While the Supreme Court considers the National Australia Bank case, the lower courts continue to issue rulings that explore the extraterritorial application of the U.S. securities laws.
In In re European Aeronautic Defence & Space Co. ("EADS") Sec. Litig., 2010 WL 1191888 (S.D.N.Y. March 26, 2010), the plaintiffs alleged that the defendants mislead investors about production delays in the Airbus A380 super-jumbo aircraft. EADS is a Dutch company and its shares are traded exclusively on European exchanges. Three depository banks, however, have issued unsponsored American Depositary Receipts ("ADR's") in EADS shares. The putative class consisted of U.S. residents who had purchased or otherwise acquired EADS common stock.
The court applied the conduct and effects tests to determine the existence of subject matter jurisdiction. As to whether sufficient conduct had taken place in the U.S., the court held that (a) EADS's holding of investor meetings in the U.S., and (b) the participation of U.S. analysts in EADS earnings conference calls, were "incidental to the alleged fraud." Nor could the plaintiffs satisfy the effects test, despite their limitation of the putative class to U.S. residents. The court found that the "putative class acquired its EADS shares in Europe and any losses were suffered on foreign exchanges." The fact that some class members may have acquired shares as ADRs was insufficient, standing alone, to establish a "substantial" U.S. effect. Finally, the court also noted that EADS could successfully argue forum non conveniens, having demonstrated that France, the Netherlands, and Germany (where a number of U.S. investors had already brought individual actions against EADS) were adequate alternative fora.
Holding: Motion to dismiss granted.
Quote of note: "The Complaint is a narrative of the peril Americans face when they invest abroad. It is understandable that [lead plaintiff] would seek the robust protections of federal securities laws in a United States court. But a court of limited jurisdiction lacks the authority to hear every grievance that arises overseas. On this record, [lead plaintiff] will have to pursue its claims where it purchased shares - Europe."Posted by Lyle Roberts at April 9, 2010 11:35 PM | TrackBack