Is the Court Prepared to Extend Empagran to Securities Fraud?

Yesterday’s oral argument in Morrison v. National Australia Bank Ltd gave strong indications that the Court was prepared to extend the territorial limitations of Hoffman-La Rouche v. Empagran to the securities fraud context. Morrison involves a class action brought by foreign plaintiffs against a foreign stock issuer on a foreign exchange for alleged fraud that occurred on foreign soil. The justices strongly questioned whether the Securities Act of 1934 should extend to reach such conduct.

Justice Ginsburg (p. 7):

This case is Australian plaintiffs, Australian defendant, shares purchased in Australia. It has “Australia” written all over it…. 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 United States?

Justice Alito (p. 11):

Wouldn’t your clients have an adequate remedy under Australian law in Australia, in the Australian court system…. 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 that should override that?

Justice Breyer (pp. 13-14):

In my mind the difficult issue in this case is not the jurisdictional issue under principles of international law. It’s the question of the scope of the statute. And there the things against you are three. One is Professor Sach’s argument [in her article published in 28 Colum. J. Trans Law 677 (1990)], which I would like to know your answer to. The second is in Judge Friendly’s two opinions…. Now, France, Britain and Australia have filed briefs in this case giving what they consider very sound reasons, which are reasons that Judge Friendly never considered…. [T]hey point to a number of conflicts, that if you win, how that will interfere with their efforts to regulate their own securities market….

Justice Scalia (p. 16):

But Australia says: Look, it’s up to us to decide whether there has been a misrepresentation, point one; and whether it’s been relied upon by the … plaintiffs, point two. And we should be able to decide that and we don’t it decided by a foreign court. You are talking about a misrepresentation … made in Australia to Australian purchashers; it ought to be up to us to decide that issue; and here you are dragging the American courts into it.

Justice Ginsburg (p. 18):

[U]nless you want to say, the Australia court to say, the United States taking this case is so outrageous that we will not respect its judgment…. What conflict of laws is all about is you have two jurisdictions, both with an interest in applying their own law, but sometimes one defers to the other.

Justice Ginsburg (p. 21):

[Y]ou have two classes of plaintiffs, one the Australians, who bought their shares in Australia; then you have Morrison, who has an ADR, and who is dismissed because he wasn’t able to show damages. So what U.S. investor was harmed?

Reading the tea leaves, it looks as though Morrison could be one of the more significant cases on the presumption against extraterritoriality. The questions, particularly from Breyer and Ginsburg, suggest that we should not read the statute to regulate foreign fraud by foreign stock issues against foreign purchasers on a foreign exchange.