It has been a long road — one that included among other things, an amicus brief filed at the U.S. Supreme Court in connection with Morrison v. National Australia Bank – but the defendants in the Infineon Technologies securities suit have managed to have the court dismiss the claims of company shareholders who purchased their securities outside the U.S. Northern District of California Judge James Ware’s March 17, 2011 order granting the defendants’ motion can be found here.
The plaintiffs first initiated their suit in September 2004, as detailed here. The plaintiffs allege that the company had participated in an illegal conspiracy to fix the prices of Dynamic Random Access Memory (DRAM) and then misrepresented the company’s financial condition as a result of the artificially inflated DRAM prices. Infineon’s American Depositary Shares and ordinary shares are listed on the NYSE, but during the class period 92% of its securities were traded on the Frankfort Stock Exchange.
Following the U.S. Supreme Court’s June 2010 decision in the Morrison case, the defendants moved to dismiss from the case the shareholders who purchased their Infineon shares outside of the U.S. In opposing the motion, the plaintiffs – citing Morrison’s holding that Section 10(b) of the ’34 Act applies only to "transactions in securities listed on domestic exchanges" and "domestic transactions in other securities" – argued that because Infineon’s ordinary shares are "listed on" the NYSE, Section 10(b) applies to all ordinary shares, even those purchased on the Frankfurt Stock Exchange.
Consistent with Southern District of New York Judge Deborah Batts’ January 2011 opinion in the RBS securities suit (about which refer here), Judge Ware had little trouble rejecting the plaintiffs’ "listed on" argument. Judge Ware stated that under Morrison "a securities transaction must occur on a domestic exchange to trigger application of Section 10(b) of the Exchange Act."
Judge Ware said that the plaintiffs’ "listed on" argument was "misplaced," noting that in the Morrison case itself, National Australia Bank had ADRs listed on the NYSE, but the plaintiffs in Morrison were unable to state a Section 10(b) claim because "that Section of the Exchange Act focuses only on securities transactions that take place in the United States."
Accordingly, Judge Ware granted the motion to dismiss with respect to "all claims asserted on behalf of individuals who purchased Infineon ordinary shares on the Frankfurt Stock Exchange."
Judge Ware’s opinion in the Infineon case joins a growing list of decisions in which federal district courts have dismissed from securities suits the shareholder claimants who purchased their shares of the defendant company’s stock outside of the U.S. What makes Judge Ware’s opinion noteworthy is that it is one of the first such opinions outside of the Southern District of New York. As far as I know, it is the first in the Northern District of California.
(Central District of California Judge Dale Fischer interpreted and applied Morrison for purposes of a July 2010 lead plaintiff ruling in the Toyota securities suit, but did not reach the question whether Morrison precluded the claims of shareholders who purchased their shares outside the U.S.)
It is increasingly clear that the district courts are applying Morrison broadly and are refusing to be persuaded to trim the decision’s effect or to reduce its impact on the claims of securityholders who purchased shares on foreign exchanges.
Plaintiffs seeking to circumvent Morrison may be forced to proceed by other means – as for example, are claimants whose federal securities suit against Porsche was dismissed based on Morrison. As reflected in their March 15, 2011 complaint (here), these plaintiffs are now attempting to assert state law claims of common law fraud and unjust enrichment against Porsche. The plaintiffs will face numerous obstacles as they attempt to chart an alternative course. But claimants barred by Morrison from asserting securities claims under the federal securities laws will continue to search for ways to try to assert their claims, both inside and outside the U.S.
Susan Beck’ March 19, 2011 Am Law Litigation Daily article about Judge Ware’s decision in the Infineon case can be found here.
Transatlantic Cable: Writing about the Infineon decision seems fitting as I am now in London for this week’s C5’s 20th Forum on D&O Liability Insurance. I will be speaking on Thursday March 24, 2011 on a panel with my friend Rick Bortnick of the Cozen O’Connor firm on the topic "The Latest U.S. Judicial Decisions." If you are attending the conference, I hope you will take the time to say hello, particularly if we have not previously met.