Mr. Jekel is NYSE Euronext’s New York-based team member responsible for issuer coverage related to the Europe, Middle East and Africa (EMEA)...
Let me highlight an important development evidencing the limited extraterritorial reach of US legislation.
In July 2010, we communicated to you that the United States Supreme Court issued an important decision curbing US extraterritoriality and the risk of US class action litigation for non-US companies. The Court limited the reach of the US law and delineated a clear jurisdictional test in US fraud suits. The case in question was Morrison v. National Australia Bank. The US Supreme Court ruled that private plaintiffs cannot use the United States’ principal securities law against fraud, Sec.10(b) of the Securities Exchange Act, for securities transactions conducted on exchanges outside the US even if some part of the underlying conduct occurred in the US.
NYSE Euronext was not a party in Morrison, but - as part of our ongoing listed company advocacy efforts - did file a friend-of-the-court brief supporting what turned out to be the ultimate position of the Court. In part, we argued: “The claims of foreign investors who purchase a foreign issuer’s shares on a foreign exchange should be resolved in the country where those securities were purchased and where the harm was suffered. Such a rule avoids interference and conflicts with foreign law and regulatory regimes and provides the greatest predictability to market participants who could choose whether, and to what extent, they are exposed to litigation in U.S. courts under the Exchange Act.”
This precedent sent a clear message to lower courts about the limitations to the extra-territorial application of US laws when Congress has not indicated a contrary intent.
Last month, we witnessed another case of curbing extraterritoriality of US legislation.
The Department of Labor Tribunal ruled that whistleblower provisions (Section 806 of the Sarbanes-Oxley Act of 2002) do not apply extraterritorially. The Review Board accordingly dismissed a complaint filed by a Venezuelan manager against his employer, a third-level Venezuelan subsidiary of Core Laboratories NV, a Dutch company whose shares trade on the NYSE.
The complainant’s counsel has told the media about its intention to seek review of the board’s decision in the United States Court of Appeals for the Fifth Circuit. However, if upheld in the court of appeals, it the ruling would represent an additional important precedent of limited extraterritorial reach of US legislation.
Evidently, the impetus of the Morrison v. National Australian Bank case has gone beyond courts and influences federal administrative agencies as well.
Should you have any further questions, regarding this case, please do not hesitate to contact or myself or any member of our team. We are also happy to put you in touch with our US legal counsel team for more details and/or an exchange of views.
As mentioned above, NYSE Euronext views issuer advocacy is an important element in its role as the world’s leading exchange. Please do not hesitate to contact us with any suggestions and comments. Also feel free to visit our NYSE Euronext advocacy websites for the US and for Europe at your convenience.
A) Morrison v. National Australia Bank [June 2010]
Harvard Law School Blog
Memorandum by the US outside counsel for National Australia Bank
B) Villanueva v. Core Laboratories [December 2011]
Review Board Decision
Additional memorandum by US outside counsel for National Australia Bank
Disclaimer: This summary is not intended to confer legal advice but merely update you on recent case law we thought might be of interest. Please consult your legal advisor for specific advice.