In a January 11, 2011 ruling that for the first time
extends the U.S. Supreme Court's decision in Morrison v. National Australia Bank to claims under the
Securities Act of 1933, and that for the first time rejects the "U.S.
listing" theory by which plaintiffs in many cases had hoped to contain Morrison,
Southern District of New York Judge Deborah Batts granted defendants' motions
to dismiss in the RBS subprime-related securities class action lawsuit. A copy
of the opinion can be found here.
The ruling does not relate to the claims of investors who
had purchased RBS preferred shares, which claims will proceed.
Background
The near failure and British government bailout of RBS
was one of the highest profile features of the global financial crisis. RBS's
collapse follow a series of massive asset write-downs that occurred at RBS due
to the companies substantial holdings in subprime and other mortgage-backed
assets and as a result of the company's disastrous October 2007 acquisition of
38% of ABN Amro.
In April 2008 the company announced a $11.6 billion write
down of subprime assets, following which it launched a $23.7 billion Rights
Issue, which was the largest in European history. The company was forced in
January 2009 to report a loss of $41.3 billion, following which the price of
its shares collapsed.
As reflected here, RBS investors launched a number of securities
class action lawsuits. The plaintiffs' consolidated amended complaint (here)
presents four categories of claims:
(1) claims under Section 10(b) of the Securities Exchange
Act of 1934 on behalf of purchasers of RBS ordinary (common) shares;
(2) claims under the Securities Act of 1933 on behalf of
purchasers of RBS preferred shares;
(3) claims under the Securities Act of 1933 on behalf of
those who tendered ABN Amro share in exchange for ordinary RBS shares; and
(4) claims under the '33 Act on behalf of those who
purchased RBS ordinary shares in the Rights Issue.
After the Supreme Court issued the Morrison
ruling, the defendants' moved to dismiss with respect to categories 1, 3 and 4.
The defendants did not move to dismiss in reliance on Morrison with
respect to the RBS preferred shares, and so the category 2 claims were not
before the court in connection with the motion on which Judge Batts ruled on
January 11.
As discussed at greater length here,
the Supreme Court had held in Morrison that the ambit of Section 10(b)
of the '34 Act is to be determined according to a "transaction" test.
The court said that Section 10(b) only to the purchase or sale of a security on
a U.S. exchange or a domestic transaction in any other security.
Read the article in its entirety at the D&O Diary, a blog by
Kevin LaCroix.