Whistleblowing Protection Confined to U.S., Judge Rules

, New York Law Journal

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A Southern District judge has dismissed allegations that a Chinese subsidiary of Siemens AG violated the Dodd-Frank Act, ruling that the law's whistleblower protection provisions don't apply extraterritorially.

In a 22-page opinion issued on Monday, Southern District Judge William Pauley III (See Profile) threw out an action brought under the anti-retaliation provision of Dodd-Frank by Meng-Lin Liu, a former compliance officer at Siemens China who says he lost his job after he exposed routine bribery. Siding with Siemens' lawyers at Kirkland & Ellis, Pauley determined that the anti-retaliation provision doesn't protect overseas whistleblowers like Liu.

Pauley is the second U.S. district court judge to address the reach of Dodd-Frank's anti-retaliation provision and conclude that it doesn't protect whistleblowers abroad. U.S. District Judge Nancy Atlas in Houston reached the same conclusion in a June 2012 decision concerning General Electric. The U.S. Court of Appeals for the Fifth Circuit affirmed dismissal of the GE case on separate grounds in July.

According to Liu's January 2013 complaint, Siemens China employees routinely bribed Chinese and North Korean officials in order to win contracts to supply public hospitals with medical imaging equipment. Liu alleged that the bribery continued even after Siemens vowed to step up its internal anticorruption procedures as part of a 2008 guilty plea and record-setting government settlements to resolve Foreign Corrupt Practices Act charges.

As damaging as those accusations sound, they weren't the focus of Liu's complaint. He sought damages under Dodd-Frank's whistleblower provisions, arguing that his supervisors demoted and eventually fired him for speaking out about the alleged corruption.

In July, Siemens lawyers denied the allegations and moved to dismiss as a matter of law. "Courts have made clear that the extraterritorial application of a federal statute is the exception, not the rule," they wrote. They directed Pauley's attention to the U.S. Supreme Court decisions in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010) and Kiobel v. Royal Dutch Petroleum, 133 S. Ct. 1659 (2013), which limited the overseas reach of U.S. securities laws and the Alien Tort Act, respectively.

Pauley left no doubt that he agreed with Siemens. "Liu urges that it would be illogical for the overseas employees of publicly traded companies not to be protected for whistle blowing activities, but the Supreme Court has warned against 'divining what Congress would have wanted if it had thought of the situation before the court,'" Pauley wrote, citing Morrison. "Such an intrusion into the employment law of a foreign nation could disrupt the 'delicate field of international relations,'" he added, quoting Kiobel.

Liu's lawyer, David Mair of Kaiser Saurborn & Mair, did not immediately return a call seeking comment.

Siemens was represented by in-house lawyer Eric Liebeler, a former Kirkland partner, and by Kirkland partner Brant Bishop. Bishop declined to comment.

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