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Headquartered in Melbourne, the second largest city of the land down under, National Australia Bank is firmly attached to its home country. The primary trading venue for stock in the bank is the Australian Securities Exchange in Sydney, Australia’s biggest city.
It was from this exchange shares in the company were bought by three Australian investors who are now suing the firm for securities fraud.
So see if you can guess in which Australian locale this lawsuit is proceeding. Melbourne? Sydney? Perhaps in the Australian state or territories where one of the shareholders live?
Sorry, trick question! The lawsuit isn’t proceeding in Australia at all. It was brought in U.S. federal courts in New York and was heard Monday by the U.S. Supreme Court. The case is Morrison v. National Australia Bank.
If you didn’t think the “trick” in this riddle was very funny, you’re right in more ways than one.
It’s hard to overstate the seriousness of the outcome of this case for the American economy. If the court grants the Australian plaintiffs “subject matter jurisdiction” and allows the case to proceed in U.S. court, it will make the U.S. a litigation magnet for foreign shareholder lawsuits from all over the world.
And this very same magnet that attracts the foreign plaintiffs and their lawyers will repel many foreign businesses who are considering making even the most minor type of investment in the U.S.
Jobs would suffer, as foreign firms would think twice about forming a U.S. subsidiary that employs American workers, for fear of establishing what courts have called a “nexus” that could establish a tangential connection for litigation in U.S. courts.
That’s why my organization, the Competitive Enterprise Institute, filed an amicus, or friend-of-the-court, brief urging the justices to establish a bright-line rule to bar U.S. courts from hearing what are called “foreign cubed cases.” A “foreign cubed” shareholder case is one in which a foreign corporation is sued by foreign investor who brought their shares on a foreign exchange.
The bank has maintained it did not commit fraud, and fraud charges have never been brought by securities regulators in the Australia or the U.S., which had jurisdiction due to the fact that the bank was listed at the time on the New York Stock Exchange.
But even if fraud did occur, both conservative and liberal justices seemed perplexed as to what this case was doing in U.S. courts any more than one involving something like an Aussie bank robbery or any other purely domestic Australian case.
"Australian plaintiffs, Australian defendants, shares purchased in Australia. It has Australia written all over it," liberal Justice Ruth Bader Ginsburg said in her exchange with the Australian plaintiff’s attorneys. "Isn't the most appropriate choice the law of Australia rather than the law of United States?"
Ginsburg’s questions seemed to be in line with points raised by CEI. CEI’s brief, written by CEI general counsel Sam Kazman and international law specialist Ernesto J. Sanchez, argues that “these types of lawsuits, in which plaintiffs circumvent the legal systems of countries where their disputes arise to take advantage of what they see as the U.S. legal system’s more favorable aspects, amount to nothing more than global forum shopping.”
Although the appeals court had ruled against the Aussie plaintiffs, CEI urged a more bright-line rule to remove uncertainty in these types of cases. “The court should reiterate its own precedents presuming that U.S. laws do not apply beyond U.S. territorial boundaries unless Congress has clearly expressed its intent for such extraterritorial reach.”
CEI pointed out the potential for other countries to violate U.S. sovereignty if U.S. courts were to presume that other countries offered inadequate protection. The brief pointed to the stretching of the Alien Tort Claims Act of the 18th century to be utilized in lawsuits over such modern issues as global warming.
CEI’s amicus brief in support of the defendants joins those of the governments of the United Kingdom, France, and Australia, all of whom maintain they should be allowed to police their own securities’ markets with their own laws.
Justice Stephen Breyer, another member of the court’s liberal bloc, seemed to agree. According to an article from Reuters in Yahoo! News , “Breyer questioned whether a win for the plaintiffs would interfere with efforts of foreign countries, such as Australia, to regulate their securities markets.”