Morrison Revisited - The Case That Keeps On Giving

Mattew IngberIn Morrison v. National Australia Bank, the Supreme Court addressed the extraterritorial reach of Section 10(b) of the Securities Exchange Act. Specifically, the Court analyzed whether foreign plaintiffs suing foreign defendants in connection with securities traded on foreign exchanges - so called "f-cubed" litigation - could bring a claim under Section 10(b). The Supreme Court reaffirmed the presumption that "when a statute gives no clear indication of extraterritorial application, it has none." Writing for the majority, Justice Scalia held that Section 10(b) applies to fraud "only in connection with the purchase or sale of a security listed on an American stock exchange and the purchase or sale of any other security in the United States."

In the wake of this decision, we all wondered whether Morrison would be limited to its facts. It didn't take long for us to have our answer: Morrison clearly has been extended far beyond its narrow, "f-cubed" factual context.

For example, a month after the Supreme Court decided Morrison, Judge Marrero of the Southern District Court of New York dismissed securities claims brought by U.S. shareholders of Credit Suisse who had purchased the company's stock on the Swiss Stock Exchange in Cornwell v. Credit Suisse Group. In an oft-cited decision, he expressly rejected plaintiffs' argument that Morrison be limited to "f-cubed" transactions, concluding that "[t]his court is not convinced that the Supreme Court designed Morrison to be squeezed, as in spandex, only into the factual strait jacket of its holding." Judge Marrero even went so far as to say that "even if everything the Supreme Court said in elaborating its decision were deemed dictum . . . it must be given consideration and weight and cannot be ignored in the resolution of the issue at hand."

This was only the beginning. In Elliot Assoc. LP v. Porsche Auto. Holding SE, Judge Baer (SDNY) dismissed Section 10(b) claims brought by a group of global hedge funds - some of which were organized in the United States - against Porsche Automobile Holding SE (Porsche) and two of its executives related to security-based swap agreements that were not listed on any U.S. exchange. The plaintiffs tried convincing the court that the swap agreements were domestic transactions (thus triggering Section 10(b)) by arguing that U.S.-based investment managers made the investment decisions, and that the steps necessary to enter into the swap agreements were carried out in the United States. The court rejected such a narrow interpretation of Morrison's transactional test because it would "extend extraterritorial application of the Exchange Act's antifraud provisions to virtually any situation in which one party to a swap agreement is located in the United States."

Similarly, Judge Batts (also SDNY) dismissed Section 10(b) and Rule 10b-5 claims brought by a putative class of U.S. plaintiffs against, among others, Royal Bank of Scotland (RBS) relating to the purchase of RBS ordinary shares on foreign markets in In re Royal Bank of Scotland Grp. PLC Sec. Litig. Plaintiffs argued that there was a sufficient U.S. nexus for the court to hear its claims because (i) plaintiffs are U.S. residents, (ii) plaintiffs made their decision to purchase RBS securities in the United States and (iii) RBS listed certain other securities, not at issue in plaintiffs' suit, in the United States. The court held that Morrison foreclosed this type of analysis and that the Exchange Act does not reach conduct in the United States related to the purchase of securities on foreign exchanges. Indeed, "the idea that a foreign company is subject to U.S. securities laws everywhere it conducts foreign transactions merely because it has 'listed' some securities in the United States is simply contrary to the spirit of Morrison."

Finally, in a case that goes well beyond the securities context, in Cedeno v. Intech Grp., Inc., Judge Rakoff (SDNY) dismissed a Racketeer Influenced and Corrupt Organization (RICO) claim brought by a foreign plaintiff against foreign defendants in a U.S. court. Judge Rakoff found Morrison's reasoning applicable to the RICO statute, which, like Section 10(b), is silent as to its extraterritorial application. Judge Rakoff concluded that RICO "is focused on how a pattern of racketeering affects an enterprise" and evidences no concern with extraterritorial conduct "sufficiently clear to overcome the presumption against extraterritoriality." The 2nd Circuit has now also weighed in, affirming the dismissal of a RICO claim brought by a foreign plaintiff against foreign defendants in a U.S. court. In Norex Petroleum Ltd. v. Access Indus. Inc., the 2nd Circuit expressly found that, because RICO is silent as to any extraterritorial application, the presumption against extraterritoriality articulated in Morrison applies equally to RICO claims.

In short, in just a few months, Morrison has had a dramatic impact within and outside of the context of securities law. To many in-house counsel, in particular those at multinational companies, Morrison was a welcome clarification of Section 10(b). To their delight, it now goes well beyond that limited context.

Read Matthew Ingber's previous column. Read Matthew Ingber's next column.

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Matthew Ingber

Matthew Ingber is a litigation partner at Mayer Brown.

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