Posts Tagged ‘foreign cubed’

As the new year approaches, everyone seems to be doing a “top ten” list for 2008, so of course, ClassActionBlawg has to have one too.  However, this “top ten” list has two improvements.  First, the rankings will be decided by reader vote.  Second, and even better, it goes to 11!

So, here are some key class action decisions and trends from the year that was, in no particular order.  See the poll below to vote for the one you like best.  Feel free to submit comments with other suggestions, and maybe together we can make a top ten list so good that it will go higher than 11.  Best wishes to all in 2009.

  • RICO fraud class actions show promise after Supreme Court’s decision in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S.. —. , 128 S.Ct. 2131 (U.S. June 9, 2008) (holding that a plaintiff need not show first-party reliance in order to assert a claim under the federal RICO statute).
  • “Foreign Cubed” class actions show promise, then sputter a bit.  See Morrison v. National Australia Bank Ltd., 2008 WL 4660742 (2d Cir. Oct. 23, 2008) (discussing federal jurisdiction over “foreign cubed” securities class actions).
  • Fraud on the market theories are tested in consumer fraud cases.  See McLaughlin v. Philip Morris USA, Inc., 522 F.3d 215 (2d Cir. 2008) (rejecting class certification on various consumer fraud theories, including the “fraud on the market theory”).
  • Courts reject certification of FACTA Class Actions on superiority grounds based on reasoning that class exposure would be grossly disproportionate to the alleged harm to consumers.  See, e.g., this recent California federal court decision summarized at Class Action Defense Blog.
  • California courts address certification of wage and hour class actions involving unpaid wages for time worked during meal and rest breaksSee Brinker Restaurant Corp. v. Superior Court (2008), 165 Cal. App. 4th 25, review granted (Oct. 22, 2008).
  • Truth in Lending Act (TILA) actions seeking rescission of mortgages due to alleged predatory lending deemed unsuitable for class treatment.  See Andrews v. Chevy Chase Bank, No. 07-1327 (7th Cir., Sept. 24, 2008)
  • Class actions for damages caused by pollution where defendant has complied with applicable regulations see mixed results in the U.S. and Canada.
  • The Second Circuit Court of Appeals holds that a preponderance of the evidence standard of proof applies in determining whether the elements of class certification have been satisfied in Teamsters Local 445 Freight Division Pension Fund v. Bombardier, Inc., Case No. 06-3794-cv (2d Cir. Oct. 14, 2008).
  • Italy’s new class action law takes effect, while other European countries consider class action reforms.
  • Class action scandals involving illegal kickback and bribery schemes result in prison sentences for class action lawyers Melvin Weiss, William Lerach, Dickie Scruggs and others.
  • The Supreme Court rejects “scheme liability” in securities fraud cases in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008)

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For those interested in the internationalization of class action law, be sure to read the Second Circuit’s decision in Morrison v. National Australia Bank Ltd., 2008 WL 4660742 (2d Cir. Oct. 23, 2008).  (Thanks to  The 10b-5 Daily and Point of Law for tipping me off to the decision).

I have previously commented on the trend in efforts to expand securities class actions filed in U.S. Courts against foreign defendants to include foreign nationals who bought stock on foreign exchanges.  (See entries dated July 31 and Sept. 6).   Courts and commentators have begun to refer to these cases as “foreign cubed” class actions.  These earlier entries summarized United States district court opinions addressing whether foreign investors who bought stock on a foreign exchange should be included as members of a class or subclass in a securities class action in a U.S. court.  This analysis has focused on the court’s prediction of whether courts in the foreign jurisdiction would recognize the a judgment in a U.S. class action as preclusive as to absent class members.

The Morrison decision addresses the circumstances in which a U.S. court has subject matter jurisdiction to resolve a dispute between foreign investors and a foreign company at all.  The court rejected the argument that there should be a bright-line rule prohibiting jurisdiction by U.S. courts in all “foreign cubed” class actions.  Instead, the court reiterated an analytical framework that it had previously adopted in other cases involving securities claims against foreign defendants.  Here are the highlights of that analytical framework:

  • U.S. jurisdiction is governed by a “conduct test” and an “effects test,” which are to be analyzed together in some cases to give the court “a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction . . . .” Morrison, slip op. at 8 (however, in Morrison, the appellant was relying solely on the “conduct test” so the court focused on that element.)
  • The “effects test” looks to whether the alleged wrongful conduct “had a substantial effect on the United States or upon United States citizens.”  Morrison, slip op. at 8
  • The “conduct test” requires that “the defendant’s conduct in the United States [be] more than merely preparatory to the fraud, and [that] particular acts or culpable failures to act within the United States directly cause[] losses to foreign investors abroad” for subject matter jurisdiction to exist.”  Morrison, slip op. at 11 n.6 (quoting Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991)).

Technically, much of the opinion is dicta because in the end the court affirmed the lower court’s dismissal for lack of subject matter jurisdiction, holding that not enough of the conduct giving rise to the securities fraud claims occurred in the United States.  The plaintiffs had argued that the “conduct test” could be satisfied because allegedly falsified numbers that had been communicated to investors in Australia had been prepared in Florida by a U.S. subsidiary.  Weighing a variety of factors, the court concluded that the portion of the conduct that took place in Florida was not significant enough to justify the exercise of jurisdiction.  Among other factors, the court noted that the subsidiary’s corporate obligations were exclusively to its parent and that the actual communication of the allegedly false statements was carried out in Australia by the publicly traded parent.  Another important consideration was the impact of the U.S. Supreme Court recent decision in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008), holding that an act of deception without public disclosure is, at best, too remote in the chain of causation to support proof of reliance in a securities fraud case.

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