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Second Circuit Holds That Dodd-Frank Act Does Not Protect Whistleblower Outside U.S. Territory

Yesterday's post on the SEC’s whistleblower program discussed among other topics the question of whether the Dodd-Frank Act protects employee whistleblowers from retaliation by their employers where the employees only raise alleged violations of the federal securities laws internally within their companies. Coincidentally, yesterday the U.S. Court of Appeals for the Second Circuit also issued its opinion in Liu v. Siemens AG, one of the cases mentioned in that post. However, the court specifically declined to decide whether the plaintiff employee's internal reporting of alleged misconduct qualified him for whistleblower protection under the Dodd-Frank Act, one of the issues raised on appeal. Instead, the court focused on the question of whether Dodd-Frank’s whistleblower protection applies outside U.S. territory. The court upheld the dismissal of the employee's suit on the ground that Dodd-Frank’s whistleblower protection does not extend to a foreign worker employed by a foreign corporation where all of the related events occurred abroad.

Section 922 of the Dodd-Frank Act, 15 U.S.C. § 78u-6, contains a provision that prohibits employers from retaliating against whistleblower employees who make certain protected disclosures.  In Liu, the plaintiff employee sued Siemens under this provision, claiming that it demoted and eventually fired him in retaliation for his internal complaints concerning allegedly improper payments by Siemens employees to officials in North Korea and China. However, the plaintiff is a citizen and resident of Taiwan; he was employed by a Chinese subsidiary of Siemens, a German corporation; and he did not allege in his complaint that any of the relevant conduct occurred within U.S. territory. Following the Supreme Court’s 2010 decision in Morrison v. National Australia Bank Ltd., the Second Circuit applied the presumption that Congressional legislation is meant to apply only within the territorial jurisdiction of the United States unless a contrary intent appears, and that the mere listing of a foreign corporation’s securities on a U.S. exchange is not sufficient to overcome this presumption against extraterritoriality. The Second Circuit found no basis in the statute or in Liu’s arguments for concluding that Congress intended the statute to apply outside U.S. territory in a case such as his, where the whistleblower, his employer, and the other entities involved in the alleged wrongdoing were all based abroad, and the alleged retaliatory conduct also occurred abroad.  The Second Circuit therefore concluded that the district court had properly dismissed the complaint on that ground.

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Chip Phinney