Morrison v. Nat’l Australia Bank Ltd., 561 U.S. ___ (2010)
Plaintiffs are Australian citizens who bought securities in Australia in defendant, an Australian Bank. Plaintiffs alleged that employees of defendant in the United States misrepresented the value of a United States subsidiary of defendant’s, thus falsely inflating defendant’s stock price.
The questions: (1) whether §10b-5 applies extraterritorially pursuant to the conducts and effects test and (2) if not, whether application of §10b-5 in this case is extraterritorial, given that some of the conduct at issue occurred in the United States.
The answers: (1) “It is a ‘longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” Slip O. at 5. This principle “rests on the perception that Congress ordinarily legislates with respect to domestic, not foreign matters.” Id. at 5-6. “Thus, unless there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily concerned with domestic conditions.” Id. at 6. This canon of construction applies regardless of whether applying a law extraterritorially will conflict with the regulations of a foreign nation. Id.
The Second Circuit believed that the silence of §10b with regards to extraterritoriality left it to the court to discern what Congress would have intended had it considered the issue. Id. “[R]ather than courts’ ‘divining what Congress would have wished if it had addressed the problem, [a] more natural inquiry might be what jurisdiction Congress in fact though about and conferred.” Id. at 10 (quoting Zoelsch v. Arthur Andersen & Co., 824 F.2d 27, 32 (D.C. Cir. 1987). “[U]sing congressional silence as a justification for judge-made rules violates the traditional principle that silence means no extraterritorial application.” Id. at 11. “In short, there is no affirmative indication in the Exchange Act that § 10b-5 applies extraterritorially, and we therefore conclude that it does not.” Id. at 16.
(2) That the suit involves some domestic conduct does not defeat the presumption against extraterritoriality. “[T]he presumption against extraterritorial application would be a craven watchdog indeed if it retreated to its kennel whenever some domestic activity is involved in the case.” Id at 17. The question is whether the conduct which is the “focus” of Congressional concern occurred within the United States. Id. The focus of the securities laws is on the purchase and sale of securities, not on the making of misleading statements. Id. Therefore, the fact that misleading statements were purportedly made in the US about a US subsidiary is irrelevant.
