By Louis M. Solomon
Motor Corp. Securities Litigation,
cv 10-922 DSF (AJWx) (C.D. Cal. July 2011) [enhanced version available to lexis.com subscribers], addressed claims asserted both under the Private
Securities Litigation Reform Act and under Japanese law arising out of Toyota's
recall of Toyota and Lexus brand cars, which cost roughly $4 billion and caused
stock value loss of 11%. The Distirct Court addressed many
securities law issues. Of greater interest to international litigation
practice generally is the Court's discussion of the non-U.S. law claims
asserted as one of the theories of liability.
Most of the purchasers and sellers
of shares were Japanese. It might be theorized that such purchasers or
sellers might have claims under Japanese law. There is no reason under
the governing precedents discussed in the decision why a U.S. court could not
apply Japanese law to the dispute. Indeed, the District Court concluded
that it had supplemental jurisdiction over such claims, since "the Japanese law
claims form part of the same case or controversy and arise from a common
nucleus of operative facts as the American securities fraud claims". See
28 U.S.C. § 1367(c). (See our discussion of supplemental jurisdiction as applied to international dispute
resolution in our e-book, International Practice, Topics and Trends.)
the District Court declined to exercise supplemental jurisdiction.
Typically federal courts are said to have "virtually unflagging obligations" to
exercise jurisdiction in cases properly before them. E.g., Colorado
River Conserv. District v. U.S., 424 U.S. 800 (1976) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law]. However, the Supplemental Jurisdiction statute,
Section 1367, permits the Court to "decline to exercise supplemental
jurisdiction over a claim under subsection (a) if-
(1) the claim raises a novel or
complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which
the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original
(4) in exceptional circumstances, there are other compelling reasons for
The District Court's reasons for
declining to exercise supplemental jurisdiction here included that the Japanese
law claims substantially predominate over the American law claims and the
"exceptional circumstance of comity to the Japanese courts also strongly argues
against the exercise of supplemental jurisdiction". Said the District
clear underlying rationale of the Supreme Court's decision in Morrison v.
Nat'l Australia Bk., Ltd., 561 U.S. __, 130 S.Ct. 2869 (2010) [enhanced version / unenhanced version ],
is that foreign governments have the right to decide how to regulate their own
securities markets. This respect for foreign law would be completely subverted
if foreign claims were allowed to be piggybacked into virtually every American
securities fraud case, imposing American procedures, requirements, and
interpretations likely never contemplated by the drafters of the foreign law.
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