In a decision which will have a major impact on non-U.S. securities issuers and their service providers, the United States Supreme Court announced a new "bright-line" test barring the extraterritorial application of the U.S. securities laws to claims asserted by foreign purchasers of a foreign issuer's shares on a foreign exchange (so-called "f-cubed" plaintiffs). Morrison v. National Australia Bank, Ltd.,-- U.S. -- (June 24, 2010). The Court rejected tests that lower U.S. courts had used over the past 30 years, which had looked to the "conduct and effects" within the U.S. to decide if purchasers of foreign securities could pursue claims against those issuers and related parties in U.S. courts. In place of those tests, which had produced confusion, inconsistent results and conflict with foreign laws and regulations, the Court announced a simple test: "only transactions in securities listed on domestic exchanges, and domestic transactions in other securities" can form the basis for claims brought under Section 10(b) of the U.S. securities laws.
The Court made the scope of its ruling clear when discussing the allegedly deceptive acts at issue in Morrison, which occurred in Florida, and concluded that "the focus of the U.S. securities laws is not upon the place where the deception originated, but upon purchases and sales in the United States." Applying that ruling to pending and future cases, those investors who purchase foreign securities on foreign exchanges would not be able to bring claims under the U.S. securities laws in U.S. courts, either individually or as part of a class action.
All those cases in which foreign purchasers of foreign securities are now pending in the U.S. courts will have to be reviewed in light of Morrison, and the U.S. securities claims of such plaintiffs are likely to be dismissed. Orrick submitted an amicus brief on behalf of NYSE Euronext which urged the adoption of the "bright line" test the Court announced.