30 Jun Morrison: The Fastest Reversal Ever (?) of a U.S. Supreme Court Decision
I wanted to thank all of the contributors (Bill Dodge, Austen Parrish, Margaret Sachs) to our discussion here about the recent Supreme Court decision on the extraterritorial application of U.S. securities laws in Morrison v. National Australia Bank. I wanted to also point readers toward some very wise and interesting comments on the decision from Prof. Hannah Buxbaum (over at The Conglomerate). And most importantly, I wanted to note that despite all the excitement, Morrison may be (partially) overruled in a matter of days. The Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed out of a House-Senate Conference Committee last week seems to provide just the clear statement of congressional intent for extraterritorial jurisdiction of securities law cases that the Court in Morrison was demanding. Assuming no hiccups, that bill should reach President Obama’s desk any day now. Starting on p. 1330 of this version,
(b) EXTRATERRITORIAL JURISDICTION OF THE ANTIFRAUD PROVISIONS OF THE FEDERAL SECURITIES LAWS.—
(1) UNDER THE SECURITIES ACT OF 1933.— Section 22 of the Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by adding at the end the following new subsection: ‘‘(c) EXTRATERRITORIAL JURISDICTION.—The district courts of the United States and the United States courts of any Territory shall have jurisdiction of an action or proceeding brought or instituted by the Commission or the United States alleging a violation of section 17(a) involving—
‘‘(1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or
‘‘(2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.’’.
The same language is added to the ’34 Exchange Act and the 1940 Investment Advisers Act.
Astute readers will notice, however, that this language does not seem to include private causes of action under the various securities laws. So here is how Morrison still matters. Under the Dodd-Frank bill, the SEC is instructed to “study” the propriety of allowing private causes of action based on extraterritorial jurisdiction as well as open this to public comment. (Sec. 929Y at pp. 1347). This means of course, that Morrison still controls with respect private causes of action.
There is a fascinating backstory of exactly when and how this language was added to the Dodd-Frank bill. The timing is strange. Morrison was released around 10:19 a.m. on Thursday, June 24. The Dodd-Frank Bill was supposedly completed at 5:39 a.m. Friday, June 25. I don’t know if there was a prior version with the same language, but if not, this is some seriously fast work by Congress which could lead to a partial reversal of a Supreme Court opinion less than 24 hours after the opinion was released! And so after 70 odd years of silence by both Congress and the Supreme Court on this issue, it is fascinating that June 24, 2010 became the day both branches of government have decided to speak.