Morrison, Jurisdiction and the Uncomfortable Results of the Supreme Court's Analysis (Part 3)

The 11th Circuit, however, reversed the trial court's decision and applied the analysis set out in Morrison.  The court noted that "regardless of whether the underlying fraudulent conduct occurs in or affects the United States, § 10(b) applies only where the security at issue is listed on a domestic stock exchange or, if not so listed, where 'its purchase or sale is made in the United States.'” 

Because the stock involved in the allegedly fraudulent transaction was not listed on a US stock exchange, the only issue was whether the sale occurred in the US.  Id.  (" In this case, there is no dispute that the Templeton stock was not listed on a domestic stock exchange, and so the only issue under Morrison is whether the 'purchase or sale' occurred in the United States."). 

Plaintiffs alleged that in fact the closing took place in this country.   Irrespective of the location of the fraud or the activities leading up to the sale, this was enough to establish the applicability of Rule 10b-5. 

• Thus, Quail alleged that the closing actually occurred in the United States, and it was here that “the transaction [wa]s consummated.”  Black’s Law Dictionary 291 (9th ed. 2009) (defining “closing”).  Indeed, the purchase and sale agreement confirms that it was not until this domestic closing that title to the shares was transferred to Quail.

Thus, a transaction otherwise taking place overseas becomes subject to US jurisdiction of the transfer happens to occur in the US.  Investors seeking the protections of the US antifraud provisions for their foreign transaction need only provide for consummation in the US, something that can be imposed in the sales documents.  Moreover, the approach allows for the applicability of the antifraud provisions in circumstances that would not have been allowed under the conduct and effects test.

Jurisdiction has become an arbitrary matter that turns on the location of the transactions. Its not a good result but it is what the Supreme Court commanded in Morrison.

The cited brief and the appellate opinion for this case can be found at the DU Corporate Governance web site.