WASHINGTON, D.C. - Ruling that Section 10(b) of the
Securities Exchange Act of 1934 does not provide a cause of action "to foreign
plaintiffs suing foreign and American defendants for misconduct in connection
with securities traded on foreign exchanges," the U.S. Supreme Court on June 24
affirmed a federal appellate court's ruling dismissing the case for lack of
subject matter jurisdiction (Morrison v. Nat'l Austl. Bank, 2010 U.S. LEXIS 5257) .
Investors sued National Australia Bank Ltd. (NAB), its
American subsidiary HomeSide Lending Inc. and certain executive officers and
directors in the District Court, alleging that the defendants issued a series
of false and misleading statements in violation of U.S. securities laws.
The District Court granted the defendants' motion to dismiss
for lack of subject matter jurisdiction and for failure to state a claim for
relief, and the investors appealed to the Second Circuit U.S. Court of Appeals,
which affirmed.
The investors then appealed to the Supreme Court, which
affirmed. Justice Antonin Scalia wrote the opinion for the court, while
Justice Stephen G. Breyer wrote an opinion concurring in part and concurring in
the judgment and Justice John Paul Stevens filed an opinion concurring in the
judgment. Justice Ruth Bader Ginsburg joined in Justice Stevens' opinion.
The court held that as an initial matter, the Second Circuit
erred in "considering §10(b)'s extraterritorial reach to raise a question of
subject-matter jurisdiction, thus allowing dismissal under" Federal Rule of
Civil Procedure 12(b)(1).
The court also found that the Second Circuit properly ruled
that Section 10(b) does not provide a cause of action in the instant litigation
because "[i]t is a 'longstanding principle of American law "that legislation of
Congress, unless a contrary intent appears, is meant to apply only within the
territorial jurisdiction of the United
States."'"
Chief Justice John G. Roberts and Justices Anthony M.
Kennedy, Clarence Thomas and Samuel A. Alito joined in the opinion.
In his opinion concurring in part and concurring in the
judgment, Justice Breyer said Section 10(b) "applies to fraud 'in connection
with' two categories of transactions: (1) 'the purchase or sale of any
security registered on a national securities exchange' or (2) 'the purchase or
sale of . . . any security not so registered.' In this case, the
purchased securities are listed only on a few foreign exchanges, none of which
has registered with the Securities and Exchange Commission as a 'national securities
exchange.' The first category therefore does not apply."
"Further, the relevant purchases of these unregistered
securities took place entirely in Australia and involved only
Australian investors. And in accordance with the presumption against
extraterritoriality, I do not read the second category to include such
transactions. Thus, while state law or other federal fraud statutes may
apply to the fraudulent activity alleged here to have occurred in the United States,
I believe that §10(b) does not. This case does not require us to consider
other circumstances," Justice Breyer said, adding that "[t]o the extent the
Court's opinion is consistent with these views, I join it."
In his opinion concurring in the judgment, Justice Stevens
said that "[w]hile I agree that petitioners have failed to state a claim on
which relief can be granted, my reasoning differs from the Court's. I
would adhere to the general approach that has been the law in the Second
Circuit, and most of the rest of the country, for nearly four decades."
Justice Sonia Sotomayor took no part in the consideration or
decision of the case.
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