2nd Cir. Punts on Internal Reporting Issue, Holds No Protection for Int'l Whistle-Blowers

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By Rob Tricchinelli

Aug. 14 - The Second Circuit Aug. 14 declined to address whether Dodd-Frank's anti-retaliation protections apply to whistle-blowers who only report internally, instead affirming a trial court's dismissal of a retaliation claim on extraterritoriality grounds.

Liu Meng-Lin sued Siemens AG, claiming the company wrongly demoted and fired him for internally reporting that Siemens employees were making improper payments to Chinese and North Korean officials related to medical device sales in those countries.

The district court dismissed the allegations in October and the appeals court affirmed. The appeals court said there was no proof that the Dodd-Frank Wall Street Reform and Consumer Protection Act's anti-retaliation provisions were intended to apply overseas.

"There is no explicit statutory evidence that Congress meant for the anti-retaliation provision to apply extraterritorially, and none of the tangential indications of extraterritorial application elsewhere in Dodd-Frank to which Liu points are sufficiently germane or cogent to overcome the presumption against extraterritoriality," Judge Gerard Lynch of the U.S. Court of Appeals for the Second Circuit wrote.

The three-judge panel held that the dismissal by the U.S. District Court for the Southern District of New York was proper, because Liu's complaint alleged that he was "a non-citizen employed abroad by a foreign company" and all the events in the case occurred outside the United States.


"We're pleased that the Court correctly ruled that U.S. laws apply within the U.S., not in China, unless Congress says so specifically," a Siemens spokeswoman told Bloomberg BNA.

"Obviously the Court's decision that Dodd-Frank whistleblower protection does not apply extraterritorially is disappointing but the Court's opinion specifically leaves open the question of what conduct must take place within the United States in order to render an application of the statute domestic rather than extraterritorial," David Mair, Liu's lawyer, told Bloomberg BNA.

Mair is a partner at Kaiser Saurborn & Mair PC in New York.

"International whistleblowers have quickly become an important part of the SEC whistle-blower program," Jordan Thomas, the chairman of the whistle-blower representation practice at Labaton Sucharow LLP in New York, told Bloomberg BNA. "And this decision will discourage some international whistle-blowers from coming forward, because of fear of retaliation and blacklisting."

A Siemens spokeswoman said Liu's "departure from the company resulted from legitimate performance reasons having nothing to do with his internal complaints."


"This decision is inconsistent with a trend in which courts have been interpreting the law more broadly in favor of whistle-blowers," Thomas said.

Attorneys that defend against whistle-blower claims, however, dispute that trend.

"Today's opinion does further emphasize the limitations of Dodd-Frank's anti-retaliation provisions," Nicolas Morgan, the Los Angeles-based west coast chairman of DLA Piper's securities enforcement practice, told Bloomberg BNA.

Attorneys for Siemens at Kirkland & Ellis LLP in Washington referred a comment request to a Siemens spokeswoman, and a Securities and Exchange Commission spokesman did not respond to requests for comment.

Different Facts?

Several lawyers told Bloomberg BNA that a similar case with slightly different facts could come out differently.

"The Court has left open the possibility that the statute may apply in a case where an overseas employee complains to United States executives and is retaliated against by or at the behest of those United States executives," Mair said.

"This fight isn't over," Thomas said. "The facts in this case broke toward Siemens."

"If the facts were different, for instance, if it was a U.S. citizen abroad or a U.S. company operating abroad, or if some of the events had occurred in the United States, I think the decision could have been different," he said.

Internal Reporting

By deciding the case on extraterritoriality, the court did not address whether a whistle-blower has to report to the SEC to qualify for Dodd-Frank whistle-blower protections, or if he or she can merely report internally.

"Because we find that Liu's complaint was properly dismissed for other reasons, we need not address Siemens's argument that such internal reporting is insufficient to evoke the protection of the antiretaliation provision," the court said. "We thus assume without deciding that internal reporting is sufficient to qualify for the statute's protection."

The court "express[ed] no views" on "whether Liu's internal reporting of alleged misconduct, with or without his subsequent disclosures to the SEC, qualified him as a 'whistleblower' under the Dodd- Frank Act."

Other Views

The only appellate court to tackle the issue, the Fifth Circuit held last year that a whistle-blower has to report to the SEC to qualify for Dodd-Frank act protections, but a federal trial court in Nebraska held otherwise in May.

Federal trial courts in California, Colorado, Kansas, Massachusetts, New Jersey and New York have all also addressed the issue, but no uniform standard has emerged.

In this case, the SEC filed an amicus curiae brief asking the Second Circuit to hold that internal reporting was sufficient to qualify for protection.

"For clarity's sake, many companies and counsel were hoping the Second Circuit would either bring to a head or resolve the apparent split of opinions among courts on the issue of whether the SEC exceeded its statutory authority under Dodd-Frank by defining 'whistle-blower' to include people who fail to report the purported wrongdoing to the SEC," Morgan, a former senior trial counsel at the SEC's Enforcement Division, said.

Whether the Second Circuit takes up the internal reporting issue is a question for another day.

"Do I think that the Second Circuit would have been a great court to look at that question? Absolutely," Thomas said. "But I guess we're going to have to wait for a better case for them to look at that issue."

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

For the Second Circuit's decision, visit http://www.bloomberglaw.com/public/document/Liu_v_Siemens_AG_Docket_No_1304385_2d_Cir_Nov_14_2013_Court_Docke/2


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