Multinational class actions under federal securities law: Managing jurisdictional conflict

Columbia Journal of Transnational Law

Volumn 46, Issue 1, 2007, Pages 14-71

  Buxbaum, Hannah L ^a  

^a INDIANA UNIVERSITY   (United States)

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EID: 45149114254     PISSN: 00101931     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (244)

1. A 2004 study concluded that the number of class actions brought against foreign issuers tripled between 1996 and 2004. PRICEWATERHOUSECOOPERS LLP, 2004 FOREIGN SECURITIES LITIGATION STUDY 4 (2004), available at http://www.pwc.com/gx/eng/cfr/gecs/pwc_2004_foreign_seclit.pdf.
2. Regulatory stakes, of course, but also financial ones. A 2005 report of the United States Treasury Department estimated foreign holdings of U.S. equities at $2,144 billion, of U.S. long-term debt at $4,118 billion, and of U.S. short-term debt at $602 billion. U.S. TREASURY, REPORT ON FOREIGN PORTFOLIO HOLDINGS OF U.S. SECURITIES AS OF 6/30/2005 3 (2006), available at http://www.treas.gov/tic/sh12005r.pdf.
3. Stuart M. Grant & Diane Zilka, The Role of Foreign Investors in Federal Securities Class Actions, in CORPORATE LAW AND PRACTICE COURSE HANDBOOK SERIES (NUMBER B-1442) 91, 96 (Practicing L. Inst, ed., 2004).
4. See infra Part V.B.2.
5. See infra Part III.B for a description of this data set.
6. See Securities Act of 1933 § 11, 15 U.S.C § 77k (2000) (applying to misstatements or omissions contained in a registration statement filed with the SEC); Securities Act of 1933 § 12(a)(2), 15 U.S.C. § 771 (2000) (applying to misstatements or omissions in connection with an offering made by means of a U.S. prospectus, as interpreted in Gustafson v. Alloyd Co., 513 U.S. 561 (1995)).
7. Rule 10b-5, adopted pursuant to Section 10(b) of the Securities Exchange Act of 1934, provides in its entirety as follows: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5 (2007).
8. Id. "Means of interstate commerce" refers to the phone or wire systems in the United States. See Securities Exchange Act of 1934 § 3(a)(17), 15 U.S.C. § 78c (2000) ("The term 'interstate commerce' means trade, commerce, transportation, or communication among the several States, or between any foreign country and any State . . . . The term also includes intrastate use of (A) any facility of a national securities exchange or of a telephone or other interstate means of communication . . . .").
9. Section 30(b) of the Exchange Act, for instance, states that a person engaged in a business in securities outside the United States may be exempted from regulation "unless he transacts such business in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate to prevent the evasion of this title." 15 U.S.C. § 78dd (2000). Courts have inferred from this provision that "the [Exchange] Act was meant to apply to those foreign transactions not specifically exempted." Schoenbaum v. Firstbrook, 405 F.2d 200, 208 (2d Cir. 1968). Cf. Margaret V. Sachs, The International Reach of Rule 10b-5: The Myth of Congressional Silence, 28 COLUM. J. TRANSNAT'L L. 677 (1990) (arguing that the legislative history suggests Congress intended the anti-fraud provisions to apply to domestic trading only).
10. Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir. 1975).
11. This approach is consistent with the jurisdictional analysis used in other substantive areas. See generally RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW §§ 401-403, 416 (1987);
12. Russell J. Weintraub, The Extraterritorial Application of Antitrust and Securities Laws: An Inquiry into the Utility of a "Choice-of-Law" Approach, 70 TEX. L. REV. 1799 (1992).
13. See Scherk v. Alberto-Culver Co., 417 U.S. 506, 518 n.12 (1974) (setting aside the question of scope in securities law as not presented by that case). But see id. at 529-30 ("It has been recognized that the 1934 Act, including the protections of Rule 10b-5, applies when foreign defendants have defrauded American investors, particularly when, as alleged here, they have profited by virtue of proscribed conduct within our boundaries.").
14. In re Alstom SA Sec. Litig., 406 F. Supp. 2d 346, 372 (S.D.N.Y. 2005).
15. See Sachs, supra note 9. See also Kun Young Chang, Multinational Enforcement of U.S. Securities Laws: The Need for the Clear and Restrained Scope of Extraterritorial Subject-Matter Jurisdiction, 9 FORDHAM J. CORP. & FIN. L. 89 (2004);
16. Stephen J. Choi & Andrew T. Guzman, The Dangerous Extraterritoriality of American Securities Law, 17 NW. J. INT'L L. & BUS. 207 (1997);
17. Jill E. Fisch, Imprudent Power: Reconsidering U.S. Regulation of Foreign Tender Offers, 87 NW. U. L. REV. 523 (1993);
18. Michael W. Gordon, United States Extraterritorial Subject Matter Jurisdiction in Securities Fraud Litigation, 10 FLA. J. INT'L L. 487 (1996);
19. Roberta S. Karmel, The Second Circuit's Role in Expanding the SECs Jurisdiction Abroad, 65 ST. JOHN'S L. REV. 743 (1991);
20. Donald C. Langevoort, Schoenbaum Revisited: Limiting the Scope of Antifraud Protection in an Internationalized Securities Marketplace, 55 LAW & CONTEMP. PROBS. 241 (1992);
21. Gregory K. Matson, Note, Restricting the Jurisdiction of American Courts over Transnational Securities Fraud, 79 GEO. L. J. 141 (1991);
22. W. Barton Patterson, Note, Defining the Reach of the Securities Exchange Act: Extraterritorial Application of the Antifraud Provisions, 74 FORDHAM L. REV. 213 (2006).
23. Foley Bros. v. Filardo, 336 U.S. 281, 285 (1949).
24. The presumption against extraterritoriality stems from a number of foreign-policy and related concerns. See generally EEOC v. Arabian Am. Oil Co. (Aramco), 499 U.S. 244 (1991);
25. Gary B. Born, A Reappraisal of the Extraterritorial Reach of U.S. Law, 24 LAW & POL'Y INT'L BUS. 1 (1993);
26. William S. Dodge, Understanding the Presumption Against Extraterritoriality, 16 BERKELEY J. INT'L L. 85 (1998);
27. Jonathan Turley, "When in Rome": Multinational Misconduct and the Presumption Against Extraterritoriality, 84 NW. U. L. REV. 598 (1990).
28. See, e.g., Sloane Overseas Fund, Ltd. v. Sapiens Int'l Corp., 941 F. Supp. 1369, 1374 (S.D.N.Y. 1996) (stating that the Aramco case, and thus the presumption against extraterritoriality, has "never been applied" to securities claims in the Second Circuit).
29. 405 F.2d 200 (2d Cir. 1968), overruled on other grounds, 405 F.2d 215 (2d Cir. 1968).
30. Id. at 204-08.
31. Id. at 206.
32. In one passage of its opinion, the court cites Section 2 of the Exchange Act, which has a clear focus on transactions, but then turns to the interests of investors more generally. See id. at 206 (arguing that Congress would not have intended "to preclude application of the Exchange Act to transactions regarding stocks traded in the United States which are effected outside the United States, when extraterritorial application of the Act is necessary to protect American investors;" the Act "seeks to regulate the stock exchanges and the relationships of the investing public to corporations which [list] on such exchanges" (emphasis added)).
33. Id. at 208 ("at least when the transactions involve stock registered and listed on a national securities exchange").
34. See Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 989 (2d Cir. 1975) (holding that "an adverse effect on this country's general economic interests or on American security prices" was insufficient to establish jurisdiction).
35. Interbrew S.A. v. Edperbrascan Corp., 23 F. Supp. 2d 425, 430 (S.D.N.Y. 1998).
36. Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972).
37. Id. at 1331.
38. Id. at 1334.
39. See id. at 1337 (distinguishing the situation in which two foreign parties are injured by conduct occurring in the United States).
40. IIT v. Vencap, Ltd., 519 F.2d 1001, 1016 (2d Cir. 1975) (noting that American fundholders made up only .2% of the total).
41. Id. at 1016-17.
42. Id. at 1017.
43. These cases indirectly protect U.S. interests by encouraging reciprocity in the policies of our trading partners. "This country would surely look askance if one of our neighbors stood by silently and permitted misrepresented securities to be poured into the United States. By the same token it is hard to believe Congress meant to prohibit the SEC from policing similar activities within this country . . . ." Id. See also SEC v. Kasser, 548 F.2d 109, 116 (3d Cir. 1977) (outlining three policies for extending jurisdiction even over claims that cause no effect on U.S. markets or to U.S. investors: (1) preventing the United States from becoming a base of operations for fraudulent conduct; (2) promoting reciprocal enforcement by other countries where fraud is directed toward the United States; and (3) furthering the policy of maintaining high standards of conduct in securities transactions within the United States).
44. See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 402(1)(a) (1987).
45. See IIT, 519 F.2d at 1018 (recognizing this extension of the conduct test).
46. See Straub v. Vaisman & Co., Inc., 540 F.2d 591, 595 (3d Cir. 1976); In re Cable & Wireless, PLC, Sec. Litig., 321 F. Supp. 2d 749, 764 (E.D. Va. 2004) (conceding that the fraud in question "did not effect [sic] a great deal of Americans nor did they impact American markets," but concluding nevertheless that "defendants' domestic conduct alone gives this Court subject matter jurisdiction over the foreign purchaser Plaintiffs' claims.").
47. See Psimenos v. E.F. Hutton & Co., Inc., 722 F.2d 1041, 1045 (2d Cir. 1983) (noting that the conduct test is separate and meant to be so); Ohman v. Kahn, 685 F. Supp. 1302, 1306 (S.D.N.Y. 1988) (noting that the cumulative effect of alleged preparatory activities was sufficient to invoke U.S. securities law).
48. See In re Vivendi Universal, S.A. Sec. Litig., No. 02 Civ. 5571, 2004 WL 2375830, at *2-3 (S.D.N.Y. Oct. 22, 2004). This version is based on the Second Circuit's articulation. For an account of the importance of that court - and, in particular, of Judge Friendly - in shaping extraterritoriality jurisprudence, see Margaret V. Sachs, Judge Friendly and the Law of Securities Regulation: The Creation of a Judicial Reputation, 50 SMU L. REV. 777 (1997) and Karmel, supra note 14.
49. Itoba Ltd. v. Lep Group PLC, 54 F.3d 118, 122 (2d Cir. 1995) ("There is no requirement that [the conduct and effects] tests be applied separately and distinctly from each other. Indeed, an admixture or combination of the two often gives a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction by an American court."),
50. See Gordon, supra note 14, at 531-32 (suggesting that, under the blended approach, jurisdictional contacts independently insufficient to satisfy either test could be combined).
51. Interbrew S.A. v. Edperbrascan Corp., 23 F. Supp. 2d 425, 432 (S.D.N.Y. 1998) (in simple securities litigation, noting fraudulent filings on which the foreign plaintiff might have relied, but then seeking additional connecting factors). See also Europe & Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 129-30 (2d Cir. 1998); AVC Nederland B.V. v. Atrium Inv. P'ship, 740 F.2d 148, 154 (2d Cir. 1984); Fidenas AG v. Compagnie Internationale Pour L'Informatique CII Honeywell Bull S.A., 606 F.2d 5, 9-10 (2d Cir. 1979).
52. 15 U.S.C. § 78u-4(a)(3) (2000).
53. See 7 ALBA CONTE & HERBERT NEWBERG, NEWBERG ON CLASS ACTIONS § 22:2 (4th ed. 2002) (recounting the Act's legislative history);
54. Stephen J. Choi, The Evidence on Securities Class Actions, 57 VAND. L. REV. 1465, 1469 (2004) (discussing the goals of the PSLRA). See also Coopers & Lybrand v. Livesay, 437 U.S. 463, 476 (1978) (recognizing the possibility that "[certification of a large class may so increase the defendant's potential damages liability and litigation costs that he may find it economically prudent to settle and to abandon a meritorious defense").
55. See Securities Exchange Act of 1934 § 21D(b)(1)-(2), 15 U.S.C. §§ 78u-4(b)(1)-(2) (2000).
56. See id. § 21E.
57. See id. § 21D(f).
58. FED. R. CIV. P. 23(a). Plaintiffs must also establish that their claim falls within one of the Rule 23(b) categories. On the interaction between the Federal Rules' class action process and the PSLRA, see generally Louis Loss & JOEL SELIGMAN, FUNDAMENTALS OF SECURITIES REGULATION 1376-92 (5th ed. 2004).
59. See Elliott J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 YALE L.J. 2053, 2105-07 (1995) (setting forth the proposal eventually enacted in the PSLRA);
60. Jill E. Fisch, Class Action Reform: Lessons from Securities Litigation, 39 ARIZ. L. REV. 533, 534-37 (1997) (discussing the adoption of the lead plaintiff provision and the purposes it was intended to serve).
61. See Fisch, supra note 47, at 535-39 (describing the "abuse scenario" painted by legislators as including the danger that small shareholders (a) had little financial incentive at stake in the case and therefore (i) little reason carefully to monitor class counsel and (ii) little reason to resist a premature settlement; and (b) tended to be unsophisticated and therefore unable to monitor the litigation effectively). See also Weiss & Beckerman, supra note 47.
62. Securities Exchange Act of 1934 § 21D(a)(3)(A), 15 U.S.C. § 78u-4(a)(3)(A) (2000).
63. See id. § 21D(a)(3)(B). The court is expected to consider such motions and make the appointment within 90 days, although in many cases the process is extended when investors challenge each other's motions for appointment.
64. See id. § 21D(a)(3)(B)(iii). Either an individual plaintiff or a group can be appointed lead. The lead plaintiff also selects, subject to court approval, class counsel. See id. § 21D(a)(3)(B)(v).
65. See id. § 21D(a)(3)(B)(iii)(II).
66. This is often the first point during securities litigation at which the court is asked to rule on a motion that raises jurisdictional issues.
67. See, e.g., In re Lernout & Hauspie Sec. Litig., 138 F. Supp. 2d 39 (D. Mass. 2001) (approving as lead plaintiff a group of three foreign individuals); Takeda v. Turbodyne Techs., Inc., 67 F. Supp. 2d 1129, 1137 (CD. Cal. 1999). Cf. In re Baan Co. Sec. Litig., 271 F. Supp. 2d 3, 13 (D.D.C. 2002) (stating that a single foreign individual as lead plaintiff was undesirable partly due to "geographic and linguistic barriers"); In re Network Assocs., Inc. Sec. Litig., 76 F. Supp. 2d 1017, 1030 (N.D. Cal. 1999) (rejecting two foreign institutions proposed as lead plaintiffs partly on the basis that their distance and differences in business culture would prevent them from adequately managing group litigation in California).
68. See, e.g., In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 510-12 (S.D.N.Y. 2005); In re Nortel Networks Corp. Sec. Litig., No. 01-CV-1855(RMB), 2002 WL 1492116 (S.D.N.Y. Feb. 4, 2002) (order appointing Canadian institution as sole lead plaintiff).
69. See, e.g., In re Royal Ahold N.V. Sec. Litig., 219 F.R.D. 343, 352 (D. Md. 2003) (rebutting the presumption in favor of a foreign institutional investor on the grounds that it would not be able to avoid devoting a substantial portion of its efforts to defending against jurisdictional attacks, and noting that its claims might be dismissed at the certification stage).
70. See In re Cable & Wireless, PLC, Sec. Litig., 217 F.R.D. 372, 378 (E.D. Va. 2003) (appointing a Canadian institutional investor and a U.S. individual investor as co-lead plaintiffs for a putative class including purchasers of common stock traded on the London Stock Exchange as well as ADSs traded on the New York Stock Exchange).
71. See generally CONTE & NEWBERG, supra note 42, § 22:4. Courts have recognized the utility of co-lead plaintiffs in enhancing class representation outside the context of jurisdiction as well. Some, for example, have held that the combination of an institutional and individual investor could help assure the best representation possible of all claims within a class. See In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42, 49 (S.D.N.Y. 1998) (limiting a proposed 30-member group to three co-lead plaintiffs: "Allowing for diverse representation, including in this case a state pension fund, significant individual investors and a large institutional investor, ensures that the interests of all class members will be adequately represented in the prosecution of the action and in the negotiation and approval of a fair settlement, and that the settlement process will not be distorted by the differing aims of differently situated claimants.").
72. Rule 23(a) states the following prerequisites to a class action: "(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class." FED. R. CIV. P. 23(a).
73. Rule 23(b) sets forth the conditions under which an action that meets the prerequisites of Rule 23(a) may be maintained. FED. R. CIV. P. 23(b).
74. See CONTE & NEWBERG, supra note 42, § 22:24.
75. See discussion infra Part IV.B.1.a.
76. See, e.g., Smith v. Dominion Bridge Corp., No. Civ. A. 96-7580, 1998 WL 98998, at *4 (E.D. Pa. Mar. 6, 1998) (finding that the plaintiff had failed to establish typicality for this reason). A similar issue is sometimes raised in connection with pendent state law claims in federal litigation. Defendants have argued that because presumptive reliance is unavailable under state law, those claims cannot be appended to federal claims without defeating the predominance requirement. Courts have rejected such objections. See CONTE & NEWBERG, supra note 42, § 22:63.
77. See In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 90 (S.D.N.Y. 2007) ("The Rule 23(b)(3) predominance inquiry 'is a more demanding criterion than the commonality inquiry under Rule 23(a).'" (quoting Moore v. PaineWebber, Inc., 306 F.3d 1247, 1252 (2d Cir. 2002))).
78. See In re Royal Dutch/Shell Transp. Sec. Litig., 380 F. Supp. 2d 509, 547 n.8 (D.N.J. 2005).
79. See generally 5 ALBA CONTE & HERBERT NEWBERG, NEWBERG ON CLASS ACTIONS § 16 (4th ed. 2002).
80. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985) (applying this analysis to foreign as well as U.S. plaintiffs).
81. Id. at 812 (discussing "notice plus an opportunity to be heard and participate in the litigation," and the "opportunity [for the plaintiff] to remove himself from the class by executing and returning an 'opt-out' or 'request for exclusion' form to the court").
82. The failed negotiations surrounding the proposed Hague Convention on Jurisdiction and Judgments highlighted many of these differences. See generally Symposium - Enforcing Judgments Abroad: The Global Challenge, 24 BROOK. J. INT'L L. 1 (1998).
83. See GARY B. BORN, INTERNATIONAL CIVIL LITIGATION IN UNITED STATES COURTS 942-43 (Kluwer Law Int'l 3d ed. 1996) (1988) (discussing the approach to recognition of foreign judgments in Germany, Japan, and England).
84. See Debra Lyn Bassett, Implied "Consent" to Personal Jurisdiction in Transnational Class Litigation, 2004 MICH. ST. L. REV. 619, 624-25 (2004) (noting that the U.S. class action device is "unique," and citing authorities describing the more limited versions of group litigation mechanisms adopted elsewhere);
85. Samuel P. Baumgartner, Class Actions and Group Litigation in Switzerland, 27 NW. J. INT'L L. & BUS. 301, 310-11 (2007) (discussing the rejection of U.S.-style class action procedures in Switzerland).
86. See e.g., In re DaimlerChrysler AG Sec. Litig., Declaration of Rolf Stürner, 294 F. Supp. 2d 616 (D. Del. 2003) (No. 00-993/00-984/01-004- JJF), 2003 WL 24337540 (concluding that in various countries procedural law would require individual notice to class members in a manner inconsistent with the procedures followed under current class action practice in the United States).
87. See In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 95-105 (S.D.N.Y. 2007) (providing a full exploration of these issues under the laws of Austria, England, France, Germany, and the Netherlands).
88. Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 996 (2d Cir. 1975); see also Janet Walker, Crossborder Class Actions: A View From Across the Border, 2004 MICH. ST. L. REV. 755, 764 (2004).
89. See, e.g., In re U.S. Financial Sec. Litig., 69 F.R.D. 24, 48-49 (S.D. Cal. 1975) (noting that because meaningful discovery was unavailable in other systems, it would be nearly impossible for plaintiffs to mount a successful case in other jurisdictions, and that the defendant was not doing business in other countries and thus would not be amenable to suit there); id. at 53 (stating that the res judicata concern is more compelling when plaintiffs have in fact already filed claims elsewhere).
90. As some commentators have noted, this concern may actually have greater force in other areas of the law, where the claims being aggregated are individually small. In securities class actions, however, there are often individual plaintiffs with quite substantial stakes. It may therefore be difficult to conclude ex ante that relitigation even in jurisdictions without class action procedures is unlikely.
91. Some cases have also noted that the inclusion of a named foreign plaintiff may, in the case of a foreign system that uses class actions, allow the U.S. court to assert jurisdiction over the absent foreign class members. See Krangel v. Golden Rule Resources, Ltd, 194 F.R.D. 501, 506 (E.D. Pa. 2000).
92. In a case considering whether foreign shareholders would be required to opt in, or could be included in the opt-out process, the court stated that "[b]ecause defendant has not borne its burden of demonstrating a substantial probability of subsequent foreign suits and consequent enforcement of adverse judgments against assets held abroad, we decline to depart from the traditional opt out class action format." Jordan v. Global Natural Resources, Inc., 104 F.R.D. 447, 448 (S.D. Ohio 1984) (emphasis added). See also In re Cable & Wireless, PLC, 321 F. Supp. 2d 749, 766 (E.D. Va. 2004) (characterizing res judicata concerns as a mere possibility and therefore unproblematic in the context of a motion to dismiss for lack of subject-matter jurisdiction). Accord In re Royal Dutch/Shell Transport Sec. Litig., 380 F. Supp. 2d 509, 547 (D.N.J. 2005).
93. See, e.g., In re Turkcell Iletisim Hizmetler, A.S. Sec. Litig., 209 F.R.D. 353, 360 (S.D.N.Y. 2002) ("The case law suggests that, if there is some possibility that a class action judgment would be enforceable - or at least have some substantial effect - in the foreign jurisdiction at issue, then class certification is proper.").
94. See, e.g., CL-Alexanders Laing & Cruickshank v. Goldfeld, 127 F.R.D. 454, 455 (S.D.N.Y. 1989) (denying certification to a class of British investors on the basis, among other reasons, of res judicata concerns).
95. In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 95 (S.D.N.Y. 2007).
96. Federal Rule of Civil Procedure 12(h)(3) provides that "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action."
97. See, e.g., Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1330 (2d Cir. 1972).
98. See, e.g., United States v. Nat'l City Lines, Inc., 334 U.S. 573 (1948) (holding that the venue provision of the Clayton Act eliminated judicial discretion to dismiss antitrust claims on the basis of forum non conveniens).
99. See Securities Act of 1933 § 22(a), 15 U.S.C § 77v (2000); Securities Exchange Act of 1934 § 27, 15 U.S.C. § 78aa (2000) (venue in securities cases).
100. See Howe v. Goldcorp Invs., Ltd, 946 F.2d 944, 945 (1st Cir. 1991) (rejecting the traditional view and finding securities claims susceptible of forum non conveniens dismissal); Alfadda v. Fenn, 966 F. Supp. 1317, 1332 (S.D.N.Y. 1997) (dismissing claims in a U.S. court because France proved more convenient). See also Fustok v. Banque Populaire Suisse, 546 F. Supp. 506, 513-14 (S.D.N.Y. 1982) (reaching the same conclusion in a case applying the Commodities Exchange Act). This relaxation of the traditional view is consistent with the move to enforce forum foreign-selection and governing-law clauses in private securities agreements. See Hannah L. Buxbaum, Regulatory Policy in Transnational Litigation: The Influence of Judicial Globalization, in 1 FESTSCHRIFT FÜR ERIK JAYME 73 (Heinz-Peter Mansel et al. eds., 2004).
101. This may become a more important alternative in light of the Supreme Court's recent holding that courts may dismiss claims on the basis of forum non conveniens without first establishing personal and subject-matter jurisdiction over the claims. Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp, 127 S. Ct. 1184, 1192 (2007). In multinational class actions presenting particularly difficult jurisdictional issues, courts may view forum non conveniens as a more straightforward route to dismissal. See id. at 1194 ("[W]here subject-matter or personal jurisdiction is difficult to determine, ana forum non conveniens considerations weigh heavily in favor of dismissal, the court properly takes the less burdensome course.").
102. This generally means that the defendant must be subject to service of process in an identified foreign forum, and that forum must permit litigation of the subject matter. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 (1981).
103. See Gulf Oil Co. v. Gilbert, 330 U.S. 501, 508-09 (1947) (outlining the relevant interests).
104. See generally BORN, supra note 70, at 351-52.
105. Piper, 454 U.S. at 247. See also Cromer Fin. Ltd. v. Berger, 158 F. Supp. 2d 347, 353 (S.D.N.Y. 2001) (finding Bermuda to be an adequate available forum).
106. See BORN, supra note 70, at 353 (concluding that "U.S. courts are generally reluctant to deny dismissal merely because foreign procedures differ from those in the United States").
107. See Howe v. Goldcorp Invs. Ltd, 946 F.2d 944, 952 (1st Cir. 1991) (noting that the foreign law "offer[s] shareholders somewhat similar protections by forbidding misrepresentation and fraud and imposing fiduciary obligations," and affirming dismissal of the action in favor of Canadian court); In re Corel Corp. Inc. Sec. Litig., 147 F. Supp. 2d 363, 365 (E.D. Pa. 2001) (concluding that Ontario was an adequate alternative forum).
108. See In re Lernout & Hauspie Sec. Litig., 208 F. Supp. 2d 74, 91 (D. Mass. 2002); In re Cinar Corp. Sec. Litig., 186 F. Supp. 2d 279, 298 (E.D.N.Y. 2002) (declining to adopt a fixed rule regarding adequacy in that situation); Trafton v. Deacon Barclays de Zoete Wedd Ltd, No. C 93-2758-FMS, 1994 WL 746199, at *12 (ND. Cal. 1994).
109. See, e.g., Lernout & Hauspie, 208 F. Supp. 2d at 92 (expressing an unwillingness to force thousands of U.S. purchasers to file individual suits in Belgian court); DeRensis v. Coopers & Lybrand Chartered Accts, 930 F. Supp. 1003, 1007-09 (D.N.J 1996) (holding that the absence of these features of U.S. class action law rendered the Canadian system inadequate). Accord Trafton, 1994 WL 746199, at *11-12 (recognizing that in cases where an alternative forum would deny plaintiffs the right to bring a claim, such alternative jurisdiction is not adequate (citing Piper Aircraft Co. v. Reyno, 454 U.S. 235, 253 (1981))). But see Beddome v. DeYoung, 707 F. Supp. 132 (S.D.N.Y. 1989) (finding the analogous system in Canada adequate); In re Cinar Corp. Sec. Litig., 186 F. Supp. 2d 279 (E.D.N.Y. 2002) (assuming arguendo that the Canadian system was adequate, but later refusing dismissal based on analysis of the Gilbert factors).
110. See, e.g., Fustok v. Banque Populaire Suisse, 546 F. Supp. 506, 510-11 (S.D.N.Y. 1982) (documents and witnesses located in Switzerland). Cf. In re Corel Corp. Inc. Sec. Litig., 147 F. Supp. 2d 363, 366-67 (E.D. Pa. 2001) (acknowledging that many witnesses and documents were in Canada, but holding that insufficient to tip the balance strongly enough away from the plaintiffs chosen forum).
111. See Gulf Oil Co. v. Gilbert, 330 U.S. 501, 508-09 (1947) (setting out the range of interest factors relevant to the convenience analysis).
112. See Allstate Life Ins. Co. v. Linter Group, Ltd, 994 F.2d 996, 1002 (2d Cir. 1993) ("While appellants are correct in asserting that United States courts have an interest in enforcing United States securities laws, this alone does not prohibit them from dismissing a securities action on the ground of forum non conveniens."). Cf. DiRienzo v. Philip Servs. Corp., 294 F.3d 21, 33 (2d Cir. 2002) (identifying the "strong public interest" of the United States in enforcing its securities laws as a relevant public interest factor).
113. In general, the plaintiffs choice of forum will be respected, but that presumption is weaker when the plaintiff is foreign. Piper, 454 U.S. at 255.
114. See Corel, 147 F. Supp. 2d at 367 (in a case involving substantial trading on U.S. exchanges, stating that "the United States has an interest in enforcing its securities laws and maintaining the integrity of its securities markets").
115. See, e.g., Yung v. Lee, No. 00-CV-3965-DAB, 2002 WL 31008970, at *2 (S.D.N.Y. Sept. 5, 2002) ("While this Court agrees that the allegedly fraudulent SEC filing by ITNG has potential domestic impact, that impact is dwarfed by the vast majority of conduct in and impact upon China.").
116. See, e.g., In re Cinar Corp. Sec. Litig., 186 F. Supp. 2d 279, 300 (E.D.N.Y. 2002) (noting that all of the plaintiffs were American citizens).
117. See Paraschos v. YBM Magnex Ltd., 130 F. Supp. 2d 642, 645 (E.D. Pa. 2000) ("The rationale for dismissals based on comity is . . . deference to the foreign country's legal, judicial, legislative and administrative system of handling disputes over which it has jurisdiction, in a spirit of international cooperation.").
118. See id. at 645 (noting that "this is a securities fraud action pertaining to Canadian registered securities, brought by a purported class of investors who are virtually all Canadian, against predominantly Canadian defendants, concerning a Canadian corporation whose stock was sold only on Canadian stock exchanges.").
119. The Clearinghouse, at http://securities.stanford.edu, does not code actions for issuer nationality. In order to identify actions filed against foreign issuers, I (a) input ticker symbols of companies listed on either the New York Stock Exchange, the American Stock Exchange or NASDAQ, and (b) searched for terms signaling global securities (ADR, ADS, DR, and GDR).
120. These were included in a single consolidated action before the Southern District of New York. They dealt only with manipulation in the IPO market and so did not raise the jurisdictional issue I consider here.
121. See Appendix hereto.
122. See Appendix hereto.
123. This category includes complaints involving the issuers AstraZeneca plc, Rhodia S.A., Converium Holding AG, and Infineon Technologies AG. The defendants' replies to these complaints often raise the question of subject-matter jurisdiction, indicating that the issue is likely to be addressed as litigation proceeds. See, e.g., Bridgestone Corp.'s Reply in Support of Motion to Dismiss, in Part, for Lack of Subject-Matter Jurisdiction, In re Bridgestone Sec. Litig., 430 F. Supp. 2d 728 (M.D. Tenn. 2007) (No. 03:01-0017), 2007 WL 460660.
124. See, e.g., In re Sierra Wireless, Inc. Sec. Litig., 482 F. Supp. 2d 365, 367 (S.D.N.Y. 2007) (dismissing entire complaint against Canadian corporation for failure to state claims with particularity); In re Nokia Oyj Sec. Litig., 423 F. Supp. 2d 364, 410 (S.D.N.Y. 2006) (dismissing complaint against Finnish corporation without deciding issue of subject-matter jurisdiction over claims by foreign investors).
125. Stipulation and Order of Dismissal, Eisenberg O. Mgmt. & Consulting, Ltd. v. Lipman Elec. Eng'g, Ltd, No. 1:05-cv-04788-BMC-KAM (E.D.N.Y. Sept. 6, 2006), available at http://securities.stanford.edu/1035/TASE05_01/ 200696_f01o_0504788.pdf.
126. See Appendix hereto.
127. See, e.g., In re Baan Co. Sec. Litig., 103 F. Supp. 2d 1, 4 (D.D.C. 2000) (granting motion to dismiss for lack of subject-matter jurisdiction as to plaintiffs who did not reside in the United States or purchase their stock in the United States); In re National Australia Bank Sec. Litig., No. 03-CV-0567, 2006 WL 3844465, at *4 (S.D.N.Y. Oct. 25, 2006) (concluding that foreign plaintiffs failed to establish subject-matter jurisdiction over their claims); Tri-Star Farms Ltd. v. Marconi, PLC, 225 F. Supp. 2d 567, 581 (W.D. Pa. 2002) (granting motion to dismiss for lack of subject-matter jurisdiction over non-resident purchasers of U.K. company's ordinary shares).
128. See, e.g., In re DaimlerChrysler AG Sec. Litig., 216 F.R.D. 291, 301 (D. Del. 2003) (certifying class including only domestic investors in litigation against German issuer).
129. In re Royal Group Tech. Sec. Litig., 04-CV-9809-HB, 2005 WL 3105341, at *3 (S.D.N.Y. Nov. 21, 2005) (dismissing a complaint against a Canadian issuer).
130. Paraschos v. YBM Magnex Int'l, Inc., 130 F. Supp. 2d 642, 647 (E.D. Pa. 2000) (dismissing a complaint against a Canadian issuer).
131. See Appendix hereto.
132. See, e.g., Notice of Pendency and Proposed Settlement of Class Action at 3, In re Intershop Commc'ns AG Sec. Litig., No.C-01-20333-JW (N.D. Cal. Sept. 30, 2005), available at http://securities.stanford.edu/ 1017/ISHP01/2005930_r01n_0120333.pdf (defining the class to include "(a) all persons who purchased Intershop American Depositary Shares . . . on the NASDAQ market and (b) all persons who purchased Intershop common stock . . . on the [German] Neuer Market").
133. These decisions form the basis of the analysis in Part IV below.
134. Of the decisions here reviewed, the rate increased from two complaints filed in each of 1996 and 1997 to nine in 2004 and eight in 2005.
135. See, e.g., Blechner v. Daimler-Benz AG, 410 F. Supp. 2d 366, 371 (D. Del. 2006) (after having excluded foreign claimants at the certification stage in In re DaimlerChrysler AG Sec. Litig., 216 F.R.D. 291, 301 (D. Del. 2003), dismissing a subsequent action brought by only foreign parties against the German auto manufacturer); Froese v. Staff, No. 02-CV-5744-RO, 2003 WL 21523979, at * 2 (S.D.N.Y. Jul. 7, 2003) (cursory dismissal of an action brought against German company Hugo Boss by "all foreign" plaintiffs who purchased their securities on a German exchange).
136. See Donald C. Langevoort, Fraud and Insider Trading in American Securities Regulation: Its Scope and Philosophy in a Global Marketplace, 16 HASTINGS INT'L & COMP. L. REV. 175, 183-85 (1993).
137. See, e.g., In re The Baan Company Sec. Litig., 103 F. Supp. 2d 1, 11 (D.D.C. 2000) (discussing plaintiffs' contention that "the defendants' acts had an effect in the United States because Baan shares trade in tandem on the world's markets, and therefore the value of Baan's shares owned by United States residents was affected").
138. See In re Alstom Sec. Litig., 406 F. Supp. 2d 346, 369-70 (S.D.N.Y. 2005) (seeking specific harm suffered by a U.S.-interested party, not "generalized adverse consequences . . . on the United States economy or financial markets").
139. See, e.g., McNamara v. Bre-X Minerals Ltd, 32 F. Supp. 2d 920, 923 (E.D. Tex. 1999) ("Though losses in the instant case were clearly sustained by American Plaintiffs, those losses were independent and did not flow from the Canadian purchases. The Canadian Plaintiffs cannot justify jurisdiction by bootstrapping on independent, American losses").
140. See, e.g., Alstom, 406 F. Supp. 2d at 369-70 (refusing to extend jurisdiction where fraudulent actions took place overseas and the effects only felt by the U.S. economy or investors generally, because doing so would "address general market conditions rather than redress specific harms suffered by some U.S.-interested party, a goal specifically foreclosed by numerous interpretations of the securities laws" (quoting Interbrew v. Edperbrascan Corp., 23 F. Supp. 2d 425, 430 (S.D.N.Y. 1998))); Baan, 103 F. Supp. 2d at 11 (rejecting the notion that the more generalized effects created when there is a U.S. market in the securities then confers jurisdiction over the foreign claims as well (citing Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 988-89 (2d Cir. 1975))). See also Kaufman v. Campeau Corp., 744 F. Supp. 808, 810 (S.D. Ohio 1990) (non-class action).
141. As discussed below, the conduct test may provide an independent basis for asserting subject-matter jurisdiction over such claims. Therefore, the lack of effects-based jurisdiction in such a case does not necessarily bar their litigation in U.S. courts.
142. This proposition should hold true regardless of whether the issuer in question is a U.S. or a foreign corporation. Thus, if a plaintiff purchases securities of a U.S. issuer on a foreign exchange, effects-based jurisdiction would lie in the country in which that exchange is based.
143. See, e.g., Baan, 103 F. Supp. 2d at 10.
144. Second Amended Complaint For Violations of the Federal Securities Laws at ¶ 22, In re Infineon Techs. AG Sec. Litig., No. C-04-4156-JW (S.D. Cal. Oct. 11, 2006), available at http://securities.stanford.edu/1032/ IFX04-01/20061011_r01c_0404156.pdf.
145. These elements are also labeled "transaction causation" and "loss causation." See the Securities Exchange Act of 1934 § 21D(b)(4), 15 U.S.C. § 78u-4 (2000), for requirements regarding the latter.
146. Basic, Inc. v. Levinson, 485 U.S. 224, 247 (1988).
147. See Itoba Ltd. v. Lep Group PLC, 54 F.3d 118, 122 (2d Cir. 1995) (in an individual claim, noting that information contained within a U.S. filing had in fact been used as the basis of the investment decision).
148. See, e.g., McNamara v. Bre-X Minerals Ltd, 32 F. Supp. 2d 920, 925 (E.D. Tex. 1999) (noting that "[n]ot a single [foreign] Plaintiff has alleged that he or she relied on (or was even aware of) any statements, reports or filings which emanated from the United States.").
149. See In re Baan Co. Sec. Litig., 103 F. Supp. 2d 1, 10 (D.D.C. 2000) (distinguishing "specific reliance" from reliance based on the market).
150. Tri-Star Farms Ltd. v. Marconi, PLC, 225 F. Supp. 2d 567, 579 (W.D. Pa. 2002).
151. Langevoort, supra note 14, at 245.
152. In re Royal Ahold N.V. Sec. Litig., 351 F. Supp. 2d 334, 362 (D. Md. 2004).
153. Id. (citing Itoba Ltd. v. Lep Group PLC, 54 F.3d 118, 123 (2d Cir. 1995)).
154. For a case outlining the plaintiffs arguments regarding worldwide efficient markets, see In re Parmalat Sec. Litig., 375 F. Supp. 2d 278, 304 (S.D.N.Y. 2005) (analyst coverage, multiple listings, etc.). See also In re Ashanti Goldfields Sec. Litig., No. CV 00-0717(DGT), 2004 WL 626810, at *15 (E.D.N.Y. 2004) (discussing defendant's contention that the global market in the issuer's securities was not efficient). See generally Smith v. Dominion Bridge, No. CIV. A. 96-7580, 1998 WL 98998 (E.D. Pa. 1998); In re Laidlaw Sec. Litig., No. 91-CV-1829, 1992 WL 68341 (E.D. Pa. 1992).
155. In re Baan Co. Sec. Litig., 103 F. Supp. 2d 1, 10 (D.D.C. 2000). Accord Tri-Star Farms Ltd. v. Marconi, PLC, 225 F. Supp. 2d 567, 579 (W.D. Pa. 2002) (holding that "employing the "fraud-on-the-market' doctrine to satisfy the conduct test in [the] class action lawsuit involving overwhelmingly foreign transactions would extend the jurisdictional reach of the securities laws too far").
156. In re Bayer AG Sec. Litig., No. 03 Civ.1546 WHP, 2004 WL 2190357, at *18 (S.D.N.Y. 2004).
157. In re Bayer AG Sec. Litig., 423 F. Supp. 2d 105, 113 n.2 (S.D.N.Y. 2005) (declining "to engage in a purely advisory discussion of Plaintiffs' fraud on the market theory").
158. Memorandum of Law in Support of Motion for Class Certification, In re Bayer AG Sec. Litig., 423 F. Supp. 2d 105 (S.D.N.Y. 2005) (No. 03 CV 1546 (WHP)), 2006 WL 1140263.
159. Id. at 17.
160. Including U.S. citizens, who may have been resident abroad and therefore unlikely to have read U.S.-based disclosure of information.
161. See Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 987 (2d Cir. 1975).
162. Nathan Gordon Trust v. Northgate Exploration, Ltd., 148 F.R.D. 105, 108 (S.D.N.Y. 1993) (noting that the misrepresentations in question were authored entirely in Canada, and that their inclusion in documents filed with the SEC was "merely incidental"). See also In re Bayer AG Sec. Litig., 423 F. Supp. 2d 105, 111-12 (S.D.N.Y. 2005) (concluding that the misstatements emanated from Germany and could not support jurisdiction over the claims of a large foreign class); Froese v. Staff, No. 02 CV 5744(RO), 2003 WL 21523979, at *2 (S.D.N.Y. 2003) (stating that the fraud occurred when the misstatements were "conceived, engineered, and published in Germany").
163. Kaufman v. Campeau Corp., 744 F. Supp. 808, 810 (S.D. Ohio 1984) (finding that, where the fraud emanated from Canada, and the only U.S.-based conduct was the inclusion of alleged misrepresentations in filings and other public information, such conduct was too "insubstantial in comparison to [alleged foreign conduct]" to justify jurisdiction). See also Societe Nationale d'Exploitation v. Salomon Bros. Int'l Ltd, 928 F. Supp. 398, 405 (S.D.N.Y. 1996) (finding no jurisdiction when "the bullet was fired from places abroad" (citing Bersch v. Drexel Firestone, Inc., 928 F. Supp. 398, 986-87 (S.D.N.Y. 1996))); cf. Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991) (reversing the district court's dismissal due to lack of jurisdiction after accepting "plaintiffs' largely uncontested allegations of conduct consummating the fraud in the United States as true"); Cromer Fin. Ltd. v. Berger, 137 F. Supp. 2d 452, 476 (S.D.N.Y. 2001) (finding that jurisdiction was proper where a party's administrative services were "created, managed and operated in the United States"); CL-Alexanders Laing & Cruickshank v. Goldfeld, 709 F. Supp. 472, 478-79 (S.D.N.Y. 1989) (determining that U.S.-based conduct was more than mere "field work" performed by a local office and "that a preponderance of the fraudulent statements alleged here emanated from the United States," and holding that this, combined with the fact that "the securities are those of a domestic company," was enough to warrant the exercise of subject-matter jurisdiction).
164. See, e.g., In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243(WHP), 2006 WL 3026024, at *10 (S.D.N.Y. Oct. 25, 2006) ("Although the Complaint alleges that Yukos filed its 2002 Annual Report with the SEC . . . that document is not alleged to have been prepared in the United States. . . . [I]n this putative class action challenging a raft of allegedly misleading statements, a single SEC filing by a foreign corporation is not a 'substantial act[] in furtherance of the fraud' sufficient to confer federal subject matter jurisdiction." (quoting Psimenos v. E.F. Hutton & Co, 722 F.2d 1041, 1045 (2d Cir. 1983))).
165. Cf. Langevoort, supra note 119, at 186 (suggesting a focus on the source of corporate disclosure, presumptively the site of issuer incorporation).
166. See Itoba Ltd. v. Lep Group PLC, 54 F.3d 118, 124 (2d Cir. 1995); In re Gaming Lottery Sec. Litig., 58 F. Supp. 2d 62, 75 (S.D.N.Y. 1999). Cf. Langevoort, supra note 119, at 186 (arguing that "at least regarding corporate disclosure policy[, subject matter jurisdiction should be] based not on the alleged violation's impact but on its source").
167. See, e.g., In re Alstom SA Sec. Litig., 406 F. Supp. 2d 346, 395 (S.D.N.Y. 2005) (noting that the choice not to disclose, and the publication of misleading financial data, all occurred in France, with " republication" in the United States a secondary matter); Tri-Star Farms Ltd. v. Marconi, PLC, 225 F. Supp. 2d 567, 577-78 (W.D. Pa. 2002) (noting that the alleged fraud originated in England, as statements were initially published in the foreign press, with any U.S. conduct being insignificant).
168. This would catch a particular category of cases that one might characterize as fraud "launched" from the United States.
169. Plaintiffs' Opposition to Defendants' Motion to Dismiss Amended Complaint at 36, In re China Life Ins. Co. Ltd. Sec. Litig., No. 04-CV-02112(TPG) (S.D.N.Y. Jan. 9, 2006).
170. See In re Royal Ahold N.V. Sec. Litig., 351 F. Supp. 2d 334, 359 (D. Md. 2004) (noting that the Second Circuit has on different occasions looked to these different stages).
171. Consolidated Class Action Complaint for Violations of Federal Securities Laws at 1 17, In re Nokia OYJ (Nokia Corp.) Sec. Litig., 423 F. Supp. 2d 364 (S.D.N.Y. 2006) (No. 04 Civ. 2646), 2005 WL 578385.
172. See, e.g., Alstom, 406 F. Supp. 2d at 394 (stating that the relevant conduct was not the various United States activities "[i]n and of themselves," but rather the nondisclosure and misrepresentations regarding that activity); Tri-Star Farms, 225 F. Supp. 2d at 578-79 ("Marconi's United States business operations were not themselves fraudulent. Rather, the fraud arises from the representations defendants did or did not make about those operations.").
173. In re Vivendi Universal, S.A. Sec. Litig., No. 02 Civ. 5571(RJH), 2004 WL 2375830, at *4 (S.D.N.Y. Oct. 22, 2004) (referring to 2003 opinion); id. at *7 n.6 (stating that the officers "purposely moved to and operated Vivendi from the United States allegedly to better implement a fraudulent scheme"). See also Second Consolidated Amended Class Action Complaint, In re Nortel Networks Corp. Sec. Lit, No. 01-CV-1855 (RMB) (S.D.N.Y. Jan. 18, 2002), available at http://securities.stanford.edu/1017/NT01/2002118_r01c_011855.pdf (alleging the use of artificially inflated shares as currency for the acquisition of companies).
174. In re Gaming Lottery Sec. Litig., 58 F. Supp. 2d 62, 74 (S.D.N.Y. 1999). See also Alstom, 406 F. Supp. 2d at 393 (accounting fraud "concocted" in the United States and concerning U.S. operations); In re Cable & Wireless, PLC, Sec. Litig., 321 F. Supp. 2d 749, 764 (E.D. Va. 2004) (finding sufficient conduct within the United States to justify jurisdiction).
175. See In re Baan Co. Sec. Litig., 81 F. Supp. 2d 75, 83 (D.D.C. 2000) (in a discovery order, noting that the percentage of shares traded on NASDAQ, as compared to the percentage traded on foreign markets, would be relevant to determining the U.S. interest as the forum).
176. See, e.g., In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243(WHP), 2006 WL 3026024, at *11 (S.D.N.Y. Oct. 25, 2006). See also CL-Alexanders Laing & Cruickshank v. Goldfeld, 709 F. Supp. 472, 477-78 (S.D.N.Y. 1989) (considering claims of U.K. investors arising out of a private placement in the United Kingdom, but concluding that the transaction was in essence predominantly a U.S. transaction - U.S. issuer, ultimate intent to re-sell into the United States).
177. See In re Royal Ahold N.V. Sec. Litig., 351 F. Supp. 2d 334, 353 (D. Md. 2004) (noting that 74% of the Dutch corporation's sales were generated in the United States, and calling it "a primarily United States based company" (citing Consolidated Amended Securities Class Action Complaint at ¶ 57, In re Royal Ahold N.V. Sec. Litig., 351 F.Supp.2d 334 (D. Md. 2004) (No. CIV.1:03-MD-01539), 2004 WL 2358943)).
178. Gaming, 58 F. Supp. 2d at 75, 77 (S.D.N.Y. 1999).
179. In re Bayer AG Sec. Litig., 423 F. Supp. 2d 105, 113 (S.D.N.Y. 2005). See also In re Nat'l Australia Bank Sec. Litig., No. 03 Civ. 6537(BSJ), 2006 WL 3844465, at *4 (S.D.N.Y. Oct. 25, 2006) (no jurisdiction over the foreign claimants, noting that "the aggregate value of the ADRs represented a mere 1.1% of NAB's nearly one-and-a-half billion ordinary shares").
180. In the one counter-example among the set of multinational class actions, a court dismissed the claim of a New York resident purporting to represent all purchasers, noting (a) the absence of any U.S.-based conduct and (b) that the investor had purchased its shares of the foreign issuer through the over-the-counter market rather than on an exchange. Burke v. China Aviation Oil (Singapore) Corp., 421 F. Supp. 2d 649, 653 (S.D.N.Y. 2005).
181. See Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 993 (2d Cir. 1975) (stating that the securities laws "[a]pply to losses from sales of securities to Americans resident in the United States whether or not [conduct] of material importance occurred in this country"). But see IIT v. Cornfeld, 619 F.2d 909, 918 (2d Cir. 1980) (Judge Friendly, also the author of the Bersch opinion, stated that "[n]one of our cases or any others intimate that foreigners engaging in security purchases in the United States are not entitled to the protection of the anti-fraud provisions of the securities laws.").
182. See, e.g., Europe and Overseas Commodity Traders v. Banque Paribas London, 147 F.3d 118, 128 n.12 (2d Cir. 1998) (noting that while there was no need to protect mere transients, foreign citizens resident in the United States should be afforded the same protection as U.S. citizens).
183. See, e.g., In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243 (WHP), 2006 WL 3026024, at *1 (S.D.N.Y. Oct. 25, 2006) (dismissing claims of foreign purchasers who bought in foreign transactions, but not the claims of a foreign citizen/resident who bought ADRs in the United States). But see In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 105-07 (S.D.N.Y. 2007) (excluding German and Austrian investors even, apparently, if they purchased ADRs).
184. It is also difficult to imagine that investors would expect U.S. regulatory law to follow them in their foreign trading, especially given the level of sophistication of investors involved in cross-border investment.
185. See, e.g., In re Indep. Energy Holdings PLC Sec. Litig., 210 F.R.D. 476, 478 (S.D.N.Y. 2002) (defining class to include purchasers of ADSs or residents of the United States who purchased ordinary shares in London); Tri-Star Farms Ltd. v. Marconi, PLC, 225 F. Supp. 2d 567, 581-82 (W.D. Pa. 2002) (allowing claims of U.S. citizens or residents who purchased shares on the London or another foreign exchange); In re Baan Co. Sec. Litig., 103 F. Supp. 2d 1, 4 (D.D.C. 2000) (dismissing claims only of investors who neither resided in the United States nor purchased their securities on U.S. markets); Memorandum of Law in Support of Motion for Class Certification, In re Bayer AG Sec. Litig., 423 F. Supp. 2d 105 (S.D.N.Y. 2005) (No. 03 CV 1546 (WHP)), 2006 WL 1140263 (including in the class all U.S. citizens and residents who had purchased Bayer securities on any exchange, whether in the United States or in another country); In re Philip Servs. Corp. Sec. Litig., Notice of Pendency of Class Action at 2, Proposed Settlement and Settlement Hearing, No. 98 CV 835 (AKH) (S.D.N.Y. Dec. 18, 2006) available at http://securities.stanford.edu/1006/PHV98/20 061218_r01n_99835.pdf (including "all persons or entities who . . . purchased the common stock of Philip on any Canadian stock exchange and were residents or citizens of the United States at the time of said purchase").
186. Cf. Andrew Longstreth, Corning to America, LITIG. 53, 53 (2006) ("As the market for securities becomes more global and more linked, it does become a little artificial to say 'Well, only shares that are purchased in the U.S. exchanges are deserving of compensation and not people who bought on another exchange,' when they're really two portals to the same market." (quoting Merritt Fox)). This point about artificiality is indisputably true, but begs the critical question: should U.S. courts apply U.S. securities law in order to compensate investors who transacted on foreign exchanges?
187. See supra text accompanying notes 29-32.
188. SEC v. Kasser, 548 F.2d 109, 116 (3d Cir. 1977). But see Dodge, supra note 16, at 115-16 (discussing ways in which the policy discourages reciprocity).
189. See Plaintiffs' Opposition to Defendants' Motion to Dismiss Amended Complaint at 35, In re China Life Ins. Co. Ltd. Sec. Litig., No. 04-CV-02112 (TPG) (S.D.N.Y. Jan. 9, 2006), 2006 WL 551381 (alleging that marketing efforts in the United States resulted in hype that affected the issuer's prices on the Hong Kong market as well, and that "even in its American filings, [the issuer] made statements directed at foreign investors").
190. See generally John C. Coffee, Jr., Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 COLUM. L. REV. 1757 (2002).
191. This argument regarding global under-deterrence has been made in the antitrust context as well. See Hannah L. Buxbaum, Transnational Regulatory Litigation, 46 VA. J. INT'L L. 251, 260-61 (2006) (describing arguments that inclusion of claims by foreign plaintiffs promotes global deterrence);
192. Ilana T. Buschkin, Note, The Viability of Class Action Lawsuits in a Globalized Economy - Permitting Foreign Claimants to be Members of Class Action Lawsuits in the U.S. Federal Courts, 90 CORNELL L. REV. 1563, 1588-91 (2005) (arguing that deterrence is a global problem and the exclusion of foreign plaintiffs lessens the likelihood that global corporations will be prevented from committing actions that would ultimately harm U.S. investors);
193. Alvin K. Klevorick & Alan O. Sykes, United States Courts and the Optimal Deterrence of International Cartels: A Welfarist Perspective on Empagran 37-42 (Cowles Found. Yale Univ., Discussion Paper No. 1617, 2007; Yale Univ., Law and Econ. Research Paper No. 340, 2007; Stanford Univ., Law and Econ. Olin Working Paper No. 338, 2007), available at http://ssrn.com/abstract=963394 (outlining the argument that excluding foreign plaintiffs from cartel litigation underdeters, and suggesting additional factors to consider in assessing the full welfare effect of including foreign-based claims in U.S. litigation).
194. See also Clark Yao, Equal Treatment of Foreign Shareholders in Transnational Securities Class Actions against a Foreign Issuer - a Chinese Example (The Berkeley Elec. Press Legal Series, Working Paper No. 948, 2006), available at http://law.bepress.com/expresso/eps/948 (arguing that excluding foreign shareholders from U.S. class actions against a foreign issuer creates unfair discrimination between the issuer's U.S. and non-U.S. shareholders).
195. Cf. Langevoort, supra note 14, at 247, 249; Brian P. Murray & Maurice Pesso, The Accident of Efficiency: Foreign Exchanges, American Depository Receipts, and Space Arbitrage, 51 BUFF. L. REV. 383, 390 (2003).
196. See Weintraub, supra note 11, at 1817. Of course, a clear rule excluding all foreign claims would reduce litigation over jurisdiction just as well. See also discussion infra Part VI.
197. See, e.g., In re Vivendi Universal, S.A., 242 F.R.D. 76, 109 (S.D.N.Y. 2007) (outlining a debate between plaintiffs' and defendants' experts on the level of integration between the U.S. and Paris stock exchanges).
198. See supra notes 148-52 and accompanying text.
199. Such analysis would implicate the more general recent debate regarding proof of efficiency at the class certification stage. See Roberta S. Karmel, When Should Investor Reliance Be Presumed in Securities Class Actions?, BUSINESS LAWYER (forthcoming Nov. 2007) (manuscript at Part IV), available at http://papers.ssrn.com/so13/papers. cfm?abstract_id=1001743#PaperDownload.
200. For instance, a court might wish to treat differently a foreign issuer whose U.S. shareholders invested through a sponsored and heavily marketed ADR program and one whose U.S. shareholders invested through an unsponsored program maintained by a broker-dealer. See Pinker v. Roche Holdings Ltd, 292 F.3d 361, 371 (3d Cir. 2002) (discussing this distinction in connection with analysis of personal jurisdiction over a foreign issuer based on its solicitation of U.S. investment).
201. See supra Part IV.B.1.a.
202. IIT v. Vencap, Ltd, 519 F.2d 1001, 1018 n.31 (2d Cir. 1975).
203. See Stefano M. Grace, Strengthening Investor Confidence in Europe: U.S.-Style Securities Class Actions and the Acquis Communautaire, 15 J. TRANSNAT'L L. & POL'Y 281, 290-97 (2006) (discussing recognition in Europe);
204. Posting of Ted Allen to Risk & Governance Blog, http://blog. riskmetrics.com/2006/03/ (Mar. 7, 2006) (discussing legislative developments in Australia, Canada, South Korea, Israel, Sweden, Germany, Italy, and the Netherlands).
205. See supra pp. 15-16 (discussing claim preclusion).
206. Notice of Certifications in Canada and Proposed Settlement of Class Actions, In re Nortel Networks Sec. Litig., No. 01-CV-1855(RMB), 2002 WL 1492116 (S.D.N.Y. Feb. 4, 2002), available at http://securities.stanford. edu/1017/NT01/2006721_r01n_011855.pdf. See also In re Royal Dutch/Shell Transport Sec. Litig., 522 F. Supp. 2d 712, 715 (D.N.J. 2007) (noting that a settlement agreement filed in the Amsterdam Court of Appeals, which would resolve all claims of non-U.S. purchasers, was "conditioned in part on" the U.S. district court's decision whether or not to exercise subject-matter jurisdiction over those claims).
207. See Philip Anisman & Garry Watson, Some Comparisons Between Class Actions in Canada and the U.S.: Securities Class Actions, Certification, and Costs, 3 CANADIAN CLASS ACTION REV. 467, 521 (2006) (discussing some reasons a Canadian investor might choose to join a U.S. class action rather than a Canadian one).
208. For a discussion of the foreign relations implications of such an outcome, see Buxbaum, supra note 174.
209. See Langevoort, supra note 14, at 260 n.70.
210. Id. at 182-83 (noting that the U.S. approach both to the definition of fraud and to possible sanctions will strike other nations as troublesome); id. at 246 (providing specifics on fraud rules).
211. See Bassett, supra note 71, at 625, 628 (describing such systems).
212. Although Canadian courts have declined to establish a presumption of law based on the fraud on the market theory, some have suggested that reliance on market prices might be inferred from the facts in a particular case. See Anisman & Watson, supra note 186 at 500.
213. Kun Young Chang, supra note 14, at 117-18; Kellye Y. Testy, Comity and Cooperation: Securities Regulation in a Global Marketplace, 45 ALA. L. REV. 927, 957 (1994) ("applying the U.S. securities laws to transactions having only a tangential relationship to the U.S. risks offending other nations by perpetuating an already problematic image of American pomposity");
214. Stevan Sandberg, The Extraterritorial Reach of American Economic Regulation: The Case of Securities Law, 17 HARV. INT'L L.J. 315, 326 (1976) (citing the "dangers of United States intrusion into a foreign nation's regulation of its securities markets and American interference with a sovereign state's management of its economy"); Matson, supra note 14, at 166-68 (identifying political concerns).
215. This may be in part because the damages awardable in securities cases are only compensatory, as opposed to the treble damages available in antitrust cases, and because the enforcement of anti-fraud provisions has a different resonance than the enforcement of provisions such as registration requirements, or antitrust regulations shaping ex ante behavior. See Bora, supra note 16, at 47 (noting that, in general, extraterritorial application of securities antifraud rules leads to much less conflict with foreign laws than such application of antitrust law).
216. See Longstreth, supra note 172, at 54 ("American class action lawyers are aggressively pursuing foreign clients. Each plaintiffs firm has its own strategy, but the goal is the same: Sign up lead plaintiff contenders as clients, boosting the firm's chances of being named lead counsel and eventually raking in huge attorneys' fees.").
217. Earlier this year, Cohen Milstein, Hausfeld & Toll, P.L.L.C., a leading plaintiffs firm, opened its own branch in London. See http://www.cmht.com/london.php.
218. See, e.g., Longstreth, supra note 172, at 54 (reporting an alliance formed between Labaton Sucharow & Rudoff, a U.S. firm, and TILP International, a German firm representing institutional investors). Prominent U.S. plaintiffs' firms, including Lerach Coughlin Stoia Geller Rudman & Robbins LLP, promote their representation of foreign institutional investors and their affiliations with foreign offices on their websites.
219. The likelihood of this emerging conflict is suggested by one incident in 2006 in which a British pension fund was criticized when its involvement in U.S. litigation was publicized. See David Robertson, City of London Pension Fund Caught in Lawsuit Against BP, THE TIMES ONLINE, Oct. 10, 2006, http://business.timesonline.co.uk/tol/business/ law/corporate_law/article666940.ece (a U.K. pension fund criticized for participating as a claimant in a U.S. class action against the U.K. petroleum concern BP; noting the concern of some U.K. companies that "[U.S.] lawyers are trying to export their no-win, no-fee system to Britain").
220. Buxbaum, supra note 174.
221. See John C. Coffee, Jr., Global Class Actions, NAT'L L. J., June 11, 2007, at 12, 12.
222. See generally COMM. ON CAPITAL MKTS. REGULATION, INTERIM REPORT OF THE COMMITTEE ON CAPITAL MARKETS REGULATION (2006), http://capmktsreg.org/pdfs/11.30Committee_Interim_ReportREV2.pdf. (discussing various aspects of the "litigation burden" on issuers in U.S. markets).
223. See Buxbaum, supra note 174, at 304-05.
224. Id. at 305-06.
225. See supra Part III.A.4.
226. See, e.g., In re Royal Group Tech. Sec. Litig., No. 04 Civ. 9809 HB, 2005 WL 3105341 (S.D.N.Y. Nov. 21, 2005) (dismissing claims where the two co-lead plaintiffs had purchased only on the Toronto Stock Exchange).
227. Paraschos v. YBM Magnex Int'l, Inc., 130 F. Supp. 2d 642, 646-47 (E.D. Pa. 2000).
228. See supra note 87.
229. The promotion of forum non conveniens in this sense might have a different effect: encouraging plaintiffs to revert to straight U.S. classes when suing foreign issuers in order to minimize the risk that U.S.-based claims will be swept into a dismissal of the entire case.
230. See supra Part IV.C.1.
231. In addition, where the U.S. market is created by an issuer-sponsored ADR program, the issuer may in the depository agreement have waived its right to object to litigation in the United States on the basis of convenience. See In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243(WHP), 2006 WL 3026024 (S.D.N.Y. Oct. 25, 2006).
232. See Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 AM. J. INT'L L. 280 (1982) (explaining this approach in terms of the difference between public interests embodied in regulatory law and ordinary private law rules).
233. See, e.g., DiRienzo v. Philip Servs. Corp., 294 F.3d 21, 31 (2d Cir. 2002) (suggesting that a U.S. court would apply Canadian securities law to the claims of investors who had purchased the securities there); In re Royal Group Tech. Sec. Litig., No. 04 Civ. 9809 HB, 2005 WL 3105341 (S.D.N.Y. Nov. 21, 2005).
234. For instance, in consumer protection cases where the court would be called upon to apply the laws of all fifty states.
235. See 7AA CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE §§ 1780-82 (3d ed. 2005).
236. For a discussion of Regulation S, see Choi & Guzman, supra note 14, at 211-15; Guy P. Lander, Regulation S - Securities Offerings Outside the United States, 21 N.C. J. INT'L L. & COM. REG. 339 (1996).
237. Offshore Offers and Sales, Securities Act Release No. 6863, Exchange Act Release No. 27,942, 55 Fed. Reg. 18306 (May 2, 1990). See also Testy, supra note 193, at 956 ("Arguably, the same considerations that persuaded the SEC to issue Regulation S should also prompt it to adopt a similar approach" in the anti-fraud context).
238. See Europe and Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 123, 125-26 (2d Cir. 1998) (distinguishing the scope of the registration requirements from the scope of the anti-fraud provisions); E.On AG v. Acciona, 468 F. Supp. 2d 559, 573-74 (S.D.N.Y. 2007) (distinguishing the scope of the tender offer rules). But see Testy, supra note 193, at 956-58 (emphasizing the commonalities between the two contexts).
239. See F. Hoffmann-La Roche, Ltd. v. Empagran S.A., 542 U.S. 155, 159 (2004). But see In re Royal Ahold NV Sec. Litig., 351 F. Supp. 2d 334, 356 (D. Md. 2004) (distinguishing Empagran from the securities cases); In re Royal Dutch/Shell Transp. Sec. Litig., 380 F. Supp. 2d 509, 548 (D.N.J. 2005) (same).
240. Chang, supra note 14, at 123 (noting "the recent approach of
241. Choi & Guzman, supra note 14, at 221. See also Testy, supra note 193, at 957 (noting that in that case investors might receive "a windfall in the form of more protection than that for which they actually bargained").
242. Choi & Guzman, supra note 14, at 226.
243. For cases excluding foreign-based claims but including claims of U.S. citizens and residents who transacted on foreign exchanges, see In re Bayer AG Sec. Litig., No. 03 CV 1546(WHP), 2006 WL 1140263 (S.D.N.Y. Jan. 20, 2006); Tri-Star Farms Ltd. v. Marconi, PLC, 225 F. Supp. 2d 567 (W.D. Pa. 2002); In re Indep. Energy Holdings Plc Sec. Litig., 210 F.R.D. 476 (S.D.N.Y. 2002); In re Baan Co. Sec. Litig., 103 F. Supp. 2d 1, 4 (D.D.C. 2000); Notice of Pendency of Class Action, Proposed Settlement and Settlement Hearing, In re Philip Servs. Corp. Sec. Litig., No. 98 CV 835 (AKH) (S.D.N.Y. Dec. 18, 2006), available at http://securities.stanford.edu/1006/PHV98/ 20061218_r01n_99835.pdf.
244. Cf. In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76 (S.D.N.Y. 2007) (excluding all German and Austrian investors regardless of where they actually invested).