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Posts Tagged ‘national australia bank’

NOTE: The following is a copy of a post that I did for the recently-released Baker Hostetler Class Action Lawsuit Defense Blog. Be sure to check out the new blog for other fantastic class-action-related content!

Globalization has brought with it the growing problem of how to deal with mass disputes that transcend jurisdictional boundaries, as well as ever-increasing creativity among the members of the plaintiffs’ bar in bringing ever-larger class and mass actions. There is no single global court or other forum for bringing international or cross-border civil disputes, let alone disputes that involve allegations of mass harm. One of the key challenges for lawyers, policymakers, consumers, and businesses in the 21st century is how to efficiently resolve international mass disputes given the realities of globalization and the lack of any clear forum.

From the late 1990s through the first decade of this century, there were several trends favoring the U.S. courts as a global forum for litigating international disputes. However, recently, that trend has reversed, and the U.S. courts are becoming increasingly reluctant to entertain international class action litigation.

One of the hottest trends in securities litigation in the latter part of the last decade was what became known as foreign-cubed (or “f-cubed”) class actions, securities fraud class actions filed on behalf of foreign investors against foreign companies involving securities traded on a foreign exchange. The trend came to an abrupt halt, however, when the U.S. Supreme Court issued its decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), holding that section 10(b) of the Securities and Exchange Act does not have an extraterritorial reach and only applies to securities traded on a U.S. exchange or other transactions that occurs within a U.S. state or territory. Although lower court decisions following Morrison, including a recent Second Circuit Court of Appeals decision, may breathe some life back into the idea of litigating a small subset of primarily foreign securities disputes in the U.S. federal courts, Morrison has generally closed the U.S. courts to foreign-cubed class actions.

Another promising avenue for litigating global mass disputes was international arbitration. A developing strategy was for plaintiffs who had signed form arbitration agreements to seek to compel arbitration on behalf of both themselves and others who had signed the same form of agreement. (Several arbitration associations have implemented specific rules for how class arbitrations should be conducted. Here is a link to the AAA Supplemental Rules for Class Arbitration). The Supreme Court put an end to this strategy when it decided the international price-fixing case, Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). In Stolt-Nielsen, the Court held that a party to an arbitration agreement could not compel class-wide arbitration unless the parties had expressly agreed to allow class, rather than individual, arbitration.

In the human rights area, the U.S. Alien Tort Claims Act has increasingly been used as a tool to litigate international disputes involving alleged violations of international law over the past two decades. Several circuit courts of Appeals have even allowed actions under the ATCA to be brought against private corporations, under the theory that those corporations aided and abetted a foreign government or foreign official in committing human rights abuses. However, the Circuits split on the issue, and the Supreme Court accepted certiorari to resolve the split in the case of Kiobel v. Royal Dutch Petroleum, No. 10-1491. Following an oral argument held last month, the Supreme Court issued an order directing the parties to submit supplemental briefing to address the extent to which the ATCA should permit the exercise of extraterritorial jurisdiction at all over acts that took place within a sovereign jurisdiction other than the United States. Questions posed during oral argument, especially by the conservative wing of the Court, suggest skepticism about the allowing U.S. Courts to adjudicate human rights disputes that have nothing to do with the United States.

At the same time that avenues for global mass redress in the U.S. Courts have been closing, doors have been opening in other parts of the world. Class action law continues to develop in Canada and Australia. Israel has a class action procedure that closely mirrors U.S. law. Dozens of other countries in all corners of the world now have procedures allowing at least some form of mass redress. A very recent example is a class action law enacted in Mexico that permits a form of collective litigation that, while quite different from class actions in the United States, provides express mechanisms for seeking collective redress. In 2006, the Netherlands passed a law that allows mass settlements of claims (although it does not provide a procedure for litigating contested class claims), and arguably allows residents of other EU countries to be included. In other countries, the lack of a specific class or collective action procedure has not kept courts from fashioning remedies for mass redress.

The continuing lack of a single global forum for litigating mass disputes and the proliferation of new procedures permitting collective litigation abroad, are likely to have at least one near term practical impact. That is, the development of areas of law dealing with the enforcement of foreign class or collective action judgments. This has already become a reality in a huge environmental contamination case involving the drilling operations of a formal Chevron subsidiary in Ecuador. In 2010, a court in Ecuador entered an $18 million judgment in the case, and proceedings are ongoing in both the U.S. courts and in international arbitration proceedings relating to the enforceability of the judgment.

In a related vein, U.S. courts increasingly find themselves adjudicating disputes under 28 U.S.C. § 1782, which allows litigants discovery in the United States for use in connection with foreign proceedings (see this recent Second Circuit Court of Appeals decision interpreting the statute).

What does this all mean for potential litigants in global disputes? For any company or even small business that does business internationally, these developments highlight the necessity of keeping up with the constant changes in local laws as well as international trends. The procedures that might have been applicable, and arguments that might have been persuasive a year before, may no longer be viable, but new avenues and theories will have almost certainly taken their place.

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The Second Circuit Court of Appeals issued a decision last week that confirms that there are still situations where primarily foreign securities fraud disputes may be litigated as class actions in the United States courts.  The decision explores the contours of the US Supreme Court’s holding in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) that § 10(b) of the Securities Exchange Act of 1934 does not have an extraterritorial reach.  Here’s a link to the opinion, courtesy of the New York Law Journal: Absolute Activist Value Master Fund Ltd. v. Ficeto, No. 11-0221-cv (2d Cir., March 1, 2012).

Morrison recognized two situations in which a securities fraud claim would be sufficiently domestic in nature to be governed by § 10(b) and SEC Rule 10b-5.  The first, not at issue in Absolute Activist, is where the security is traded on a US exchange.  Absolute Activist addresses the second situation, which involves “domestic transactions in other securities.”  The Second Circuit’s test for whether transactions are domestic is whether “irrevocable liability is incurred or title passes within the United States.”  In simpler terms, if the parties become bound to effectuate the transaction in the United States, the transaction is a domestic one, but the transaction could also be domestic if title to the securities passes within in the United States, even if the parties became bound elsewhere.  In reaching this conclusion, the panel rejected several other tests proposed by the parties, including tests proposed by the plaintiff that would have looked to the location of the broker-dealer or to whether the security was issued by a US company or was registered with the SEC, and tests proposed by defendants that would look to the place of residence of both the buyer and seller in the transaction or to whether a given defendant committed some affirmative act within the United States.

Unfortunately, given the fact-intensive nature of the test articulated by the Second Circuit panel, the decision leaves open the question of what specific facts might be sufficient to establish that irrevocable liability was incurred or title transferred within the United States.  The panel held that the facts in the complaint were not sufficient to meet either requirement, but remanded with instructions to allow leave to amend.  However, the opinion does offer some insight into what might be sufficient.  In concluding that leave to amend would not be futile, the court held pointed to representations made by counsel at oral argument that there existed “trading records, private placement offering memoranda, and other documents indicating that the purchases became irrevocable upon payment and that payment was made through Hunter in the United States.”

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Kevin LaCroix, whose blog The D&O Diary is a premier source for the latest trends in securities-related class action litigation, has an excellent post out today discussing two key developments in an area that is very close to my heart, international class action litigation.  The first part of LaCroix’s post discusses a recent publication from Asia-based International law firm King & Wood Mallesons discussing class action filings in Australia.  According to the report, there are currently only about 14 class action filings filed on average in the Australian federal court, a number that represents less than 1% of all federal filings in that country (this figure does not include filings in the courts of individual states; both Victoria and New South Wales also have civil procedure rules similar to the federal rules).

The second part of the post addresses the potential implications of the recent enactment of a class action law in Mexico.  LaCroix summarizes a recent Jones Day publication on the subject, then adds his own commentary.  In particular, he makes an observation similar to one that international plaintiffs’ class action lawyers Michael Hausfeld and Brian Ratner make in the forthcoming book World Class Actions: that one of the potential implications of the US Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which limited f-cubed securities class actions in the United States, may be an increase in litigation in foreign jurisdictions that allow for securities class actions or some other form of collective redress.

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The United States Supreme Court has granted certiorari to review the Second Circuit’s decision in the “foreign-cubed” securities class action Morrison v. National Australia Bank, Ltd., No. 07-0583-cv (2d Cir. 2008).  The Second Circuit’s decision is discussed at some length in this October 28, 2008 CAB Entry.  The Supreme Court docket number is 08-1191

The questions presented for review are as follows: 

I. Whether the antifraud provisions of the United States securities laws extend to transnational frauds where: (a) the foreign-based parent company conducted substantial business in the United States, its American Depository Receipts were traded on the New York Stock Exchange and its financial statements were filed with the Securities Exchange Commission (“SEC”); and (b) the claims arose from a massive accounting fraud perpetrated by American citizens at the parent company’s Florida-based subsidiary and were merely reported from overseas in the parent company’s financial statements. 

II. Whether this Court, which has never addressed the issue of whether subject matter jurisdiction may extend to claims involving transnational securities fraud, should set forth a policy to resolve the three-way conflict among the circuits (i.e., District of Columbia Circuit versus the Second, Fifth and Seventh Circuits versus the Third, Eighth and Ninth Circuits). 

III. Whether the Second Circuit should have adopted the SEC’s proposed standard for determining the proper exercise of subject matter jurisdiction in transnational securities fraud cases, as set forth in the SEC’s amicus brief submitted at the request of the Second Circuit, and whether the Second Circuit should have adopted the SEC’s finding that subject matter jurisdiction exists here due to the “material and substantial conduct in furtherance of” the securities fraud that occurred in the United States. 

 

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