A U.S. appeals court has tossed the retaliation claims brought against Morgan Stanley Asia by the investment bank’s former lawyer, solidifying previous court decisions that a federal whistleblower protection law does not apply to overseas employees of U.S.-based companies.
In a unanimous ruling (pdf) released Tuesday, a three-judge penal of the U.S. Court of Appeals for the D.C. Circuit said they won’t review the case of Christopher Garvey, a U.S. citizen who had been working in Hong Kong as the top attorney for the Asian subsidiary of Morgan Stanley between 2006 and 2016.
According to the complaint, Garvey raised concerns with his superiors in the banks’ New York headquarters about alleged U.S. securities law violations, including insider training, market manipulation, U.S. tax fraud, and other forms of corporate corruption.
As a result of these internal disclosures, Garvey claimed, he received a pay cut and “a blunt recommendation to find a job elsewhere,” and had to eventually resign in the face of “ongoing pressure, hostility and clear and present risk.” He also claimed that after he hired a Philadelphia law firm as legal counsel, Morgan Stanley threatened the firm to stop representing him.
Garvey argued his case on the ground of Section 806 of the Sarbanes-Oxley Act (SOX), which prohibits a publicly traded company or its subsidiaries from retaliating against employees because of lawful actions they take to report what they reasonably believe is a violation of federal securities laws, regardless of whether they report such violation internally or to federal authorities.
Specifically, Garvey argued that Congress created SOX Section 806 to prevent corporate fraud, and therefore his allegations of fraud affecting U.S. securities markets would establish a domestic application of the provision. The circuit judges, however, found his argument unconvincing.
“There is no cause of action under Section 806 for securities fraud,” the judges wrote. They further noted that nothing in Section 806 indicates that the specified protections for employees against retaliation in fraud cases are meant to apply outside the United States.
When assessing Section 806’s application, it’s “critically important” to consider the location of the employee’s work and the terms of the employment contract, the judges said. In Garvey’s case, his exclusive place of employment was Hong Kong and his contract of employment was governed by Hong Kong laws.
“We hold that the text, context, and legislative history of Section 806 do not contain a clear, affirmative indication that the statute applies
extraterritorially,” the ruling read. “We conclude that Garvey has no cause of action under Section 806 because this case does not involve a domestic application of the statute.”
The Dec. 23 decision was penned by Judge Harry T. Edwards, a Carter appointee. He was joined by Obama and Clinton-appointed Judges Cornelia T.L. Pillard and Judith W. Rogers, respectively.
The First Circuit Court of Appeals in Boston and New York have reached the same conclusion.
Before taking his case to the courts, Garvey filed a complaint with the Labor Department’s Occupational Safety and Health Administration (OSHA). The agency dismissed his claims for failure to allege an adverse employment action, prompting him to appeal to the Department’s Administrative Review Board, where his bid was also rejected over the question of whether SOX Section 806 applied.
Meanwhile, Morgan Stanley has denied retaliating against Garvey. In 2018, the corporation filed a motion, asking an administrative law judge for the Labor Department to not take up Garvey’s appeal. The judge denied the motion, but didn’t rule in favor of Garvey.