By Lene Powell, J.D.
An attorney employed by Morgan Stanley subsidiaries in Japan and Hong Kong had no recourse under Section 806 of the Sarbanes-Oxley Act (SOX) for alleged whistleblower retaliation after he raised concerns about possible securities law violations. Although Morgan Stanley is a U.S. corporation, the employment contracts at the foreign subsidiaries were governed by the foreign jurisdictions. The D.C. Circuit agreed with the DOL Administrative Review Board that Section 806 does not have extraterritorial application and the facts of the case did not give rise to a domestic application of SOX (Garvey v. Administrative Review Board, U.S. Dept. of Labor, December 23, 2022, Edwards, H.).
Alleged whistleblower retaliation. Christopher Garvey was employed as a “regional coverage lawyer” by the Morgan Stanley Japan Group in Tokyo from 2006 to 2011 and Morgan Stanley Asia Limited in Hong Kong from 2011 to 2016. Both corporations are foreign subsidiaries of Morgan Stanley, a U.S. corporation. Garvey alleges that between late 2014 and early 2016, he raised concerns with his superiors in New York regarding potential U.S. law violations by Morgan Stanley employees, including insider training, market manipulation, U.S. tax fraud, and other forms of corporate corruption.
According to Garvey, he resigned in 2016 after receiving a pay cut and a “blunt recommendation to find a job elsewhere” after raising the concerns. He also contends he lost the services of the attorney he retained because Morgan Stanley threatened to pursue disciplinary actions against the attorney for breach of professional obligations.
Garvey filed a pro se complaint with OSHA for alleged retaliation in violation of SOX Section 806, which was dismissed for failure to allege an adverse employment action. Garvey sought review by an Administrative Law Judge (ALJ), whose adverse decision was then reviewed by the DOL Administrative Review Board (“Board”). The Board rejected his complaint on the grounds that, by its terms, SOX Section 806 (18 U.S.C. § 1514A) does not have extraterritorial application and the facts of the case did not give rise to a domestic application of SOX. Garvey petitioned for review by the U.S. Court of Appeals for the D.C. Circuit.
No extraterritoriality for SOX Section 806. In its extraterritoriality analysis under Morrison and its progeny, the three-judge panel found that Garvey did not rebut the presumption against extraterritoriality.
First, the panel found that the Board properly held that the text, context, and legislative history of Section 806 do not contain a clear, affirmative indication that Congress intended the provision to apply extraterritorially. The panel also determined it did not need to decide whether Chevron deference was due the Board’s decision, as it found that the statute and applicable law are clear, and the Supreme Court has clarified that Chevron deference does not apply where the statute is clear.
After examining precedent in Carnero (1st Cir.) and Aramco (U.S.), the panel was unconvinced by Garvey’s argument that Section 806 reaches some companies that have a presence in foreign countries.
“Section 806 similarly may prohibit retaliation by foreign companies listed on U.S. securities exchanges, but we cannot thereby infer that it prohibits retaliation claims by anyone at those companies who is employed exclusively outside the United States,” the panel wrote.
The panel also rejected Garvey’s contention that Section 806 must have extraterritorial reach because it prohibits retaliation against an employee reporting conduct that the employee reasonably believes violates 18 U.S.C. § 1343 (wire fraud) and 18 U.S.C. § 1348 (securities fraud), and these statutes have at least some applications abroad. The panel found the relationship too tenuous.
Given that Congress has had ample opportunities since SOX’s passage in 2002 to amend Section 806 to give it extraterritorial effect, the panel agreed with the First Circuit that Congress’s silence regarding extraterritorial reach in Section 806 strongly suggests a lack of congressional intent to allow a cause of action in a case such as Garvey’s.
No domestic application of Section 806. The panel next found that Garvey’s complaint did not present a permissible domestic application of the law.
The panel held that the clear focus of Section 806 is on regulating employment relationships—specifically prohibiting covered employers from retaliating against employees for engaging in the protected activities enumerated in the statute. The panel rejected Garvey’s contention that Section 806 is focused on preventing corporate or securities fraud by prohibiting retaliation against whistleblowers and thus should apply whenever the fraudulent conduct reported would affect U.S. investors. This was not what the text of the statute directs, said the panel.
“Section 806 was not intended to cure all the ills of the securities markets; it addresses only retaliatory conduct by certain regulated companies against certain employees who engage in enumerated protected activities …Not all companies are covered, and not all employees are protected. And there is no cause of action under Section 806 for securities fraud,” the panel wrote.
Given the focus on regulating employment relationships, the locus of Garvey’s work and the terms of his employment contract were critically important. It was undisputed that, at all relevant times, Garvey’s exclusive places of work were outside the U.S., in the Morgan Stanley Japan Group in Tokyo and in Morgan Stanley Asia Limited in Hong Kong. Further, Garvey agreed to an employment agreement governed by the laws of Hong Kong, under “the exclusive jurisdiction of its courts and the Labour Tribunal.”
It was unavailing that Garvey alleged that corporate decisionmakers in the U.S. directed the retaliation campaign against him, the fraudulent activity impacted U.S. markets, id. and Morgan Stanley intimidated his chosen counsel, imperiling his whistleblower complaint under U.S. laws. These allegations did not change the overseas locus of Garvey’s employment nor make the conduct domestic. Unless a statute provides otherwise, a U.S. law regulating an employee’s terms and conditions of employment does not automatically confer protections to individuals, like Garvey, who have opted to work outside the U.S., said the panel.
Post-termination harassment of plaintiff’s attorney not relevant. Finally, the panel disagreed with Garvey’s assertion that alleged harassment of his attorney was itself an adverse employment action and domestic application of Section 806. The alleged conduct occurred after Garvey’s employment at Morgan Stanley Asia Limited ended and did not impact the terms and conditions of his employment. Moreover, there was no evidence that either Morgan Stanley or Morgan Stanley Asia Limited sought to negatively affect Garvey’s post-employment opportunities.
“Absent interference with an employee’s current employment or future employment prospects, contested actions arising after employment has terminated do not constitute adverse employment actions,” the panel wrote.
Accordingly, these allegations were not within the compass of protections afforded by Section 806.
Board judgment upheld. The panel affirmed the Board’s judgment and denied Garvey’s petition for review.
This is case No. 21-1182.