On September 14, 2010, in another ruling that the U.S. Supreme Court’s decision in Morrison v. National Australia Bank precludes claim by "f-squared" claimants – that is, U.S. residents who purchased shares of a Non-U.S. company on a foreign exchange – Southern District of New York Judge Victor Marrero dismissed the claims of investors who purchased their Alstom shares on the Euronext exchange from the long-running Alstom securities class action lawsuit. A copy of Judge Marrero’s opinion can be found here.
In reaching his conclusion, Judge Marrero rejected an argument that plaintiffs in Vivendi and other cases have raised to try to salvage claims of those who purchased their shares on foreign exchanges – that when non-U.S. companies have "listed" their shares on U.S. exchanges, investors who purchased their shares outside the U.S. can still assert securities claims under U.S. law in U.S. courts.
Background and Decision
Investors first sued Alstom and certain of its directors and officers in the U.S. in 2003. Discovery in the case in now complete and the parties face a November 12, 2010 deadline for filing summary judgment motions.
On July 29, 2010, two days after he issued his opinion precluding f-squared claimants’ claims in the Credit Suisse case (about which refer here), Judge Marrero directed the plaintiffs in the Alstom case to show cause why the "claims of plaintiffs who purchased their shares on foreign exchanges should not be dismissed."
The plaintiffs’ response, Judge Marrero noted, "went far beyond the limited direction of scope the court’s direction." In any event, Judge Marrero rejected both of the arguments on which the plaintiffs sought to rely.
First, Judge Marrero rejected the plaintiffs’ argument that because the Euronext purchases of Alstom shares had been "initiated" in the United States, they represented "domestic transactions" as required by Morrison. In rejecting this argument, Judge Marrero cited his own prior opinion in the Credit Suisse case.
Second, Judge Marrero also rejected the plaintiffs’ argument that because Alstom shares are "listed" on the NYSE, the claims of purchasers who acquired their shares anywhere in the world are cognizable under the U.S. securities laws. Judge Marrero described this argument as a "selective and overly-technical reading of Morrison that ignores the larger point of the decision."
With respect to the specific portions of Morrison on which the plaintiffs sought to rely in making this argument, Judge Marrero said these excerpts "read in total context" compel a result contrary to that urged by plaintiffs. The Morrison opinion, Judge Marrero said, taken as a whole, "reveals a focus on where the securities transaction actually occurs," adding that the Morrison court was "concerned with the territorial location where the purchase or sale was executed."
Judge Marrero added that the conclusion "that the transactions themselves must occur on a domestic exchange to trigger application of Section 10(b) reflects the most natural and elementary reading of Morrison."
Finally, Judge Marrero rejected the plaintiffs’ suggestion that he should retain "supplemental jurisdiction" over the claims of the foreign purchasers and apply French law to their claims, noting that the case has been pending for seven years exclusively under U.S. law and "plaintiffs have not given any indication that the French claims were unavailable when they began this action and the Court is not now persuaded they should be allowed to press the reset button here."
The second argument the plaintiffs raised – that is, because Alstom’s shares are "listed" on a U.S. exchange, the U.S. securities laws extend to transactions in the company’s shares taking place outside the U.S. – has been raised by plaintiffs in a number of pending securities cases involving non-U.S. companies. For example, and as detailed at length in a guest post on this blog (refer here), the Vivendi plaintiffs are relying on this argument to try to preserve their claims against foreign purchasers in that lawsuit.
According to Andrew Longstreth’s September 16, 2010 article in the Am Law Litigation Daily (here), Judge Marrero’s order in the Alstom case "appears to be the first decision to address the various plaintiffs’ "controversial interpretation" of Morrison.
Judge Marrero’s rejection of the plaintiffs’ listing argument is categorical. However, his ruling binds no other judges, not even other Southern District judges. Whether his interpretation of Morrison prevails in other cases before other judges remains to be seen.
In that regard, it is worth noting that though there are now two high-profile decisions holding that Morrison precludes the claims of "f-squared" claimants, both of the opinions were written by Judge Marrero – indeed, he even quoted his first opinion in the second one.
But though the plaintiffs’ lawyers in many other pending cases involving claimants who purchased their shares outside the U.S. may continue to limit Morrison’s effects in order to preserve those claims, the arguments look increasingly challenging.
The stakes involved in many of these cases are enormous. Indeed, the Am Law Litigation Daily article linked above quotes defense counsel in the Alstom case as saying that Judge Marrero’s decision "cuts the potential damages by 95 percent."
Looking retrospectively, some of the largest U.S. securities lawsuit settlements involving foreign companies likely would have worked out substantially differently were all claims based on overseas purchases precluded. For example, as reported in NERA’s Mid-Year 2010 securities litigation study, in the $1.1 billion Royal Ahold settlement (the seventh largest settlement of all time), 97.6% of all trading volume during the class period took place on foreign exchanges.
The elimination of these claims from U.S. securities suits not only potentially narrows the putative aggregate class damages dramatically in cases involving non-U.S. companies, but it also could make future cases against some non-U.S. companies substantially less attractive to plaintiffs’ counsel than they might have been in the past.