U.S. Department of Labor

U.S. Department of Labor

Administrative Review Board

200 Constitution Avenue, N.W.

Washington, D.C. 20210

In the Matter of:

LI TAO HU,

ARB CASE NO. 2017-0068

COMPLAINANT,

v.

ALJ CASE NO. 2017-SOX-00019

DATE:

SEP 1 8 2019

PTC, INC.,

RESPONDENT.

Appearances:

For the Complainant:

Li Tao Hu,1 Pro se, Shanghai, China

For the Respondent:

David S. Rubin, Esq.; Joseph T. Toomey, Esq.; Nutter McClennen &

Fish, LLP, Boston, Massachusetts

Before: William T. Barto, Chief Administrative Appeals Judge; James A.

Haynes and Thomas H. Burrell, Administrative Appeals Judges.

FINAL DECISION AND ORDER

We note that Complainant refers to himself as "Hu Li Tao"' in his complaint and all other

submissions to the Board while the Decision and Order below refers to him as "Li Tao Hu."' We

presume that naming conventions differ in China and that Complainant's "last name" or "family

name" is "Hu" and that it would be placed first rather then last in Chinese usage. In the interest of

consistency we will not revise Complainant's file name. We acknowledge the inconsistency and will

refer to him as "Hu."

2

THOMAS H. BURRELL, ADMINISTRATIVE APPEALS JUDGE. This case arises

under the whistleblower provision of the Sarbanes-Oxley Act of 2002 (Section 806 or

SOX), 18 U.S.C. § 1514A (2010), as amended, and its implementing regulations at

29 C.F.R. Part 1980 (2016). At the time in question, Hu Li Tao was an employee of

PTC, China, a foreign subsidiary of PTC, Inc., a U.S. company (hereinafter PTC,

USA). Hu filed a complaint alleging that his suspension and termination violated

the whistle blower provisions of Section 806. PTC, USA, filed a motion for summary

decision in which it argued that Section 806 does not apply extraterritorially. The

Administrative Law Judge (ALJ) granted the motion, and we now affirm that

decision.

BACKGROUND 2

Complainant Hu Li Tao was an employee of PTC, China, which is a

subsidiary of PTC, USA. PTC, USA is headquartered in Needham, Massachusetts,

and is registered under Section 12 of the Securities and Exchange Act of 1934, 15

U.S.C. 781.

It is undisputed that Hu worked entirely in China. Hu asserts that although

he worked for and was paid by PTC, China, he was a sales employee who received

sales quotas and signed a sales-incentive plan directly from PTC, USA, through a

global internet sales platform. Hu claims that he was substantially supervised by

PTC, USA, and that PTC, USA, controls PTC, China's decisions, including hiring

and termination decisions. Decision and Order (D. & 0.) at 3; Hu Br. at 5-6.

Hu avers that he was ordered by his managers to book false orders including

future sales orders. 3 According to Hu, PTC, USA, derived illegal income and profits

from these transactions in violation of U.S. securities laws. D. & 0. at 4; Hu Br. at

11-12. Hu claims that he reported his concerns about these transactions to his

'

We restate facts taken from the ALJ's Decision and Order or the parties' allegations where

indicated. We make no independent findings of fact on appeal. We note that the filings and evidence

before the ARB and the ALl contain documents in a foreign language. The ALl did not have these

documents translated. While not always required_. given Ru's self-represented status and our

uncertainty as to his translation resources in China, we suggest for future reference that ALJs

consider the use of translation services available to federal agencies. https://www.oalj.dol.gov/

TRANSLATION_AND_ INTERPRETATION.HTM. In this case, however, we are able to affirm the

AL.J's decision on the undisputed facts.

Hu Br. at 3. The record does not include an allegation of the number or dates of the orders or

why they were false.

:i

3

managers but was told not to worry. According to Hu, some of the alleged

misconduct occurred outside of China. D. & 0. at 4. According to PTC, USA, all of

the alleged misconduct took place in China. D. & 0. at 1.

Hu claims that on or about July 14, 2016, he was told to resign and collect a

severance package or be placed on a performance-improvement plan. On or about

August 4, 2016, Hu was placed on a performance-improvement plan by PTC, China.

Hu Br. at 3. On that same day, August 4, 2016, Hu filed an internal report via an

online complaint portal pursuant to internal ethics guidelines. Hu alleged that PTC,

USA, engaged in misconduct and falsification of records. D. & 0. at 4. On August 5,

2016, Hu was called into a meeting to discuss the report. 4

Yvonne Zhang, Legal Manager, and Anthony Yan, Human Resources

Director, both employees of PTC, China, suspended Hu on September 6, 2016. D. &

0. at 4. According to Hu, Jerry Luo, Compliance Manager of PTC, China, told him

that PTC, USA, had made the decision. Hu also claims that the Vice President of

PTC, China, fired him on November 1, 2016, and that he was told again that the

decision was made by PTC, USA. Hu Br. at 4, 6-7.

Hu filed a SOX complaint with the Occupational Safety and Health

Administration (OSHA) on or about January 5, 2017. OSHA dismissed the case on

January 20, 2017, for lack of jurisdiction. Hu filed objections on or about February

15, 2017, with the Office of Administrative Law Judges.

Before the assigned ALJ, PTC, USA, filed a request to dismiss the complaint

on the grounds that SOX does not apply to employees working outside of the United

States, citing Morrison v. Nat'l Australia Bank, Ltd., 561 U.S. 247 (2010). In

response, the ALJ issued a show cause order asking the parties why the case should

not be dismissed. Hu responded to the Order.

On August 2, 2017, the ALJ granted PTC, USA's motion for summary

decision. The ALJ noted that the uncontroverted evidence of record was that Hu

was a Shanghai-based employee of a Chinese subsidiary of PTC, USA, and worked

entirely in China. Hu was not hired in the U.S., and the ALJ reasoned that

although decision-makers in the U.S. might have orchestrated his termination, this

fact did not confer jurisdiction or authorize application of Section 806 of SOX to

4

Jerry Luo, Compliance Manager, and Yvonne Zhang, Legal Manager, both of PTC, China,

attended the meeting. An attorney for PTC, USA, attended the meeting by phone.

4

Ru's case. D. & 0. at 6. Hu appealed the ALJ's decision to the Administrative

Review Board (ARB or Board).

JURISDICTION AND STANDARD OF REVIEW

The ARB has jurisdiction to review the ALJ's decision under Secretary's

Order No. 01-2019 (Delegation of Authority and Assignment of Responsibility to the

Administrative Review Board), 84 Fed. Reg. 13,072 (Apr. 3, 2019); 29 C.F.R. Part

1980. The ARB reviews an ALJ's grant of summary decision de novo. Siemaszko v.

First Energy Nuclear Operating Co., Inc., ARB No. 09-123, ALJ No. 2003-ERA-013,

at 3 (ARB Feb. 29, 2012). Under 29 C.F.R. § 18.72, an ALJ may enter summary

decision for either party if the pleadings, affidavits, material obtained by discovery,

or matters officially noticed show that there is no genuine issue as to any material

fact and that based on the law a party is entitled to summary decision.

To avoid summary decision, the non-moving party must rebut the motion and

evidence presented by the moving party with contrary evidence sufficient to create a

genuine issue of material fact. That rebuttal, or answer, "may not rest upon mere

allegations or denials in his pleadings, but must set forth specific facts showing that

there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986); Siemaszko, ARB No. 09-123, at 3. In assessing this, or any, summary

decision, both the ARB and the ALJ must view the evidence, along with all

reasonable inferences, in the light most favorable to the non-moving party.

DISCUSSION

Section 806's employee-protection provision generally prohibits covered

employers and individuals from retaliating against employees because they provide

information or assist in investigations related to the categories listed in the SOX

whistleblower statute.5

'

Section 806 states the following:

(a) Whistleblower Protection For Employees Of Publicly Traded

Companies.-No company with a class of securities registered under

section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781), or

that is required to file reports under section 15(d) of the Securities

Exchange Act of 1934 (15 U.S.C. 78o(d)). including any subsidiary or

affiliate whose financial information is included in the consolidated

financial statements of such company, or nationally recognized

statistical rating organization (as defined in section 3(a) of the

Securities Exchange Act of 1934 (15 U.S.C. 79c), or any officer.

5

To state a claim under Section 806, a complainant must allege that he

engaged in protected activity, the employer took an unfavorable action against him,

and that the protected activity was a contributing factor in the adverse action. See

Prioleau v. Sikorsky Aircraft Corp., ARB No. 10-060, ALJ No. 2010-SOX-003, at 5

(ARB Nov. 9, 2011). Under 18 U.S.C. § 1514A(b)(2)(C), SOX complaints are decided

using the legal burdens of proof set forth in the employee-protection provision of

the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century

(AIR-21), 49 U.S.C. § 42121.

It is undisputed that Hu is a foreign citizen who worked for PTC, China,

during all relevant periods. It is likewise undisputed that PTC, China, is a foreign

subsidiary of PTC, USA, a U.S. company registered under Section 12 of the

Securities Exchange Act of 1934. Hu alleges that he reported misconduct to both his

direct employer and to PTC, USA, and that the wrongdoing he reported affected the

employee, contractor, subcontractor, or agent of such company, may

discharge, demote, suspend, threaten, harass, or in any other manner

discriminate against an employee in the terms and conditions of

employment because of any lawful act done by the employee(1) to provide information, cause information to be provided,

or otherwise assist in an investigation regarding any conduct

which the employee reasonably believes constitutes a

violation of section 1341, 1343, 1344, or 1348, any rule or

regulation of the Securities and Exchange Commission, or any

provision of Federal law relating to fraud against

shareholders, when the information or assistance is provided

to or the investigation is conducted by(A) a Federal regulatory or law enforcement agency;

(B) any Member of Congress or any committee of

Congress; or

(C) a person with supervisory authority over the

employee (or such other person working for the

employer who has the authority to investigate,

discover, or terminate misconduct); or

(2) to file, cause to be filed, testify, participate in, or otherwise

assist in a proceeding filed or about to be filed (with any

knowledge of the employer) relating to an alleged violation of

section 1341, 1343, 1344, or 1348, any rule or regulation of

the Securities and Exchange Commission, or any provision of

Federal law relating to fraud against shareholders.

18 U.S.C. § 1514(a).

6

U.S. company financials and the U.S. markets. He further alleges that he was

suspended and terminated by PTC, China, on instructions from PTC, USA.

The sole issue before the ALJ and before the ARB on appeal is whether

Section 806 reaches, or covers, Hu's complaint alleging a retaliatory discharge in

China. The ALJ granted Respondent's motion for summary decision based on the

legal argument that the statute does not reach acts committed outside the United

States. As we noted previously, the ALJ noted that the evidence was uncontroverted

that Hu was not hired and never worked in the United States. Although decisionmakers in the U.S. might have orchestrated his termination, this fact does not

confer jurisdiction or permit adjudication ofHu's case under Section 806. D. & 0. at

6.

The Supreme Court has ruled on a similar question in a case arising out of

securities law rather than an anti-retaliation statute like Section 806. In Morrison

v. Nat'l Australia Bank, Ltd., 6 the Court announced a two-step framework for

analyzing extraterritoriality. 7 In step one of its two-part test, the Supreme Court

considered whether the statute at issue reaches extraterritorially beyond the U.S.

The Court in Morrison applied a fundamental presumption that, in the absence of

evidence to the contrary, Congress intends its legislation to apply domestically and

not outside the U.S. The Court concluded that the text of the statute at issue did not

provide for extraterritorial reach and the presumption against extraterritoriality

had not been rebutted when looking beyond the text. Morrison, 561 U.S. at 265.

If a statute is not extraterritorial, the Morrison analysis continues with a

second step. In step two, the Court examines the essential or primary focus of a

statute and where the activity comprising that focus occurred. If that activity

occurred within the United States, a statute's lack of extraterritorial reach is not

relevant. The Morrison Court concluded that the essential focus of the claim at

issue was manipulation or deception in connection with the sale or purchase of

In Morrison, Australian investors had filed claims in a United States federal court pursuant

to Section lO(b) of the Securities Exchange Act of 1934. alleging, among other things, that the

defendant Australian bank committed securities fraud.

561 U.S. 247 (2010). Before Morrison, courts applied the "conducts and effects" test. Under

the Second Circuit's "conducts and effects" test, a court has jurisdiction when there is substantial

conduct in the United States or the alleged violation had substantial effects in the United States.

SEC u. Berger, 322 F.3d 187, 192-93 (2d Cir. 2003). Morrison rejected the conducts and effects test.

7

securities. Plaintiffs' transactions had occurred extraterritorially and beyond the

domestic reach of the statute. Morrison, 561 U.S. at 273. Having failed both

Morrison steps, the Court concluded that plaintiffs' claims failed to state a cause of

action upon which the U.S. courts were able to grant relief.

Applying Morrison to Hu's claim, we confront the explicit language of the

Supreme Court in Morrison noting a "longstanding principle of American law 'that

legislation of Congress, unless a contrary intent appears, is meant to apply only

within the territorial jurisdiction of the United States."' 561 U.S. at 255 (quoting

EEOC v. Arabian American Oil Co. (Aramco), 499 U.S. 244, 248 (1991)). "This

principle represents a canon of construction, or a presumption about a statute's

meaning, rather than a limit upon Congress's power to legislate." Id. "It rests on the

perception that Congress ordinarily legislates with respect to domestic, not foreign

matters." Id.

Whether a statute has extraterritorial reach turns on the statutory text, the

relevant statutory context, and the legislative intent. "'[U]nless there is the

affirmative intention of the Congress clearly expressed' to give a statute

extraterritorial effect, 'we must presume it is primarily concerned with domestic

conditions."' Id. (quoting Aramco, 499 U.S. at 248). The conduct or effect in any

particular case does not alter a statute's extraterritorial reach.

As we held before and reaffirm now after Morrison, Section 806 is not

extraterritorial in its reach. 8 The text and legislative history of Section 806 does not

contain a clear, affirmative indication that Congress intended extraterritorial

application. Finding no indication of extraterritoriality, we hold that Section 806 is

not extraterritorial.D The facts in this case line up with those in Carnero v. Boston

Before Morrison, the ARB had held that Section 806 does not apply extraterritorially. Ede v.

The Swatch Group Ltd., ARB No. 05-053, ALJ Nos. 2004-SOX-068, -069 (ARB June 27, 2007); Balian

u. Reedhycalog UK, ARB No. 07-080, ALJ No. 2007-SOX-020 (ARB Dec. 31, 2008); Ahluwalia v. ABB,

Inc., ARB No. 08-008, ALJ No. 2007-SOX-044 (ARB June 30, 2009).

8

9

The Board has also grappled with this question after the ALJ's decision in Hu. In a divided

opinion in which each of the three panel members issued a separate opinion, the Board evaluated

different approaches to the extraterritorial reach of SOX generally and Section 806 in particular. See

Blanchard v. Exe/is Sys. Corp., ARB No. 15-031, ALJ No. 2014-SOX-020 (ARB Aug. 29, 2017). Two

members of the panel affirmatively held that Section 806 had extraterritorial reach as a matter of

statutory construction. However, two of the panel members also held that Blanchard's appeal could

and should be resolved as a domestic application of Section 806 rather than as an extraterritorial

matter. Whether viewed as an essential holding or as dicta., Blanchard's discussion of

extraterritoriality failed to appreciate the significance of Morrison and the absence of any action by

Congress after Morrison to give Section 806 a clear reach beyond the domestic jurisdiction of the

8

Sci. Corp., 433 F.3d 1 (1st Cir. 2006). Carnero was an Argentine citizen who was

employed and terminated by a foreign subsidiary of a U.S. parent company and who

also alleged a violation of Section 806. The Court of Appeals for the First Circuit

held that Carnero's complaint "faces a high and we think insurmountable hurdle in

the well-established presumption against the extraterritorial application of

Congressional statutes." Id. at 7. The court observed that "[w]here, as here, a

statute is silent as to its territorial reach, and no contrary congressional intent

clearly appears, there is generally a presumption against its extraterritorial

application." Id. "Not only is the text of 18 U.S.C. § 1514A silent as to any intent to

apply it abroad, the statute's legislative history indicates that Congress gave no

consideration to either the possibility or the problems of overseas application." Id. at

8. We concur with this analysis. 10 There is no clear indication in the text or

legislative history that Congress intended for Section 806 to apply extraterritorially.

Morrison, 561 U.S. at 255 ("[w]hen a statute gives no clear indication of an

extraterritorial application, it has none").

United States. Likewise, Blanchard's reliance upon RJR Nabisco v. European Community, 136 S. Ct.

2090 (2016), is misplaced. The Court in RJR Nabisco held that the federal RICO statute could be

applied extraterritorially in those cases in which the predicate offense statutes applied

extraterritorially. 136 S. Ct. at 2102. The Board in Blanchard overlooked both the deep skepticism

expressed by the Court in RJR Nabisco toward private foreign injury claims absent "clear direction

from Congress," id. at 2107, and the fact that Section 806 is just such a private cause of action: a

whistleblower protection law wherein a successful complainant need only show a reasonable belief of

a violation of one of the six categories of protected activity and retaliation because of that protected

activity. As we now hold, Congress did not provide a clear indication of extraterritorial reach or

address the concerns raised by applying Section 806 to foreign employment settings.

We agree, however, that the Blanchard case is properly understood as a domestic application

of the law. We quote with approval, the concurring opinion of Chief Judge Igasaki in Blanchard:

Because I believe that this case is a domestic one, involving a U.S.

Corporation with securities listed on a U.S. exchange. contracting with the

U.S. military on a U.S. base that is [a] U.S. territory for purposes of the law

and facts of this case, and employing a U.S. citizen employee contesting the

application of U.S. rules and actions taken against him by managers in the

U.S. or acting on their decisions, 1 do not agree that it presents an

opportunity to define the general extraterritoriality of §806, or, as the ALJ

has done, rule against Complainant because the matter is extraterritorial.

Blanchard, slip op. at 21.

"'

We consider it to be significant that Carnero was issued in 2006, before Morrison (which was

issued in 2010), and that it considered precisely the provision of SOX which is before us. In the time

since 2006, neither the Supreme Court nor Congress have disturbed the specific holding of Carnero

that Section 806 is domestic and not extraterritorial in its reach.

9

Our conclusion on this point is significantly bolstered by the fact that

Congress amended Section 806 in 2010 following Morrison but did not provide for

extraterritorial reach as part of that amendment. Congress enacted Section 929A of

the Dodd-Frank Act, Pub. L. No. 111-203, 124 Stat. 1376, 1852 (2010), to clarify

that Section 806(a) of SOX applies to "any subsidiary or affiliate whose financial

information is included in the consolidated financial statements" of an otherwise

covered company. In the same legislation, Congress expressly provided for the

extraterritorial application of an enforcement action brought by the Securities and

Exchange Commission (SEC). This was to address the impact of Morrison on

extraterritorial enforcement of securities laws. 11 Congress was obviously aware of

Morrison and enacted clear, affirmative text rebutting the presumption against

extraterritoriality.

Congress did not add similar language in the amendments to Section 806. It

is a commonplace of statutory interpretation that where Congress "includes

particular language in one section of a statute but omits it in another section of the

same Act, it is generally presumed that Congress acts intentionally and purposely

in the disparate inclusion or exclusion." Russello v. United States, 464 U.S. 16, 23

(1983). However we need not rely only on general rules of interpretation where the

Supreme Court has clearly stated that statutes without some obvious indication of

extraterritorial reach should be regarded as territorial. Likewise, where Carnero

holds that Section 806 is domestic in its reach and stands uncontradicted and

unmodified on that point, the question of extraterritorial application of that section

is not close. Finally, when, as noted above, Congress has declined to amend Section

806 in almost a decade since Morrison, we find it beyond cavil that Section 806 is

domestic in it application.

Applying the second step of the Morrison analysis, as we must, we next

conclude that the primary focus of Section 806 is on the retaliatory adverse

personnel action. While Sarbanes-Oxley's overarching purpose may be to protect

the markets from fraud, that meta-purpose is not dispositive of the question before

us. Rather, we look to the text of the statute at issue and the primary focus of

11

Section 929P of the Dodd-Frank Act, 124 Stat. 1864-1865, expands the scope of federal

courts' jurisdiction over actions or proceedings brought or instituted by the Securities Exchange

Commission or the United States alleging a violation involving conduct within the United States in

furtherance of a violation and conduct occurring outside the United States that has a foreseeable

substantial effect within the United States. 124 Stat. 1864-1865 (referring to authority of SEC and

United States to bring actions in federal courts under specified statutes).

10

Section 806 itself. 12 Section 806 provides that "[n]o [covered] company ... may

discharge, demote, suspend, threaten, harass, or in any other manner discriminate

against an employee in the terms and conditions of employment because of [the

employee's protected activity]." 18 U.S.C. § 1514A(a). For the specific application of

Morrison, the primary focus of Section 806 is necessarily connected to the

employee's terms and conditions of employment. This focus helps to explain why

Section 806 is administered by the U.S. Department of Labor and not by the SEC.

Because we conclude that the primary focus of Section 806 is necessarily

linked to deterring and punishing retaliation against an employee's terms,

conditions, and privileges of employment, the location of the employee's permanent

or principal worksite is the key factor to consider when deciding whether a claim is

a domestic or extraterritorial application of Section 806. 13 The focus is the employee

and the controlling authority is labor and employment law rather than securities

law. Accordingly, the location of other conduct, which may be the subject of other

requirements, regulation or prohibitions under SOX, becomes less critical, if not

irrelevant. In perhaps a majority of extraterritorial complaints under section 806

there is some tangential connection to the United States. Morrison, 561 U.S. at 266

("[T]he presumption against extraterritorial application would be a craven

watchdog indeed ifit retreated to its kennel whenever some domestic activity is

involved in the case .... "). But a Section 806 complaint concerning an adverse action

which affected an employee at a principal worksite abroad 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.

Applying the above reasoning to Hu's Section 806 complaint, we conclude

that it is not a domestic application of Section 806. At the time in question, Hu was

a foreign citizen working for a foreign subsidiary of a publicly traded U.S. company.

It is undisputed that Hu's principal place of work was in China and not the United

12

In Blanchard. the ARB, examining Villanueva u. Core Laboratories, IVV, ARB No. 09-108,

ALJ No. 2009-SOX-006 (ARB Dec. 22, 2011), held that the primary focus of Section 806 was

preventing fraud and protecting the financial markets. We conclude this is error because it fails to

account for Section 806's specific statutory text and conflates the primary focus of Section 806 with

other aspects and goals of Sarbanes-Oxley as a whole.

The determination of "principal worksite" or "permanent worksite" is dependent upon the

evidence in individual cases and we decline the task of establishing a general definition in this

opinion. The case before us can be resolved without reaching this issue.

13

11

States. 14 The only domestic contacts are that the termination decision may have

been made directly or indirectly in the U.S. and that the U.S. markets were, or

would be, affected by the conduct identified in Ru's allegations. These facts do not,

in and of themselves, create a domestic application of Section 806.

CONCLUSION

We conclude that Section 806 is not extraterritorial in application and the

primary focus of Section 806 is on the retaliatory action as it affects the employee's

terms, conditions, and privileges of employment.

Applying these conclusions to Ru's claim, we AFFIRM the ALJ's decision as

correct in fact and law. Accordingly, the complaint is hereby DISMISSED.

SO ORDERED.

11

The question of whether Hu's principal place of employment placed his complaints within the

domestic jurisdiction of SOX is easily answered in this case because Hu has never worked in the

United States. More difficult fact patterns will arise but we consider the principal or primary

worksite of the Complainant to be the factor which will guide the analysis of whether a claim is

within the jurisdiction of section 806 of SOX, or is extraterritorial and outside that jurisdiction.