USA: US Federal Appeals Court holds that the Dodd-Frank Act's whistleblower anti-retaliation provisions do not apply extraterritorially

The US Court of Appeals for the Second Circuit in Liu Meng-Lin v. Siemens AG, 13-4385-cv (2d Cir. N.Y. Aug. 14, 2014) upheld a lower-court's decision to grant Defendant Siemens' motion to dismiss a claim alleging wrongful termination brought by Taiwanese resident, Liu Meng-Lin, a former employee of Siemens China. The Second Circuit held that the Dodd-Frank whistleblower anti-retaliation provision relied upon by Mr Liu did not apply extraterritorially, to a non-US citizen employed abroad by a foreign company, where all events allegedly giving rise to the liability occurred outside the United States.

Background

Plaintiff, Liu Meng-Lin was employed as a compliance officer of Siemens China, a wholly owned subsidiary of NYSE-listed Siemens AG. Mr Liu claimed that he was demoted and then had his employment terminated after reporting his belief that Siemens' employees were making improper payments to Chinese and North Korean officials. Notably, after he was fired, Mr Liu made a report about the conduct to the SEC. Mr Liu brought a claim in the United States District Court for the Southern District of New York alleging that by firing him Siemens had violated the whistleblower anti-retaliation provision of the Dodd-Frank Act (15 U.S.C. § 78u‐6(h)(1)). The District Court granted Siemens' motion to dismiss for failure to state a claim holding (1) that the relevant provision of the Dodd-Frank Act did not have extraterritorial effect and (2) the statute's anti-retaliation protection did not apply because the disclosure of potential FCPA violations at issue was neither "required nor protected" by the statute., (Meng-Lin Liu v. Siemens A.G., 978 F. Supp. 2d 325 (S.D.N.Y. 2013))

Dodd-Frank whistleblower protections do not apply extraterritorially

On appeal, the Second Circuit stated that Mr Liu was required to show either (1) the relevant conduct took place in the United States or (2) that the anti-retaliation provisions of Dodd-Frank apply extraterritorially. With respect to the first prong of the test, the court found that "the whistleblower, his employer, and the other entities involved in the alleged wrongdoing are all foreigners based abroad, and the whistleblowing, the alleged corrupt activity, and the retaliation all occurred abroad. The facts alleged in the complaint reveal essentially no contact with the United States regarding either the wrongdoing or the protected activity."

With respect to the second prong, the Court applied the settled presumption against extraterritoriality set forth in Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010), which held that the U.S. legislation is presumed to apply domestically, unless a contrary intent and a "clear indication of extraterritoriality" appears in the legislation. The court found that there was nothing in the text of the statute, or the legislative history of Dodd-Frank, which suggested that the whistleblower anti-retaliation provision was to work extraterritorially. The Court rejected Mr Liu's attempt to distinguish Morrison by arguing that the Siemens had listed securities on the NYSE, noting that Morrison found a mere listing of securities to be "fleeting" and something which "cannot overcome the presumption against extraterritoriality." In essence, the court held that where the whistleblower, the employer, the conduct at issue, the report, and the alleged retaliation were all located abroad, the plaintiff could not invoke protection of a U.S. law that did not have extraterritorial effect.

Less protection for overseas whistleblowers

In following Morrison's presumption against extraterritoriality, the Second Circuit has confirmed that foreign whistleblowers, who have no connection with the United States, and whose conduct has no connection with the United States, are not protected by and cannot bring an action under the Dodd-Frank Act's whistleblower anti-retaliation laws.  This is an important development for non-US companies in evaluating their policies and procedures concerning their compliance with Dodd-Frank's whistleblower provisions.