Legal News

The Whole World is Watching: ?F-Cubed? Case Moves to High Court

By Ashby Jones

We can’t remember a case about jurisdiction that’s generated such feverish interest as the one to be argued Monday at the U.S. Supreme Court. The type of case to be debated even has its own little cutesy, inside-baseball nickname: “F-Cubed.”

Let us explain: The term 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.

The issue to be bandied about at One First St., N.E.: whether such cases may be brought in the U.S. Click here for the curtain-raiser, from the National Law Journal’s Tony Mauro; here for a Scotusblog preview from Lyle Denniston.

In the case, Morrison v. National Australia Bank, 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. 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.

According to Mauro: “the case comes to a Court that has grown increasingly skeptical about U.S. courts exerting extraterritorial jurisdiction.” Some critics have, reports Mauro, voiced another concern about foreign-cubed suits: “Exposing foreign companies to class actions in the United States based merely on the existence of an American subsidiary or listing on a U.S. exchange will discourage foreign investment here.”

Plaintiffs lawyers have argued that the possible fallout from allowing jurisdiction just isn’t as threatening as the defendants have alleged. Others argue that banishing foreign-cubed class actions would turn the United States into a safe haven for securities fraud.

“Without this protection, perpetrators of securities fraud within the United States are able to ‘export’ the consequences of their misdeeds with little or no risk of being held responsible,” said Allyn Lite of Lite DePalma Greenberg in a brief for two Australian investor groups.

Arguing for the plaintiffs at Monday’s hearing: Labaton Sucharow’s Thomas Dubbs; arguing for the defendant: Wachtell Lipton’s George T. Conway III.

Full post as published by Law Blog - WSJ.com on March 29, 2010 (boomark / email).