Following 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.
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The Continuing Question of Morrison’s Applicability to ADR Transactions
One of the practical effects of the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank is that, as a result of the decision, it is more difficult to bring a class action in a U.S. court under the U.S. securities laws against a company based outside the U.S. The Court rejected earlier standards allowing U.S. courts to consider securities suits against non-U.S. companies if conduct relating to or effects of an alleged fraud took place in the U.S. Instead, the Court said that U.S. securities laws apply only to “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.”
At the time of the Morrison decision, the expectation was that the number of U.S. securities class action lawsuits filed against non-U.S. companies would decline. As it has turned out however, the number of securities lawsuits filed against non-U.S. companies in each of the years since Morrison has been greater than the number filed in the years prior to the decision. Indeed, for the past several years, non-U.S. companies have been likelier to get hit with a securities class action lawsuit than domestic companies.
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