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From Securities Regulation Daily, August 14, 2014

Whistleblower suit dismissed without clarification on SEC reporting

By Anne Sherry, J.D.

Affirming the dismissal of a whistleblower case on the basis that Dodd-Frank’s anti-retaliation provision does not apply extraterritorially, the Second Circuit sidestepped the more controversial issue of whether a whistleblower need report to the SEC to be protected. The SEC had urged the appeals court to defer to its rule protecting conduct reported only internally (Liu v. Siemens AG, August 14, 2014, Lynch, G.).

Background. Meng-Lin Liu, a compliance officer with Siemens China Ltd., continually raised concerns that a kickback scheme conducted by the healthcare division violated the Foreign Corrupt Practices Act (FCPA), even after his superiors retaliated against him. After opining about Siemens’ compliance issues at a corporate town hall meeting attended by Siemens China’s president and CEO, Liu was instructed not to report for work for the three remaining months of his contract. Only after the contract expired did he report possible FCPA violations to the SEC.

The district court, at the time the second to consider the issue of the extraterritorial application of Dodd-Frank’s anti-retaliation provision, held that overseas whistleblowers were not protected. But the court also dismissed the complaint for the additional reasons that Liu’s reporting of FCPA violations was not “required or protected.” As for the final issue, whether Dodd-Frank protected Liu despite his failure to report to the SEC, the district court found “no need … to wade into this debate.”

The SEC dove in, however, with an amicus brief in Liu’s appeal urging the Second Circuit to defer to its rulemaking. The definition of “whistleblower” in the SEC’s rule is broader than that found in the statute and expressly protects employees who report unlawful conduct only internally.

Extraterritoriality. The appeals court did not opine on this issue or on whether disclosures of FCPA violations were “required or protected,” basing its affirmance of the dismissal solely on the lack of extraterritorial application. There was no explicit statutory evidence that Congress intended for the anti-retaliation provision to apply extraterritorially, and other indications elsewhere in Dodd-Frank concerning extraterritoriality actually cut against the argument that the anti-retaliation provision should apply overseas.

Specifically, Liu was required to demonstrate either that the facts alleged in his complaint stated a domestic application of the anti-retaliation provision or that, under Morrison v. Nat’l Austl. Bank Ltd., the provision is intended to apply extraterritorially. On the first point, the court determined that the case “is extraterritorial by any reasonable definition … 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.” Liu argued that Siemens’s listing its securities on an American exchange created the necessary connection to the United States, but Morrison establishes that the listing of securities alone is a “fleeting” connection that does not overcome the presumption against extraterritoriality.

The court also found nothing in the text of the provision or in the legislative history suggesting that Congress intended for the anti-retaliation provision to “regulate the relationships between foreign employers and their foreign employees working outside the United States.” Liu’s reference to other Dodd-Frank provisions providing for extraterritorial jurisdiction eroded rather than bolstered his argument, as the ordinary canon of statutory interpretation presumes that when Congress includes particular language in one section of a statute but not another, the disparate inclusion or exclusion was intentional and purposeful.

The case is No. 13-4385.

Attorneys: David N. Mair (Kaiser Saurborn & Mair PC) for Liu Meng-Lin. Brant Bishop (Kirkland & Ellis LLP) for Siemens AG.

Companies: Siemens AG

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