One of the questions posed in the wake of the U.S. Supreme Court’s landmark decision in Morrison v. National Australia Bank is whether the Court’s holding might encourage securities claimants foreclosed by Morrison from U.S. court to attempt to pursue their claims in their home countries or in other jurisdictions.
The January 10, 2011 action of two U.S. law firms in filing a claim in the Netherlands against Belgian financial services giant Fortis on behalf of a specially formed foundation suggests the process of looking outside the U.S. may have begun.
As detailed here, in October 2008, Fortis shareholders filed a securities class action lawsuit against Fortis, certain of its directors and officers, and its offering underwriters in the Southern District of New York, seeking damages based on alleged violations of the U.S. securities laws.
Fortis is a Belgium-based financial company that in late 2008 received a massive bailout from the governments of Belgium, the Netherlands and Luxembourg. Fortis’ shares trade on several European exchanges and its ADRs trade over-the-counter in the U.S.
In their amended complaint, the plaintiffs alleged that the defendants misrepresented the value of its collateralized debt obligations; the extent to which its assets were held as subprime-related mortgage backed securities; and the extent to which its ill-fated decision to acquire ABN-AMRO had compromised the company’s solvency.
In a February 2010 decision (discussed here), then-District Judge Denny Chin entered an order, applying the then-applicable jurisdictional standards under the Second Circuit’s opinion in the Morrison case, granting with prejudice the defendants’ motion to dismiss.
The Investors’ Dutch Claim
In a January 10, 2011 press release (here), two U.S. securities law firms announced that they had filed an action in Utrecht Civil Court on behalf of a specially formed foundation, Stichting Investor Claims Against Fortis. An English translation of the lawsuit can be found here (Hat Tip to the Am Law Litigation Daily for the copy of the complaint.) Netherlands law allows foundations to bring collective actions on behalf of investors who affirmatively join the action.
The lawsuit is filed against Ageas NV/BV, as Fortis is now known, certain of its directors and officers, and its offering underwriters.
As described in the press release, the Dutch lawsuit’s allegations largely mirror the allegations in the previously dismissed lawsuit U.S law. Owing to the peculiarities of the relevant Dutch laws however, the recently filed lawsuit does not directly seek damages; rather, according to the press release, it seeks a judicial declaration that Fortis defrauded investors in the 2007 rights issue the company conducted to acquire ABM Amro. If the Foundation succeeds in establishing liability, the case will proceed to a claims phase in which investors can attempt to recover compensatory damages.
The press release states that more than 140 institutional investors – "including many of the largest pension funds in Europe" – and over 2,000 individual claimants have joined the foundation. The press release also asserts that shareholders’ collective losses are in the tens of billions of euros.
The press release states that the foundation represents investors in Europe, the Middle East, Australia – and, interestingly enough, the U.S. The press release also states that the Foundation’s director previously worked with one of the two U.S. law firms in negotiating the $450 million class action settlement in the Netherlands in 2007 in the Royal Dutch Shell lawsuit. (Background regarding the Royal Dutch Shell settlement, including further background regarding the Dutch collective action statute can be found here.)
Now that investors who purchased shares on foreign exchanges can no longer seek damages in U.S. courts under the U.S. securities laws, these same investors may find the remedies available in other countries more attractive. There is no doubt that this recently filed Fortis action is a first step in that direction – perhaps the first of many.
Indeed, the press release quote one of the U.S. plaintiffs’ securities attorneys as saying that the new action in the Netherlands "offers an innovative avenue to address securities fraud claims outside the U.S. following the restrictions imposed on international investors by the Supreme Court’s decision in Morrison v NAB. We believe this action could be a model for future investor claims outside the United States."
David Bario’s January 10, 2011 Am Law Litigation Daily article about the new lawsuit (here) quotes the same U.S. attorney as saying that "our clients are increasingly looking for forums where they’re going to be able to receive compensation for their non-U.S. losses," adding that ‘we’re looking at other cases that in are in various stages of analysis."
In other words, the new Fortis action may be the first, but it almost certainly will not be the last. I also wonder whether enterprising attorneys will seek to pursue this same initiative in other countries – for example, in Ontario, where at least one court was willing to certify a global class, in the Imax securities class action, under the province’s newly revised securities laws.
Finally, I wonder whether this effort to find a substitute for claims in U.S. courts under U.S. laws will force some institutional investors in other countries to press for reforms in their home countries to provide better means for attempting to recoup losses based on alleged fraud.
It has already become apparent that the Morrison decision has very important implications for securities litigation in the U.S. The filing of the Fortis case underscores the fact that the Morrison decision also has important implications for securities litigation outside the U.S.
Without meaning to sound too cynical, I have to say that from one perspective, what has happened is that as a result of Morrison, the U.S. has lost its former advantage on a highly specialized kind of service product that is now being "offshored" to other jurisdictions. U.S.-based plaintiffs’ lawyers are trying to position themselves to take advantage of this development, but I wonder how long they will be able to insinuate themselves into legal proceedings in other countries’ courts involving other countries’ processes, companies and investors.
More About Halliburton: As I noted in yesterday’s blog post, the U.S. Supreme Court has granted the petition for a writ of certiorari in the Halliburton securities class action lawsuit. Nate Raymond has a good summary of the issues in the case in his January 10, 2011 Am Law Litigation Daily article, here.
A Cautionary Note About Merger Lawsuits and Forum Selection Bylaws: If you have not yet seen it, you will definitely want to take a look at the January 10, 2011 Wall Street Journal article about merger-related litigation (here). The article, which was definitely making the rounds on the email circuit today, numerically demonstrates that litigation is becoming an almost invariable accompaniment to corporate mergers and acquisitions.
There is one point mentioned in the article that I think requires explanation, or at least some further information. The article closes with a comment from one lawyer that some companies are putting provisions in their bylaws designating Delaware as the forum in which fiduciary litigation must be heard.
A bylaw forum selection clause may be a good idea, but it might not be enforceable. The article neglects to mention that just last week Northern District of California Judge Richard Seeborg held that the forum selection clause in Oracle’s bylaws is unenforceable. Please refer to my January 6, 2011 post (here, scroll down) for a link to the Oracle decision and for a discussion of the case.
Momma, Don’t Let Your Babies Grow Up to Be Law Students: If you or anyone you care about is thinking about going to law school, you will definitely want to read the article that appeared in Sunday’s New York Times entitled "Is Law School a Losing Game?" (here). A very depressing, stark portrait of an academic racket that is definitely out of whack.
Points of Reference: As explained on Wikepedia (here), the Netherlands are often referred to as Holland, although North and South Holland are actually only two of its twelve provinces. Holland itself was one of the seven provinces that in 1581 formed the Republic of the Seven United Netherlands. Refer also to this longer explication of the terminology surrounding the Netherlands and its language — among other things, the t in the Netherlands is not capitialized.
In the early 19th Century, what is now the Netherlands was part of The United Kingdom of the Netherlands, until what is now Belgium split off to form a separate country in 1830. And now, at least according to a January 10, 2011 New Yorker article (here), Belgium itself is in danger of further subdividing, as its Dutch-speaking Northern Flemish territories strain to draw away from the Southern francophone Wallonia.