Morrison v. National Australia Bank

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Morrison v. National Australia Bank
Seal of the United States Supreme Court.svg
Supreme Court of the United States
Argued March 29, 2010
Decided June 24, 2010
Full case nameRobert Morrison, et al., Petitioners v. National Australia Bank Ltd., et al.
Docket no. 08-1191
Citations561 U.S. 247 ( more )
130 S. Ct. 2869; 177 L. Ed. 2d 535; 2010 U.S. LEXIS 5257; 78 U.S.L.W. 4700; Fed. Sec. L. Rep. (CCH) ¶ 95,776; 76 Fed. R. Serv. 3d (Callaghan) 1330; 22 Fla. L. Weekly Fed. S 575
Case history
PriorMotion to dismiss granted, In re Nat'l Australia Bank Sec. Litig., No. 03-cv-6537, 2006 WL 3844465 (S.D.N.Y. Oct. 25, 2006); affirmed sub nom.Morrison v. Nat'l Australia Bank Ltd., 547 F.3d 167 (2d Cir. 2008); cert. granted, 558 U.S. 1047(2009).
Holding
Section 10(b) of the Securities Exchange Act of 1934 does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.
Court membership
Chief Justice
John Roberts
Associate Justices
John P. Stevens  · Antonin Scalia
Anthony Kennedy  · Clarence Thomas
Ruth Bader Ginsburg  · Stephen Breyer
Samuel Alito  · Sonia Sotomayor
Case opinions
MajorityScalia, joined by Roberts, Kennedy, Thomas, Alito
ConcurrenceBreyer (in part)
ConcurrenceStevens (in judgment), joined by Ginsburg
Sotomayor took no part in the consideration or decision of the case.
Laws applied
Securities Exchange Act of 1934 §10(b)
Superseded by
Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, sec. 292P(b)(2), § 27(b), 124 Stat. 1376, 1862 (2010)

Morrison v. National Australia Bank, 561 U.S. 247 (2010), was a United States Supreme Court case concerning the extraterritorial effect of U.S. securities legislation. [1] Morrison extinguished two species of securities class-action claims that had proliferated in preceding years: "foreign-cubed" claims, in which foreign plaintiffs sued foreign issuers for losses on transactions on foreign exchanges, and "foreign-squared" claims, brought by domestic plaintiffs against foreign issuers for losses on transactions on foreign exchanges. [2]

Contents

Background

The case concerned the 1998 purchase by National Australia Bank of a mortgage servicing company, HomeSide Lending, headquartered in Florida. In July 2001, NAB announced a USD 450 million write-down in assets due to losses associated with HomeSide Lending; and a further USD 1.75 billion write-down in September of that year. The root cause of the write-down was that the modelling done by HomeSide Lending to determine future revenues from mortgage fees was based on overly optimistic assumptions. The plaintiffs claimed that this was part of an intentional scheme to defraud committed by HomeSide's management. By the time the case reached the US Supreme Court, only Australian investors remained as plaintiffs, although a US investor (Morrison, for whom the case was named) participated in earlier proceedings, but his case was thrown out for unrelated reasons.

The plaintiffs argued that the fact the alleged fraud occurred in Florida meant that it should be subject to US securities laws. The defendants argued that, since the alleged fraud related to trading in Australian securities, US securities laws did not apply.

Opinion of the Court

The decision was unanimous for the defendants, with two concurring opinions (and Justice Sotomayor recusing herself, because she had been involved in the case at the Second Circuit). The majority opinion, by Scalia, held that since the plain language of section 10(b) only applies to US securities, it should not be read to apply to non-US securities, despite longstanding precedent, originating in the 2nd Circuit and subsequently adopted by other circuits as well, that §10(b) also applies to non-US securities.

The Court clarified 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.'" It noted that "the Second Circuit believed that, because the Exchange Act is silent as to the extraterritorial application of §10(b), it was left to the court to 'discern' whether Congress would have wanted the statute to apply. This disregard of the presumption against extraterritoriality ... has been repeated over many decades by various courts of appeals.... That has produced a collection of tests for divining what Congress would have wanted, complex in formulation and unpredictable in application.... The results ... demonstrate the wisdom of the presumption against extraterritoriality. Rather than guess anew in each case, we apply the presumption in all cases, preserving a stable background against which Congress can legislate with predictable effects." [3]

Stevens filed a partial concurrence, which Ginsburg joined, rejecting the overturning of the existing jurisprudence on section 10(b); at the same time, he held that in this particular case, the defendants should prevail, since both the plaintiffs and defendants were Australian, and the case would be better dealt with by the Australian court system – but unlike the majority, he would apply 10(b) to cases involving non-US securities, where there was a closer connection to the US (e.g. US plaintiffs).

Aftermath

The Dodd–Frank Wall Street Reform and Consumer Protection Act of July 21, 2010, in its section 929P(b), allowed the SEC and DOJ extraterritorial jurisdiction, but this interpretation remains contested in the courts. [4] In its section 929Y, the Act commissioned the SEC to study extending the permission to private actors. The study indicated a number of options for action to be taken by Congress, which in varying degrees would mitigate the decision. [5]

In late 2010, Fabrice Tourre of Goldman Sachs asked for dismissal of an SEC suit against him based on the repercussions of the decision in this case, claiming his deals were outside the US and thus not subject to certain US laws. [6] [7] [8] [ needs update ]

See also

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References

  1. ↑ Dwyer Arce (June 24, 2010). "Supreme Court rules no cause of action for foreign plaintiffs in securities fraud litigation". JURIST - Paper Chase.
  2. ↑ George T. Conway III (October 2014). "Morrison at Four: A Survey of Its Impact on Securities Litigation".
  3. ↑ Morrison v. National Australia Bank syllabus 2
  4. ↑ Jonathan R. Tuttle (September 11, 2013). "Court Curtails Territorial Reach of Criminal Liability Under Section 10(b)". Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved March 20, 2019.
  5. ↑ Staff of the U.S. Securities and Exchange Commission (April 2012). "Study on the Cross-Border Scope of the Private Right of Action Under Section 10(b) of the Securities Exchange Act of 1934" (PDF).
  6. ↑ Nathan Koppel and Ashby Jones (September 28, 2010). "Securities Ruling Limits Claims of Fraud". The Wall Street Journal.
  7. ↑ Jonathan Stempel (September 30, 2010). "Goldman's Tourre says SEC suit should be dismissed". Archived 2010-10-06 at the Wayback Machine . Reuters, via foxbusiness.com.
  8. ↑ Chad Bray (September 20, 2010), "Goldman Trader Seeks a Dismissal". The Wall Street Journal .
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