Source: http://supreme.justia.com/cases/federal/us/561/08-1191/concurrence2.html
Timestamp: 2014-08-22 15:55:06
Document Index: 389312896

Matched Legal Cases: ['§10', '§78', '§240', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§109', '§10', '§10', '§78', '§78', '§78', '§78', '§10', '§10']

Morrison v. National Australia Bank Ltd. :: 561 U.S. ___ (2010) :: Justia US Supreme Court Center Justia.comFind a LawyerLegal AnswersLawMore ▾Justia BlogVerdictLaw Blog DirectoryLegal FormsUS Law US Supreme Court Cases Federal Cases US Constitution US Code Federal RegulationsFederal DocketsState CasesState Codes & StatutesTrademarksPatentsCompany Legal ProfilesMarketing ServicesSign InSearchJustia › US Law › US Case Law › US Supreme Court › Volume 561 › Morrison v. National Australia Bank Ltd. › Concurrence
Sign up for Justia's FREE Newsletters: Daily Opinion Summaries by Court (covering the U.S. Supreme Court, all Federal Appellate Courts, and the 50 State Supreme Courts), and Weekly Opinion Summaries by Practice Area. Subscribe NowMorrison v. National Australia Bank Ltd.561 U.S. ___ (2010)Annotate this CaseOpinionPDFSyllabusOpinion
NO. 08-1191ROBERT MORRISON, et al., PETITIONERS v.
LTD. et al.on writ of certiorari to the united states court of appeals for the second circuit[June 24, 2010] Justice Stevens, with whom Justice Ginsburg joins, concurring in the judgment.
While I agree that petitioners have failed to state a claim on which relief can be granted, my reasoning differs from the Court’s. I would adhere to the general approach that has been the law in the Second Circuit, and most of the rest of the country, for nearly four decades.I
Today the Court announces a new “transactional test,” ante, at 21, for defining the reach of §10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U. S. C. §78j(b), and SEC Rule 10b–5, 17 CFR §240.10b–5(b) (2009): Henceforth, those provisions will extend only to “transactions in securities listed on domestic exchanges … and domestic transactions in other securities,” ante, at 18. If one confines one’s gaze to the statutory text, the Court’s conclusion is a plausible one. But the federal courts have been construing §10(b) in a different manner for a long time, and the Court’s textual analysis is not nearly so compelling, in my view, as to warrant the abandonment of their doctrine. The text and history of §10(b) are famously opaque on the question of when, exactly, transnational securities frauds fall within the statute’s compass. As those types of frauds became more common in the latter half of the 20th century, the federal courts were increasingly called upon to wrestle with that question. The Court of Appeals for the Second Circuit, located in the Nation’s financial center, led the effort. Beginning in earnest with Schoenbaum v. Firstbrook, 405 F. 2d 200, rev’d on rehearing on other grounds, 405 F. 2d 215 (1968) (en banc), that court strove, over an extended series of cases, to “discern” under what circumstances “Congress would have wished the precious resources of the United States courts and law enforcement agencies to be devoted to [transnational] transactions,” 547 F. 3d 167, 170 (2008) (internal quotation marks omitted). Relying on opinions by Judge Henry Friendly,[Footnote 1] the Second Circuit eventually settled on a conduct-and-effects test. This test asks “(1) whether the wrongful conduct occurred in the Unites States, and (2) whether the wrongful conduct had a substantial effect in the United States or upon United States citizens.” Id., at 171. Numerous cases flesh out the proper application of each prong.
Thus, while the Court devotes a considerable amount of attention to the development of the case law, ante, at 6–10, it draws the wrong conclusions. The Second Circuit refined its test over several decades and dozens of cases, with the tacit approval of Congress and the Commission and with the general assent of its sister Circuits. That history is a reason we should give additional weight to the Second Circuit’s “judge-made” doctrine, not a reason to denigrate it. “The longstanding acceptance by the courts, coupled with Congress’ failure to reject [its] reasonable interpretation of the wording of §10(b), … argues significantly in favor of acceptance of the [Second Circuit] rule by this Court.” Blue Chip, 421 U. S., at 733.II
The Court’s other main critique of the Second Circuit’s approach—apart from what the Court views as its excessive reliance on functional considerations and reconstructed congressional intent—is that the Second Circuit has “disregard[ed]” the presumption against extraterritoriality. Ante, at 6. It is the Court, however, that misapplies the presumption, in two main respects. First, the Court seeks to transform the presumption from a flexible rule of thumb into something more like a clear statement rule. We have been here before. In the case on which the Court primarily relies, EEOC v. Arabian American Oil Co., 499 U. S. 244 (1991) (Aramco), Chief Justice Rehnquist’s majority opinion included a sentence that appeared to make the same move. See id., at 258 (“Congress’ awareness of the need to make a clear statement that a statute applies overseas is amply demonstrated by the numerous occasions on which it has expressly legislated the extraterritorial application of a statute”). Justice Marshall, in dissent, vigorously objected. See id., at 261 (“[C]ontrary to what one would conclude from the majority’s analysis, this canon is not a ‘clear statement’ rule, the application of which relieves a court of the duty to give effect to all available indicia of the legislative will”).
Imagine, for example, an Americaninvestor who buys shares in a company listed only on an overseas exchange. That company has a major American subsidiary with executives based in New York City; and it was in New York City that the executives masterminded and implemented a massive deception which artificially inflated the stock price—and which will, upon its disclosure, cause the price to plummet. Or, imagine that those same executives go knocking on doors in Manhattan and convince an unsophisticated retiree, on the basis of material misrepresentations, to invest her life savings in the company’s doomed securities. Both of these investors would, under the Court’s new test, be barred from seeking relief under §10(b).
The oddity of that result should give pause. For in walling off such individuals from §10(b), the Court narrows the provision’s reach to a degree that would surprise and alarm generations of American investors—and, I am convinced, the Congress that passed the Exchange Act. Indeed, the Court’s rule turns §10(b) jurisprudence (and the presumption against extraterritoriality) on its head, by withdrawing the statute’s application from cases in which there is both substantial wrongful conduct that occurred in the United States and a substantial injurious effect on United States markets and citizens.III
In my judgment, if petitioners’ allegations of fraudulent misconduct that took place in Florida are true, then respondents may have violated §10(b), and could potentially be held accountable in an enforcement proceeding brought by the Commission. But it does not follow that shareholders who have failed to allege that the bulk or the heart of the fraud occurred in the United States, or that the fraud had an adverse impact on American investors or markets, may maintain a private action to recover damages they suffered abroad. Some cases involving foreign securities transactions have extensive links to, and ramifications for, this country; this case has Australia written all over it. Accordingly, for essentially the reasons stated in the Court of Appeals’ opinion, I would affirm its judgment. The Court instead elects to upend a significant area of securities law based on a plausible, but hardly decisive, construction of the statutory text. In so doing, it pays short shrift to the United States’ interest in remedying frauds that transpire on American soil or harm American citizens, as well as to the accumulated wisdom and experience of the lower courts. I happen to agree with the result the Court reaches in this case. But “I respectfully dissent,” once again, “from the Court’s continuing campaign to render the private cause of action under §10(b)
toothless.” Stoneridge,552 U. S., at 175 (Stevens, J., dissenting).Footnote 1 See, e.g.,IIT, Int’l Inv. Trust v. Cornfeld, 619 F. 2d 909 (CA2 1980); IIT v. Vencap, Ltd., 519 F. 2d 1001 (CA2 1975); Bersch v. Drexel Firestone, Inc., 519 F. 2d 974 (CA2 1975); Leasco Data Processing Equip. Corp. v. Maxwell, 468 F. 2d 1326 (CA2 1972).Footnote 2 I acknowledge that the Courts of Appeals have differed in their applications of the conduct-and-effects test, with the consequence that their respective rulings are not perfectly “cohesive.” Ante, at 10, n. 4. It is nevertheless significant that the other Courts of Appeals, along with the other branches of Government, have “embraced the Second Circuit’s approach,” ante, at 9. If this Court were to do likewise, as I would have us do, the lower courts would of course cohere even more tightly around the Second Circuit’s rule.Footnote 3 It is true that “when it comes to ‘the scope of [the] conduct prohibited by [Rule 10b–5 and] §10(b), the text of the statute [has] control[led] our decision[s].’ ” Ante, at 12, n. 5 (quoting Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 173 (1994); some brackets in original). The problem, when it comes to transnational securities frauds, is that the text of the statute does not provide a great deal of control. As with any broadly phrased, longstanding statute, courts have had to fill in the gaps.Footnote 4 Loss, In Memoriam: Henry J. Friendly, 99 Harv. L. Rev. 1722, 1723 (1986).Footnote 5 Even as the Court repeatedly declined to grant certiorari on cases raising the issue, individual Justices went further and endorsed the Second Circuit’s basic approach to determining the transnational reach of §10(b). See, e.g.,Scherk v. Alberto-Culver Co., 417 U. S. 506, 529–530 (1974) (Douglas, J., joined by Brennan, White, and Marshall, JJ., dissenting) (“It has been recognized that the 1934 Act, including the protections of Rule 10b–5, applies when foreign defendants have defrauded American investors, particularly when … they have profited by virtue of proscribed conduct within our boundaries. This is true even when the defendant is organized under the laws of a foreign country, is conducting much of its activity outside the United States, and is therefore governed largely by foreign law” (citing, inter alia, Leasco, 468 F. 2d, at 1334–1339, and Schoenbaum v. Firstbrook, 405 F. 2d 200, rev’d on rehearing on other grounds, 405 F. 2d 215 (CA2 1968) (en banc))).Footnote 6 And also one of the most short lived. See Civil Rights Act of 1991, §109, 105 Stat. 1077 (repudiating Aramco).Footnote 7 See also, e.g., Hartford Fire Ins. Co. v. California, 509 U. S. 764 (1993) (declining to apply presumption in assessing question of Sherman Act extraterritoriality); Smith v. United States, 507 U. S. 197, 201–204 (1993) (opinion for the Court by Rehnquist, C. J.) (considering presumption “[l]astly,” to resolve “any lingering doubt,” after considering structure, legislative history, and judicial interpretations of Federal Tort Claims Act); cf. Sale, 509 U. S., at 188 (stating that presumption “has special force when we are construing treaty and statutory provisions that,” unlike §10(b), “may involve foreign and military affairs for which the President has unique responsibility”); Dodge, Understanding the Presumption Against Extraterritoriality, 16 Berkeley J. Int’l L. 85, 110 (1998) (explaining that lower courts “have been unanimous in concluding that the presumption against extraterritoriality is not a clear statement rule”). The Court also relies on Microsoft Corp. v. AT&T Corp., 550 U. S. 437, 455–456 (2007). Ante, at 16. Yet Microsoft’s articulation of the presumption is a far cry from the Court’s rigid theory. “As a principle of general application,” Microsoft innocuously observed, “we have stated that courts should ‘assume that legislators take account of the legitimate sovereign interests of other nations when they write American laws.’ ” 550 U. S., at 455 (quoting F. Hoffmann-La Roche Ltd v. Empagran S. A., 542 U. S. 155, 164 (2004)).Footnote 8 Cf. Dodge, 16 Berkeley J. Int’l L., at 88, n. 25 (regardless whether one frames question as “whether the presumption against extraterritoriality should apply [or] whether the regulation is extraterritorial,” “one must ultimately grapple with the basic issue of what connection to the United States is sufficient to justify the assumption that Congress would want its laws to be applied”).Footnote 9 By its terms, §10(b) regulates “interstate commerce,” 15 U. S. C. §78j, which the Exchange Act defines to include “trade, commerce, transportation, or communication … between any foreign country and any State, or between any State and any place or ship outside thereof.” §78c(a)(17). Other provisions of the Exchange Act make clear that Congress contemplated some amount of transnational application. See, e.g., §78b(2) (stating, in explaining necessity for regulation, that “[t]he prices established and offered in [securities] transactions are generally disseminated and quoted throughout the United States and foreign countries and constitute a basis for determining and establishing the prices at which securities are bought and sold”); §78dd(b) (exempting from regulation foreign parties “unless” they transact business in securities “in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate to prevent the evasion of this chapter” (emphasis added)); see also Schoenbaum, 405 F. 2d, at 206–208 (reviewing statutory text and legislative history). The Court finds these textual references insufficient to overcome the presumption against extraterritoriality, ante, at 13–15, but as explained in the main text, that finding rests upon the Court’s misapplication of the presumption.Footnote 10 The Government submits that a “transnational securities fraud violates Section 10(b) if significant conduct material to the fraud’s success occurs in the United States.” Brief for United States as Amicus Curiae 6. I understand the Government’s submission to be largely a repackaging of the “conduct” prong of the Second Circuit’s test. The Government expresses no view on that test’s “effects” prong, as the decision below considered only respondents’ conduct. See id., at 15, n. 2; 547 F. 3d 167, 171 (CA2 2008).Footnote 11 Given its focus on “domestic conditions,” Foley Bros., Inc. v. Filardo, 336 U. S. 281, 285 (1949), I expect that virtually all “ ‘foreign-cubed’ ” actions—actions in which “(1) foreign plaintiffs [are] suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions in (3) foreign countries,” 547 F. 3d, at 172—would fail the Second Circuit’s test. As they generally should. Under these circumstances, the odds of the fraud having a substantial connection to the United States are low. In recognition of the Exchange Act’s focus on American investors and the novelty of foreign-cubed lawsuits, and in the interest of promoting clarity, it might have been appropriate to incorporate one bright line into the Second Circuit’s test, by categorically excluding such lawsuits from §10(b)’s ambit.Footnote 12 The Court’s opinion does not, however, foreclose the Commission from bringing enforcement actions in additional circumstances, as no issue concerning the Commission’s authority is presented by this case. The Commission’s enforcement proceedings not only differ from private §10(b) actions in numerous potentially relevant respects, see Brief for United States as Amicus Curiae 12–13, but they also pose a lesser threat to international comity, id., at 26–27; cf. Empagran, 542 U. S., at 171 (“ ‘[P]rivate plaintiffs often are unwilling to exercise the degree of self-restraint and consideration of foreign governmental sensibilities generally exercised by the U. S. Government’ ” (quoting Griffin, Extraterritoriality in U. S. and EU Antitrust Enforcement, 67 Antitrust L. J. 159, 194 (1999); alteration in original)).