July 15, 2011

No Piggybacks

In the wake of the Morrison decision, U.S. courts have proven reluctant to endorse any securities fraud claims by foreign purchasers. And no bonus points for cleverness. In In re Toyota Motor Corp. Securities Litig., 2011 WL 2675395 (C.D. Cal. July 7, 2011), plaintiffs argued that they should be able to bring (a) U.S. securities fraud claims on behalf of ADS purchasers and domestic purchasers of Toyota common stock, and (b) Japanese securities fraud claims on behalf of all purchasers (foreign and domestic) of Toyota common stock. The plaintiffs posited two possible bases for jurisdiction over the Japanese law claims: original jurisdiction under the Class Action Fairness Act (CAFA) and supplemental jurisdiction.

The court disagreed with both. As to CAFA, the court found that Toyota's common shares are "listed" on the NYSE and, as a result, are "covered securities." Claims related to "covered securities" are expressly excluded from CAFA. The court also declined to exercise supplemental jurisdiction over the Japanese securities fraud claims for two reasons. First, the Japanese law claims would "substantially predominate over the American law claims" due to the much larger proposed class. Second, the "exceptional circumstance of comity to the Japanese courts." The National Law Journal and Thomson Reuters have articles on the decision.

Holding: Motion to dismiss granted as to Japanese law claims and certain other claims.

Quote of note: The "respect for foreign law would be completely subverted if foreign claims were allowed to be piggybacked into virtually every American securities fraud case, imposing American procedures, requirements, and interpretations likely never contemplated by the drafters of the foreign law. While there may be instances where it is appropriate to exercise supplemental jurisdiction over foreign securities fraud claims, any reasonable reading of Morrison suggests that those instances will be rare."

Posted by Lyle Roberts at July 15, 2011 10:30 PM | TrackBack
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