Whistleblower Suit Dismissed by Texas Court due to Interpretation of Dodd-Frank Act
The United States District Court of the Southern District of Texas recently decided to dismiss a whistleblower lawsuit filed by a former employee of G.E. Energy (GE). What makes the case unique is that the former Iraqi country manager for GE claims he was fired for telling supervisors and an ombudsman about potential Foreign Corrupt Practices Act (FCPA) violations.
Khaled Asadi, a dual citizen of the United States and Iraq, alleged he was fired in retaliation for complaining to various supervisors that GE was in violation of the Foreign Corrupt Practices Act (FCPA). The Texas court never ruled on the merits of the case, however, as it determined the protection provided to whistleblowers by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) did not apply extraterritorially. As Asadi was working in Jordan during the relevant dates, the court chose to grant GE’s motion for dismissal for failing to state a claim.
Khaled Asadi was an American employed by GE Energy, when he was temporarily assigned to Amman, Jordan. His job required him to coordinate between GE and Iraq’s governing bodies in order to secure and manage energy service contracts. Asadi alleged that while GE was negotiating a Joint Venture Agreement with the Iraqi Minister of Electricity, the company hired Iman Mahmood, a woman “closely associated” with the Senior Deputy Minister of Electricity, “in order to curry favor with the Minister while negotiating a lucrative Joint Venture Agreement.” He further alleged the Senior Deputy Minister himself demanded that GE hire Mahmood for the position
Convinced that Mahmood’s hiring violated the FCPA, Asadi reported the incident to his supervisor and the GE ombudsman. Shortly after speaking with the ombudsman, Asadi received a negative performance review. He also alleged that GE began “constant and aggressive severance negotiations” in an attempt to make him leave the company, until things finally blew up and GE “abruptly ended all discussions and terminated” him on June 24, 2011. Afterward, Asadi filed suit alleging his termination was illegal retaliation for his whistleblowing activity.
Interpretation of the Dodd-Frank Act
Because the Dodd-Frank anti-retaliation provision is silent as to whether it applies to Americans abroad, the court had to consider the provision’s context. The court noted that Section 929P(b) of Dodd-Frank addresses the extraterritorial scope of the statute, granting district courts extraterritorial jurisdiction in certain enforcement actions brought by the Securities and Exchange Commission (“SEC”) or by the United States government. The Court also found that “when a statute provides for some extraterritorial application, the presumption against extraterritoriality operates to limit that provision to its terms.”
Section 929P (b)’s reference to extraterritorial citizens made the “absence of any explicit mention of protections for extraterritorial whistleblowers weigh against implying those protections.” Between the evidence and the presumption against extraterritorial coverage, the court ruled Asadi was not protected by Dodd-Frank’s anti-retaliation provision.
Since the passage of the Dodd-Frank Act, extraterritoriality has been one of the major talking points and controversies. Section 929P states in clear, unambiguous terms that any United States court will, going forward, “have jurisdiction to hear any action brought by the SEC or the Government with respect to violations, even those occurring outside the United States, of the anti-fraud provisions of the 1934 Act.” According to the court, having jurisdiction, or “power to hear a case,” is “an issue quite separate from the question whether the allegations the plaintiff makes entitle him to relief.”
Given the confounding interpretation of this portion of Dodd-Frank, the anti-retaliation provision serves only to protect “required” disclosures. Because it was not required by law that Asadi report this activity, the court determined he was not protected under the FCPA and, finding no grounds on which the anti-retaliation provisions of Dodd-Frank could apply extraterritorially, the court ultimately granted GE’s motion to dismiss the case.