Dodd-Frank Isn't For Foreign Whistleblowers, Judge Says
A New York federal judge ruled Monday that the Dodd-Frank Act's anti-retaliation protections for whistleblowers don't apply outside the U.S., tossing a suit brought against Siemens AG by a former compliance officer who claimed Siemens' Chinese subsidiary used kickbacks to boost medical equipment sales.
U.S. District Judge William Pauley granted a dismissal bid from Munich-based Siemens, saying that former Siemens China Ltd. compliance officer Meng-Lin Liu's lawsuit had to be dismissed because Dodd-Frank's prohibition on taking action against workers who report misconduct doesn't apply overseas.
“There is simply no indication that Congress intended the anti-retaliation provision to apply extraterritorially. Liu urges that it would be illogical for the overseas employees of publicly traded companies not to be protected for whistleblowing activities, but the Supreme Court has warned against 'divining what Congress would have wanted if it had thought of the situation before the court,'” Monday's order said.
Liu, a resident of Taiwan who filed suit in January, alleged a kickback scheme in which Siemens China submitted inflated bids to sell medical imaging equipment to public hospitals in North Korea and China.
The sales would proceed through third-party intermediaries, which bought the equipment from Siemens at significantly lower prices, resold it to the hospital for the original inflated bid price and paid off the officials who signed off on the bids, Liu alleged.
After voicing his concerns and taking steps to try and remedy the alleged corruption, Liu was slapped with a negative performance evaluation and had his responsibilities for overseeing approval and compliance issues stripped, he claimed.
The same day Liu spoke at a Siemens “town hall” meeting in Shanghai and warned that the company would lose 30 percent of its health care business if it adhered to compliance guidelines, he was told via letter not to come back to work for the remaining three months on his employment contract, which ended in March 2011, he said.
In May, he reported possible Foreign Corrupt Practices Act violations to the U.S. Securities and Exchange Commission, the ruling pointed out. Liu's Jan. 15 complaint also said that Siemens pled guilty to conspiring to violate the FCPA in 2008 and coughed up over $1.6 billion in U.S. and German criminal fines.
Judge Pauley noted Monday that the only connection between the case, which was brought by a Taiwanese resident against a German company over alleged corruption in China and North Korea, and the U.S. was the fact that Siemens' American depositary receipts were traded on a U.S. exchange.
The ruling also said that the only other court to consider whether Dodd-Frank's anti-retaliation provision had extraterritorial reach concluded that it did not, and pointed to a Texas federal court's June 28 ruling in Asadi v. GE Energy.
The notion that Dodd-Frank's whistleblower provision is “purely a domestic concern” is bolstered by language allowing the SEC to bring enforcement actions for some conduct or transactions outside the U.S., Judge Pauley noted, adding that such language would be superfluous if the rest of the law applied outside the U.S.
Dodd-Frank's anti-retaliation provision is silent on the issue of potential extraterritorial application, which translates to a strong presumption that it is not applicable overseas, according to the decision.
An attorney for Siemens declined to comment Monday.
An attorney for Liu could not be immediately reached.
Siemens is represented in this matter by Brant Bishop and Ragan Naresh of Kirkland & Ellis LLP, as well as in-house lawyer Eric Liebeler.
Liu is represented by David Mair of Kaiser Saurborn & Mair PC.
The case is Meng-Lin Liu v. Siemens AG, case number 1:13-cv-00317, in the U.S. District Court for the Southern District of New York.
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