Based on recent oral arguments, the U.S. Supreme Court appears likely to rule that foreign investors cannot sue foreign companies under U.S. securities laws if they bought their shares on overseas stock exchanges. The larger question is whether the justices will stop there or make it harder for foreign plaintiffs to participate in cases that have more compelling U.S. ties.
The case, Morrison v. National Australia Bank, has been described as a “foreign-cubed” lawsuit. F-cubed suits involve non-U.S. investors who purchase securities of foreign companies that allegedly commit fraud on non-U.S. soil. This is the first such case to reach the Supreme Court.
The case, which the Supreme Court heard in March, involves Australian investors who purchased shares in the National Australia Bank (NAB), an Australian company on the Australian stock exchange. (The class did not include purchasers of NAB’s American Depositary Receipts, which traded in the United States.) NAB’s wholly-owned Florida subsidiary allegedly supplied the bank with false financial results for inclusion in the consolidated financials, but the allegedly false financial statements themselves were prepared and signed in Australia by officials of the parent bank.
The plaintiffs alleged that U.S. courts have jurisdiction over the claims because the fraud involved the falsification of financial results in NAB’s Florida-based subsidiary and, thus, the fraud was perpetrated in the United States. The bank countered that the alleged fraudulent activity was the preparation and issuance of the consolidated financials, which occurred in Australia and, therefore, it should not be subject to the jurisdiction of U.S. courts.
Though this particular case presents extreme challenges, investor rights advocates are concerned that the court may end up limiting the ability of foreign investors to participate in class actions. (U.S. courts are historically more open to shareholder lawsuits than many courts overseas.)
“I strongly suspect that the high court will rule against the plaintiffs in this case,” said Berman DeValerio partner Nicole Lavallee. “The big question is whether the justices’ findings could create obstacles to foreign participation in U.S. class actions generally.”
During the March 29 hearing, the justices voiced strong indications that they would indeed side with the bank. The case, said Justice Ruth Bader Ginsburg, “has Australia written all over it.”
That said, the court could rule narrowly – addressing only the specific issues related to the National Australia Bank case. A broader ruling could impact any number of current and future cases related to foreign companies, several of which filed amicus briefs in support of the Australian bank.
The justices are expected to rule by this summer. To read the filings in the case, Morrison v. National Australia Bank, 08-1191, click here.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.