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Part IV Extraterritoriality and US Law, 18 Morrison V National Australia Bank :

Thomas A Dubbs

From: Extraterritoriality and Collective Redress

Edited By: Duncan Fairgrieve, Eva Lein

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Class actions

(p. 335) 18  Morrison V National Australia Bank:

The US Supreme Court Limits Collective Redress for Securities Fraud

I. Introduction

18.01  Justice Ginsburg suddenly jumped into the argument, looked seriously at the author as counsel for the Petitioners, and asked:1

  • •  Court: I mean this case is Australian plaintiff, Australian defendant, shares purchased in Australia. It has ‘Australia’ written all over it …

  • (p. 336) •  Counsel: [F]rom our point of view it has ‘Florida’ written all over it because Florida is where the numbers were doctored, Florida is where the fraudulent conduct in putting the phony assumptions into the valuation portfolio [occurred where] [e]verything happened […]2

This exchange foreshadowed the tone of, as well as the ultimate result of the decision in Morrison. The question itself suggests perhaps, that, at least in Justice Ginsburg’s mind, the issue might at least theoretically be, in this transnational case, a balancing of Australian ‘interests’ versus American ‘interests’.

18.02  The Court’s opinion, which was issued on 24 June, 2010, authored by Justice Scalia for the Court, took a totally different tack in its ruling, however. Although the opinion purported to be an exercise in statutory construction, the tone of the opinion emphasized many of the issues surrounding the collective redress aspect of the case. Arguably, it was the class action nature of the proceeding—the form of the procedural remedy—rather than issues of private international law that drove the decision.

18.03  This chapter recounts for a transnational audience the strategies, issues, and arguments presented before the United States Supreme Court in Morrison. It, thus, shows how the American judicial system dealt with an important case addressing alleged transnational securities fraud utilizing one form of collective redress mechanism—the American ‘opt-out’ class action3—and its ultimate resolution of these questions.

18.04  Morrison overruled 40 years of established though not perfectly harmonious jurisprudence that had established an intellectual framework based on the so-called ‘conduct’ and ‘effects’ tests to decide transnational issues.4 Those tests permitted Americans damaged in the United States (where the ‘effects’ of the fraud were felt) to sue under United States law pursuant to age-old principles of territorial jurisdiction. It also permitted such laws to be applied where the fraudulent ‘conduct’ occurred in the United States, even if some of the effects were felt elsewhere, opening a theoretical door to foreigners suing in the United States. We will first review the facts of the case from the opinion of the Court, then move to the briefing by the parties before returning to the opinion itself.

(p. 337) II. The Facts of Morrison


18.05  Justice Scalia presents the legal question before the Court in Morrison:

We decide whether §10(b) of the Securities Exchange Act of 1934 provides a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.5

18.06  This sentence, read closely, contains within it the kernels of the Morrison opinion: first, the ‘foreign plaintiffs’ versus ‘foreign defendants’ juxtaposition focuses and emphasizes only the parties rather than the underlying facts of the case. Secondly, the use of the ‘in connection with’ language from section 10(b) foreshadows the statutory analysis adopted by the majority as well as in Justice Breyer’s concurrence. And thirdly, more importantly, the ‘traded on foreign exchanges’ foreshadows the analysis and ‘remedy’ chosen by the Court. Section 10(b) of the Securities and Exchange Act of 1934 (the Exchange Act) generally, as will be seen, prohibits fraud in the trading of already issued securities.6

The Court’s Analysis of the Facts

18.07  The Court’s factual recitation notes that National Australia Bank (National) had its shares listed on the Australian Stock Exchange, but also notes that National had American Depositary Receipts (ADRs)7 that were listed on the New York Stock Exchange. Significantly, this is the only reference to ADRs in the opinion. But ADRs, as will be seen, ultimately, turn out to be of consequence given the ‘remedy’ chosen by the Court.

18.08  The opinion then recounts that National purchased HomeSide Lending, Inc., a mortgage servicing company in Florida in 1998. The Court explains that mortgage servicing rights (MSR) are valued based upon models that calculate:

The present value of [the] mortgage-servicing rights by using valuation models designed to take [the] likelihood [of repayment] into account … [and HomeSide] recorded the value of [these] assets, and the numbers appeared in National’s financial statements.8

(p. 338) The writedowns of HomeSide’s assets by National on 5 July, 2001 and subsequently on 3 September, 2001, and in particular, the MSR asset is next addressed by the Court.9

18.09  The Court also states that, ‘[a]ccording to the Complaint, … [respondents] had manipulated HomeSide’s financial models to make the rates of early repayment unrealistically low in order to cause the mortgage servicing rights to appear more valuable than they really were’.10 The lower court ruling is summarized as follows: ‘[t]he acts performed in the United States did not “compris[e] the heart of the alleged fraud” [citation omitted],11 and, thus, dismissal was proper, laying the ground for proceedings before the Supreme Court.’

The Case as Presented by the Parties’ Briefs

(a)  The Petitioners’ View of the Facts

18.10  The Court chose not to relate certain facts in the record favourable to the petitioners. First, it did not recite12 that the purchase price paid by National for HomeSide was $1 billion,13 thus indicating a large investment in the United States. Secondly, the Court did not note that, at the time of that purchase, HomeSide was the sixth largest mortgage service provider in the United States14 ‘with a [mortgage] portfolio exceeding $180 billion in 2001’,15 which encompassed over two million loans on US homes. These facts reflected the petitioners’ view that the HomeSide acquisition represented a major investment in the United States economy. The petitioners wanted to show, as in many private international law cases, that the jurisdiction had a legitimate interest in adjudicating the case.

18.11  The petitioners’ theme was that National had indeed ‘thrown in its lot’ with the United States. Although the case was transnational, it was far from the classic case of extraterritorial jurisdiction that was sometimes presented as in EEOC v Aramco American Oil Co,16 where the spectre of United States law regulating actual conduct in Saudi Arabia was central. This was a gambit designed to neutralize the ‘foreignness’ of this F-cubed action—an action by non-US foreigner suing on shares of a foreign company bought on a foreign exchange.

18.12  Although it was in the record, the Court also did not indicate that National’s Australian management put HomeSide up for sale17 immediately after the massive stock declines—which were the largest in value in Australian financial (p. 339) history18—after having ‘fired’ all of the American senior management in Florida. Similarly, it did not refer to the long-festering problems in hedging19 the MSR portfolio of HomeSide which took place in New York—another important United States ­contact—and involved a division (not a subsidiary) of National. The hedging operation incurred substantial losses (before the stock drops) in the United States of $1.4 billion in 2000 alone.20

18.13  Moreover, what was also missing was any indication that the Australian management of National had in essence ‘blamed’ the debacle and huge writedowns on American HomeSide’s management and on events solely focused on Florida, shifting the blame from the National headquarters in Sidney.2122

18.14  The petitioners emphasized that the MSR figure, which eventually was written down dramatically, had not been incorporated into any other financial information from HomeSide, and was presented as a separate line item in its consolidated financials as only attributable to the HomeSide business unit. The importance of this discreteness was that, as a practical matter, no exercise of any management or accounting judgment in Australia was likely. That is, the less involvement of Australian management in calculating or reviewing the MSR figure, the less the balance arguably tips towards the application of an Australian law under a private international law approach. Justice Ginsburg’s comment at oral argument that the ‘case has Australia written all over [it] thus becomes less meaningful’.23

The Petitioners’ Strategy in the Briefing

18.15  The petitioners’ strategy before the Supreme Court was multifaceted. First, they discarded reliance on the classic ‘conduct’ and ‘effects’ tests. Instead, the petitioners presented a textually based argument grounded on the statutory language of section 10(b) itself to appeal to the ‘textualist’, textually oriented bloc of the Court.24(p. 340) That strategy was grounded on the wording of section 10(b) and its broad language that:

It shall be unlawful for any person, directly or indirectly [via several modalities] to use or employ in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.25

18.16  Secondly, the petitioners argued that a ‘new and improved’, or more subtle and nuanced, ‘conduct’ test should apply.26 The petitioners knew that the presumption against extraterritoriality was the principal analytical argument of the respondents. The petitioners’ strategy was to turn that argument on its head and emphasize the reverse side of that presumption, namely the presumption of territoriality and the indisputable notion that the United States could regulate conduct within its borders,27 particularly where it believed it had alleged truly fraudulent conduct.

18.17  As to the connection between the first and second facets of its argument, the petitioners bet that the broad text of section 10(b) itself and the presumption of territoriality would be sufficient to reach the ‘comity’ issue. The petitioners urged upon the Court the analysis of the Restatement (First) of Conflicts of Laws from 1934 (that presumably Congress was aware of in passing the relevant statute in 1939),28 namely that, contrary to the common law rule that held a cause of action accrued (and jurisdiction could only be rightfully exercised by) in the jurisdiction where the ‘effect’ or ‘injury’ caused by the tort had occurred, a sovereign could exercise jurisdiction grounded on legislation (or less) that created a right with respect to conduct that was antecedent to the ultimate ‘effect’ or ‘injury’. Thus, this other jurisdiction could have an interest in the action in addition to the jurisdiction of the place of the injury.293031

(p. 341) 18.18  The petitioners also combined the forum non conveniens analysis of Sinochem authored by Justice Ginsberg and the decision by Justice Jackson in Gulf Oil,32 where one of the factors identified as relevant to the forum non analysis was whether the judgment in the United States would be recognized in a subsequent foreign proceeding (thus, barring attempted relitigation by a losing plaintiff). Together it was believed this would be a persuasive screening mechanism for the Court.33

18.19  As to the issue of comity, and foreign objections to F-cubed cases in general, the petitioners argued that yet another procedural device could act as a screening mechanism. That is, any sovereign who believed a securities class action against a company under its jurisdiction (presumably incorporated or headquartered there) would interfere in some manner with its domestic regulatory or other judicial regime could advise the court of their position. The petitioners urged that this could be done via the historically developed mechanism of the Tate or Bernstein letters, a tool whereby the United States State Department could communicate with a United States court as to the foreign relations position of the United States government based, presumably, on diplomatic communications with a foreign sovereign. The petitioners also referenced the arguably overlapping body of jurisprudence under the Foreign Sovereign Immunities Act.34

The Petitioners’ Strategy in Aligning Themselves with the Regulators

18.20  Finally, although they had jettisoned the classic ‘conduct’ test, the petitioners argued that the general ‘material and significant conduct’ test advocated by the Securities and Exchange Commission (SEC) also applied to them as private litigants. That judgment was intended to make common cause with the Solicitor General representing the US government. Generally, litigants before the United States Supreme Court do this, relying on the generally positive reception from the Court to the government. By contrast, the respondents could have relied on the Restatement (2d) of Foreign Relations Law’s narrower ‘conduct’ test for securities cases alone. That test limits ‘conduct’ to ‘pertinent conduct in the United States’.35

(p. 342) The Respondents’ Briefing before the Court

18.21  Consistent with their position in the lower courts, the respondents focused on the ‘presumption against extra-territoriality’. Most generally, that presumption is a canon of statutory construction that construes United States statutes not to have extraterritorial effect, ie regulating non-United States conduct, absent congressional direction.36

18.22  The respondents also emphasized the Supreme Court’s relatively recent decisions in Empagran and Microsoft,37 although both dealt with the interpretation of specific statutes. Empagran, in particular, was an anti-trust case where all the parties acknowledged that both the ‘conduct’ and the ‘effects’ were outside the United States. The issue was whether an anti-trust statute dealing with transnational cases would permit litigation in the United States courts under those circumstances, and the answer was not surprisingly in the negative.

18.23  Thus, the reliance on the Aramco presumption coupled with the use of Empagran and Microsoft as current exemplars of the application of the doctrine, even though they might be viewed as narrow statutory interpretation cases (as indeed the petitioners tried to limit them), was the offence that the respondents constructed.38

18.24  Importantly, the petitioners cast everything factually in the case as Australian in nature, virtually assuming away the Florida conduct, by casting the case as purely extraterritorial with the resulting question being could section 10(b) regulate such non-United States ‘conduct’. They also noted that, ‘Australia has its own comprehensive scheme of securities regulation that provides ample mechanisms, including opt-out class actions, for redressing securities fraud in Australia’.39

18.25  The respondents solely focused on the ‘conduct’ test and did not address the ‘effects’ test. They also heavily emphasized the ‘current wave of “F-cubed” or “foreign cubed” litigation… .’40:

By the turn of the century, major foreign issuers began facing F-cubed litigation from their foreign shareholders for their foreign disclosures whenever fraud allegations could be made about United States subsidiaries—on the theory that the underlying American operations sufficed under the conduct test […].41

18.26  Moreover, as a matter of comity, the respondents took the position that in general the Australian accounting rules ‘differed in material respects from American (p. 343) accounting principles’42 and emphasized that the MSR’s capitalized value had been presented in the context of consolidated financial statements of National.

18.27  The respondents’ brief argued that the ‘disclosures were prepared and issued in Australia’ and that the ‘misstatements and omissions that caused the Australian Petitioners harm were all made in Australia’, downplaying, if not ignoring, the role of HomeSide.43

18.28  The respondents, as their fall-back, relied on the independent canon of construction that ‘an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains’, relying on the Charming Betsy actor liable case.44 The argument went that, in 1934, under the ‘Law of Nations’, it was clear that it was the ‘last event necessary to make an actor liable for an alleged tort’ under lex loci delicti would be where the ‘loss is sustained’,45 here Australia.

18.29  The respondents’ brief closed the argument that the Court should limit standing and thus the sweep of section 10(b). It stated:

A rule established so that Section 10(b) would not ‘provide a cause of action … to the world at large,’ 421 U.S. 16 733 n.5—should be understood to limit standing to investors who purchased and sold securities in the United States.46

Thus, the brief ends with the idea that only those who purchased and sold securities in the United States should have any claim under section 10(b).

The Briefing of the United States as Amicus Curiae before the Court

18.30  In its brief before the Supreme Court, the United States started with the proposition that, ‘[t]he text of the Exchange Act is silent as to its transnational reach’.4748 The government argued, however, that even without this clear textual guidance, the courts have nonetheless used ‘intrinsic sources’, particularly the consideration of the ‘statute’s purposes …’.

(p. 344) 18.31  The government urged as the proper test under section 10(b) for all transnational cases, whether or not they involved any collective redress mechanism, the following:

A transnational securities fraud violates § 10(b) if significant conduct material to the fraud’s success occurs in the United States. … A more restrictive standard for § 10(b) coverage would risk permitting the United States to become a base for orchestrating securities frauds for export. That approach would erode ethical standards in the securities industry, undermine investor confidence, and it could lead to diminished protection for United States citizens targeted by foreign fraudsters.49

18.32  It addressed the presumption against extraterritoriality and foreshadowed a theme that would be reiterated throughout the case:

[W]hen a scheme to commit securities fraud is executed in part through domestic conduct and in part through conduct occurring outside the United States, that presumption does not identify the type or amount of domestic conduct that will bring the scheme within the reach of Section 10(b) […].

In particular, the presumption against extraterritorial application of United States law does not suggest that fraudulent conduct for which this country serves as a base of operations will fall outside Section 10(b)’ s coverage just because the effects of the fraud are experienced elsewhere […].50

The United States agreed with the petitioners’ argument that the conduct would state a cause of action under section 10(b), but parted company with the petitioners by urging that the causation requirement, or the ‘direct causal link’, as pled, was insufficient for a private plaintiff.
18.33  With respect to the issue of comity, the government stated:

Certain aspects of private securities fraud litigation—e.g. utilization of the fraud on the market theory and the class-action device, both of which are potentially implicated in this case—may, however, create the potential for potential conflict among nations. In addition, other nations might perceive affording a private remedy to foreign plaintiffs as circumventing the cause of action and remedies (and the limitations thereon) that those nations provide their own defrauded citizens, particularly if the plaintiff’s principle grievance appears directed at another foreign entity. Absent indications of a contrary congressional intent judicially-created private right of action under Section 10(b) should be tailored so as to minimize the likelihood of such international friction.51

The government went on to say that ‘requiring a direct causal connection’ with the foreign plaintiffs’ injury in the United States ‘alleviates that danger’.

(p. 345) The Amicus Briefs before the Court

(a)  The Commonwealth of Australia Brief52

18.34  Given that National, the largest financial institution in Australia, was the key defendant in Morrison, and the underlying facts resulted in the largest financial scandal in Australian history, a brief by the government of Australia submitted as amicus curiae was assumed. The Australian government notes early in its brief that the F-cubed actions such as Morrison can, ‘interfere with national sovereignty and result in legal uncertainty and costs for actors involved in global trading and investment’.53 It says, ‘The Australian Government is concerned that an expansive exercise of jurisdiction by one nation can undermine the policy choices made by other sovereign nations with regard to the proper vindication of rights and redress of wrongs’.54 The Australian government noted that:

That [Australian] regulatory regime includes a number of specific provisions authorizing private civil actions in federal and state courts for misleading disclosures and other infringements of the securities laws. Australia, unlike most countries outside of North America, has authorized opt-out class actions by a statute and a significant number of class actions alleging infringements of the securities laws have been brought.55

18.35  The brief then touts the effectiveness of the Australia Securities and Investment Commission (ASIC) and its enforcement activity given its ability to institute civil proceedings on behalf of victims of securities fraud. Importantly, it notes that, ‘ASIC is … a signatory of the IOSCO 2002 Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information’,56 which relates to effective agency-to-agency cooperation, and it touts its strong relationship with the SEC. ASIC conceded it ‘did not take action vis à vis the NAB write-downs’, and indicated that the ‘ASIC was satisfied with how NAB was handling the situation’ post-disclosure writedowns.5758 At no point did it indicate that it had looked at HomeSide’s role in the National debacle nor indicate specifically what action was taken.

18.36  The Australia Brief next argues that sufficient remedies were available to the shareholder class in Morrison under Australian law, including class actions. It states, ‘Class actions have been provided for by statute in Australia for almost 20 years (p. 346) and a robust securities class action practice has evolved’.59 It notes, however, that Australia has the ‘loser pays’ costs rule, but that ‘external funding’ can ameliorate that.60

18.37  It reinforces the impression of forum shopping by the Morrison class given the existence of the Australian remedies regime by stating specifically that a class action could have been brought in Australia under the Corporations Act in relation to the ‘type of conduct’ alleged in this case. It states that the petitioners, ‘ … were not obliged to initiate an action in the United States to seek compensation for damage they claim to have suffered. That course of action was open to them in Australia’.61

18.38  However, the Australian brief concedes that Morrison was not a case of forum shopping when it states, ‘In 2006, the High Court of Australia affirmed that external funding is legally permissible in Australia’.62 Thus, contrary to the overall impression created by the brief, namely that this class action could have been brought in Australia, the simple economic reality was that funding mechanisms were not yet available in 2001 when the case was instituted.

18.39  The Australian government proposed a rule that states, ‘The Australian Government believes that the complexity of the analysis may be reduced if attention is focused on where the alleged wrongful disclosure (or non-disclosure) occurred…’.63

18.40  Thus, the Australian brief did not cite any particular regulatory conflict, nor indeed did it cite a true conflict in collective redress or other remedies.

(b)  The United Kingdom Brief64

18.41  The United Kingdom brief also failed to set forth any true conflict between substantive UK law (ie the Financial Services and Markets Act 2000, in effect in England and Scotland) and substantive United States law65 but instead articulated generalized concerns regarding American class action remedies.66 The United Kingdom indicated that it had, ‘become a significant equity holder in various domestic financial institutions’, including the Royal Bank of Scotland, which was a defendant in a class action in the Southern District of New York.

(p. 347) 18.42  The brief continued, stating, ‘U.K. law provides multiple potential causes of action—at common law and under statute—for persons who suffer loss in connection with alleged misstatements or omissions in prospectuses and other securities disclosures’.67 Furthermore, according to the brief, in the United Kingdom there is a:

Sophisticated legal system in place to advance those causes of action. There are however no opt-out class actions, but it is noted there is a ‘opt-in’ procedure pursuant to the Group Litigation Order Procedure, and, of course, there is the loser pay rules and ‘contingency’ fees are not permitted.68

18.43  The United Kingdom did not identify any specific, direct conflict with the United Kingdom’s disclosure or accounting regimes that occurred in this or other types of litigation. Instead, it reinforced the point that the procedural differences in collective redress regimes, in particular the American class action regime, are ‘substantive differences reflecting legitimate policy choices’.69 Perhaps most important, the United Kingdom government says that, ‘The panoply of procedural rules and remedies that accompany litigation in federal courts under U.S. securities laws creates a very different environment for the commencement, prosecution and settlement of lawsuits than exists in other jurisdictions’.70

18.44  The United Kingdom argued in a conclusory fashion that, ‘The statutory formulation of disclosure obligations varies with the type of corporate statement (prospectuses and other fund-raising documents, periodic corporate reports and ad hoc corporate announcements)’.71 It also emphasized the absence of a ‘fraud on the market’ evidentiary presumption within the laws of the United Kingdom. The United Kingdom brief did not even suggest that the disclosures in Morrison would be at odds with compulsory disclosures in the United Kingdom.

The Oral Argument before the Court

18.45  Given the American procedure of submitting extensive written materials to the Court, the role of oral argument before the Supreme Court is different from those countries where judges have not been provided with the facts or legal arguments before any appearance by counsel in court. In the Supreme Court, Morrison was allocated one hour of argument in total. The petitioners had one half hour of which it could and did reserve three minutes for rebuttal argument. The respondents had one half hour which it had to share with the government. The government appeared as amicus via the Solicitor General’s Office which is part of the Department of Justice, which, as noted, represents government agencies such as the SEC before (p. 348) the Supreme Court. The argument before the Supreme Court comes in the form of a dialogue with the Justices consisting of questions and answers.7273


  • Mr Dubbs, you said something that I thought quite revealing in this—in your brief. I mean, this case is Australian plaintiff, Australian defendant, shares purchase in Australia. It has ‘Australia’ written all over it. And in your reply brief you said: ‘If the Plaintiff is a foreign securities purchaser as this one is, Sinochem makes it clear that forum non conveniens may dictate dismissal of an action brought in the U.S.’
  • And taking that, why not—of the applicable laws to this transaction, to this alleged fraud, isn’t the most appropriate choice the law of Australia rather than the law of the Unites States?7475

  • Not just a question of proper forum, but the proper law?
  • MR. DUBBS: 

  • No, Your Honor. We think that, given the scope of Section 10(b), American law can and should be applied here. And we respectfully disagree with the observation that this case has ‘Australia’ written all over it. Indeed, from our point of view it has ‘Florida’ written all over it because Florida is where the numbers were doctored, Florida is where the fraudulent conduct in putting the phony assumptions into the valuation portfolio were done. Everything happened –

  • And the communication was done in Australia by the Australian bank.
  • MR. DUBBS: 

  • The communication was done between Florida and—and Australia, and the senior management of HomeSide in Florida [which] created those numbers with the expectation and the knowledge that those would go into the financial statement …
  • (p. 349)


  • Let’s assume that on the facts of this case they could not prevail under Australian law in the Australian court system. Then what United States interest is there …
  • MR. DUBBS: 

  • There is a strong United States interest. It’s on two levels. The first strong United States—United States interest deals with the conduct at issue here, namely the conduct in Florida by HomeSide. This was the sixth largest mortgage service provider in the United States.

  • Now, I concede your argument that a big component of this fraud was what went on in Florida, but it needed to be disclosed to the public. It needed to be put out there. And that wasn’t done in Florida by the Florida defendants.
  • MR. DUBBS: 

  • It was done in Australia and we can prove that […]. To use Professor Beale’s example, you have poison candy in one jurisdiction, that poison candy is sent to another jurisdiction, and in the first jurisdiction there is a law that says ‘thou shalt not make poison candy;’ through the exercise of legislative jurisdiction that statute in the first jurisdiction is appropriate, and both jurisdictions have an interest in that … Now, if we are in the poison candy jurisdiction and we are bringing a case about poison candy, if the statute in addition says, ‘you have to show some harm from the poison candy,’ indeed you might as a matter of proof have to show effects from that other forum. But that’s different than regulating conduct in the second forum or anything else in the second forum. That is simply looking at the statute or the legal prescription against making poison candy. And we say Section 10(b) is like the poison candy statute.

  • … the issue for the Australians is: We want to determine whether there has been a misrepresentation or not.
  • MR. DUBBS: 

  • … .what’s in the portfolio … [is] what’s being misrepresented. And when they doctor the numbers and send them to Australia, it’s a misrepresentation of that.
  • MR. DUBBS: 

  • Now, my final point … if they advocate a rule, which it [a transaction] should be limited to exchanges, that goes back to my threshold point of the scope of the statute. And it takes an eraser to the statute and it says: It’s only exchanges; it’s not in connection with foreign or interstate commerce or through the mails; it’s limited, contrary to the express words of the statute … Now, there are other legitimate ways of cabining the private cause of action. But that—if you are faithful to the statute, we submit that is not one of them.
  • 18.46  For the respondents, their counsel responded:

    MR. CONWAY: 

  • … Petitioners have identified nothing in the text of Section 10(b) that overcomes the presumption against extraterritoriality or the Charming Betsy Rule. The statutes should thus be construed not to apply to transactions and shares of foreign issuers on foreign exchanges … Given the threat that the Section 10(b) implied right presents to the sovereign authority of other nations, as reflected in the amicus briefs of Australia, the United Kingdom, France, and the diplomatic note from the Swiss government, the Court should construe the implied right not to extend to claims of purchasers and sellers of securities of foreign issuers on foreign markets.
  • (p. 350)


  • … Supposing the class of plaintiffs included a group of Americans who were shareholders of the Australian bank and who—but who purchased their stock over the Australian exchange.
  • MR. CONWAY: 

  • … we would submit that that rule should be the same … in terms of the threat to international comity …

  • … Now, is it your point that in order to avoid an international extension of it, it should apply only to securities? …

  • Securities purchased and sold in the United States? Is that it?
  • MR. CONWAY: 

  • That—that’s correct, Your Honor. I think that’s a fair reading of the statute …

  • How does it hurt the other countries if what we would say on their reading of this is, Congress has said, ‘Look, if some terribly bad conduct happens in the United States; they lie through their teeth; and you, whoever you are in the world, who buys some shares and as a result you are hurt, we will give you a remedy. Come to us’—now, how does that hurt Australia?
  • MR. CONWAY: 

  • Well, it hurts Australia –
  • 18.47  The United States argued as amicus curie:


  • Well, what if—what if significant elements of the fraud occur in four different countries?

  • If—if—the critical question is whether there’s significant conduct here that’s material to the fraud success … if Section 10(b) didn’t cover that kind of conduct, then that would risk allowing the United States to become a base for orchestrating securities frauds for export. It would allow like masterminds in the United States engineering international boiler room schemes in which they direct agents in foreign countries to make fraudulent representations that victimize investors.

  • Well, then you give no weight to the fact that it was on the Australian exchange?

  • The—the fact that the transaction happens on the Australian exchange is not dispositive … because if –

  • Do you have any indication that our friends around the world are comfortable with your test?

  • Well, the briefs that have been filed by Australia and United Kingdom and France are limited to the private right of action. … what they want to do is to limit the private rights.
  • III. The Court’s Opinion and the Presumption Against Extraterritoriality

    The Strong Version of the Presumption is Applied

    18.48  We will now analyse the text of the Court’s opinion, both to understand its rulings as to transnational issues regarding extraterritoriality, but also to see how issues of collective redress intertwine to determine the result. We start with the Court’s (p. 351) interpretation and application of the presumption against territoriality and how the petitioners argued their case as essentially one of domestic United States conduct with ancillary foreign effects in Australia.

    18.49  Justice Scalia began the written opinion with a quote from Aramco, ‘It is a longstanding principle of American law “that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States”’.76 Thus, he laid out the strong version of the presumption against extraterritoriality, although he quoted from that part of Aramco which relies, in turn, on Foley Brothers, where the Court stated in a somewhat more bland way, ‘Congress is primarily concerned with domestic conditions’.77

    18.50  Although on its face, the holding in Foley Brothers might leave room for an analysis of whether legislative jurisdiction had been exercised as to domestic conduct by domestic legislation or court decision, which could lead to an analysis of how those issues interrelated with the presumption, that approach was not taken by Justice Scalia.

    The ‘Conduct’ Test

    18.51  Section IV, A of the opinion starts with one of the most important and revealing paragraphs in the entire opinion. The opinion summarizes the petitioners’ position. It states:

    Petitioners argue that the conclusion that §10(b) does not apply extraterritorially does not resolve this case. They contend that they seek no more than domestic application anyway, since Florida is where HomeSide and its senior executives engaged in the deceptive conduct of manipulating HomeSide’s financial models; their complaint also alleged that Race and Hughes made misleading public statements there.78

    That was indeed the major part of the petitioners’ argument, although the quote does not deal with the prescriptive jurisdiction argument advanced by the petitioners which urged that such territorial assertion was appropriate even though Australia might also have quite legitimate—possibly competing—interests at stake that ultimately could trump American interests.

    18.52  Justice Scalia went on to say that petitioners’ argument is ‘a quite valid assertion’, because the presumption against extraterritoriality ‘is not self-evidently dispositive’.79

    18.53  To say that the presumption against extraterritoriality is ‘not self-evidently dispositive’ opens up a Pandora’s Box. If it becomes a matter of application and (p. 352) interpretation and it is not clear and of an easy application in almost all instances, that opens the door for either judicial ‘interpretation’ or, alternatively, suggests that there is not just one true presumption against extraterritoriality. Given that the presumption against extraterritoriality is ‘not self-evidently dispositive’ and ‘requires further analysis’,80 Justice Scalia elaborates:

    For it is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States. But the presumption against extraterritorial application would be a craven watchdog, indeed, if it retreated to its kennel whenever some domestic activity is involved in the case. The concurrence seems to imagine just such a timid sentinel … but our cases are to the contrary.81

    18.54  This anthropomorphic metaphor does not, however, respond fully to the petitioners’ argument, that the case was one of domestic conduct in most important respects. Nor does it deal with the issue of the situation where there is domestic activity and transnational effects. Justice Scalia thus ducked the issue whether the broad anti-fraud language of section 10(b) created a United States interest in combating United States territorial fraud even though the ‘effect’ was extraterritorial.

    18.55  Justice Scalia reaches for metaphor again, calling the Aramco version of the presumption against extraterritoriality the one true ‘North Star’ that guides all travellers with respect to questions of transnational litigation. To support this, Justice Scalia recites the facts of Aramco to focus on the fact that the plaintiff there, ‘had been hired in Houston and was an American citizen [cite omitted]’. He notes that, ‘the Court [in Aramco] concluded that the “focus” of Congressional concern … was neither that territorial event nor that relationship, but domestic employment’ [cite omitted].82 One certainly can agree that in Aramco the hiring of the plaintiff in Houston would be merely ‘some domestic activity’, as Justice Scalia uses the phrase. However, this narrative is incomplete given that the gravamen of the Aramco complaint was that the allegedly wrongful discharge occurred in Saudi Arabia several years after the hiring in Houston.

    ‘Comity’ Analysis

    18.56  Justice Scalia also addresses the issue of comity, saying, ‘We reject the notion that the Exchange Act reaches conduct in this country affecting exchanges or transactions abroad …’.83 Justice Scalia implies that the factual record before the Court reflects that Morrison affected the regulation of the Australian exchanges and transactions abroad. However, as shown by the brief of the Australian government, Australia made no such claim.

    (p. 353) 18.57  Justice Scalia goes on to say that the application of the Exchange Act to the conduct at issue is troubling for the same reason identified in Aramco as to Title VII. That is, ‘The probability of incompatibility with the applicable laws of other countries [being] so obvious [citation omitted]’.84 He elaborates:

    ‘ … the regulation of other countries often differs from ours as to what constitutes fraud, what disclosures must be made, what damages are recoverable, what discovery is available in litigation, what individual actions may be joined in a single suit, what attorney’s fees are recoverable, and many other matters.85

    He cites for that proposition the amicus curiae briefs of the United Kingdom, the Commonwealth of Australia, and others which in general terms assert some of those arguments but ultimately focus on problems with the American style of collective redress, namely the ‘opt-out’ class action. Thus, the ‘probability of incompatibility’ reduces itself ultimately to remedies, particularly class actions. At long last, the opinion addresses a critical point.

    The Remedies Section of the Plurality Opinion

    18.58  As noted, Justice Scalia set the stage earlier in Section IV A, that ‘transactions on an exchange’ would be the ultimate endpoint for his reasoning. In Section IV A he reiterates that:

    Section 10(b) does not punish deceptive conduct, but only deceptive conduct ‘in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.’ 15 U.S.C. §78j(b).87

    He relies on the loose ‘in connection with’ language of the statute to reach his ultimate conclusion, that ‘the Act’s registration requirements apply only to securities listed on national securities exchanges’. It is questionable whether this is self-evident from the language of section 10(b).

    18.59  Given that, in 1964, the SEC urged successfully that Congress adopt amendments to the securities laws that made virtually all dealer markets ‘exchanges’ for the purposes of the regulatory framework, what this means today is that there may be no remedy with respect to transactions other than those effected on a registered (p. 354) securities exchange, except for isolated private off-exchange sales within the territorial United States.89

    The ‘Effects’ Test is Effectively Abolished

    18.60  By the manner in which Justice Scalia framed the contours of the section 10(b) private cause of action in the transnational context, Justice Scalia essentially limited the remedies available under the statute for transnational securities fraud domestically. Section 10(b) now requires an exchange transaction except for isolated transactions. This effectively eliminates the ‘effects’ test which was not before the Court.

    18.61  Morrison was a ‘conduct’ test case. The prior ‘effects’ test, which was grounded on the common law proposition that the cause of action arose and the controlling law was that of the jurisdiction where the injury or ‘effect’ occurred, was effectively eliminated in those instances where an injury was suffered in the United States related to a security purchased on a non-United States exchange.90 Thus, the interpretation of section 10(b) as requiring a ‘transaction’ test of US investors as well, and in reality, limits the remedies that dramatically changed existing law.

    Refutation of the Solicitor General’s Arguments

    18.62  The final section of the Court’s opinion deals with a refutation of the competing test proposed by the Solicitor General, ‘A transnational securities fraud violates § 10(b) when the fraud involves significant conduct in the United States that is material to the fraud’s success.’91 Justice Scalia asserted that, ‘[n]either the Solicitor General nor petitioners provide any textual support for this test’.92

    18.63  Justice Scalia then addresses somewhat cursorily the various policy reasons that the Solicitor General advances in support of the ‘significant and material’ test. The Solicitor General argued that the ‘conduct’ test was, in part, justified because of the fear that fraudsters could use the United States as a base for operations for exporting securities fraud, using the phrase from a Third Circuit case, SEC v (p. 355) Kasser,93 of a ‘Barbary Coast’. Rejecting this observation of the Solicitor General on behalf of the SEC, Justice Scalia returned to his central concern.

    The Attack on Class Actions

    18.64  In the pièce de la résistance of the opinion, Justice Scalia states:

    If, moreover, one is attracted by the desirable consequences of the ‘significant and material conduct’ test, one should also be repulsed by its adverse consequences. While there is no reason to believe that the United States has become the Barbary Coast for those perpetrating frauds on foreign securities markets, some fear that it has become a Shangri-La of class-action litigation for lawyers, representing those allegedly cheated in foreign securities markets.94

    18.65  This obviously inflammatory exposition has several parts to it: first, the Barbary Coast comment is yet another rejection of the argument urged by the Solicitor General discussed earlier. Although Justice Scalia may be right that there is ‘no reason to believe’ that that conduct has happened to any great extent, it is also true that fraudsters have preyed upon both Americans and foreigners, as the example of Bernard Madoff illustrates.95

    18.66  Not surprisingly, Justice Scalia also asserted as fact that ‘one should also be repulsed by’ the asserted fact of ‘class-action litigation for lawyers, representing those allegedly cheated in foreign securities markets’.96 He thus is simply adopting completely the argument of certain amici and business interests that collective redress via class actions is, almost by definition, frivolous and merely benefits lawyers, notwithstanding Congress’ reforms requiring higher and more demanding pleading standards as part of a rigorous regime to screen out meritless cases at an early stage.9798

    (p. 356) 18.67  At this point in the opinion, Justice Scalia has finally identified the true ‘focus’ (as that term was adopted by him from Aramco): if one takes as a given that securities class actions involving foreign plaintiffs are, by definition, an ‘adverse consequence’ which is ‘repulsive’, then one should indeed search for a sweeping remedy to stop such adverse consequences. Whether the remedy is overly broad and has consequences that were not brought to the Court’s attention becomes of secondary importance.99100

    The Concurrences

    (a)  Justice Breyer

    18.68  Justice Breyer wrote a short concurrence. He interprets the phrase, ‘fraud in connection with the purchase or sale of any security registered on a national securities exchange, or any security not so registered’ as subject to the presumption against extraterritoriality, and thus, the fraud prohibition becomes neutered. Thus, Justice Breyer basically adopts the statutory interpretation of the majority.

    18.69  Justice Breyer goes on to state that, ‘state law or other federal fraud statutes’, ‘may apply to the fraudulent activity alleged here to have occurred in the United States’.101 Of course, this does not deal with the issue that a class action or any other form of collective redress mechanism would be difficult or impossible under federal or state law. He also believes criminal remedies are not affected.

    (b)  Justices Stevens and Ginsburg Concurrence

    18.70  The concurrence authored by Justice Stevens and joined by Justice Ginsburg put the proper focus on the real goals of United States securities regulation—although petitioners would disagree with where the concurrence came out on the facts of the Morrison case. The concurrence argues that the prior ‘conduct’ and ‘effects’ tests approach was sound. Justice Stevens starts by stating the obvious: that what the Court has done was to create a ‘new transactional test’ for section 10(b), noting that, ‘the Court’s textual analysis is not nearly so compelling, in my view, as to warrant the abandonment’102 of the doctrine developed by the lower federal courts for many years.

    18.71  Tellingly, Justice Stevens notes in a footnote, ‘The problem, when it comes to transnational securities frauds, is that the text of the statute does not provide a great deal of control. As with any broadly phrased, longstanding statute, courts have (p. 357) had to fill in the gaps’.103 He also adds that, ‘Congress has enacted a regulatory statute and then accepted, over a long period of time, broad judicial authority to define substantive standards of conduct and liability, and much else besides’.104 The ‘conduct’ and ‘effects’ tests were developed, he notes, ‘with the tacit approval of Congress and the Commission and with the general assent of the Second Circuit’s sister Circuits’.105

    18.72  Turning to the Court’s analysis and application of the presumption against ­extraterritoriality, Justice Stevens argued that, ‘the Court seeks to transform the presumption from a flexible rule of thumb into something more like a clear statement rule’.106 He characterizes Aramco as ‘surely the most extreme application of the presumption against extraterritoriality in my time on the Court … ’.107

    18.73  Justice Stevens then noted that the arguments concerning the presumption against extraterritoriality, even if correct, ‘would have only marginal relevance to this case’.108 He underscored the limitations of it, quoting Empagran and Foley Brothers and stated that the presumption merely ‘provides a sound basis for concluding that Section 10(b) does not apply when a securities fraud with no effect in the United States is hatched and executed entirely outside the country’.109 He characterized that conclusion, ‘[as] not very illuminating because no party to the litigation disputes it’.110 Justice Stevens then goes on to say that the ‘real question in this case is how much, and what kinds of, domestic contacts are sufficient to trigger application of §10(b)’.111 He continued by adding that the, ‘question … does not admit of an easy answer’.112

    18.74  Significantly, Justice Stevens noted that, ‘The Government expresses no view on that test’s “effects” prong, as the decision below considered only respondents’ (p. 358) conduct [citations omitted]’.113 Justice Stevens also noted in a footnote that, ‘I expect that virtually all “foreign cubed” actions … would fail the Second Circuit’s test. As they generally should’.114

    18.75  Justice Stevens proceeded to argue that the ‘real motor of the Court’s opinion, it seems, is not the presumption against extraterritoriality but rather the Court’s belief that transactions on the domestic exchanges are “the focus of the Exchange Act” and “the objects of its solicitude”’.115 He retorts that the ‘public interest’ and ‘the interests of investors’ are the objects of the statute’s solicitude.

    18.76  He then posits two hypotheticals, which are quoted here at length:

    Imagine, for example, an American investor who buys shares in a company listed only on an overseas exchange. That company has a major American subsidiary with executives based in New York City and it was in New York City that the executives masterminded and implemented a massive deception which artificially inflated the stock price—and which will, upon its disclosure, cause the price to plummet. Or, imagine that those same executives go knocking on doors in Manhattan and convince an unsophisticated retiree, on the basis of material misrepresentations, to invest her life savings in the company’s doomed securities. Both of these investors would, under the Court’s new test, be barred from seeking relief under Section 10(b).116

    18.77  His point is that these hypotheticals would ‘surprise and alarm generations of American investors’ as well as the ‘Congress that passed the Exchange Act’.117 Justice Stevens, at the end of this section, switches gears by noting that the Court’s rule is wrong because it, ‘withdraw[s] the statute’s application from cases in which there is both substantial wrongful conduct that occurred in the United States and a substantial injurious effect on United States markets and citizens’.118

    (p. 359) The Risk of Addressing Issues not before the Court

    18.78  Justice Stevens’ concurrence is noteworthy not only because it meets head-on Justice Scalia’s analysis of the presumption against extraterritoriality, but becuase it also questions the ‘real motor’ of the plurality, which is that the regulation of transactions on domestic exchanges as the supposed ‘focus’ of the Exchange Act. Moreover, it acknowledges that the question before the Court was section 10(b)’s applicability to F-cubed cases. Importantly, he notes that the ‘effects test’ was not before the Court, and, thus, the rule that permitted recovery by injured American investors based upon foreign frauds whose ‘effect’ was within the United States was thus not before the Court. However, he did not perceive, apparently, that the Court’s ‘transaction’ rule, which conflated a statutory analysis with a remedy for section 10(b) claims, in reality eviscerated the ‘effects’ test.

    18.79  Although the Court acknowledged that National had ADRs trading, and may have known in general terms what ADRs were, it did not have before it, nor did it analyse, nor did the opinion of the Court reflect any understanding of how the ‘transaction’ test remedy might affect American investors. In its zeal to rid the system of the apparently self-evident ‘adverse consequences’ that ‘one should … be repulsed by’ of class action litigation with respect to transactions in foreign securities markets, it simply cut too deeply.

    18.80  It did not appreciate that most large institutional purchases in the United States who diversify their portfolios with international securities buy those on the ‘home’ exchange, not via US-traded ADRs because of the added cost and small float of virtually all ADRs.119 Under the ‘transaction test’ these purchases presumably may not be protected by the United States’ securities laws notwithstanding their American purchasers.

    18.81  In fashioning a remedy to eliminate F-cubed cases, which clearly was the Court’s goal, it potentially deprived millions of American investors of any remedy for fraud by the possible elimination of the ‘effects’ test as to foreign fraud. It did this perhaps out of ignorance, but it reached out to address a question not before it. The Court thus adopted a remedy that was disproportionate to the F-cubed threat it wanted to remedy, and ignored the prudential notion that issues not presented that have not been subject to the adversary system should not be decided because the consequences of any such ruling are simply not known. That is, however, what happened in Morrison.

    18.82  As the Court had stated previously:

    Prudence […] dictates awaiting a case in which the issue was fully litigated below, so that we will have the benefit of developed arguments on both sides and lower (p. 360) court opinions squarely addressing the question. See, Lytle v. Household Mfg., Inc., 494 U.S. 545, 552, n.3, 110 S.Ct 1331, 1336, n.3, 108 L.Ed.2d 504 (1990) (‘Applying our analysis … to the facts of a particular case without the benefit of a full record or lower court determinations is not a sensible exercise of this Court’s discretion’).120

    The Next Steps

    18.83  Prior to the decision in Morrison, in December 2009, at the urging of Congressman Kanjorski, a bill was offered in the House of Representatives that was intended to codify the Second Circuit’s test for ‘conduct’ and ‘effects’ as to section 10(b).121 Subsequent to the decision in Morrison, that bill, which had been withdrawn, was revived and redrafted to limit its applications to actions brought only by the SEC. It was adopted by Congress, being introduced at the eleventh hour at the Conference Committee for the Dodd-Frank Act less than a month after Morrison.122

    18.84  As to private plaintiffs, the Dodd-Frank Act also directed the SEC to conduct a study to determine whether the changes provided for in the new legislation as applied only to the SEC should extend to private rights of action.123124125

    The SEC Report

    18.85  In April 2012 the SEC authorized the release of the study.126 The study did not contain any recommendations by the SEC, but rather listed several options for congressional action (or inaction) identified by the SEC’s staff. Nearly all of those options called for legislative changes that would broaden the availability of transnational claims in private cases. Some, however, would be inconsistent with actions for collective redress, so the continuing availability of US collective redress actions for transnational securities fraud has been thrown back to Congress. The options ranged from doing nothing, to retaining the ‘transactional’ test, possibly with modifications. These ranged from clarifying that the test permits claims related (p. 361) to all securities listed on United States exchanges, regardless of where the shares at issue were purchased, to clarifying that the test permits claims whenever the securities transaction was induced in the United States, regardless of where it occurred, to reinstating the ‘conduct’ and ‘effect’ tests, possibly with modifications. SEC Commissioner Luis Aguilar, in an exhaustive dissent, called for a recommendation by the SEC that the ‘conduct’ and ‘effects’ tests be reinstated in the form now applied to SEC actions.

    IV. Conclusion

    18.86  In Morrison, the United States Supreme Court drastically limited, if not precluded, collective redress for transnational securities fraud in United States courts, given that a non-federal, State cause of action cannot be maintained as a practical matter via a collective redress paradigm. Although Morrison’s principal target was the so-called F-cubed action that brought non-Americans to the United States Courts for non-United States exchange transactions, it also severely limited, if not eliminated as a practical matter, the rights of large American institutional purchasers who, for a variety of reasons, buy the stock of large, multinational companies on their ‘home’, ie non-United States, exchange, given the small ‘float’ of thinly traded ADRs in the United States

    18.87  Morrison shows that the controversy surrounding procedures for collective redress in the transnational arena requires patient, deliberate, narrow decision-making so that legitimate interests are properly balanced. This has been made more difficult in the United States context, even without Morrison, given the statutory limitations presented by the Securities Litigation Uniform Standards Act and Class Actions Fairness Act (which were designed for other reasons) that are not present elsewhere. Some would say multinational negotiations or a treaty are the best answers for these transnational securities cases where collective redress measures are potentially implicated. But defrauded investors have less patience, so the best redress may be in the province of the courts, perhaps outside the United States.127(p. 362)


    1  Transcript of Oral Argument at 7–8.

    2  As to American practice before the United States Supreme Court, see Eugene Gressman et al (eds), Supreme Court Practice (9th edn, BNA 2007) (n 74).

    3  In the United States, class actions are almost always ‘opt-out’ actions where a member of a defined class must affirmatively indicate their willingness not to become part of the class or else that person (although ‘absent’) is bound by any judgment or settlement. See generally, Rachel Mulheron, The Class Action In Common Law Legal Systems: A Comparative Perspective (Hart Publishing 2004) 1, at 29 (Mulheron).

    4  Professor Linda Silberman’s accompanying chapter provides useful background plus analyses post-Morrison developments. Linda J Silberman, ‘Morrison v. National Australia Bank: Implications For Global Securities Class Actions’ 12 Yearbook of Private International Law 123 (2010) (Silberman).

    5  561 US ___, 130 S.Ct 2869 at 2875 (2010).

    6  New offerings which can lead to prospectus liability in the UK under s 90 of the Financial Services and Markets Act 2000 are covered by the roughly analogous s 11 or s 12 of the Securities Act of 1933.

    7  The Court, referencing the Second Circuit opinion, states that, in addition to ‘Ordinary Shares—what in America would be called “common stock” … [t]here are listed on the New York Stock Exchange … National’s American Depository Receipts (ADRs), which represent the right to receive a specified number of National’s Ordinary Shares’. [citation omitted] 561 U.S. __, 130 S.Ct 2869 at 2875 (2010). An ADR is a separate security that may or may not be ‘supported’ or promoted by the issuer, which was the case here by National. An ADR is a security separately issued and traded that reflects shares of the issuer on deposit for this purpose in a custodial bank.

    8  (n 7).

    9  (n 7).

    10  561 US ___, 130 S.Ct 2869 at 2876.

    11  (n 10).

    12  Citations to the Amended Complaint are from the Joint Appendix (J.A) to the Supreme Court beginning at page 38a and are cited as ‘Complaint at ¶__ J.A. at ___’, the latter blank being the page number of the Supreme Court Appendix as filed.

    13  Complaint at para 47, J.A. at 53a.

    14  Complaint at para 53, J.A. at 54a.

    15  Complaint at para 2, J.A. at 39a.

    16  499 US 244 (1991) (Aramco).

    17  Complaint at para 102, J.A. at 72a.

    18  See Ivor Ries, ‘Out of the Frying Pan’ The Bulletin at 46 (12 February, 2002).

    19  Complaint at para 112, J.A. at 76a.

    20  Complaint at para 112, J.A. at 76a.

    21  Complaint at para 112, J.A. at 76a.

    22  This may be relevant to the analysis of Stephen J Choi and Linda J Silberman, Transnational Litigation and Global Securities Class-Action Lawsuits (2009) Wisconsin Law Review 465, which puts great weight on investor expectations and who investors believe to be at fault in considering the ‘correct’ regime to provide for private civil remedies. See, Silberman (n 4) at 137. In this case, the Australians blamed the Americans at HomeSide (106) which suggests that Australian investors might very well have thought that the fault lay in Florida, not in Sidney. See, Complaint at ¶112, J.A. at 76a. (‘But so far no one is accepting blame at the bank’s Bourke Street headquarters.’)

    23  The petitioners also submitted affidavits by experts at the trial court level that were part of the record before the Supreme Court who opined that those internal documents showed the interest rate assumptions used in calculating the capitalized MSR were inconsistent with industry practice.

    24  See generally, William N Eskridge, Jr, ‘The New Textualism’ (1990) 37 UCLA Law Review 621; Antonin Scalia, ‘A Matter of Interpretation: Federal Courts and the Law’ (Amy Gutman (ed), Princeton University Press 1998)

    25  15 U.S.C. s 78j(b).

    26  ‘[I]t was a bit of a surprise that the “effects” test got trashed in Morrison.’ Comments of George T Conway III at ‘After Morrison’ seminar at the New York City Bar Association (24 April, 2011).

    27  ‘Congress is primarily concerned with domestic conditions’ Foley Bros v Filardo, 336 U.S. 281, 285, 69 S.Ct 575, 577 (1949).

    28  See Miller v Apex Marine Corp, 49 U.S. 19, 32 (1990) (‘We assume that Congress is aware of existing law when it passes legislation’).

    29  That basic analysis is now generally recognized. Restatement (3d) Foreign Relations Law of the United States s 403 (1987). In the public international law arena the prescriptive jurisdiction principle depends on whether SS ‘Lotus’ (France v Turkey) 1927 PLIJ (Sec A) no 10 at 18–19, is interpreted as permitting application of a State’s law outside a State’s territory. See, the International Bar Association’s Report of the Task Force on Extraterritorial Jurisdiction (2008) at 8–9 (IBA Report).

    30  The European Court of Justice has held that Art 5(3) of the Convention of 27 September, 1968 on jurisdiction should be interpreted to confer jurisdiction both where the damage occurred and the place of the event giving rise to it. Case 21/76 Handelskwekerij GJ Bier NV v Mines de Potasse d’Alsace SA [1976] ECR 1735 at paras 24–5; see, IBA Report at 93.

    31  A hypothetical has been framed historically as that of a bullet being shot from one jurisdiction to another, and posing the issue of whether the jurisdiction where the trigger was pulled had any interest in the case.

    32  Gulf Oil Corp v Gilbert, 330 U.S. 501 (1947).

    33  See Choi and Silberman (n 22) at 136.

    34  See generally, Verlinden BV v Central Bank of Nigeria, 461 U.S. 480, at 486 (1983) (citing Ex parte Peru, 318 U.S. 578, 586–90 (1943)); letter from Jack B Tate, Acting Legal Adviser, US Dept of State, to Acting US Attorney General Philip B Perlman (19 May, 1952), reprinted in 26 Dept State Bulletin 984–5 (1952) and in Alfred Dunhill of London, Inc v Republic of Cuba, 425 U.S. 682, at 711–15 (1976).

    Under the Foreign Sovereign Immunities Act, courts continue to defer to the Executive Branch. See, eg Republic of Austria v Altmann, 541 U.S. 677, 689 (2004) (Supreme Court noted that ‘[t]hroughout history, courts have resolved questions of foreign service immunity by deferring to the “decisions of the political branches … on whether to take jurisdiction”’).

    35  See ss 18.31 and 18.32 infra. The petitioners also imported into their analysis the suggestion made by the SEC that foreign investors would have to meet the more rigorous causation test of ‘direct causation’ rather than ‘foreseeability’.

    36  See generally John H Knox, ‘A Presumption Against Extrajurisdictionality’ (2010) 104 Journal of the American Society of International Law 351 (Knox).

    37  Microsoft Corp v AT&T Corp, 550 U.S. 437 (2007) (Microsoft); F. Hoffman-LaRoche v Empagran SA, 542 U.S. 1555 (2004) (Empagran).

    38  In hindsight, it was clear from the opinion that the respondents insightfully understood that a strong showing by foreign governments would also make a dramatic impact on the Court.

    39  Respondents’ Brief at 2.

    40  Respondents’ Brief at 7.

    41  Respondents’ Brief at 7.

    42  Respondents’ Brief at 9, citing, inter alia, Australian Stock Exchange Limit ASX Listing Rules.

    43  The respondents also relied on an article by Professor Margaret V Sachs, which stated ‘The legislative history of both statutes reflects that Congress ‘chose to protect only those investors whose trades occur inside the United States….’; Respondents’ Brief at 27, n 16 citing Margaret V Sachs, The International Reach of Rule 10b-5: The Myth of Congressional Silence (1990) 28 Columbia Journal of Transnational Law 677.

    44  Murray v The Charming Betsy, 6 U.S. (2 Cranch) 64, at 118 (1804) (Marshall CJ).

    45  Respondents’ Brief at 43, citing Restatement (1st) of Conflicts of Law, S. 377 (1934). Like the petitioners, they relied on the 1934 Restatement as follows:

    6.a , In state X, owned shares in the M Company. b, In state Y, fraudulently persuades A not to sell their shares. The value of the shares falls. The place of the wrong is X.

    46  Respondents’ Brief at 55.

    47  Government Brief at 6 (citation omitted).

    48  By way of background, the government also suggested at an earlier stage of the proceedings that it was unnecessary for the Court to grant certiorari because of pending congressional legislation. This proposed bill was subsequently withdrawn. After the decision, however, that legislation was revived and Morrison overturned legislatively as to only the SEC. See 18.83 and 18.84 infra.

    49  Government Brief at 6–7.

    50  Government Brief at 7.

    51  Government Brief at 14–15 (emphasis added).

    52  Brief of the Government of the Commonwealth of Australia As Amicus Curiae in Support of the Defendants-Appellees, Morrison v Nat’l Australia Bank Ltd, 561 U.S. __, 130 S.Ct 2869 (2010) (Australia Brief).

    53  Australia Brief (n 52) at 2.

    54  Australia Brief (n 52).

    55  Australia Brief (n 52) at 4.

    56  Australia Brief (n 52) at 9.

    57  Australia Brief (n 52) at 15.

    58  It notes it took action against two other entities for breaches of disclosure obligations under the Australian Corporations Act.

    59  Australia Brief (n 52) at 17.

    60  Australia Brief (n 52) at 18–19.

    61  Australia Brief (n 52) at 22.

    62  Australia Brief (n 52) at 19.

    63  Australia Brief (n 52) at 24.

    64  Brief of the United Kingdom of Great Britain and Northern Ireland as Amicus Curiae in Support of Respondents, Morrison v National Australia Bank Ltd, 561 U.S. ___, 130 S.Ct 2869 (2010) (UK Brief).

    65  Hartford Fire Ins Co v California, 509 U.S. 764 (1993).

    66  Subsequent to Morrison, a class action bill was passed by the House of Commons and was in its final stages before the House of Lords, but was pulled by the government before the last general election.

    67  UK Brief (n 64) at 8.

    68  UK Brief (n 64) at 9–12.

    69  UK Brief (n 64) at 15.

    70  UK Brief (n 64) at 15–16.

    71  UK Brief (n 64) at 16.

    72  In the case of Morrison, all of the nine justices were present except Justice Sotomayor, who presumably recused herself because she was on the Court of Appeals for the Second Circuit at the time that Court decided Morrison below, although she was not on the panel that decided it.

    73  Eugene Gressman, Kenneth S Geller, et al, Supreme Court Practice S. 749 (9th edn, BNA 2007), (‘Counsel are expected to engage in a dialogue with the Justices that will serve to clarify the facts and the issues in the case and that will make a decisive impression as to the merits of the dispute.’); John G Roberts, Jr, ‘Oral Advocacy and the Re-emergence of the Supreme Court Bar’ (2005) 30 Journal of Supreme Court History 68.

    74  Silberman (n 4) at 131 suggests that the question of the application of foreign law raised by Justice Ginsburg was not answered. To the extent this is true, it was tactical. Collective redress under state or foreign law (eg Australian law) via a class action in the United States is challenging given Securities Litigation Uniform Standards Act of 1998 15 U.S.C. ss 77r, 78c(a)(16), 78bb(f)(1), (SLUSA) and the Class Action Fairness Act of 2005 (CAFA). For that reason, counsel attempted to keep the focus on the interpretation of s 10(b). Courts had held, prior to Morrison, that SLUSA bars securities class actions based on any non-federal law—foreign as well as state. See LaSala v TSB Bank PLC, 514 F.Supp. 2d 447, 472 (SDNY 2007), reconsideration denied, 2009 WL 874164 (SDNY 31 March, 2009); LaSala v UBS, AG, 510 F.Supp. 2d 213, 238 (SDNY 2007). See also Feiner Family Trust v Xcelera Inc, No. 10-cv-3431 (RPP), 2010 WL 3184482, at *4 (SDNY 9 August, 2010); but see LaSala v Bordier et Cie, 519 F.3d 121, 138–9 (3d Cir. 2008). See also, Merrill, Lynch, Pierce, Fenner & Smith, Inc v Dabit, 547 U.S. 71, 82–9 (2006).

    75  The CAFA limits federal courts jurisdiction. 15 U.S.C. ss 77r(b)(1)(A), 28 U.S.C. ss 1332(d)(9). See also, In re Toyota Motor Corp Sec Litig, No CV 10-922 DSF (AJWx), 2011 WL 2675395, at *6 (CD Cal. 7 July, 2011) (finding no original jurisdiction, and declining to assert supplemental jurisdiction, over Japanese law claims of foreign class).

    76  Morrison, 561 U.S. at____, 130 S.Ct 2869 at 2877, citing Aramco (n 16) 499 U.S. at 248.

    77  Foley Bros Inc v Filardo, 336 U.S. 281 at 285 (1949); See Knox (n 36) at 370–3.

    78  Morrison 561 U.S. __, 130 S.Ct 2869 at 2883–4.

    79  Morrison (n 78).

    80  Morrison (n 78).

    81  Morrison 561 U.S. __, 130 S.Ct 2869 at 2884.

    82  Morrison 561 U.S. __, 130 S.Ct 2869 at 2874 (emphasis added).

    83  Morrison 561 U.S. __, 130 S.Ct 2869 at 2885 (emphasis added).

    84  Morrison (n 83) (citation omitted).

    85  Morrison (n 83).

    86  The notion of conflict among regulatory regimes regarding disclosure and accounting presentation in particular often falls under the term ‘convergence’. ‘Convergence’ deals generally with different ‘regulatory regimes’ and differing interests of various sovereigns and whether these various regimes ‘converge’ or are sufficiently close so that ‘conflict’ is avoided. In the securities context, the discussion of ‘convergence’ has often focused on differing accounting or disclosure regimes. See generally, Iris HY Chiu, Regulatory Convergence in EU Securities Regulation (Khuener 2008); John C Coffee, Jr, The Future As History: The Prospects For Global Convergence In Corporate Governance and Its Implications (1999) 93 Northwestern University Law Review 641.

    87  Morrison 561 U.S. __, 130 S.Ct 2869 at 2884.

    88  Morrison (n 87).

    89  15 U.S.C. ss 78L(g)(3) (2010). See Richard M Phillips and Morgan Shipman, ‘An Analysis of the Securities Act Amendments of 1964’ (1964) Duke Law Journal 706, at 754–62. Regulation S, which the Court alludes to in order to buttress its exchange remedy, expressly provides that it is applicable only to the registration provisions and does not limit the anti-fraud provisions of s 10(b). See, Securities Act Rule 901, 17 C.F.R. § 230.901.

    90  This effects test was set forth in the Restatement (Second) Foreign Relations Law of the United States Section s 402(1)(c); s 41(2)(a) (1965)). Leasco Data Processing Equipment Corp v Maxwell, 468 F.2d 1326 (2d Cir. 1972), is perhaps the most famous of the effects cases. See also, Straub v Vaisman & Co, 540 F. 2d 591, 595 (3d Cir. 1976).

    91  Morrison 561 U.S. __, 130 S.Ct 2869 at 2886 (citation omitted).

    92  Morrison (n 91).

    93  Morrison (n 91) quoting 548 F.2d 109 (3d Cir.), cert denied, 431 U.S. 938 (1977). The Barbary Coast was, of course, the southern shore of the Mediterranean Sea around Libya, which in the late eighteenth and early nineteenth centuries was a hotbed of piracy, interfering with international trade. The United States’ first overseas military action, the Battle of Derne in 1805, attempted to eradicate the Barbary pirates. See generally, Frank Lambert, The Barbary Wars: American Independence in the Atlantic World (Hill and Wang 2005).

    94  Morrison 561 U.S. __, 130 S.Ct 2869 at 2886.

    95  Operating from his office in New York City, Bernard Madoff ran a Ponzi scheme that defrauded foreign as well as United States investors out of billions of dollars. See eg Joanna Chung, Half of Madoff Loss Borne by Foreigners, Financial Times (12 January, 2009), available at: www.ft.com/cms/s/0/8ed137ac-e015-11dd-9ee9-000077b07658.html#axzz1phHgYyIw; In re Optimal U.S. Litigation, No 10 Civ 4095 (SAS), 2011 WL 642988, at *5–6 (21 December, 2011).

    96  Morrison 561 U.S. __, 130 S.Ct 2869 at 2886.

    97  See, Tellabs v Makor Issues & Rights, Ltd, 551 U.S. 308 (2007); Ashcroft v Iqbal, 556 U.S. 62 (2009); Bell Atlantic Corp v Twombly, 550 U.S. 554 (2007).

    98  Justice Scalia’s citation for this supposedly self-evident fact are the amicus briefs on behalf of Infineon Technologies and European Aeronautic Defense and Space Co, as well as a brief for the Securities Industry and Financial Markets Association, notwithstanding the latter is the trade association of the brokerage industry and Infineon and EADS were, at the time of Morrison, defendants in securities class actions.

    99  Morrison 561 U.S. __, 130 S.Ct 2869 at 2879.

    100  Finally, Justice Scalia makes short shrift of the principal case relied on by the Solicitor General, Pasquantino v United States, s 44 U.S. 349 (2005), given its interpretation as a transnational conspiracy case where all of the conduct comprising the conspiracy was supposedly within the United States, although the underlying crime was the evasion of Canadian taxes.

    101  Morrison 561 U.S. __, 130 S.Ct 2869 at 2888.

    102  Morrison 561 U.S. __, 130 S.Ct 2869 at 2888.

    103  Morrison 561 U.S. __, 130 S.Ct 2869 at 2889, n 3.

    104  Morrison (n 103).

    105  Morrison 561 U.S. __, 130 S.Ct 2869 at 2890–1.

    106  Morrison 561 U.S. __, 130 S.Ct 2869 at 2891. Justice Stevens cited elsewhere the Court’s decision in Musick, Peeler & Garrett v Employers Insurance of Wausau, 508 U.S. 286, at 294, 113 S. Ct. 2085 (1993), where the Court found that having recognized an implied private right of action under s 10(b) and r 10b-5, it had the authority to define the contours of that right of action, including, as in that case, a right to contribution.

    107  Morrison (n 106). Justice Stevens also, in the context of a lengthy footnote concerning the presumption against extraterritoriality, explains that Hartford Fire declined to apply the presumption, and he ends with a retort to the brief reference of the Court to the Microsoft case. Morrison (n 106) at fn 7. That retort states ‘[y]et Microsoft’s articulation of the presumption is a far cry from the Court’s rigid theory ‘as a principle of general application’. Microsoft innocuously observed, ‘we have stated that Court’s should “assume that legislators take account of the legitimate sovereign interests of other nations when they write American laws”’ [citations omitted].

    108  Morrison 561 U.S. __, 130 S.Ct 2869 at 2892.

    109  Morrison 561 U.S. __, 130 S.Ct 2869 at 2892.

    110  Morrison (n 109).

    111  Morrison (n 109).

    112  Morrison (n 109).

    113  Morrison 561 U.S. __, 130 S.Ct 2869 2892, n 10.

    114  Morrison 561 U.S. __, 130 S.Ct 2869 at 2886, n 11.

    115  Morrison 561 U.S. __, 130 S.Ct 2869 at 2894.

    116  Morrison (n 115). The first hypothetical is a variant of the facts In re Vivendi Universal SA Securities Litigation, 381 F.Supp. 2d 158 (SDNY 2003), except that Justice Stevens does not address whether or not recovery would be precluded under the Second Circuit’s Morrison decision. The hypothetical also does not track Vivendi in that Vivendi had a large ‘float’—indeed the largest float of any major overseas company—of ADRs, which it was using as ‘acquisition currency’ to purchase United States companies within the United States.

    117  Morrison 561 U.S. __, 130 S.Ct 2869 at 2894.

    118  Morrison (n 117). In part III of Justice Stevens’ concurrence he concludes that the SEC could bring an enforcement proceeding with respect to the allegations of fraudulent misconduct present in Morrison that occurred in Florida. He goes on to say that, ‘it does not follow that shareholders who have failed to allege that the bulk or the heart of the fraud occurred in the United States … may maintain a private action to recover damages they suffered abroad’ Morrison 561 U.S. __, 130 S.Ct 2869 at 2895.

    119  See eg Letter to SEC from Professor G. Andrew Karolyi, dated 18 February, 2011, File No 4-617; Letter to SEC from Consolidated Retirement Fund, dated 18 February, 2011, File No 4-617.

    120  Yee v City of Escondido, 503 U.S. 519, 538 (1992) (O’Connor J).

    121  Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111 Cong. § 7216 (2009).

    122  Originally, Dodd-Frank Act, Pub. L. No. 111-203, § 929P, 124 Stat. 1376, 1862 (2010).

    123  (n 122) at s 929(y).

    124  The Dodd-Frank Act reviving the SEC’s authority was immediately attacked by counsel for National because it apparently had not considered the opinion in Morrison, so it spoke only in terms of jurisdiction, and thus was proclaiming a nullity.

    125  One commentator has suggested that a vehicle for modifying Morrison to include US investors is rule-making under s 30(b) of the Exchange Act. Genevieve Beyea, ‘Morrison v. National Australia Bank and the Future of Extraterritorial Application of the U.S. Securities Laws’ (2011) 72 Ohio State Law Journal 537, at 572. See also, Martin E Goldman and Joseph L Magrino, Jr, ‘Some Foreign Aspects of Securities Regulation: Towards a Re-Evaluation of Section30(b) of the Securities Exchange Act of 193’ (1969) 55 Virginia Law Review 1015, at 1027.

    126  Study by the Staff of the SEC, Study on the Cross-Border Scope of Private Rights of Action under Section 10(b) of the Securities Exchange Act of 1934 (April 2012).

    127  See Press Release, ‘Stichting Investor Claims against FORTIS, International Investors Join Forces in Support of Lawsuit against FORTIS over Massive Misrepresentation ahead of Bank’s Collapse in 2008’ (PR Newswire, 10 January, 2011), stating, ‘The foundation’s actions marks an important new avenue for pursuing international securities claims in the wake of last year’s United States Supreme Court decision in Morrison …’. Available at: http://www.prnewswire.com/news-releases/international-investors-join-forces-in-support-of-lawsuit-against-fortis-over-massive-misrepresentation-ahead-of-banks-collapse-in-2008-113195084.html 20 January, 2012; see also Kevin LaCroix, ‘Dutch Court Holds Collective Securities Settlement to Be Binding’ (DEO Diary 19 January 2012). Available at: http://www.dandodiary.com/2012/01/articles/securities-litigation/dutch-court-holds-collective-securities-settlement-to-be-binding/ 19 January, 2012 (‘There is some irony that one of Morrison’s consequences is that [it] has spurred investors to seek remedies elsewhere…’); Silver, et ano v ImaxCorp, et al, No CV-06-3257-00, Ontario Supreme Court of Justice (14 December, 2009) (certification of global class in securities case).