In two recent decisions, courts have addressed the contours of the whistleblower protections enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). The Southern District of Texas ruled that the Dodd- Frank Act’s anti-retaliation provision does not apply extraterritorially, and the Southern District of New York held that the Dodd-Frank Act’s amendment to Section 806 of the Sarbanes-Oxley Act, to provide protection for employees of subsidiaries of publicly traded companies, applies retroactively.
The Southern District of Texas Holds That the Dodd-Frank Act’s Anti- Retaliation Provision Does Not Apply Extraterritorially
On June 28, 2012, the Southern District of Texas granted the defendants’ motion to dismiss a Dodd- Frank Act whistleblower retaliation claim brought under 15 U.S.C. § 78u–6(h)(1)(A) (the “Anti-Retaliation Provision”) in connection with events that took place in Jordan. Asadi v. G.E. Energy (USA), LLC, 2012 WL 2522599 (S.D. Tex. June 28, 2012) (Atlas, J.). The court held that “Dodd-Frank’s Anti-Retaliation Provision per se does not apply extraterritorially.” Id. at *7.
The plaintiff was “employed by GE Energy from 2006 through 2011 as the GE-Iraq Country Executive.” Id. at *1. This position “required him to coordinate with Iraq’s governing bodies in order to secure and manage energy service contracts for GE.” Id. Although the plaintiff was allegedly “a U.S-based employee of GE Energy,” he had “agreed to ‘temporarily relocate’ to Amman, Jordan, where he had an office.” Id. While in Jordan, the plaintiff “informed his supervisors that GE had potentially violated the Foreign Corrupt Practices Act (‘FCPA’) and company policies.” Id. Shortly thereafter, GE terminated the plaintiff’s employment.
The plaintiff “was informed of his termination by an email … stat[ing] that GE was terminating his employment ‘as an at-will employee, as allowed under U.S. law’ … .” Id. The plaintiff subsequently brought suit for “whistleblower retaliation under the Dodd-Frank Act[,]” alleging that “his termination was illegal retaliation for his disclosures of the alleged bribery.” Id. at *2–3. The defendants moved to dismiss.
The Court Relies on Morrison to Hold That the Anti-Retaliation Provision Does Not Have Extraterritorial Effect
The Southern District of Texas found that “[t]his case requires the [c]ourt to decide whether Dodd-Frank’s Anti-Retaliation Provision applies extraterritorially.” Id. at *4. The court turned to the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), for guidance. “In Morrison, the Court considered Section 10(b) of the Securities and Exchange Act of 1934, which is silent regarding extraterritorial effect.” Id. Finding “no affirmative indication in the Exchange Act that § 10(b) applies extraterritorially,” the Morrison Court “therefore conclude[d] that it does not.” 130 S. Ct. at 2883.
“Like the language of Section 10(b),” the Asadi court noted that “the language of the Dodd-Frank Anti-Retaliation Provision is silent regarding whether it applies extraterritorially.” Asadi, 2012 WL 2522599, at *4. The court “therefore applie[d] the presumption that the Provision does not govern conduct outside the United States.” Id.
In Morrison, “the Court [also] emphasized that ‘when a statute provides for some extraterritorial application, the presumption against extraterritoriality operates to limit that provision to its terms.’” Id. (quoting Morrison, 130 S.Ct. at 2883). With respect to the Dodd-Frank Act, the Asadi court found it significant that “Section 929P(b) gives the district courts extraterritorial jurisdiction, but only over certain enforcement actions brought by the SEC or the United States.” Id. The court determined that “[t]he language of Dodd-Frank’s Section 929P(b) thus strengthens the conclusion that the Anti-Retaliation Provision does not apply extraterritorially.” Id.
The plaintiff argued that even if the Anti- Retaliation Provision does not apply extraterritorially, it “should apply to [him] … because he was terminated in the U.S. as an at-will employee, as allowed under U.S. law.” Id. at *5 (quotation omitted). However, the Asadi court found that “the majority of events giving rise to the suit occurred in a foreign country.” Id. (quotation omitted). “[T]he Termination Email invoking U.S. employment law was sent to [the plaintiff] in Jordan, was related to his employment in Jordan, and [stated] that a letter would be sent to [the plaintiff’s] home in Jordan.” Id.
The Asadi court determined that “[u]nder Morrison, the email’s reference to U.S. employment law [was] insufficient to extend the territorial reach of the Anti-Retaliation Provision.” Id. As the Morrison court explained, “it is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States.” Morrison, 130 S. Ct. at 2884. The Asadi court therefore held that “the Anti-Retaliation Provision does not extend to or protect [the plaintiff’s] extraterritorial whistleblowing activity.” Asadi, 2012 WL 2522599, at *5.
The Sarbanes-Oxley Act and the Foreign Corrupt Practices Act Do Not Extend the Extraterritorial Reach of the Anti-Retaliation Provision in This Case
The plaintiff contended that “even if the Anti- Retaliation Provision per se is not extraterritorial, the Provision’s reach is extended because other statutes incorporated into the Provision [specifically, the Sarbanes-Oxley Act (“SOX”) and the Foreign Corrupt Practices Act (“FCPA”)] have extraterritorial reach and those provisions either protected or required his overseas disclosures.” Id.
“First,” the plaintiff claimed that “his disclosures were protected by Section 806 of SOX, 18 U.S.C. § 1514A, a whistleblower provision.” Id. However, in the pre-Morrison case of Carnero v. Boston Scientific Corp., 433 F.3d 4 (1st Cir. 2006) (Campbell, J.), the First Circuit held that Section 806 of SOX did not apply extraterritorially. The First Circuit “relied heavily on the presumption against extraterritorial application, noting that the SOX provision was silent as to its territorial reach.” Asadi, 2012 WL 2522599, at *5. The Asadi court found the First Circuit’s holding to be “in harmony with Morrison[.]” Id.
“Second,” the plaintiff “invoke[d] Sections 302 and 404 of SOX, arguing that they required the disclosure of the alleged FCPA violations.” Id. The Asadi court explained that “these provisions pertain to required disclosures and internal controls by certain companies subject to SOX” and that in any event, “the provisions do not explicitly address extraterritorial application.” Id.
Finally, the court rejected the plaintiff’s claim that “the FCPA extends the territorial reach of the Provision.” Id. “[B]ecause the FCPA is clearly intended to apply extraterritorially,” the plaintiff reasoned that “the Provision also must apply extraterritorially.” Id. However, the Anti-Retaliation Provision “states that an employer may not retaliate against a whistleblower because of the whistleblower’s lawful acts ‘in making disclosures that are required or protected’ under the relevant law, which for present purposes is the FCPA.” Id. (quoting 15 U.S.C. § 78u–6(h)(1)(A)(iii)) (emphasis added by the court). While the plaintiff “alleged that his internal disclosures at GE pertained to bribery of foreign officials, he has cited the [c]ourt to no provision of the FCPA that ‘protects’ or ‘requires’ his internal report of the alleged bribery.” Id. “Therefore,” the Asadi court held that “the Provision does not protect [the plaintiff] against retaliation for his disclosures of the alleged bribery.” Id.
The Southern District of New York Holds that the Dodd-Frank Act Amendment to Section 806 of the Sarbanes-Oxley Act to Include Employees of Subsidiaries of Public Companies Applies Retroactively
The Dodd-Frank Act amended Section 806 of the Sarbanes-Oxley Act to provide that whistleblower protections apply not only to employees of public companies but also to employees of wholly-owned subsidiaries of those companies. On July 9, 2012, the Southern District of New York held that this amendment “applies retroactively” because “the amendment is [simply] a clarification of Congress’s intent with respect to the Sarbanes-Oxley whistleblower provision[.]” Leshinsky v. Telvent GIT, S.A., 2012 WL 2686111, at *1 (S.D.N.Y. July 9, 2012) (Oetken, J.). The court determined that it therefore had subject matter jurisdiction over whistleblower claims brought by a plaintiff who had allegedly been wrongfully terminated by the non-public subsidiaries of Telvent GIT, S.A., a publicly-traded company, prior to the enactment of the Dodd-Frank Act.
Before the Dodd-Frank Act amendment, Section 806 provided for “[w]histleblower protection for employees of publicly traded companies.” 18 U.S.C. § 1514A(a) (2002). “Under this version of the statute, it was unclear whether ‘employees of publicly traded companies’ included employees of the public company’s wholly owned subsidiaries, or if the statute applied only to employees who were employed directly by the publicly traded parent company.” Leshinsky, 2012 WL 2686111, at *5. “Few federal courts [had] considered the issue, although a handful of district courts held that the statute did not apply to employees of non-public subsidiaries.” Id.
On July 21, 2010, the Dodd-Frank Act amended Section 806 “to provide that no public company, ‘including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company,’ may retaliate against a whistleblowing employee.” Id. at *6 (quoting the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010, Pub.L. No. 111–203, § 929A, 124 Stat. 1376, 1852 (2010)). On March 31, 2011, the Department of Labor’s Administrative Review Board (“ARB”) “held that this amendment should be applied retroactively to pending cases because the amendment [was] a mere clarification of the previous statute, intended to make ‘what was intended all along ever more unmistakably clear.’” Id. (quoting Johnson v. Siemens Bldg. Tech. Inc., 2011 WL 1247202, at *11 (DOL ARB Mar. 31, 2011)). “The ARB’s conclusion was consistent with the views expressed by the [SEC] and OSHA, each of which submitted an amicus brief to the ARB urging a conclusion that the Dodd-Frank amendment applied retroactively as a clarification of Congress’s original intent in passing Section 806.” Id.
The Section 806 Amendment Is a Clarification of Previously-Existing Law and Thus Applies Retroactively
“As a general rule, a new statute does not apply retroactively to conduct that occurred prior to the statute’s enactment.” Id. at *7. “Notwithstanding this presumption, several Courts of Appeals have held that when an amendment merely clarifies existing law, rather than effecting a substantive change to the law, then retroactivity concerns do not come into play.” Id.
The Southern District of New York noted that “‘there is no bright-line test’ for determining whether an amendment clarifies existing law.” Id. at *8 (quoting Levy v. Sterling Holding Co., 544 F.3d 493, 506 (3d Cir. 2008)). Rather, courts must consider “(1) whether the enacting body declared that it was clarifying a prior enactment; (2) whether a conflict or ambiguity existed prior to the amendment; and (3) whether the amendment is consistent with a reasonable interpretation of the prior enactment and its legislative history.” Id. In Johnson, the ARB “appl[ied] these factors” and “concluded that the Dodd-Frank amendment [to Section 806] clarifies, rather than changes, the statute’s meaning.” Id. The Southern District of New York “agree[d] with this conclusion.” Id.
First, with respect to the legislative intent, the court noted that the Dodd-Frank Act itself “does not contain any statement that the amendment serves as a clarification of Section 806.” Id. “However, the Senate Report accompanying S. 3217, which ultimately became Section 929A of Dodd-Frank, states that it ‘[a]mends Section 806 of the Sarbanes-Oxley Act of 2002 to make clear that subsidiaries and affiliates of issuers may not retaliate against whistleblowers … .’” Id. (quoting S.Rep. No. 111-176, at 114 (2010) (emphasis added by the court). The court did not “rely on the statements in the Senate Report that the legislation was meant to ‘clarify’ Section 806 as a definitive statement of Congress’s intent” but did “find it relevant to the overall analysis.” Id. at *9.
Second, the Southern District of New York had “little difficulty in concluding that there was … conflict and ambiguity regarding the statute’s meaning” prior to the Dodd-Frank Act amendment. Id. “The statutory language did not define who qualifies as an ‘employee of’ the publicly traded company, and until it was amended it did not address the issue of subsidiaries of the public company at all.” Id. Department of Labor Administrative Law Judges “ha[d] not adopted a uniform interpretation” of the statute, and the few “district court decisions were far from ‘unequivocal’ on this issue.” Id. at *10–11 (quotation omitted).
Third, the Southern District of New York found that the Dodd-Frank Act amendment to Section 806 “reflects a reasonable interpretation of the statute.” Id. at *14. “Based on the policy and legislative history of Sarbanes-Oxley, the [c]ourt conclude[d] that it [was] reasonable to infer that Congress [had] intended to provide protection for whistleblowers at all levels of a public company’s corporate structure, and not solely those who were employed directly by the public entity itself.” Id. “In light of the fact that corporate malfeasance can—and often does—occur within subsidiaries of a public company, and that such malfeasance was precisely what precipitated the passage of Sarbanes-Oxley, it is certainly reasonable to infer that, in enacting whistleblower protections, Congress intended to protect the employees of a corporation’s subsidiaries in addition to employees of the parent itself.” Id. at *15.
“For the foregoing reasons,” the Southern District of New York determined that “the Dodd-Frank amendment to Section 806 of Sarbanes-Oxley applies retroactively as a clarification of the statute.” Id. at *22. In so holding, the court did “not express any view about the retroactive application of Dodd-Frank in general, or of any other specific provisions of Dodd- Frank.” Id. at *18.