Law School Case Brief
Morrison v. National Australia Bank Ltd. - 561 U.S. 247, 130 S. Ct. 2869 (2010)
The focus of the Securities and Exchange Act of 1934 is not upon the place where the deception originated, but upon purchases and sales of securities in the United States. The Act does not punish deceptive conduct, but only deceptive conduct in connection with the purchase or sale of a security. It is those transactions that the statute seeks to "regulate"; it is parties or prospective parties to those transactions that the statute seeks to "protect." And it only applies to securities transactions on domestic exchanges, and domestic transactions in other securities.
In 1998, respondent National Australia Bank (National), a foreign bank whose “ordinary shares” are not traded on any exchange in this country, purchased respondent HomeSide Lending, a company headquartered in Florida that was in the business of servicing mortgages--seeing to collection of the monthly payments, etc. In 2001, National had to write down the value of HomeSide's assets, causing National's share prices to fall. Petitioners, Australians who purchased National's shares before the writedowns, sued respondents--National, HomeSide, and officers of both companies--in Federal District Court for violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5. They claimed that HomeSide and its officers had manipulated financial models to make the company's mortgage-servicing rights appear more valuable than they really were; and that National and its chief executive officer were aware of this deception. Respondents moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). The District Court granted the former motion, finding no jurisdiction because the domestic acts were, at most, a link in a securities fraud that concluded abroad. The Second Circuit affirmed.
Does § 10(b) of the Securities Exchange Act of 1934, provide a cause of action for foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges?
The Exchange Act's focus is not on the place where the deception originated, but on purchases and sales of securities in the United States. Section 10(b) applies only to transactions in securities listed on domestic exchanges and domestic transactions in other securities. The primacy of the domestic exchange is suggested by the Exchange Act's prologue, see 48 Stat. 881, and by the fact that the Act's registration requirements apply only to securities listed on national securities exchanges, § 78l(a). This focus is also strongly confirmed by § 30(a) and (b). Moreover, the Court rejects the notion that the Exchange Act reaches conduct in this country affecting exchanges or transactions abroad for the same reason that Aramco rejected overseas application of Title VII: The probability of incompatibility with other countries' laws is so obvious that if Congress intended such foreign application “it would have addressed the subject of conflicts with foreign laws and procedures.” 499 U.S., at 256, 111 S. Ct. 1227, 113 L. Ed. 2d 274. Neither the Government nor petitioners provide any textual support for their proposed alternative test, which would find a violation where the fraud involves significant and material conduct in the United States.
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