Morrison and Extraterritoriality: More Thoughts

[Austen Parrish is a Professor of Law and Vice Dean at Southwestern Law School.  His scholarship focuses on extraterritoriality and the uses of domestic law and courts to resolve transboundary challenges.]

The decision is yet a day old, and already much has been said about Morrison.  As Julian notes, there is a lot to ponder in the case.  But some quick initial reactions perhaps are worth making.

In some ways, the case is not remarkable.  The decision and concurrence are as much focused on classic debates over statutory interpretation and the relationship of the courts to the legislature than anything peculiar to extraterritoriality.  Justice Scalia, applying a robust presumption against extraterritoriality, embraces a clear statement rule: the court should not presume that Congress intends to regulate the overseas conduct of foreigners absent clear and unmistakable evidence of Congressional intent.  The concurrence, written by Stevens, in contrast reflects a greater willingness to engage in a broader search for legislative intent.  While conflicting rationales may exist behind the decision, the Court as a whole is nervous over broadly expanding the geographic reach of U.S. laws absent at least some evidence that Congress intended the laws to apply so broadly.  Unlike in the antitrust context, Congress had not revised the anti-fraud provisions of the Securities Act to define the scope of its application in cases involving foreign elements. To this extent, the opinion is in line with the Court’s other recent pronouncements involving extraterritorial laws, such as in cases like Microsoft v. AT&T (2007), Small v. United States (2005), Spector v. Norwegian Cruise Line (2005), F.Hoffman-La Roche v. Empagran (2004) etc., where the presumption against extraterritoriality, in varying degrees, has been consistently reaffirmed.

In other ways, however, the case could potentially have wide ranging implications.  The case emphatically sweeps away the prior understanding of many lower courts that the U.S. Securities Law can apply to fraudulent investment deals outside the U.S., if those deals have some effect within U.S. territory.  The opinion, however, has implications in other contexts, separate and apart from the securities laws.  Over the last few decades, the so-called effects test has been used increasingly by courts as a way to allow U.S. courts to remedy transnational harms.  No longer limited to the antitrust or commercial contexts, courts apply all sorts of public and private laws to activity occurring abroad.  Courts have done so even when Congress has been silent, and no legislative intent can be found.  Several courts have assumed extraterritorial jurisdiction based on the fiction that Congress inevitably intends to regulate all conduct where adverse effects are felt within the United States.  The decision in Morrison should curtail that controversial practice.

The opinion may also have a very immediate impact.  The Court is considering whether to grant certiorari in the case British American Tobacco Co. v. United States. That case, in the context of the U.S government’s RICO suit against the tobacco industry asks whether civil RICO applies to the overseas conduct of a British defendant.  In that case, the D.C. Circuit bypassed the presumption against extraterritoriality and held that once an effect is felt within the United States, extraterritorial jurisdiction may be presumed.  The D.C. Circuit went beyond earlier lower court decisions that suggested that when an effect is felt in the United States, the presumption is reversed.  On Monday, the Court will announce its decision whether to accept certiorari in the BATCO case.  As John Elwood has pointed out over at the Volokh Conspiracy, it “may be that the Court simply decides to grant, vacate, and remand [the BATCO case] in light of [the Morrison] decision.” .  An amicus brief on that case, in which I was involved, can be found here.

While I have mixed emotions as to whether a clear a statement should be required from Congress or whether legislative intent to regulate extraterritoriality can be ascertained in other ways, the Court’s decision seems a step in the right direction.  A patchwork of incompatible rules has governed issues of extraterritoriality.  Although many scholars are nervous about a broad reading of the presumption against extraterritoriality, Morrison reaffirms the continuing importance of that canon of construction and should therefore make it easier for lower courts to apply.  More importantly, the case should temper the excesses of a broadly read effects test, which in recent years has given U.S. courts near universal jurisdiction.  As I have argued elsewhere, the effects test is problematic for a number of reasons and limiting its import through use of the presumption against extraterritoriality, seems a positive development.

A final point.  Although the more conservative and the more liberal members of the court are in general agreement that legislation should not be automatically read to apply to foreign conduct, the rationale behind that agreement is likely very distinct (more so than what is revealed by the Scalia-Stevens sparring over statutory interpretation).  While the more conservative justices are concerned about canons of construction, clear statement rules and legislative prerogative, the court’s more liberal members appear concerned with unreasonably interfering with the sovereign interests of other nations and to avoid unnecessary conflict between nations.  How this alliance will play out in other cases on the margins, particularly non-market cases involving environmental, labor, and other public laws, is less than clear.