Tag: Extraterritoriality

Morrison at Four: A Survey of Its Impact on Securities Litigation

George Conway is partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a recent essay by Mr. Conway, “Morrison at Four: A Survey of Its Impact on Securities Litigation.” Mr. Conway briefed and argued Morrison v. National Australia Bank in the Supreme Court.

My essay, Morrison at Four: A Survey of Its Impact on Securities Litigation, published by the U.S. Chamber of Commerce Institute for Legal Reform as part of a collection of essays on the shifting legal landscape governing federal claims involving foreign disputes, recounts the extraordinary impact of the Supreme Court’s landmark decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), in the realm of securities litigation.


So Much for Bright-Line Tests on Extraterritorial Reach of US Securities Laws?

The following post comes to us from Jonathan E. Richman, Partner in the Litigation Department and a co-head of the Securities Litigation Group at Proskauer Rose LLP, and is based on a Proskauer publication authored by Mr. Richman, Ralph C. Ferrara, Ann M. Ashton, and Tanya J. Dmitronow.

In its landmark 2010 decision in Morrison v. National Australia Bank, the Supreme Court articulated what seemed to be a bright-line test for determining the extent to which the U.S. securities laws apply to transactions with international elements. In so doing, the Court harshly rejected the fact-intensive “conduct/effects” tests propounded several decades ago by the Second Circuit and followed by many other courts throughout the country.

Last week, the Second Circuit got its revenge. In a long-awaited decision in ParkCentral Global Hub Limited v. Porsche Automobile Holdings SE, the court declined “to proffer a test that will reliably determine when a particular invocation of [the Securities Exchange Act’s anti-fraud provision] will be deemed appropriately domestic or impermissibly extraterritorial.” Instead, the Second Circuit held that courts must carefully consider the facts and circumstances of each case to avoid the very result that the Supreme Court had hoped to prevent in Morrison: promiscuous application of the U.S. securities laws to transactions that have little, if any, relationship to the United States.


Back-to-Back Court of Appeals Decisions Apply Morrison

John F. Savarese and George Conway are partners in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton firm memorandum by Mr. Savarese and Mr. Conway.

In a one-two punch illustrating the continuing vigor of the presumption against extraterritoriality, the United States Court of Appeals for the Second Circuit, on consecutive days last week, issued important decisions applying Morrison v. National Australia Bank in two disparate but significant contexts under the federal securities laws. Last Thursday, in Liu v. Siemens AG, No. 13-4385-cv (2d Cir. Aug. 14, 2014), the court rejected the extraterritorial application of the whistleblower anti-retaliation provision of the Dodd-Frank Act. And on the very next day, in Parkcentral Global Hub Ltd. v. Porsche Automobil Holdings SE, No. 11-397-cv (2d Cir. Aug. 15, 2014), the court rejected the extraterritorial application of Rule 10b-5 to claims seeking recovery of losses on swap agreements that reference foreign securities.


2014 Mid-Year Securities Litigation Update

The following post comes to us from Jonathan C. Dickey, partner and Co-Chair of the National Securities Litigation Practice Group at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication.

It almost goes without saying that the first half of 2014 brought with it the most significant development in securities litigation in decades: the U.S. Supreme Court decided Halliburton Co. v. Erica P. John Fund, Inc.—Halliburton II. In Halliburton II, the Court declined to revisit its earlier decision in Basic v. Levinson, Inc.; plaintiffs may therefore continue to avail themselves of the legal presumption of reliance, a presumption necessary for many class action plaintiffs to achieve class certification. But the Court also reiterated what it said 20 years ago in Basic: the presumption of reliance is rebuttable. And the Court clarified that defendants may now rebut the presumption at the class certification stage with evidence that the alleged misrepresentation did not affect the security’s price, making “price impact” evidence essential to class certification.


Court Holds That US Bankruptcy Code Does Not Permit Recovery of Extraterritorial Transfers

George T. Conway III is partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton firm memorandum authored by Mr. Conway, Douglas K. Mayer, and Emil A. Kleinhaus.

In a decision that could significantly limit the power of U.S. bankruptcy trustees to challenge cross-border transactions, the United States District Court for the Southern District of New York has held that the trustee overseeing the Madoff liquidation may not recover transfers made by Madoff’s foreign customers to other foreign entities. SIPC v. Bernard L. Madoff Investment Securities LLC, No. 12-mc-115 (S.D.N.Y. July 7, 2014). The court held that recovery of such “purely foreign” transfers would run afoul of the presumption against extraterritoriality reaffirmed by the Supreme Court in Morrison v. National Australia Bank.


Republic of Argentina v. NML Capital

The following post comes to us from Irwin H. Warren, senior partner in the Securities Litigation practice at Weil, Gotshal & Manges LLP, and is based on a Weil alert authored by Mr. Warren, Ted Posner, and Adam Banks.

The Supreme Court issued its decision yesterday [June 16, 2014] in Republic of Argentina v. NML Capital, No. 12-842, holding that the Foreign Sovereign Immunities Act (FSIA) does not limit the scope of discovery available to a judgment creditor in post-judgment execution proceedings against a foreign sovereign.

As part of NML’s efforts to collect on various litigation judgments entered against Argentina following its default on bond obligations, NML sought discovery of Argentina’s assets around the world in an attempt to locate Argentine property that might be subject to attachment and execution. Those efforts included subpoenas served on Bank of America and Banco de la Nacion Argentina, both of which had offices in New York. The subpoenas generally sought information about Argentina’s accounts, balances, transaction histories and funds transfers. Argentina and the banks sought to quash the subpoenas, contending that they violated the FSIA by seeking discovery of Argentina’s extraterritorial assets that were beyond the reach of U.S. courts. The district court denied the motion to quash, and the Second Circuit affirmed. Only Argentina sought review in the Supreme Court.


The Expanding Scope of Whistleblower Protections

The following post comes to us from Jason M. Halper, partner at Cadwalader, Wickersham & Taft LLP, and is based on a Cadwalader publication by Mr. Halper, Lambrina Mathews, and William J. Foley. The complete publication, including footnotes, is available here.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) was enacted following the accounting scandals of the early 2000s involving Enron, WorldCom and other public companies. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010 following the global credit crisis that began a few years earlier. Both statutes offer protections for employees who face retaliation for “blowing the whistle” on corporate misconduct, and Dodd-Frank also provides enhanced monetary incentives to the employees who do so. Given the SEC’s recent and often-stated commitment to strict enforcement of the securities laws, coupled with the fact that the SEC has received over 6,000 whistleblower complaints in the past two years (and has made six awards since inception of its whistleblower reward program in 2011), whistleblowing activity now is a fact of corporate life that is likely to become even more prevalent as awareness spreads of the Dodd-Frank whistleblower reward program.


Important Decisions regarding Morrison and Extraterritoriality

The following post comes to us from Lawrence Portnoy, partner in the Litigation Department at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum by Michael S. Flynn. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On May 6, 2014, the United States Court of Appeals for the Second Circuit issued the following decision in the City of Pontiac Policemen’s & Firemen’s Ret. Sys. et al. v. UBS AG et al., No. 12-4355 (2d Cir. May 6, 2014). The decision is one of first impression in the Second Circuit with respect to two questions arising out of the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010). First, does Morrison bar Exchange Act Section 10(b) claims with respect to the purchase or sale of securities on foreign exchanges when those same securities are cross-listed on a U.S. exchange? The Second Circuit answered with a “yes.” Second, is the mere placement of a buy order in the United States for the purchase of foreign securities on a foreign exchange sufficient to allege that a purchaser incurred irrevocable liability in the United States, such that the U.S. securities laws govern the purchase of those securities under the Second Circuit’s decision in Absolute Activist Value Master Fund Ltd v. Ficeto, 677 F.3d 60 (2d Cir. 2012)? The Second Circuit answered with a “no.”


Court Curtails Territorial Reach of Criminal Liability Under Section 10(b)

The following post comes to us from Jonathan R. Tuttle, partner in the litigation department at Debevoise & Plimpton LLP, and is based on a Debevoise & Plimpton client update.

On August 30, 2013, the United States Court of Appeals for the Second Circuit unanimously held that Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)”) does not apply to extraterritorial conduct, “regardless of whether liability is sought criminally or civilly.” Interpreting the scope of the Supreme Court’s landmark ruling in Morrison v. National Australian Bank Ltd., [1] the Second Circuit’s significant decision in United States v. Vilar, et al. means that a criminal defendant may be convicted of fraud under Section 10(b) only if the defendant engaged in fraud “in connection with” a security listed on a United States exchange or a security “purchased or sold” in the United States. In reaching its conclusion, the court rejected the government’s attempts to distinguish criminal liability under Section 10(b) from the civil liability at issue in Morrison, holding that “[a] statute either applies extraterritorially or it does not, and once it is determined that a statute does not apply extraterritorially, the only question we must answer in the individual case is whether the relevant conduct occurred in the territory of a foreign sovereign.”


Supreme Court: Presumption Against Extraterritoriality Applies to Alien Tort Statute

The following post comes to us from Theodore J. Boutrous, Jr., partner and co-chair of Gibson, Dunn & Crutcher’s Appellate and Constitutional Law Group, Crisis Management Group, and Transnational Litigation and Foreign Judgments Group. The post is based on a Gibson Dunn client alert by Mr. Boutrous, Christopher M. Francis, Daniel M. Sullivan, and William E. Thomson.

On April 17, 2013, the Supreme Court issued its decision in Kiobel v. Royal Dutch Petroleum Co., __ U.S. __ (2013), addressing the scope of the Alien Tort Statute, 28 U.S.C. § 1350 (“ATS”). In Kiobel, the Court sharply limited the availability of U.S. courts to hear claims brought by foreign nationals against other foreign nationals for human rights violations committed outside the United States. Although the decision was unanimous, the Justices’ reasoning divided. Chief Justice Roberts, writing for the Court, concluded that the presumption against extraterritoriality applies to claims under the ATS and that nothing in the ATS itself rebuts that presumption. The Chief Justice’s opinion, joined by Justices Alito, Kennedy, Scalia, and Thomas, casts doubt on the viability of ATS claims arising from foreign acts, but leaves open the possibility that the presumption against extraterritoriality might be rebutted if claims “touch and concern the territory of the United States” with “sufficient force to displace” that presumption. A foreign defendant’s “[m]ere corporate presence” in the United States, however, does not suffice. Justice Breyer, joined by Justices Ginsburg, Sotomayor and Kagan, filed a concurrence in the judgment rejecting the application of the presumption against extraterritoriality and instead proposing that claims for violations of international law can be recognized under the ATS even for violations committed abroad either where the defendant is an American national or where the case sufficiently implicates a U.S. interest.

The Court’s analysis in Kiobel will likely have far-reaching repercussions for foreign nationals alleging that they have been the victims of human rights abuses outside the United States, for corporations potentially subject to expensive and difficult-to-predict ATS suits, and for foreign countries whose policies and actions might become the subject of ATS suits.


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