A retaliation claim brought by a former Morgan Stanley in-house lawyer who was based at a subsidiary in Hong Kong falls outside the scope of a federal corporate fraud law that more broadly protects domestic whistleblowers, a U.S. Labor Department judge said in a new order that embraces earlier decisions limiting the reach of the statute.
The ruling against Christopher Garvey, formerly among Morgan Stanley’s top lawyers in Hong Kong, was the latest decision exploring the contours of anti-retaliation provisions of the Sarbanes-Oxley Act of 2002. Garvey alleged Morgan Stanley leaders forced him out after he raised concerns about alleged foreign bribery and securities regulations. The company has denied the allegations.
The evidence in Garvey’s complaint, filed in 2016 at the Labor Department, shows he “worked entirely outside of the United States,” Francine Applewhite, an administrative law judge in Washington, said in her ruling dismissing the claims. Where an employee works, the judge said, “is the key factor to consider when deciding whether a claim is a domestic or extraterritorial application” of the Sarbanes-Oxley Act’s whistleblower protections.
Applewhite’s ruling, dated Feb. 13, did not confront the merits of Garvey’s contention that Morgan Stanley took adverse employment actions against him in response to raising concerns about alleged misconduct. Garvey was not reached for comment Thursday.
Representatives for Morgan Stanley, including a spokesperson and a lawyer who advocated for the bank at the Labor Department, did not return messages seeking comment. Morgan Stanley was represented by Morgan, Lewis & Bockius partner Sara Bouchard, who is based in Philadelphia and serves as the co-leader of the firm’s whistleblower group.
Administrative law judges at the Labor Department routinely hear whistleblower complaints alleging financial fraud and other improprieties at major U.S. companies. The Occupational Safety and Health Administration, a component of the Labor Department, enforces whistleblower provisions of the Sarbanes-Oxley Act.
In fiscal year 2019, the Labor Department received 125 complaints under the Sarbanes-Oxley Act. Section 806 of the Sarbanes-Oxley Act outlines broad whistleblower protections accorded to employees of publicly traded companies. In one case, Wells Fargo Bank N.A. in 2017 was ordered to pay $5.4 million in back pay, damages and legal fees in 2017.
No global reach
Applewhite’s decision embraced two recent rulings from the Labor Department’s administrative review board, an appellate body that examines decisions by the agency’s administrative law judges. The two rulings—Hu v. PTC Inc. and Perez v. Citigroup Inc., issued in September and addressing claims from employees who were based in China and Mexico, respectively—said Sarbanes-Oxley protections do not have global reach.
Littler Mendelson shareholder A. Michael Weber represented Citigroup, and Kathleen Kundar of New York’s Fox Horan & Camerini represented Antonio Perez. Neither lawyer was reached for comment Thursday.
The other ruling confronted claims brought by Hu Li Tao, who was a sales employee in China at a subsidiary of the Massachusetts-based computer software company PTC. Hu, representing himself, argued the U.S. parent company controlled hiring and terminating decisions. PTC was represented by David Rubin of Boston’s Nutter McClennen & Fish.
A whistleblower complaint under Section 806 of the Sarbanes-Oxley Act “does not become territorial because the alleged misconduct occurred in the U.S., or because it had, or would have, effects on U.S. securities markets, or because the alleged retaliatory decision was made in the United States,” the labor appeals board wrote in the PTC case.
Rubin, a Nutter litigation partner, said the decision in Garvey’s case “applies what is now the clear caselaw; namely, that an employee who works outside of the U.S. for a foreign subsidiary of a U.S. company cannot bring a retaliation claim” under Section 806 of the Sarbanes-Oxley Act.
Rubin said an earlier labor appeals board decision, from 2017, caused some uncertainty about the scope of whistleblower protections under Sarbanes-Oxley. That case involved claims arising from alleged misconduct at an American military base in Afghanistan. The court found a contractor could allege retaliation because a U.S. base located overseas is still considered U.S. territory.
“Section 806 does not apply extraterritorially,” Rubin said. “The rationale is that Section 806 regulates employment in the U.S. It does not regulate employment in foreign countries.”
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Garvey joined Morgan Stanley Japan Group Co. Ltd. in 2006, and he later worked at Morgan Stanley Asia Limited, in Hong Kong, after the Fukushima earthquake in 2011. He argued the labor appeals board decisions in the PTC and Citigroup cases “did not change the law, much less so in the way that Morgan Stanley’s submissions seek to convince the court.” Garvey argued that leaders in Morgan Stanley’s headquarters in New York made decisions in response to his retaliation claim.
In his complaint, Garvey, who at one time oversaw the bank’s merchant banking and real estate investment in Asia, said he became aware “in early 2015 … that Morgan Stanley was engaged in conduct in violation of the U.S. Foreign Corrupt Practices Act and other U.S. securities laws.” The “engagement of a consultant in India [gave] rise to potential corruption related concerns,” according to filings in Garvey’s case.
He said he “objected to these practices repeatedly and strenuously, first by advising the individuals involved not to pursue their proposed course of action and, when that failed, by escalating the issue to senior management.” He said in his complaint: “The company did not heed the warnings and instead chose to conceal the wrongdoing and to protect the individuals responsible for the illegal conduct.”
Morgan Stanley, according to Labor Department records, said Garvey left the bank voluntarily after he grew dissatisfied with his salary. The bank also said it gave Garvey a positive performance review and a $122,540 bonus in 2015, the second largest awarded to the 23 executive directors in the bank’s Asia Pacific legal department.