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High Court: United States Lacks Subject Matter Jurisdiction In Securities Class Action

WASHINGTON, D.C. - (Mealey's) 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 (Robert Morrison, et al. v. National Australia Bank Ltd., et al., No. 08-1191, U.S. Sup.).

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.

[Editor's Note:  Full coverage will be in the July issue of the LexisNexis Financial Services Litigation Report.  In the meantime, the opinion is available at or by calling the Customer Support Department at 1-800-833-9844.  Document #88-100727-016Z.  For all of your legal news needs, please visit]

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