domestic transactions

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Daniel J. Tyukody
Robert A. Horowitz

Ever since the U.S. Supreme Court’s March 2010 decision in Morrison v. National Australia Bank courts have struggled with application of the Morrison Court’s standard to securities lawsuits involving transactions in American Depository Receipts. As I noted in a prior blog post, one of the latest court rulings involving the application of Morrison to ADR transactions was the denial of the motion for class certification in the Toshiba case. In the following guest post, Daniel J. Tyukody and Robert A. Horowitz take a closer look that the class certification motion denial in Toshiba and consider the implications of the ruling.  Tyukody and Horowitz are Co-Chairs of Greenberg Traurig, LLP’s Securities Litigation Practice. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Here is the authors’ article.
Continue Reading Guest Post: The Elusive Search For Determining The Reach Of Section 10(b) Liability Following Morrison

One of the enduring questions following in the wake of the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank is whether transactions in a non-U.S. company’s unsponsored Level I American Depository Receipts (ADRs) can be the subject of a damages action under the U.S. Securities laws. As I noted in a blog post at the time (here), a prior federal district court decision in the long-running Toshiba securities class action lawsuit established that a non-U.S. company whose Level I ADRs trade in the U.S. can be the subject of a U.S. securities suit – even if the ADRs are unsponsored. However, a recent decision at the class certification stage in the same Toshiba case suggests that while claimants may well be able to plead a claim based on trading in unsponsored Level I ADRs, the claimants may or may not be able to sustain the claim as a class action – or, at a minimum, the question of whether the claim can go forward as a class action can depend on minute details about how the named plaintiffs’ ADR transactions actually took place.
Continue Reading U.S. Securities Law Claims Based on Unsponsored Level I ADRs Cannot Proceed as Class Action

It has been over ten years since the U.S. Supreme Court issued its landmark decision in Morrison v National Australia Bank – yet the lower courts continue to struggle with its application in specific situations. Morrison clarified that the U.S. securities laws apply to securities transactions on U.S. securities exchanges and to domestic transactions in other securities. It is Morrison’s second prong, relating to domestic transactions in other securities, that continues to vex the courts.

In a recent decision, the Second Circuit affirmed a district court’s dismissal of a securities lawsuit on the grounds that the underlying securities transaction, even if domestic, was so “predominantly foreign” as to be “impermissibly extraterritorial.” As discussed below, the Second Circuit’s decision underscores an ongoing question of how far beyond Morrison’s “domestic transaction” question courts should go in determining whether U.S. securities laws apply to a transaction. The Second Circuit’s January 25, 2021 decision in Cavello Bay Reinsurance Ltd v. Stein can be found here.
Continue Reading Second Circuit Affirms Dismissal of Securities Suit Involving “Predominantly Foreign” Transaction

It has been ten years since the U.S. Supreme Court issued its landmark opinion in Morrison v. National Australia Bank, in which the Court clarified that the U.S. securities laws applies only to securities transactions that take place in the United States, either on an exchange or otherwise. While the decision has had a significant impact on a wide range of cases, it has not yet “brought the predictability and consistency it promised” and it has “spawned a number of unintended consequences,” according to a recent memo from the Cleary Gottlieb firm. The September 24, 2020 memo, entitled “Foreign Securities Class Actions 10 Years After Morrison,” which details three specific problem areas that have emerged as the lower courts have interpreted and applied Morrison over the last decade, can be found here.
Continue Reading The Impact of the Morrison Decision After Ten Years

As I noted in a recent post, the securities class action lawsuit pending against Toshiba raises the question of whether or not the U.S. securities laws apply to transactions in unsponsored American Depository Receipts (ADRs). The company’s petition to the U.S. Supreme Court posed the larger question of whether there are exceptions to the second-prong of the Morrison standard holding that the U.S. securities laws apply to domestic transactions in securities. A number of organizations and even governments filed amicus briefs urging the Court to take up the case. However, in a June 24, 2019, the Court denied the company’s petition, sending the case back to the lower courts and, as discussed below, leaving behind several unanswered questions.
Continue Reading U.S. Supreme Court Denies Cert in Toshiba Unsponsored ADRs Securities Suit

One of the questions that courts have wrestled with as they have struggled to apply the U.S. Supreme Court’s decision in Morrison is whether or not the U.S. securities laws apply to transactions in American Depositary Receipts (ADRs). In the U.S. securities class action lawsuit filed against Toshiba in the wake of the company’s massive accounting scandal, the district court granted the company’s motion to dismiss on the grounds that the Exchange Act did not apply to the plaintiffs’ over-the-counter (OTC) transactions in the company’s unsponsored American Depositary Receipts (ADRs). The plaintiffs appealed. In a July 17, 2018 decision, the Ninth Circuit reversed the dismissal and remanded the case in order for the plaintiffs’ to have the opportunity to try to plead facts that might be sufficient to establish that the securities laws apply, notwithstanding the fact that the ADRs were unsponsored. The Ninth Circuit’s opinion can be found here.
Continue Reading 9th Circ. Reverses Ruling That U.S. Securities Laws Do Not Apply to Toshiba’s Unsponsored ADRs

Since the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank, the lower courts have wrestled with the issue of whether or not the transactions at issue in a particular securities suit were sufficiently “domestic” to bring them under the U.S. securities laws. These inquiries mostly have taken place at the motion to dismiss phase. However, as demonstrated in the Second Circuit’s July 7, 2017 decision in the Petrobras securities case, the “domestic” transactions inquiry is relevant at the class certification stage as well. The appellate court held that in determining whether or not Petrobras noteholders’ claims can proceed on a class-wide basis, the district court must, in light of the federal class action procedure’s “predominance” requirement, determine whether or not common questions outweigh individual questions of transactional domesticity. The appellate court’s ruling, which can be found here, could complicate class certification in cases involving non-U.S. companies whose securities do not trade on U.S. exchanges.  
Continue Reading Morrison Issues Cloud Class Certification in Petrobras Securities Litigation

utahPrior to the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank, U.S. courts held that the U.S. securities laws could be applied extraterritorially if there was sufficient fraudulent conduct or were sufficient effects from that conduct in the U.S.  In Morrison the Supreme Court rejected this “conduct or effects” test, ruling that the U.S. securities laws apply to allegedly fraudulent transactions, not to alleged fraudulent conduct or its effects, and further that the securities laws apply only to domestic transactions. However, within days after the Morrison decision, the U.S. Congress, as part of its enactment of the Dodd-Frank Act, purported to provide the SEC and the U.S. DOJ “jurisdiction” to pursue enforcement actions based not on transactions in the U.S., but rather based on conduct or its effects in the U.S.

Despite the passage of time, no court reached the question of how to interpret and apply this Dodd-Frank provision in light of the Morrison decision – until now. In a detailed March 28, 2017 decision (here), District of Utah Judge Jill N. Parrish held, notwithstanding Morrison and in reliance on the Dodd-Frank Act provision, that the SEC may bring an enforcement action based on transactions outside the U.S. and involving non-U.S. residents if there was sufficient conduct in the U.S. The ruling potentially has important implications for U.S. regulatory authorities’ reach for securities enforcement actions involving foreign actors or non-U.S. transactions.
Continue Reading U.S. Securities Enforcement Authorities’ Extraterritorial Reach Under Morrison, Dodd-Frank Act