Passed in the wake of the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act1 includes an antiretaliation provision intended to protect employees who report violations of antifraud and securities laws from being fired or sanctioned by their employers.2 Since the Act’s passage, courts have faced, inter alia, two issues of statutory interpretation central to the scope of the antiretaliation provision: first, the degree to which it applies extraterritorially to foreign employers and their conduct abroad,3 and second, whether it protects employees who report violations internally to their employers and not externally to the Securities and Exchange Commission (SEC).4 Recently, in Liu Meng-Lin v. Siemens AG,5 the Second Circuit resolved the first of these interpretive questions and declined to address the second. Affirming the dismissal of a suit brought by an overseas employee against a foreign employer, the Second Circuit held that “the antiretaliation provision does not apply extraterritorially.”6 The court’s resolution of the Act’s geographic scope was an unsurprising application of the presumption against extraterritoriality7 elaborated in recent Supreme Court decisions.8 But by deciding the case on that issue alone,9 the court left open the other salient question: whether Dodd-Frank covers employees as “whistleblowers” if they report violations only internally. As a matter of statutory interpretation, future courts should defer to the SEC’s interpretation that the ambiguous provision protects both internal and external reporting.10
Taiwanese citizen and resident Liu Meng-Lin was hired in 2008 as a healthcare compliance officer for Siemens China, a subsidiary of the German corporation Siemens AG.11 Beginning in October 2009, Liu used Siemens’s internal procedures to report what he suspected were inadequate bribery prevention measures under the Foreign Corrupt Practices Act of 197712 (FCPA).13 Liu believed that the company was inflating its bids when selling medical devices to Chinese and North Korean hospitals and paying kickbacks to officials who accepted those bids.14 Siemens was unreceptive to Liu’s concerns; as he continued to press his supervisors, the company restricted his responsibilities and eventually fired him.15 Soon after his termination, Liu alerted the SEC to the possible FCPA violations and sued Siemens in the Southern District of New York, alleging that Siemens had violated Dodd-Frank’s antiretaliation provision by firing him in response to his internal reporting.16
The district court dismissed Liu’s suit on two alternative grounds.17 First, Judge Pauley cited the “presumption against extraterritoriality”18 expounded by the Supreme Court in Morrison v. National Australia Bank Ltd.19 and reasoned that, given this presumption, the antiretaliation provision’s “silence” on foreign applicability meant that it must be confined to domestic concerns.20 Second, the court held that, regardless of its extraterritoriality, Liu’s reporting of alleged FCPA violations did not fall within any of the forms of whistleblower activity protected by Dodd-Frank.21 His behavior was not — as Liu alleged22 — “required or protected under the Sarbanes-Oxley Act of 2002”23 (SOX), nor under “any other law, rule, or regulation subject to the jurisdiction of the [SEC].”24 Finally, Judge Pauley noted a judicial split over whether Liu could be considered a “whistleblower” at all under Dodd-Frank even if his reporting were covered by SOX25: the antiretaliation provision defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC].”26 But because SOX does require or protect some internal disclosures,27 the activities protected under Dodd-Frank are seemingly more expansive than the whistleblower definition. Judge Pauley, however, chose not to resolve this apparent conflict because he had already found two grounds for his decision.28
The Second Circuit affirmed the dismissal.29 Writing for a unanimous panel, Judge Lynch30 wholly agreed with the district court’s conclusion that the antiretaliation provision did not apply extraterritorially;31 the court saw “absolutely nothing in the text of the provision . . . or in the legislative history of the Dodd-Frank Act” that could overcome the Morrison presumption.32 Judge Lynch rejected Liu’s argument that Dodd-Frank “contain[ed] very broad language that includes all employees,” which, according to Liu, showed congressional intent to cover international concerns.33 Judge Lynch instead found the relevant text to be “precisely the sort of ‘generic’ language that the Supreme Court has expressly stated is insufficient to overcome the presumption.”34 The court highlighted a contrast between the antiretaliation provision and other Dodd-Frank provisions that expressly provide for extraterritorial application,35 which supported a “logical inference . . . that the antiretaliation provision, enjoying no such explicit grant of extraterritorial application, has none.”36 And despite Siemens’s listing of American Depositary Receipts on the New York Stock Exchange,37 no facts surrounding Liu’s allegations — the Chinese company, its corrupt payments to foreign officials, or its firing of Liu abroad — gave rise to a domestic application of the statute.38
Because the case could be dismissed on the extraterritoriality ground alone, Judge Lynch declined to reach the additional issues discussed by the lower court, including whether Liu’s internal reporting “qualified him as a ‘whistleblower’ under the Dodd-Frank Act.”39 The court thus did not address the SEC’s amicus brief,40 in which the Commission sought deference for its interpretation that the term “whistleblower” encompassed employees who reported possible violations internally.41
As the first appellate decision to address the extraterritorial application of the antiretaliation provision, Liu took a significant step toward defining the scope of Dodd-Frank’s whistleblower protections. And as a matter of statutory interpretation, the court’s decision on the statute’s extraterritorial application was correct, even if it may have created some inconsistency within the Act’s protections. But while the Second Circuit was not required to rule on the issue42 of whether Liu was a “whistleblower” under Dodd-Frank because he reported within Siemens, the court’s silence on this matter leaves open a significant question of statutory interpretation at the heart of Dodd-Frank. Future courts facing this question should recognize that the antiretaliation provision is ambiguous, and they should grant deference to the SEC’s interpretation of the provision as protecting internal whistleblowers.
First, although there are normative arguments that the Liu court’s ruling against the antiretaliation provision’s extraterritoriality undermines the coherence and effectiveness of Dodd-Frank,43 the decision was a doctrinally straightforward application of Morrison’s clear and undeniably sweeping articulation of the presumption against extraterritoriality.44 After all, since Morrison, the Court has used the presumption to limit the Alien Tort Statute45 (ATS), which was arguably crafted principally to address international conduct.46 Compared to the ATS, the geographically neutral Dodd-Frank can hardly be said to contain the requisite “explicit statutory evidence that Congress meant for the antiretaliation provision to apply extraterritorially.”47
Notwithstanding the extraterritoriality issue, the Second Circuit chose to leave unresolved the question whether Dodd-Frank covered Liu as a “whistleblower” even though he reported the alleged FCPA violations to his employer rather than to the SEC.48 Believing that Dodd-Frank is ambiguous as to the scope of its protection, the SEC adopted a clarifying rule stating that Dodd-Frank covers internal reporting that is “required or protected” by SOX and the other laws enumerated in Dodd-Frank.49 In the numerous cases brought by whi-stleblowers both before and after that rule’s adoption, the majority of courts have endorsed the SEC’s interpretation, either by holding the provision to be ambiguous and granting the SEC deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council,50 or by holding that Dodd-Frank unambiguously protects internal whistleblowers.51 But in Asadi v. G.E. Energy (USA), L.L.C.,52 the Fifth Circuit — the only appellate court with a decision on point — held the opposite, concluding that the Act unambiguously prevents a reading of “whistleblower” that includes internal reporting.53
A future Second Circuit panel — not to mention other courts — will almost certainly face the issue of whether internal reporting is covered. It is vital that those courts recognize the ambiguity of the statute and do not follow the Fifth Circuit decision in Asadi. The statute is ambiguous first and foremost in its plain text. In holding that the statute unambiguously excludes internal reporting, the Asadi court cited the canon against surplusage to avoid reading the words “‘to the Commission’ out of the definition of ‘whistleblower.’”54 But drawing on that same canon, a district court held that the SOX-related substantive provision could also be reasonably interpreted as a “narrow exception to [the] definition of a whistleblower as one who reports to the SEC,”55 which would avoid “effectively invalidat[ing Dodd-Frank’s] protection of whistleblower disclosures that do not require reporting to the SEC.”56 In other words, while the canon could support reading the restrictive definition of “whistleblower” in to Dodd-Frank’s substantive protections (as was done in Asadi), the surplusage argument could also militate against reading substantive protections out of the statute.57
Reading “whistleblower” as unambiguously restricted to external whistleblowing also eschews the Supreme Court’s practice, elucidated in FDA v. Brown & Williamson Tobacco Corp.,58 of examining the statute not only in isolation but also in the context of the regulatory scheme as a whole when assessing whether a statutory provision is ambiguous.59 With a current securities-regulation framework that encourages internal reporting,60 reading Dodd-Frank as an unambiguous deviation from that trend seems extreme, absent a clearer signal.
Moreover, the argument that Dodd-Frank unambiguously requires reporting to the Commission would be more convincing if Congress had a compelling reason to restrict protections in that way.61 Rather, the normative strength of the SEC’s interpretation supports an inference that Congress did not unambiguously intend to bar it.62 Dodd-Frank’s protections are more favorable to whistleblowers than SOX’s protections,63 and thus even when the statutes do overlap, reading Dodd-Frank to require external reporting would have the dubious effect of encouraging employees to go over the heads of their employers.64 The SEC, recognizing its limited resources,65 sees the scheme as ideally working in the opposite way: maintaining “strong incentives for employees to continue to utilize their employers’ internal compliance . . . processes.”66 That vision finds support in scholars’ understanding of optimal incentives to encourage whistleblowing. One study of employees fired for reporting before the passage of SOX and Dodd-Frank found that, while external whistleblowing was more effective than internal reporting at “changing organizational practices,” external whistleblowers were more likely to be fired.67 The authors reasoned that this increased risk would deter external whistleblowing, which “suggest[ed] that model legislation would encourage internal whistleblowing, and protect that route with equal stringency.”68 Other analysts have come to similar conclusions.69
The Second Circuit in Liu did not need to decide the definitional “whistleblower” question because it had a dispositive ground on which to dismiss the case: the antiretaliation provision did not protect entirely foreign conduct. Future courts that do face this question of internal whistleblower protection, however, should reject the Fifth Circuit precedent holding to the contrary and grant deference to the SEC’s interpretation of the ambiguous provision.