In a closely watched case, Liu v. Siemens AG,1 the United States Court of Appeals for the Second Circuit decided last week that the anti-retaliation provisions of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h), do not apply outside the United States. Relying heavily on the Supreme Court’s opinion in Morrison v. Nat’l Austl. Bank Ltd.,2 the Second Circuit reiterated in no uncertain terms that “legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” The decision significantly limits the ability of foreign-based employees of multinational companies to bring suit in the Second Circuit under this powerful provision of Dodd-Frank.
Liu, a citizen and resident of Taiwan, was employed as a compliance officer for the healthcare division of Siemens China, Ltd., a wholly owned subsidiary of Siemens AG (“Siemens”), a German corporation whose shares are listed on the New York Stock Exchange. In his complaint against Siemens, Liu alleged that he had discovered in the course of his employment that Siemens employees were making improper payments to officials in North Korea and China in connection with the sale of medical equipment. Liu reported this conduct to his superiors through internal company procedures in the belief that such payments violated company policy and the Foreign Corrupt Practices Act (“FCPA”). Liu’s complaint additionally alleged that, as a direct result of his reporting these payments to company officials, Siemens scaled back his role as compliance officer, and then demoted him, and ultimately fired him. After he was fired, Liu then reported the allegations of improper payments to the U.S. Securities and Exchange Commission (“SEC”).
Liu filed suit against Siemens in the U.S. District Court for the Southern District of New York, seeking damages and back pay from Siemens, claiming that his treatment by Siemens violated the anti-retaliation provisions of the Dodd-Frank Act, which, in general, prohibit employers from discriminating against whistleblowers.
Siemens moved to dismiss the complaint on two primary grounds. First, Siemens argued that the anti-retaliation provisions of the Dodd-Frank Act did not apply to the conduct at issue, which all occurred overseas. Siemens also argued that, because Liu did not report the misconduct to the SEC, but rather made internal reports to company officials, Liu was not a protected whistleblower within the meaning of the statute. The district court granted Siemens’ motion and dismissed with prejudice the complaint against Siemens. Liu appealed.
The Second Circuit affirmed the dismissal, relying on both the Supreme Court’s decision in Morrison and the canon of statutory construction that domestic legislation is presumed to apply only to conduct occurring within the territorial jurisdiction of the United States absent “an affirmative intention of Congress clearly expressed”3 to the contrary. The Second Circuit held that in order to prevail, Liu would have to 1) show either that some acts giving rise to his complaint had occurred in the U.S.; or 2) overcome the presumption against extraterritoriality by establishing a clear and affirmative indication that Congress intended to apply the anti-retaliation provisions of the Dodd-Frank Act extraterritorially.4 The court found that Liu did neither.
As it had during oral argument, the court expressed some surprise that Liu even attempted to state a domestic application of the statute under the facts of his case. While the court declined to delineate the boundaries between domestic and foreign application of the anti-retaliation statute, and would not precisely describe what types of contacts with the U.S. might define a domestic application of the statute, the court had no difficulty concluding that the facts alleged by Liu were “extraterritorial by any reasonable definition.”5 Indeed, the court spared no detail in highlighting what it viewed as the entirely extraterritorial nature of Liu’s claim, identifying, among other facts, that Liu was a foreign national working for a foreign subsidiary of a foreign parent company, who reported concerns about potentially improper payments occurring in two foreign countries to a company official in a third foreign country, and who then suffered negative employment consequences in a foreign country at the hands of employers who all were overseas. The court summarily dismissed Liu’s argument that, because Siemens AG had a class of securities listed on the New York Stock Exchange, it had subjected itself to suit under the anti-retaliation provisions, stating that such an argument was the type of “fleeting connection that cannot overcome the presumption against extraterritoriality.”6The court explained that, where the listing of securities on an American exchange is the only connection to the U.S., and where there is no meaningful relationship between the harm and the domestically listed securities, the fact of the listing alone is insufficient to bring otherwise foreign conduct within the reach of a statute that is not expressly intended to have extraterritorial reach.
The court then turned to the question of whether anything in the text, history, or purpose, of the anti-retaliation provisions of the Dodd-Frank Act evinced a sufficient indication of Congress’s intent that it should apply extraterritorially. Here, too, the court had rejected Liu’s arguments.
The support for the conclusion that the antiretaliation provision has no extraterritorial application is straightforward: there is absolutely nothing in the text of the provision, set forth above, or in the legislative history of the Dodd-Frank Act, that suggests that Congress intended the antiretaliation provision to regulate the relationships between foreign employers and their foreign employees working outside the United States.7
In particular, the court found unavailing Liu’s arguments that a separate provision of the Dodd-Frank Act that allowed government actors to bring suit under the antifraud provisions for certain extraterritorial conduct,8 and SEC regulations defining the criteria for whistleblower bounty payments9 that alluded to the possibility of paying foreign nationals,10 evidenced Congressional intent to apply the anti-retaliation provisions extraterritorially. Finding that neither of those provisions provide the “clear and affirmative indication,”11 required to overcome the presumption against extraterritoriality, the court upheld the trial court’s decision.
Moreover, because it found that the anti-retaliation provisions of the Dodd Frank Act had no extraterritorial effect, the court found it unnecessary to reach the question of whether a person who reported potential securities law violations through internal channels rather than the SEC in the first instance ever could be a protected whistleblower,12 thus passing up an opportunity to settle a critical open question in whistleblower jurisprudence.
Impact of Decision
Prior to the decision in Liu, the only other court to opine on the reach of the anti-retaliation provisions was the district court in the Asadi case,13 which similarly held that the presumption against extraterritorial application of domestic legislation precluded a lawsuit by a foreign-based whistleblower for claimed retaliation occurring overseas. Despite the relatively few cases discussing the extraterritorial reach of the anti-retaliation provisions, the Liu decision was expansive in its reasoning rejecting the extraterritorial applicability of the anti-retaliation provision of Dodd-Frank. Because it hewed so closely to Supreme Court precedent in Morrison, and because its reasoning was thorough and comprehensive, it is difficult to imagine a case in which a different ruling would emerge. However, in declining to delineate the boundaries of what constitutes a domestic or foreign-based application of the anti-retaliation provisions, the Second Circuit left open a small window through which aggrieved foreign-based whistleblowers might try to fit. If such a whistleblower could establish a more than incidental or fleeting connection with the United States, such as reporting concerns to a U.S.-based supervisor, or some meaningful connection between the employment harm and the securities violation, that foreign employee might be able to claim damages under the anti-retaliation provisions in U.S. courts. Whether any foreign plaintiff could successfully bring a case that a court would find is a domestic rather than foreign application of the statute is a heavily fact-dependent question, and it is difficult to predict which contacts or connections a court might find are sufficient to allow a seemingly extraterritorial lawsuit to proceed. Because the facts in Liu were so demonstrably unconnected to the United States, it is conceivable that some sort of foreign-based employment retaliation might be actionable under Dodd-Frank in U.S. courts. On the other hand, there is reason to believe that this decision will have a chilling effect on foreign whistleblowers who will now fear blacklisting or other employment ramifications. Regardless of whether foreign whistleblowers will be discouraged from reporting or will try to fit within the window left open by the decision, even foreign-based companies must continue to ensure that company policies prohibiting retaliation for reporting misconduct are robust. This is especially true because the SEC whistleblower office has vowed to exercise its authority to enforce the anti-retaliation provisions of the Dodd-Frank Act.14