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District Court Holds That Dodd-Frank Whistleblower Protection Does Not Have Extraterritorial Reach–Longstanding Presumption Against Extraterritoriality May Also Apply to Other Statutes

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by Allen B. Roberts and Michael J. Slocum

Global whistleblowers cannot look to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) for protection against retaliation, according to a recent federal court decision.  Taking an important step towards clarifying the reach of Dodd-Frank, and potentially impacting other statutes having similar provisions, the court ruled that the “Anti-Retaliation Provision” protecting whistleblowers under Dodd-Frank does not apply outside the territorial United States. Asadi v. G.E. Energy (USA), LLC, No. 12-345 (S.D. Tex. June 28, 2012).

The decision may prove to be a powerful weapon in employers’ defensive arsenal against claims of retaliation by employees working outside the United States. Not only does the decision articulate a compelling rationale for limiting Dodd-Frank’s whistleblower protections to the territorial United States by reaffirming precedents establishing a presumption of non-extraterritoriality, but it also provides a guide to courts considering the foreign applicability of other whistleblower statutes.

Plaintiff Claimed Retaliation for Reporting Potential Violations of the Foreign Corrupt Practices Act  

Khaled Asadi, a dual citizen of Iraq and the United States, had been employed in Amman, Jordan, by a General Electric Company (“GE”) subsidiary—G.E. Energy (USA), LLC—as the GE-Iraq Country Executive responsible for securing and managing energy service contracts between GE and various Iraqi governing bodies.  In connection with the negotiation of a joint venture agreement with the Iraqi Ministry of Electricity in June 2010, Asadi was advised that GE had hired a woman “closely associated” with the Senior Deputy Minister in an apparent effort “to curry favor with the Minister while negotiating a lucrative Joint Venture Agreement.” Concerned that, if true, the allegations might constitute a violation of both company policies and the Foreign Corrupt Practices Act (“FCPA”), Asadi reported the situation to his superiors and was interviewed by GE’s ombudsperson.

Asadi alleged that:

·        “shortly after his interview,” he received a “surprisingly negative” performance review that “did not identify specific performance issues or give him the opportunity to correct or improve his performance”;

·        he was subjected to “pressure to step down” or to accept “a reduced role in the region with little or no responsibility”;

·        GE initiated “constant and aggressive severance negotiations”; and

·        on June 24, 2011, GE abruptly ended discussion with him and terminated his employment.

Court Finds No Congressional Intent to Extend Dodd-Frank’s Private Whistleblower Protection Extraterritorially

Asadi filed a lawsuit under one of the whistleblower anti-retaliation provisions of Dodd-Frank, 15 U.S.C. § 78u-6(h)(1)(B)(i), asserting that his employment termination was in retaliation for reporting potential FCPA violations. The court’s analysis focused on the U.S. Supreme Court’s “longstanding principle” that “unless there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily concerned with domestic conditions.” In other words, “When a statute gives no clear indication of an extraterritorial application, it has none.” Looking to the language of Dodd-Frank, the court found no such indication of extraterritorial application.

The court noted three reasons for not extending the reach of the Dodd-Frank Anti-Retaliation Provision: (i) the statute is silent regarding extraterritorial application to whistleblowers; (ii) in contrast, it expressly confers limited extraterritorial jurisdiction over certain enforcement actions brought by the Securities and Exchange Commission (“SEC”) or federal authorities; and (iii)  the statute directs further public comment and SEC study on whether private anti-fraud actions should be extended to include conduct or transactions outside the United States. The court concluded that these provisions evince a Congressional intention that a private right of action under Dodd-Frank’s Anti-Retaliation Provision does not have extraterritorial reach.

The court also rejected Asadi’s arguments to extend the reach of Dodd-Frank’s whistleblower protections beyond U.S. shores on a theory that his reports implicated the provisions of the Sarbanes-Oxley Act of 2002 (“SOX”) and the FCPA. Citing precedents that limit SOX to the territorial United States and finding no provision within the FCPA that protects or requires an internal report of alleged bribery, the court concluded that neither SOX nor the FCPA provides Asadi a basis for statutory protection.

Consideration of Dodd-Frank Protection of Whistleblowers Reserved for Another Day—and Another Case

Because it disposed of Asadi’s claims on extraterritoriality grounds, the court found it unnecessary to opine on the important issue of whether activity like Asadi’s could eventually qualify for Dodd-Frank whistleblower protection.  The Dodd-Frank section analyzed by the court expressly defines a “whistleblower” as an individual who provides information relating to a violation of the securities laws to the SEC in a manner established by SEC rule or regulation. 15 U.S.C. § 78u-6(a)(6). Asadi could not fit within the statutory definition of a “whistleblower” under Dodd-Frank because he had not made his reports to the SEC. Nevertheless, he claimed that he was entitled to invoke Dodd-Frank whistleblower protection for two additional reasons, even though he had not complained to the SEC. Asadi asserted Dodd-Frank coverage because SOX protects internal communications to a supervisor or someone with authority to investigate, discover, or terminate misconduct and because the SEC has jurisdiction over FCPA violations. Thus, he argued that Dodd-Frank should be read to confer statutory protection on him as a “whistleblower” making disclosures that are “required or protected” under SOX; the Securities Exchange Act of 1934; a law, rule, or regulation subject to the jurisdiction of the SEC; or a federal criminal statute outlawing intentional retaliation against individuals who provide truthful information to law enforcement officers relating to the commission or possible commission of any federal offense. The court cited two district court decisions giving a liberal reading to the broadened construction advocated by Asadi. However, because it disposed of Asadi’s claims on the basis of extraterritoriality, the court did not express its own opinion on the issue—leaving that question open for another day or another court.

Decision Provides Guide to Determining Extraterritorial Application of Whistleblower Statutes Beyond Dodd-Frank 

The court’s conclusion concerning the extraterritoriality of Dodd-Frank is unequivocal: “The Court holds that Dodd-Frank’s Anti-Retaliation Provision per se does not apply extraterritorially.” Thus, Asadi stands as a powerful defense against Dodd-Frank claims of retaliation brought by employees working outside the United States.

Moreover, the Asadi court laid out a guide for other courts asked to determine the extraterritorial applicability of whistleblower provisions in statutes other than Dodd-Frank. With increased global prominence of whistleblower issues and particular focus on existing and expanded legislation, employees and the plaintiffs’ bar are exploring the limits of whistleblower protections in numerous industries and under an array of statutes. By reaffirming the Supreme Court’s “longstanding principle” of presumptively domestic application, Asadi has given employers accused of retaliation by their foreign employees a basis for saying that individual employment protections must be determined by the law applicable in the country of employment.