In
Liu v. Siemens, AG, No. 13-4385, 2014
U.S. App. LEXIS 15637, 2014 WL 3953672 (2d Cir. Aug. 14, 2014) the Second
Circuit, with Judge Lynch writing for a unanimous panel, held that the
whistleblower provisions of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h)(1)(A), did
not apply where the plaintiff, his employer, and the other entities involved
were all “foreigners based abroad,” and where the whistleblowing, the purported
activity which allegedly violated the Foreign Corrupt Practices Act, and the
alleged retaliation occurred abroad, and where the plaintiff’s complaint stated
“essentially no contact with the United States regarding either the wrongdoing
or the protected activity.”
The Court also
held that the plaintiff’s argument that Siemens’ voluntary election to publicly
list a class of its securities with the New York Stock Exchange was the type of
“fleeting connection” that the Supreme Court in Morrison v. Nat’l Australia Bank, Ltd., 130 S. Ct. 2869 (2010) held
could not overcome the presumption against a statute’s extraterritoriality. See Celia
Joseph, “Court Denies Extraterritorial Application of the Dodd-Frank Act’s
Whistleblowing Provisions”, Cross Border Employer Blog, Fisher & Phillips,
LLP (Sept. 8, 2014) (available at: http://www.crossborderemployer.com/post/2014/09/08/Court-Denies-Extraterritorial-Application-of-the-Dodd-Frank-Acts-Whistleblowing-Provisions.aspx);
Rebekah Mintzer, A Low Note for
Whistleblowers at the Second Circuit, American Lawyer Blog (Aug. 19, 2014)
(available at: http://www.americanlawyer.com/id=1202667161707).
The
Court explained that, to survive a motion to dismiss, a plaintiff must
demonstrate:
[E]ither (1) that the facts alleged in his complaint
state a domestic application of the antiretaliation provision of the Dodd-Frank
Act, or (2) that the antiretaliation provision is intended to apply
extraterritorially. As an initial matter, the Court
noted that “this case is extraterritorial by any reasonable definition”. Having thus disposed of the first prong,
Court devoted the bulk of its analysis to addressing the second prong of the
test. Perhaps significantly, the
plaintiff in Liu did not report the
alleged conduct to the Securities Exchange Commission until after being
terminated, thus forfeiting any argument that the termination was on account of
a filing with the SEC. After, as
explained above, determining that the “fleeting” contact of registering on a
domestic exchange did not, under Morrison,
bring Siemens within the application of the Dodd-Frank Act, the Court addressed
whether the Dodd-Frank Act applied to extraterritorial conduct.
The
Court framed its analysis on this point by noting 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 [A]nti-[R]etaliation [P]rovision
to regulate the relationships between foreign employers and their foreign
employees working outside the United States.”
Although conceding that the plaintiff “offers several arguments that the
statutory language or context” of the Dodd-Frank Act was intended to have
extraterritorial reach, the Court founds that the plaintiff failed to provide a
“clear and affirmative indication” of legislative intent sufficient to overcome
the presumption against extraterritoriality.
One of the plaintiff’s
more interesting arguments was based on the SEC’s interpretation of the
Dodd-Frank Act’s whistleblower bounty provision, 15 U.S.C. § 78u-6(b). The implementing regulations adopted by the
agency provide that “you are not eligible [for an award] if:…You are…a member,
officer, or employee of a foreign government, any political subdivision,
department, agency, or instrumentality of a foreign government, or any other
foreign financial regulatory authority.”
17 C.F.R. § 240.21F-8(c)(2).
Elsewhere, the agency discusses the tax filing procedures for an award
payment to a foreign national. See 76 Fed. Reg. 34300-01, 34348 n.370,
34320 (June 13, 2011). Liu argued that
these regulations indicated that the SEC interpreted the Dodd-Frank Act to
apply to conduct outside the United States.
Although noting
that “Courts generally defer to reasonable agency interpretations of statutes
that” they administer, the Court questioned whether “regulations should be
accorded weight…with respect to [determining] the extraterritorial application
of a statute.” Liu, 2014 U.S. App. LEXIS 15637 at *17. The Court went on to note that the
presumption against extraterritoriality was a “canon of construction” which was
capable of resolving Congressional intent without resort to agency regulations. Id.
at *18. The Court also held that, in any
event, extraterritorial application of the bounty program did not necessarily
imply extraterritorial application of the Anti-Retaliation Provision. Id.
at *18. Interestingly, the Second
Circuit decision came after at least one lower court’s pre-Morrison decision that a similar provision of the Sarbanes-Oxley
Act of 2002, Section 806, did have extraterritorial application. See
O’Mahoney v. Accenture Ltd., 537 F. Supp. 2d 506 (S.D.N.Y. 2008). It is unclear whether the Second Circuit’s
decision in Liu overruled this
interpretation, or whether SOX will continue to receive extraterritorial
application – at least in the Southern District of New York – while Dodd-Frank Act
does not.
In light of the Second
Circuit’s holding it is worth considering whether Liu similarly cuts off extraterritorial application of the
whistleblower bounty provisions. See Liu, 2014 U.S. App. LEXIS 15637 at
*18 (“even if we assume that the regulations clearly apply the bounty program
to whistleblowers located abroad…”). Of
course, there is some reason to believe that the two regimes would be treated
differently – as the Second Circuit explained “[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 employe in foreign countries.” Id. at *19.
Indeed, the
Securities and Exchange Commission has relied on this argument to distinguish Liu.
In Whistleblower Award Proceeding,
the SEC awarded Claimant, a foreign resident, a payment in excess of $30
million under 15 U.S.C. § 78u-6(b)(1) and 17 C.F.R. § 240.21F-3(a), the
“bounty” provisions of the Dodd-Frank Act.
File No. 2014-10, Release No. 73174 (Sept. 22, 2014) (available at: http://www.sec.gov/rules/other/2014/34-73174.pdf). In so doing, the
SEC found that “an award payment is appropriate here notwithstanding the
existence of certain extraterritorial aspects of Cclaimant’s application.” Id.
at n.2. The SEC reasoned that “there is
a sufficient U.S. territorial nexus whenever a claimant’s information leads to
the successful enforcement of a covered action brought in the United States,
concerning violations of the U.S. securities laws, by the Commission. Id. In such instances, the location of the
claimant’s employment, citizenship, and the location where the fraud occurred
is irrelevant. Id. The SEC distinguished Liu on the ground that “the
whistleblower award provisions have a different Congressional focus than the [A]nti-[R]etaliation
[P]rovisions[.]” Id. It is worth noting that nearly
twelve percent of the whistleblower tips received by the SEC during FY 2013
came from employees working outside the United States. See U.S.
Securities & Exchange Comm’n, 2013 Annual Report to Congress on the
Dodd-Frank Whistleblower Program at p. 22 (available at: http://www.sec.gov/about/offices/owb/annual-report-2013.pdf).
The
Second Circuit is not the first court to find that the Anti-Retaliation
Provision of the Dodd-Frank Act did not apply to primarily extraterritorial
events. In Asadi v. G.E. Energy (USA), LLC, Judge Nancy F. Atlas faced a
similar set of facts. No. 4:12-345, 2012
U.S. Dist. LEXIS 89746, 2012 WL 2522599 (S.D. Te. June 28, 2012), aff’d on other grounds, Asadi v. G.E. Energy
United States, L.L.C., 720 F.3d 620 (5th Cir. 2013). In Asadi,
the plaintiff alleged that the defendant had terminated him in retaliation for
reporting a violation of the anti-bribery provisions of the Foreign Corrupt
Practices Act. Id. Judge Atlas first
examined the language of the Anti-Retaliation Provision and, finding that it
was “silent regarding whether it applies extraterritorially”, proceeded to
“consider the Provision’s ‘context.’” Id. at *15 to *16; citing Morrison v. Nat’l Australia Bank, Ltd., 130 S. Ct. 2869
(2010). In considering the
Anti-Retaliation Provision’s “context”, the Asadi
Court gave substantial weight to the fact that the Dodd-Frank Act “explicitly
addresses extraterritorial scope of the statute in a limited context” in
Section 929P(b)[1]. Asadi,
2012 U.S. Dist. LEXIS 89746 at *17. The
Court recognized that Section 929P(b) contained explicit language regarding
extraterritoriality, and that “when a statute provides for some
extraterritorial application, the presumption against extraterritoriality
operates to limit that provision to its ters.”
Id. at *18 (internal
quotations omitted). Quoting the Supreme
Court’s holding in Morrison v. National
Australia Bank, Ltd., the Court found that “when a statute provides for
some extraterritorial application, the presumption against extraterritoriality
operates to limit that provision to its terms” and that, accordingly, the
language in Section 929P(b) “strengthens the conclusion that the
Anti-Retaliation Provision does not apply extraterritorially.” Id.
at *18; quoting Morrison, 130 S. Ct.
at 2883.
Similarly,
while analyzing a similar provision of the Sarbanes-Oxley Act of 2002, the Administrative
Review Board in Villaneuva v. Core Labs.
NV, noted that the Anti-Retaliation Provision of the Dodd-Frank Act does
not apply to wholly extraterritorial conduct.
ARB Case No. 09-108, ALJ Case No. 2009-SOX-006, 2011 DOLSOX LEXIS 82,
2011 WL 6981989 (ARB Dec. 22, 2011) (en banc) (interpreting 18 U.S.C. § 1514A). In Villaneuva,
the plaintiff, a non-U.S. citizen, complained of conduct by the defendant, a
Columbian company which does not list securities under Section 12, or file
reports under Section 15(d), of the Securities Exchange Act of 1934. Id.
at *2 to *3. The ARB found that the
Employee Protection Provisions of Section 806 of the Sarbanes-Oxley Act of 2002
did not apply to the concededly wholly-extraterritorial conduct of which the plaintiff
complained. Id. at *3. In so holding,
the ARB drew a parallel to the Dodd-Frank Act, in which it endorsed the same
reasoning later used by Judge Atlas in Asadi:
that because Section 929P of the Dodd-Frank Act expressly provides for
extraterritorial application, that other portions of the Dodd-Frank Act should
not be extended by judicial interpretation into extraterritorial
application. Id. at *27 to *29; see also
Carnero v. Boston Sci. Corp., 433 F.3d 1 (1st Cir. 2006) (In a pre-Morrison case, the First Circuit found
that Section 806 of SOX does not apply to extraterritorial conduct); but see Penesso v. LCC Int’l, Inc., 2005
SOX 00016, 2005 DOLSOX LEXIS 95, 2005 WL 4889018 (U.S. Dept. of Labor March 4,
2005) (Denying motion for summary judgment because Complainant was a U.S.
Citizen, much of the protected activity occurred in the U.S. and at least one
of the retaliatory acts occurred in the U.S.).
Interestingly, although the ARB based its holding in Villaneuva entirely on Section 806’s
lack of extraterritorial application, on appeal the Fifth Circuit again ducked
this issue, instead finding against Villaneuva on the grounds that he had not
engaged in protected activity. Villaneuva v. United States Dept. of Labor,
743 F.3d 103 (5th Cir. 2014).
Although
they have yet to find purchase, it is worth taking a moment to unpack the
sophisticated arguments deployed to argue that the Anti-Retaliation Provisions
should have extraterritorial effect. On
appeal to the Fifth Circuit, the plaintiff in Asadi attempted to distinguish Morrison
on the basis that “the whistleblower protections under Dodd-Frank rely entirely
on the securities laws incorporated by the statute to establish
liability.” Brief of Plaintiff-Appellant
at 27, Asadi v. G.E. Energy (USA), L.L.C.,
No. 12-20522 (5th Cir. Oct. 22, 2012). Plaintiff
went on to note that the laws incorporated by 15 U.S.C. § 78u-6(h)(1)(A)(iii)
include those with “explicit extraterritorial applicability”, such as the
Foreign Corrupt Practices Act and Section 302 of the Sarbanes-Oxley Act of
2002. Id. at 27, 29; 15 U.S.C.S. § 7241(a)(4)-(5). Asadi argued that by incorporating those
statutes, the Anti-Retaliation Provision explicitly provided for its
extraterritorial application. The Fifth
Circuit did not address these arguments, opting instead to affirm the lower
court’s holding on the alternative rationale that Asadi was not a
“whistleblower” within the meaning of the Anti-Retaliation Provision. See
Asadi, 720 F.3d at 630.
Although
both Liu and Asadi determined that the Anti-Retaliation Provision of the
Dodd-Frank Act did not apply to extraterritorial conduct, in neither case did
the facts have more than a “fleeting” connection to the United States. In Liu,
the Second Circuit found that the plaintiff had “essentially no contact with
the United States”, while in Asadi the
plaintiff conceded that “the majority of events giving rise to the suit
occurred in a foreign country” and the only alleged connection with the United
States was that the plaintiff was a dual U.S. and Iraqi citizen and that the plaintiff’s
termination was governed by U.S. law. In
neither case did the plaintiff allege that any deceptive conduct had occurred
within the United States. So, although
“clearly” extraterritorial conduct is not within the reach of the
Anti-Retaliation Provision, it remains to be seen what level of domestic
connection is required to sustain a successful claim.
[1]
Section 929P(b) is ably described by Judge Atlas in footnote 40 of her opinion
in Asadi, which is quoted here in its
entirety: Dodd-Frank, § 929P(b), 124 Stat. 1376. Section 929P(b) amended three
statutory sections (15 U.S.C. § 77v(a), 15 U.S.C. § 78aa, and 15
U.S.C. § 80b-14) by adding a new subsection entitled “Extraterritorial Jurisdiction.”
Each of the three provisions granted jurisdiction to the federal courts over an
“action or proceeding brought or instituted by the Commission or the United
States” that alleged a statutory violation involving either (1) “conduct within
the United States that constitutes significant steps in furtherance of the
violation,” even if the relevant transaction or violation occurred outside the
United States and involved only foreign investors; or (2) “conduct occurring
outside the United States that has a foreseeable substantial effect within the
United States.” Id.
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