F-Cubed Securities Class Actions Put to the Test
Today the Supreme Court will hear argument in Morrison v. National Bank of Australia. The case centers on so called “F-Cubed” securities class actions. As Ashby Jones, of the Wall Street Journal Law Blog explains “the term “F-Cubed” refers to securities class action cases that are largely foreign in nature. The investors are foreign, the issuers are foreign, and the alleged fraudulent conduct took place in a foreign land. Foreign, foreign, foreign. Three “Fs,” hence the name: F-cubed.
This latest F-cubed class action expands on my earlier post “What Do Halley’s Comet and "F-Cubed" Securities Class Action Trials Have in Common?
The issue to be determined by the Court in Morrison v. National Australia Bank is whether F-cubed cases may be brought in the U.S. In Morrison, foreign investors accused National Australia Bank of perpetrating a fraud involving a Florida subsidiary bank.The plaintiffs allege that the Florida connection gives the case enough of a U.S. jurisdictional hook to justify its being brought here. The bank, however, insists that the alleged activity took place in Australia and that the U.S. courts should not have jurisdiction.
Stakes High for Vivendi, Toyota
Shortly after certiorari was granted last year, both foreign companies and governments began to deluge the Court with amicus briefs, signaling the importance of the case worldwide.
Most notable among foreign companies filing is Vivendi, the French communications firm that was hit with a securities class action in New York in 2002. The company, whose common stock is not listed on any U.S. exchange, challenged the suit on jurisdictional grounds. It lost, and a U.S. jury in January returned a verdict that could cost the company more than $9 billion.
Although it did not file an amicus brief, Toyota is closely watching the case in the wake of its highly publicized safety meltdown. Several securities class actions have been filed in federal courts against Toyota, which trades on the Tokyo Stock Exchange. The allegations are based on statements made by Toyota officials in Japan.
Court Increasingly Reluctant to Exert Extraterritorial Jurisdiction
The case comes to a Court that has grown increasingly skeptical about U.S. courts exerting extraterritorial jurisdiction. In the 2007 case Microsoft v. AT&T, a 7-1 majority spoke approvingly of the presumption that ‘United States law governs domestically but does not rule the world.’ Three years earlier, in Hoffman-LaRoche v. Empagran, a unanimous Court said extending the reach of American antitrust laws too far into foreign situations would be "an act of legal imperialism.
Outcome Will Have Profound Impact on Global Jurisprudence
It will be interesting to see how the Court rules on this case. Whatever the outcome, the impact on global jurisprudence will be profound.
The plaintiff bar argues that prohibiting foreign-cubed class actions would turn the United States into a safe haven for securities fraud. They argue that without the protection offered by U.S. courts, perpetrators of securities fraud within the United States will be able to ‘export’ the consequences of their misdeeds with little or no risk of being held responsible.
Defense counsel, on the other hand, argue that American courts cannot and should not expend resources resolving cases that do not affect Americans or involve fraud emanating from America.
Both sides raise very valid points–what do you think?