Corporate & Securities Law

?We are not the world?s court?

By Werner R. Kranenburg

The issue before the court in Morrison v National Australia Bank was whether to excercise subject matter jurisdiction over the foreign claimants who bought their NAB shares on a foreign exchange. (ASX, LSE, NYSE, NZX: NAB/NABHA) It held that in this case it could not (decision), based on the ‘conduct test’. The court however refrained from creating a ‘rigid bright-line rule’ for all ‘foreign-cubed’ cases, advocated by defendants and friends of the court. From the decision:

“[D]eclining jurisdiction over all ?foreign-cubed? securities fraud actions would conflict with the goal of preventing the export of fraud from America. As the argument goes, the United States should not be seen as a safe haven for securities cheaters; those who operate from American soil should not be given greater protection from American securities laws because they carry a foreign passport or victimize foreign shareholders. […]

Moreover, we are leery of rigid bright-line rules because we cannot anticipate all the circumstances in which the ingenuity of those inclined to violate the securities laws should result in their being subject to American jurisdiction. That being said, we are an American court, not the world?s court, and we cannot and should not expend our resources resolving cases that do not affect Americans or involve fraud emanating from America. In our view, the ?conduct test? balances these competing concerns adequately and we decline to place any special limits beyond the ?conduct test? on ?foreign-cubed? securities fraud actions.”

Thomas A. Dubbs, senior partner with plaintiffs’ counsel Labaton Sucharow LLP, who argued the appeal has stated that “[w]e are obviously disappointed in the outcome. However, the decision does contain good news for investors. For example, the Court clearly rejected the bright-line ban of ‘foreign-cubed’ securities cases… Instead, the Court held that jurisdiction in such cases must be reviewed on a case-by-case basis. [T]he Court also rejected defendants’ arguments that the American courts’ acceptance of such cases would result in a ‘parade of horribles’.”

This f-cubed case failed because the relevant conduct was in Australia. Hardly the ‘major victory’ the Washington Legal Foundation, one of the friends of the court in this case (case detail), has called the outcome. Without the rigid rule, the next such such case may well see a different result.

What’s more, three learned fellow bloggers have already written (extensively) about this case - the D&O Diary, The 10b-5 Daily and ClassActionBlawg.com. D&O Diary provides three of the four amicus curiae briefs (and more background to the case, here), the fourth brief being from the Securities and Exchange Commission (here) in response to the court’s request.

Full post as published by With Vigour and Zeal on November 18, 2008 (boomark / email).