit (Judges Reena Raggi, Gerard Lynch and Raymond Lohier) affirmed the district court's decision on even narrower grounds. The Second Circuit reasoned that, to survive Siemens' motion to dismiss, either Liu's complaint had to allege a domestic application of the Dodd-Frank anti-retaliation provision, or the law had to apply extraterritorially. The court concluded that Liu did not allege a domestic application because "the facts alleged in the complaint reveal[ed] essentially no contact with the United States regarding either the wrongdoing or the protected activity." The court explained that Liu's assertion that Siemens listed a class of its securities on the NYSE—the sole U.S. connection he advanced—provided an inadequate factual basis for subjecting the company to U.S. law.

As for the territorial reach of Dodd-Frank, the court began its analysis with the settled presumption that Congress intends a statute to only apply domestically absent a "clear and affirmative indication" to the contrary (quoting United States v. Weingarten, 632 F.3d 60, 65 (2d Cir. 2011)). The "generic" breadth of the language in the Dodd-Frank anti-retaliation provision, which provides that "no employer may discharge ... or in any other manner discriminate against, a whistleblower," was inadequate to overcome that presumption. Furthermore, Liu's reliance on extraterritoriality language in other Dodd-Frank provisions was self-defeating. As the court explained: "Liu's argument inverts the ordinary canons of statutory interpretation. 'Where Congress includes particular language in one section of a statute but omits it in another section of the same act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion'" (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). Finally, Liu's reference to regulations governing the payment of bounties to foreign whistleblowers that provide information to the SEC was unavailing, both because agency regulations are inadequate to overcome the presumption against the extraterritorial application of statutes, and because rewarding foreign persons who provide information to an agency "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." Accordingly, the Second Circuit affirmed the district court's decision to dismiss Liu's complaint and declined to address Siemens' alternative arguments for dismissal.

The only other case addressing the issue of whether the Dodd-Frank anti-retaliation provision applies extraterritorially is Asadi v. G.E. Energy (USA), No. 4:12-345, 2012 U.S. Dist. LEXIS 89746 (S.D. Tex. June 28, 2012), aff'd on other grounds, 720 F.3d 620 (5th Cir. 2013). As did the courts in Liu, the district court in Asadi concluded that, inter alia, the presumption against extraterritoriality applies to the Dodd-Frank anti-retaliation provision, and, therefore, the court dismissed the plaintiff's retaliation claim regarding foreign employment matters even though the plaintiff was a dual U.S. and Iraqi citizen and was employed by a foreign subsidiary of a U.S. corporation.

In subsequent cases, federal courts examining the territorial reach of the Dodd-Frank anti-retaliation provision likely will agree with the Liu and Asadi decisions and conclude that the provision does not apply extraterritorially. What we cannot predict, however, is where courts will ultimately establish the limits of the domestic connections necessary to sustain an anti-retaliation claim.

We also do not know how federal courts will ultimately resolve the judicial debate over the question of whether the definition of "whistleblower" in the Dodd-Frank anti-retaliation provision includes only those employees who report alleged securities violations to the SEC before their employers fire them in alleged retaliation for voicing their concerns. On the one hand, a majority of district courts considering the question have determined that Dodd-Frank is conflicting or ambiguous with respect to this issue, and they have deferred to an SEC interpretation reflected in 17 C.F.R. Section 240.21F-2(b)(1) that includes as whistleblowers individuals who report covered conduct to supervisors or those with "authority to investigate, discover or terminate misconduct." (See Yang v. Navigators Group, No. 13-cv-2073, 2014 U.S. Dist. LEXIS 63876, at *29-38 (S.D.N.Y. May 8, 2014) (discussing cases).)

The Fifth Circuit, on the other hand, has rejected this reasoning and concluded instead that Dodd-Frank unambiguously requires an individual to report malfeasance to the SEC in order to qualify as a whistleblower, as in Asadi. The distinctions between the Dodd-Frank and Sarbanes-Oxley Act whistleblower definitions are practical, the court reasoned, because Dodd-Frank provides numerous relative advantages to a plaintiff, including a greater potential payout and a longer statute of limitations. Several district courts outside of the Fifth Circuit have since embraced the Asadi court's reasoning. (See Englehart v. Career Education, No. 8:14-cv-444, 2014 U.S. Dist. LEXIS 64994 (M.D. Fla. May 12, 2014); Banko v. Apple, No. CV-13-02977, 2013 U.S. Dist. LEXIS 149686 (N.D. Cal. Sept. 26, 2013); and Wagner v. Bank of America, No. 12-cv-00381m 2013 U.S. Dist. LEXIS 101297 (D. Colo. July 19, 2013).)

Although the Second Circuit's decision in Liu provides a helpful guidepost in defining the territorial reach of the Dodd-Frank anti-retaliation provision, important aspects of the act remain subject to dispute and may be far from resolution. Thus, publicly held companies and their counsel must continue to stay informed of the latest developments in this dynamic area of Dodd-Frank jurisprudence.