In a prior post (here), I took a look at securities claims in U.S. courts by foreign litigants against foreign companies. An alert reader commenting on my prior post pointed out that a case currently before the Second Circuit squarely presents the fundamental jurisdictional questions involved in these cases.
The case, Morrison v. National Australia Bank, Ltd., began as a 2003 securities lawsuit (refer here) brought by four individual plaintiffs (three from Australia and one from the U.S.) against National Australia Bank, Ltd. (NAB), an Australian corporation and Australia’s laregest bank, whose shares trade on Australian securities exchanges and whose ADRs trade in the OTC markets in the U.S. The Complaint alleges fraud in connection with mortgage valuations at NAB’s Florida-based mortgage servicing subsidiary, which allegedly resulted in the overstatement of the parent’s financial statements. The plaintiffs’ claims allege violations of the U.S. securities laws.
In October 2006, the district court dismissed the Complaint, holding that the court lacked subject matter jurisdiction over the claims of the three foreign purchasers of NAB securities purchased on non-U.S. exchanges. The court also ruled that the U.S.-based plaintiff suffered no damages. The court gave leave to substitute another domestic plaintiff, but that claim was later voluntarily dismissed, and the court entered judgment as to the remaining plaintiffs, and the plaintiffs filed their appeal.
In their Second Circuit brief (here), the plaintiffs/appellants contend that the fraudulent activity, which they contend involved the Florida activities of NAB’s Florida-based subsidiary, all took place in the U.S. and therefore U.S. courts should exercise jurisdiction. The defendants/appellees in their brief (here) contend that U.S. courts, applying U.S. laws and U.S. class action procedures, should not exercise jurisdiction over a case involving the claims of Australian claimants against an Australian corporation, 99.97% of whose shares are held by persons outside the U.S.
Numerous parties have weighed in with amicus briefs. As described in their July 17, 2007 press release (here), the Washington Legal Foundation has filed an amicus brief (here) seeking affirmance and arguing that the allegedly fraudulent behavior of which the plaintiffs ultimately are complaining is the alleged misstatements of the parent corporation, which statements took place outside the U.S. As described in their July 11, 2007 press release (here), the Association of Corporate Counsel also filed an amicus brief (here) seeking affirmance, arguing that “the essence of the complained-about conduct occurred abroad and cannot be the basis for jurisdiction.” In its July 12, 2007 press release (here), the U.S. Chamber of Commerce announced its amicus brief (here), in which the Chamber argued that “cross-border application of our securities laws would harm foreign direct investment in the U.S. and the competitiveness of our capital markets.”
The NAB case clearly will be a significant case on the question of the availability of U.S. courts in so-called “f-cubed” cases involving foreign claimants who wish to pursue claims, in the U.S. courts and under U.S. securities laws, against foreign companies in which they have invested outside of the U.S. Special thanks to a loyal reader for providing the links to the Second Circuit briefs.