Morrison's second prong

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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

daimlerFollowing the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank (here), the lower federal courts have set about implementing the Morrison decision’s holding that the U.S. securities laws do not apply extraterritorially. One issue that the courts have wrestled with is whether or not the U.S. securities laws apply to over-the-counter (OTC) transactions in the U.S. of a foreign company’s American Depositary Receipts (ADRs). A series of recent cases suggest the courts are closer to having these issues sorted out. Most recently, a May 31, 2017 decision by Central District of California Judge James Otero held, consistently with other recent federal district court decisions, that the U.S. securities laws do apply to OTC transactions in Daimler, A.G.’s sponsored level 1 ADRs.  A copy of Judge Otero’s decision can be found here.
Continue Reading U.S. Securities Laws Apply to OTC Transactions in Daimler’s Sponsored ADRs

vwDuring the more than six years since the U.S. Supreme Court issued its opinion in Morrison v National Australia Bank, the lower courts have worked out a host of issues about how Morrison applies in a variety of circumstances. One issue that has continued to percolate is the question of how the Morrison decision applies to non-U.S. companies that have American Depository Receipts (ADRs) trading over- the-counter (OTC) in the U.S.

These issues arose again the U.S. securities class action lawsuit that Volkswagen ADR investors filed against the company and related defendants based on allegations involving the company’s recent high-profile vehicle emissions scandal. The Volkswagen defendants argued in reliance on Morrison that the U.S. securities laws do not apply to the OTC transactions in the company’s ADRs. In an interesting January 4, 2017 opinion (here), Northern District of California Judge Charles R. Breyer held that the U.S. securities laws do indeed apply to over-the-counter transactions in the U.S. of Volkswagen’s sponsored Level 1 ADRs.
Continue Reading Court Holds U.S. Securities Laws Apply to OTC Transactions in Volkswagen’s Sponsored ADRs

toshibaIt has been nearly six years since the U.S. Supreme Court’s landmark 2010 decision in Morrison v. National Australia Bank, in which the Court restricted the ability of shareholders of non-U.S. companies who purchased their shares outside the U.S. to file securities fraud lawsuit in U.S. courts under the U.S. securities laws. In the intervening years, many of the issues questions that the Morrison decision presented have been resolved by the lower courts. However, one issue that has continued to percolate is the question of whether under Morrison the U.S. securities laws apply to transactions involving foreign companies’ unsponsored ADRs traded over-the-counter (OTC) in the U.S.

These issues were presented in the class action lawsuit filed in June 2015 in the Central District of California against Toshiba Corporation. The consolidated lawsuit purported to be filed on behalf of a class of investors who purchased unsponsored Toshiba American Depositary Shares (ADS) over-the-counter in the U.S., as well as on behalf of investors who purchased Toshiba shares on the Tokyo stock exchange. In an interesting May 20, 2016 opinion (here), Central District of California Judge Dean Pregerson held under Morrison that the U.S. securities laws do not apply to unsponsored OTC transactions in Toshiba’s ADSs. Judge Pregerson also granted the defendants’ motion to dismiss the claims of the investors who purchased Toshiba shares on the Tokyo stock exchange.
Continue Reading Under Morrison, U.S. Securities Laws Don’t Apply to Toshiba’s Unsponsored ADRs Purchased OTC in the U.S.

tescoIt has been over five years since the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank restricted the ability of shareholders of non-U.S. companies who purchased their shares outside the U.S. to file securities fraud lawsuit in U.S. courts under the U.S. securities laws. During that five year period, the lower courts have sorted out many of the issues the Morrison decision raises. But one issue continues to percolate – that is, the question of Morrison’s effect on securities suits brought in U.S. court under U.S. law against non-U.S. companies by investors who purchased the companies’ unlisted ADRs over- the-counter in the U.S. The investor lawsuits filed in U.S. court just in the last few days by holders of unlisted Volkswagen ADRs raise this very issue.

The action filed in Southern District of New York in October 2014 by holders of unlisted ADRs of Tesco raise these same issues as well. The parties’ briefing in connection with the defendants’ motion to dismiss in the Tesco case present a detailed examination of the issues involved in the question of the applicability of Morrison to transactions in unlisted ADRs, as discussed below.
Continue Reading Tesco Securities Suit: Applicability of U.S. Securities Laws to Unlisted ADRs?

porscheOn August 16, 2014, in a long-awaited decision that is sure to provoke comment and that could fuel disputes in future cases, the Second Circuit affirmed the dismissal of the securities suits hedge fund purchasers of certain swap agreements had filed against Porsche and its executives.

 

The plaintiffs contended that because they had completed the …