The U.S. Supreme Court’s July 2010 decision in Morrison v. National Australia Bank seemed to sound the death knell for so-called “f-cubed” litigation – that is, lawsuits brought in U.S. courts under the U.S. securities laws by foreign investors who bought their shares in a foreign company on a foreign exchange. However, in an interesting development in the massive securities litigation filed against BP in the wake of the Deepwater Horison disaster, a federal judge has ruled that the lawsuit alleging brought against BP and related BP entities by foreign investors who purchased their BP shares on the London Stock Exchange can proceed in U.S. court — even though the plaintiffs are asserting claims based on English law.
A number of factors in the court’s decision are unique to the circumstances surrounding the Deepwater Horizon disaster. Nevertheless, the case does represent a significant instance where foreign claimants whose U.S. securities laws claims were precluded by Morrison have found a way to be able to pursue claims in U.S. courts on an alternative theory. More to the point, the ruling does present an example where “f-cubed” investors have been able to pursue their claims in U.S. courts, notwithstanding Morrison. A copy of Southern District of Texas Judge Keith P. Ellison’s September 30, 2014 memorandum and order can be found here.
Following the April 20, 2010 Deepwater Horizon oil spill, BP shareholders filed a number of lawsuits against the company and certain of its affiliates and officials seeking to recover for their financial losses. Among these lawsuits was a securities class action lawsuit filed under U.S. securities laws. Many of the allegations in the securities class action lawsuit survived the motion to dismiss; however, as discussed here, in February 2012, Judge Ellison, in reliance on the U.S. Supreme Court’s decisions in Morrison, granted the defendants’ motion to dismiss the claims of putative class members who had purchased BP common shares on the London Stock Exchange (LSE).
Many of the investors who purchased their shares on the LSE then filed individual actions in the Southern District of Texas against the defendants, asserting claims not under the U.S. securities laws, but rather under English common law. In simple terms, Judge Ellison divided these individual investor claims into what he called “tranches.” The first tranche of claims involved lawsuits filed by U.S. domiciled investors who had purchased their BP shares on the LSE. The second tranche of claims involved lawsuits filed by foreign investors who had purchased their BP shares on the LSE. The defendants moved to dismiss these individual lawsuits.
Judge Ellison first dealt with the defendants’ motion to dismiss the first tranche investors’ claims. As discussed here, on September 30, 2013, Judge Ellison denied the defendants’ motion to dismiss. He held that even though English law governs the first tranche claimants’ common law and statutory claims, he could not conclude that an English court is a more appropriate forum for the claims.
Judge Ellison then turned to the defendants’ motion to dismiss the second tranche investors’ claims – that is, the claims asserted by foreign investors who purchased their shares in BP on the LSE. The motion to dismiss required Judge Ellison to consider whether or not the fact the investor claimants were domiciled outside the U.S. changed his analysis in denying the motion to dismiss the first tranche investors’ claims. He concluded that it did not.
The September 30, 2014 Ruling
In his September 30, 2014 opinion, Judge Ellison did grant the defendants’ motion to dismiss as to certain of the allegedly misleading statements and as to certain of the individual defendants, but otherwise the motion to dismiss was denied. In particular Judge Ellison declined to exercise his discretion to dismiss the foreign investors’ English law claims on the grounds of foreign non conveniens.
In denying the defendants’ motion to dismiss on the ground of forum non conveniens, Judge Ellison held that while a foreign plaintiffs’ choice of forum ordinarily is entitled to less deference than that of a domestic plaintiff, “this forum” – that is, Judge Ellison’s court – “is where these types of claims – claims with a distinctively American bent — have been brought and are being litigated against the Defendants.” He added that “the Court is unaware of any other forum where similar claims have been initiated.” He concluded that “given the legitimate connection between the English law claims of foreign plaintiffs and this MDL, the Court affords the foreign plaintiffs substantially the same level of deference previously accorded to the domestic plaintiffs in the first tranche.”
In weighing the plaintiffs’ choice of forum against the public and private interests, he noted that very few factors he had considered with respect to the domestic plaintiffs “change in the context of foreign plaintiffs,” adding that “those that do are not significant enough to disturb the Court’s previous decision” (that is, with respect to the domestic plaintiffs). Among other things, he noted that given his ruling in the domestic plaintiffs’ claims, he is already going to be called upon to preside over claims in the case under English law. In closing, he noted that:
The Court expects that dismissal of foreign plaintiffs’ claims will appreciably and immediately relieve congestion on its docket. This factor, combined with the need to apply foreign law, is enough to tip the scale in favor of England. But the private and public interest factors must weigh heavily in favor of England to disrupt the foreign plaintiffs’ choice of forum. Because it does not, the Court once again declines to dismiss English law, securities fraud claims asserted in this MDL under the doctrine of foreign non conveniens.
Interestingly, Judge Ellison also denied the defendants’ motion to dismiss the claims based on SLUSA. While SLUSA might potentially require the dismissal of claims asserted under “State law,” he concluded that SLUSA did not apply to require the dismissal of plaintiffs claims based on foreign law. While he acknowledged that this outcome might be inconsistent with the spirit of SLUSA, Judge Ellison concluded that he could not apply SLUSA to these plaintiffs claims in light of the clear language of the statute applying the preclusive effect only to “State law” claims.
In his prior ruling, Judge Ellison had already determined that the domestic investors English law claims could proceed in his court and would not be dismissed in preference to an English forum. In this decision, he simply extended his prior ruling to the foreign claimants’ claims. In both instances, the claimants had purchased their shares in a foreign company in a foreign country. In this ruling, he basically just held that it really didn’t make a difference to his analysis that these claimants are foreign domiciled.
Nevertheless, Judge Ellison’s ruling is very noteworthy because it represents a substantial instance where a set of foreign claimants whose U.S. securities laws claims were precluded under Morrison because they purchased their shares in a non-U.S. company on a foreign exchange were able to subject the non-U.S. company to a claim in U.S. courts. In other words, Judge Ellison’s ruling represents the rare instance when prospective foreign claimants have managed to side-step the implications of Morrison in order to subject a non-U.S. company to claims in a U.S. court. Indeed an October 1, 2014 Law 360 article about the case (here, subscription required) quotes counsel for certain of the foreign investors as saying that Judge Ellison’s ruling allowing the foreign investors claims to proceed “is a first-time occurrence in the wake of the Morrison decision in 2010.”
As I noted in discussing Judge Ellison’s denial of the defendants’ motion to dismiss the first tranche claimants’ claims (here), the plaintiffs’ success here in avoiding a dismissal on the ground of forum non conveniens is all the more noteworthy because in the separate BP Deepwater Horison shareholders’ derivate lawsuit, Judge Ellison had granted the defendants’ motion to dismiss on forum non conveniens grounds. As discussed here, in September 2011, Judge Ellison found that the balance of factors weighed in favor of the dismissal of the suit in preference for an English forum, as the derivative suit would involve considerations of the proper conduct under English law of the affairs of the board of an English company. Judge Ellison found that considerations of the internal affairs doctrine militated in favor of dismissal. As discussed here, in January 2013, the Fifth Circuit affirmed the dismissal of the BP Deepwater Horizon shareholders’ derivative lawsuit.
There are several factors that make it unlikely that the foreign plaintiffs’ approach here will become a playbook for other plaintiffs seeking to circumvent Morrison. There are certain factors of this case that are arguably unique. Among other things, there is a peculiarly local aspect of all of the Deepwater Horizon litigation – what Judge Ellison called referred to as the “distinctly American bent,” which, at least in Judge Ellison’s eyes, seemed to make it more reasonable for this case to go forward in his court. There is, he added, a “legitimate connection” between the foreign investors’ claims and the MDL Deepwater Horizon litigation already in his court. In the absence of these factors and connections, which are arguably unique to this situation, it seems likely that his analysis might have come out differently on the forum non conveniens analysis.
But while the plaintiffs’ approach here provides something less than a pattern of general applicability, Judge Ellison’s ruling nonetheless represents a noteworthy instance where foreign claimants whose federal securities law claims were barred under Morrison were still able to assert claims in a U.S. court against a non-U.S. company. It presents an occasion in which claimants may have succeeded in side-stepping Morrison in order to assert claims in a U.S. court against a non-U.S. company and is important for that reason.
There is one further aspect of this situation that makes this ruling noteworthy. That is, these lawsuits involve not only foreign claimants who purchased their shares in a foreign company on a foreign exchange, but they are asserting claims under foreign law. These are not only “f-cubed” claims, the foreign claims to the fourth power – yet they will still be proceeding in a U.S. court. Neither the claimant, the principal corporate defendant, the securities transaction nor the law on which the claimants are proceeding has any connection to the forum, yet because the oil spill happened nearby, the case will nonetheless go forward in Texas rather than England.
One final note about the fact that the foreign plaintiffs are asserting English law claims — that is the fact that the foreign claimants are relying on foreign law rather than on domestic U.S. law actually helped them keep their case in the U.S. court. If the foreign claimants had been asserting State law claims, then the claims would have been dismissed under SLUSA. Judge Ellison concluded that SLUSA does not preclude claims under foreign law, and so the foreign claimants’ claims will proceed – an ironic twist, where a factor that seemingly would make the case less likely to survive a dismissal motion actually helped to allow the case to go forward.
All of this underscores the fact that, as Judge Ellison’s ruling demonstrates, there are, notwithstanding Morrison, circumstances when foreign companies can still be hauled into a U.S. court to face claims by foreign investors who bought their shares in the company outside of the U.S. This is something for non-U.S. companies to note and consider as they assess their U.S. litigation risks, and it is something for their D&O underwriters to consider as they asses the risk profile of non-US. companies.