Court Opinion

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Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

5-30-2002

Pinker v. Roche Holdings Ltd
Precedential or Non-Precedential: Precedential

Docket No. 00-4318

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Recommended Citation
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PRECEDENTIAL

       Filed May 30, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 00-4318 and 01-1562

HAROLD PINKER, individually and on behalf of all others
similarly situtated

v.

ROCHE HOLDINGS LTD.

Harold Pinker, Appellant

On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civ. No. 99-cv-05627)
District Judge: Honorable John W. Bissell, Chief Judge

Argued: November 7, 2001

Before: BECKER, Chief Judge, McKEE and RENDELL,
Circuit Judges.

(Filed: May 30, 2002)

       JEFFREY H. SQUIRE, ESQUIRE
       IRA M. PRESS, ESQUIRE (ARGUED)
       MARK A. STRAUSS, ESQUIRE
       LEWIS S. SANDLER, ESQUIRE
       Kirby, McInerney & Squire LLP
       830 Third Avenue
       New York, NY 10022

       MICHAEL M. ROSENBAUM,
        ESQUIRE
       Budd, Larner, Gross & Rosenbaum
       150 John F. Kennedy Parkway
       CN 1000
       Short Hills, NJ 07078

       Counsel for Plaintiff-Appellant

       LAWRENCE J. PORTNOY, ESQUIRE
        (ARGUED)
       GWENN M. KALOW, ESQUIRE
       MANISHA M. SHETH, ESQUIRE
       Davis, Polk & Wardwell
       450 Lexington Avenue
       New York, NY 10017

       MICHAEL R. GRIFFINGER, ESQUIRE
       THOMAS VALEN, ESQUIRE
       Gibbons, Del Deo, Dolan,
        Griffinger & Vecchione
       One Riverfront Plaza
       Newark, NJ 07102

       Counsel for Defendant-Appellee

OPINION OF THE COURT

BECKER, Chief Judge.

American Depositary Receipts ("ADRs") are financial
instruments that allow investors in the United States to
purchase and sell stock in foreign corporations in a simpler
and more secure manner than trading in the underlying
security in a foreign market. Harold Pinker, the plaintiff in
this putative securities fraud class action, invested in ADRs

                                  2

of the defendant, Roche Holdings Ltd. ("Roche"), a Swiss
corporation with its principal place of business in
Switzerland. The gravamen of Pinker’s action is that he
purchased Roche ADRs at a price that was artificially
inflated due to the company’s misrepresentations about the
competitiveness of the vitamin market when in fact its
subsidiaries were engaged in a worldwide conspiracy to fix
vitamin prices. As the truth about Roche’s collusive activity
began to emerge, Pinker alleges, the price of Roche ADRs
dropped, and Pinker and other similarly situated investors
suffered a loss. As a result, Pinker claims, Roche is liable
for securities fraud in violation of Section 10(b) of the
Securities Exchange Act, 15 U.S.C. S 78j(b), and Rule 10b-
5, 17 C.F.R. S 240.10b-5, promulgated thereunder by the
Securities and Exchange Commission ("SEC").

The District Court dismissed Pinker’s complaint under
both Fed. R. Civ. P. 12(b)(2) (for lack of personal
jurisdiction) and Fed. R. Civ. P. 12(b)(6) (for failure to
adequately plead reliance). In reviewing the District Court’s
dismissal of Pinker’s complaint under Fed. R. Civ. P.
12(b)(2), we examine the extent of Roche’s contacts with the
United States as a whole. We think that by sponsoring
ADRs that are actively traded by American investors, Roche
purposely availed itself of the American securities market
and thereby evidenced the requisite minimum contacts with
the United States to support the exercise of personal
jurisdiction by a federal court. Moreover, in light of the fact
that Roche is alleged to have made affirmative
misrepresentations that misled its ADR holders, we
consider the exercise of personal jurisdiction over Roche
consistent with "traditional notions of fair play and
substantial justice." Int’l Shoe Co. v. Washington, 326 U.S.
310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457,
463 (1940)). Consequently, we conclude that the District
Court had in personam jurisdiction over Roche and that
dismissal under Rule 12(b)(2) was inappropriate.

We also think that dismissal was improper under Rule
12(b)(6), for we are satisfied that Pinker’s complaint
adequately pled the reliance element of a securities fraud
claim. Pinker’s potential weak spot is that his complaint
reflected that at the time he purchased the Roche ADRs, he

                                  3

was aware of a private antitrust lawsuit that had been
brought against the company alleging vitamin price fixing.
But the complaint also alleges that additional, more
damning information about Roche’s involvement in a price-
fixing conspiracy came to light after Pinker’s purchase of
the ADRs -- specifically, the fact that Roche pled guilty to
criminal antitrust charges. Although the market price of
Roche ADRs may have begun to adjust for Roche’s anti-
competitive activity before Pinker’s purchase, the complaint
alleges facts from which it can be inferred that the market
further adjusted for Roche’s anti-competitive activity after
Pinker’s purchase. Pinker, therefore, has alleged sufficient
facts to demonstrate that he reasonably relied on Roche’s
misrepresentations about the competitiveness of the
vitamin market.

I. Facts and Procedural History

A. The Allegations of Pinker’s Complaint

Roche is a Swiss holding company that conducts its
operations through a network of subsidiary corporations.
These subsidiaries manufacture and sell, among other
things, pharmaceuticals, fragrances, vitamins, and
chemicals throughout the world. Pinker alleges that Roche,
acting in concert with its subsidiaries, entered into a
worldwide conspiracy with certain competitors in the early
1990s to fix prices and allocate market share for bulk
vitamins. Pinker’s complaint alleges that at the same time
it was engaging in this conspiracy, Roche made material
misrepresentations and misleading statements indicating
that the vitamin market was competitive. Pinker’s
complaint points to press releases and annual and semi-
annual reports issued by Roche in which it described the
competition in the vitamin market as, among other things,
"fiercely" and "highly" competitive. In the face of this
supposed competition, Pinker avers, Roche’s statements
portrayed it as a company succeeding and excelling
through superior business practices when, in fact, its
financial success was due to its participation in a collusive
scheme.

Pinker alleges that Roche sponsored an ADR facility in
the United States in 1992, and that during the class period

                                  4

the over-the-counter market for Roche ADRs, which had a
daily trading volume of 25,000, "was an efficient market
that promptly digested current information with respect to
the Company from all publicly-available sources and
reflected such information in Roche’s stock price."
Consequently, Pinker contends, Roche committed a fraud
on the market through its misrepresentations about the
competitiveness of the vitamin market, causing him to pay
an artificially inflated price for his Roche ADRs when he
purchased them on April 27, 1999. Before Pinker
purchased ADRs in Roche, on March 12, 1999, a
Minneapolis law firm announced its filing of a class action
antitrust lawsuit against Roche and eight other companies
in which it alleged a conspiracy to fix prices and set
volumes in the United States vitamin market. Although
Pinker acknowledges that this announcement had the effect
of causing Roche’s ADR price to decline, he argues that the
price declined further after the full extent of Roche’s anti-
competitive activity became known on May 20, 1999. On
that date, Pinker alleges, Roche announced that it had
reached a settlement with the U.S. Department of Justice
under which it and a former company executive agreed to
plead guilty to conspiracy to fix prices and allocate market
share and Roche agreed to pay a record $500 million fine
for its wrongdoing.

B. American Depositary Receipts (ADRs)

Because the role of ADRs is so central to our analysis of
personal jurisdiction, we think it important to describe
their operation in some detail. ADRs were created in 1927
to assist American investors who wanted to invest
internationally, but were reluctant to do so due to
regulatory and currency exchange difficulties. See Melissa
Wilverding, Depository Receipts, II Global View (Brown
Brothers Harriman), 2001, at 3. They also offered
significant benefits to foreign companies, allowing them to
tap into the American capital market. See id. They have
since become one of the preferred methods for trading
foreign securities in the United States, with the value of
ADRs bought and sold annually in the hundreds of billions.
See Bruce L. Hertz, American Depository Receipts, 600
P.L.I./Comm. 237, 239 (1992).

                                5

An ADR is a receipt that is issued by a depositary bank
that represents a specified amount of a foreign security that
has been deposited with a foreign branch or agent of the
depositary, known as the custodian. Id. at 240-41. The
holder of an ADR is not the title owner of the underlying
shares; the title owner of the underlying shares is either the
depositary, the custodian, or their agent. Id. at 241. ADRs
are tradeable in the same manner as any other registered
American security, may be listed on any of the major
exchanges in the United States or traded over the counter,
and are subject to the Securities Act and the Exchange Act.
Id. at 242, 246. This makes trading an ADR simpler and
more secure for American investors than trading in the
underlying security in the foreign market. Id. at 240.

ADRs may be either sponsored or unsponsored. An
unsponsored ADR is established with little or no
involvement of the issuer of the underlying security. A
sponsored ADR, in contrast, is established with the active
participation of the issuer of the underlying security. Id. at
242-43. An issuer who sponsors an ADR enters into an
agreement with the depositary bank and the ADR owners.
Id. at 243. The agreement establishes the terms of the
ADRs and the rights and obligations of the parties, such as
the ADR holders’ voting rights. Id.

SEC Form F-6 governs the registration of ADRs. Form F-
6 requires that the registrant disclose important
information related to the issuance of the ADR, including
the terms of the depositary agreement (if any), material
contracts between the depositary and the issuer, and an
opinion of counsel regarding the legality of the ADRs. Id. at
288. Moreover, Form F-6 mandates that the registrant
provide in its prospectus a description of the ADRs being
registered, including information about fees and charges
imposed on the ADR holder. Id. at 286-87. ADRs that are
traded on American securities exchanges must abide by the
Exchange Act’s periodic reporting requirements. Id. at 288-
89. ADRs that are not traded on exchanges, such as
Roche’s, are not subject to the Exchange Act’s reporting
requirements, but under SEC Rule 12g3-2(b) the issuer
must furnish such annual reports, shareholder
communications, and other materials that are required to

                                6

be prepared pursuant to regulations in its home country.
See id. at 289-90 (citing 17 C.F.R. S 240.12g3-2(b)).

Pursuant to these requirements, Roche filed a Form F-6
registration statement in June 1992 to register 100 million
ADRs, and has since filed its annual and semi-annual
reports with the SEC in compliance with Rule 12g3-2(b). It
is through these annual and semi-annual reports, as well
as through press releases, that Pinker alleges that
Roche communicated to the investing public its
misrepresentations about the competitiveness of the
vitamin market from 1996 to 1999.

C. Procedural History

Pinker commenced this securities fraud action in the
District Court for the District of New Jersey seeking to
represent a class of purchasers of Roche ADRs during the
period of December 3, 1996 through May 20, 1999-- the
date on which Roche allegedly entered a plea agreement
with the Justice Department admitting its participation in
the price-fixing conspiracy. The District Court entered an
order granting Pinker’s motion to be appointed lead
plaintiff. The record does not reflect any action concerning
class certification. As noted above, the Court granted
Roche’s motion to dismiss Pinker’s complaint for lack of
personal jurisdiction under Fed. R. Civ. P. 12(b)(2), or, in
the alternative, for failure to state a claim under Fed. R.
Civ. P. 12(b)(6), and Pinker now appeals.
Pinker also appeals the District Court’s denial of his
motion to amend the original complaint pursuant to Fed. R.
Civ. P. 15(a), or in the alternative to amend the District
Court’s order of dismissal pursuant to Fed. R. Civ. P. 59(e)
and 60(b). Because we ultimately conclude that plaintiff’s
original complaint should not have been dismissed, we
need not address these issues.

II. Personal Jurisdiction

We review a district court’s decision with respect to
personal jurisdiction de novo. See Pennzoil Prods. Co. v.
Colelli & Assocs., 149 F.3d 197, 200 (3d Cir. 1998).
Although the plaintiff bears the burden of demonstrating

                                7

the facts that establish personal jurisdiction, see Mellon
Bank (East) PSFS Nat’l Ass’n v. Farino, 960 F.2d 1217,
1223 (3d Cir. 1992), in reviewing a motion to dismiss under
Rule 12(b)(2), we "must accept all of the plaintiff’s
allegations as true and construe disputed facts in favor of
the plaintiff." Carteret Sav. Bank, FA v. Shushan, 954 F.2d
141, 142 n.1 (3d Cir. 1992).

A. Background

In determining whether a court may exercise personal
jurisdiction we examine the relationship among the
defendant, the forum, and the litigation. See Max Daetwyler
Corp. v. Meyer, 762 F.2d 290, 293 (3d Cir. 1985). Here,
where the plaintiff’s cause of action is related to or arises
out of the defendant’s contacts with the forum, the court is
said to exercise "specific jurisdiction." IMO Indus., Inc. v.
Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998) (quoting
Helicopteros Nacionales de Colombia, S.A. v. Hall , 466 U.S.
408, 414 n.8 (1984)).1 In federal court, the exercise of
specific jurisdiction must satisfy the requirements of the
Due Process Clause of the Fifth Amendment. See In re Real
Estate Title & Settlement Servs. Antitrust Litig. , 869 F.2d
760, 766 n.6 (3d Cir. 1989). In particular, specific
jurisdiction may be exercised only when the defendant has
constitutionally sufficient "minimum contacts" with the
forum, Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474
(1985) (quoting Int’l Shoe, 326 U.S. at 316), and where
subjecting the defendant to the court’s jurisdiction
comports with "traditional notions of fair play and
_________________________________________________________________

1. "Specific jurisdiction" stands in contrast to "general jurisdiction,"
which is established when a defendant’s contacts with the forum are
"continuous and systematic." Int’l Shoe , 326 U.S. at 317. If general
jurisdiction exists, the contacts between the defendant and the forum
need not be specifically related to the underlying cause of action in order
for an exercise of personal jurisdiction over the defendant to be proper.
See, e.g., Provident Nat’l Bank v. Calif. Fed. Sav. & Loan Ass’n, 819 F.2d
434, 438 (3d Cir. 1987). Although Pinker argues that the District Court
had general jurisdiction over Roche, we consider his specific jurisdiction
argument much stronger (and ultimately meritorious for the purposes of
this appeal) and therefore do not address whether Roche is subject to
general jurisdiction.

                                8

substantial justice." Int’l Shoe, 326 U.S. at 316 (quoting
Milliken, 311 U.S. at 463).

In a case such as this, where the plaintiff’s claim is based
on a federal statute authorizing nationwide service of
process, see Section 27 of the 1934 Securities Act, 15
U.S.C. S 78aa, this Court has suggested in dicta that the
relevant forum for analyzing the extent of the defendant’s
contacts is the United States as a whole. For instance, in
Max Daetwyler, we recognized "[t]he constitutional validity
of national contacts as a jurisdictional base" where a
statute "provide[s] for nationwide service of process or
service wherever defendant is ‘doing business’ or‘may be
found.’ " 762 F.2d at 294 n.3 (citations omitted). We
considered the aggregation of the national contacts of an
alien defendant "neither unfair nor unreasonable" under
the Fifth Amendment in light of the fact that a federal court
sits as a unit of the national government and, therefore, the
territorial limitations that apply to the exercise of state
court jurisdiction -- or, for that matter, federal jurisdiction
in diversity cases, see IMO Indus., 155 F.3d at 258-59 --
are inapposite. Max Daetwyler, 762 F.2d at 294.

Where Congress has spoken by authorizing nationwide
service of process, therefore, as it has in the Securities Act,
the jurisdiction of a federal court need not be confined by
the defendant’s contacts with the state in which the federal
court sits. See DeJames v. Magnificence Carriers, Inc., 654
F.2d 280, 284 (3d Cir. 1981). Following this reasoning, the
district courts within this Circuit have repeatedly held that
a "national contacts analysis" is appropriate"when
appraising personal jurisdiction in a case arising under a
federal statute that contains a nationwide service of process
provision." AlliedSignal, Inc. v. Blue Cross of Calif., 924 F.
Supp. 34, 36 (D.N.J. 1996); see also Green v. William
Mason & Co., 996 F. Supp. 394, 396 (D.N.J. 1998) ("[A]n
assessment of personal jurisdiction under [a statutory
provision authorizing nationwide service of process]
necessitates an inquiry into the defendant’s contacts with
the national forum."). We too are persuaded by the
reasoning of our prior decisions on the subject, and,
consistent with several of our sister courts of appeals, hold
that a federal court’s personal jurisdiction may be assessed

                                9

on the basis of the defendant’s national contacts when the
plaintiff’s claim rests on a federal statute authorizing
nationwide service of process. See Republic of Panama v.
BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 946-47
(11th Cir. 1997); Busch v. Buchman, Buchman & O’Brien
Law Firm, 11 F.3d 1255, 1258 (5th Cir. 1994); United
Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1330 (6th Cir.
1993); United Elec., Radio & Mach. Workers of Am. v. 163
Pleasant St. Corp., 960 F.2d 1080, 1085 (1st Cir. 1992);
Sec. Investor Protection Corp. v. Vigman, 764 F.2d 1309,
1316 (9th Cir. 1985), rev’d on other grounds, Holmes v. Sec.
Investor Protection Corp., 503 U.S. 258 (1992); see also
Autoscribe Corp. v. Goldman & Steinberg, Inc., 1995 U.S.
App. LEXIS 2848, at *7 (4th Cir. Feb. 3, 1995) (per curiam)
(not precedential) (citing Hogue v. Milodon Engineering, Inc.,
736 F.2d 989, 991 (4th Cir. 1984)).

We have reasoned that in assessing the sufficiency of a
defendant’s contacts with the forum, a court should look at
the extent to which the defendant "availed himself of the
privileges of American law and the extent to which he could
reasonably anticipate being involved in litigation in the
United States." Max Daetwyler, 762 F.2d at 295; see also
Hanson v. Denckla, 357 U.S. 235, 253 (1958) (requiring
"that there be some act by which the defendant
purposefully avails itself of the privilege of conducting
activities within the forum State, thus invoking the benefits
and protections of its laws"). In assessing whether a
commercial entity has availed itself of the privileges of a
forum’s laws, jurisdiction is proper if the defendant has
taken "action . . . purposefully directed toward the forum
State." Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal.,
480 U.S. 102, 112 (1987) (plurality opinion of O’Connor,
J.).

Once minimum contacts have been established, we
assess whether the exercise of personal jurisdiction is
consistent with "traditional notions of fair play and
substantial justice." Int’l Shoe, 326 U.S. at 316 (citation
omitted).2 In the context of state courts, the Supreme Court
_________________________________________________________________

2. To be sure, there has been some debate as to whether this second
prong of the International Shoe analysis ought to apply in the context of

                                10

has stated that this inquiry requires evaluating"the burden
on the defendant, the forum State’s interest in adjudicating
the dispute, the plaintiff’s interest in obtaining convenient
and effective relief, the interstate judicial system’s interest
in obtaining the most effective resolution of controversies,
and the shared interests of the several States in furthering
fundamental substantive social policies." Burger King, 471
U.S. at 477 (internal quotation marks omitted). In the
federal court context, the inquiry will be slightly different,
taking less account of federalism concerns, see Max
Daetwyler, 762 F.2d at 294 n.4, and focusing more on the
national interest in furthering the policies of the law(s)
under which the plaintiff is suing.
_________________________________________________________________

a federal statute authorizing nationwide service of process. Compare,
e.g., Vigman, 764 F.2d at 1315-16 (requiring only minimum contacts),
with Republic of Panama, 119 F.3d at 945 (requiring that the
"constitutional notions of fairness and reasonableness" be met) (internal
quotation marks omitted). This Court has not issued an authoritative
ruling on the matter, although we have hinted that a fairness analysis
consisting of more than an assessment of the defendant’s national
contacts would be appropriate. See In re Real Estate, 869 F.2d at 766
n.6 (citing Oxford First Corp. v. PNC Liquidating Corp., 372 F. Supp. 191,
203-05 (E.D. Pa. 1974)). Because the plaintiff has not objected to the
application of a "fair play and substantial justice" analysis, we will
assume, without deciding, that such an analysis is appropriate in this
context.

It is important to note that the application of a"fair play and
substantial justice" test has generated the most controversy in cases in
which a defendant has contested the jurisdiction of the particular
district court in which he was being sued in addition to, or rather than,
his contacts with the nation as a whole, on the basis that the forum was
a particularly unfair one. See, e.g., Republic of Panama, supra; Oxford
First Corp., supra. Here, by contrast, Roche does not contend that being
sued in the District of New Jersey is any more unfair than being sued
anywhere else in the United States. Rather, its argument focuses on its
lack of sufficient contacts with the United States as a whole.
Consequently, our assessment of the "fair play and substantial justice"
prong need not concern itself with the propriety of litigating this action
in the District Court of New Jersey vis-a-vis other district courts
throughout the nation. Cf. Max Daetwyler, 762 F.2d at 294 & n.5 ("[A]n
alien defendant’s preference for a particular state as a more or less
convenient forum generally [should not] rise to the level of a
constitutional objection.").

                                11

B. Discussion

Pinker’s complaint alleges that Roche sponsored an ADR
facility in the United States in 1992; that these ADRs "were
actively traded on the over the counter market;" and that
"the average daily trading volume of Roche ADRs during the
Class Period was about 25,000 ADRs." To be precise, the
complaint alleges that Roche "established" an ADR facility,
not that it "sponsored" such a facility. Roche, however,
conceded before the District Court that its ADR program
was sponsored, a fact which is confirmed by its public
filings. The complaint also alleges, as noted above, that
Roche made a series of fraudulent statements in various
reports and media releases that had the effect of artificially
inflating its ADR price. Although the complaint does not
specify to whom the press releases were addressed, it does
allege that the releases "were carried by national
newswires," and that "Roche’s ADRs were followed by
analysts from major brokerages, including CIBC World
Markets, Merrill Lynch, Salomon Smith Barney, Argus
Research, Schroder & Co., Inc., and Lehmann [sic]
Brothers."

Mindful of our obligation to "accept all of the plaintiff’s
allegations as true and construe disputed facts in favor of
the plaintiff," Carteret Sav. Bank, 954 F.2d at 142 n.1, we
view these alleged facts as sufficient to support personal
jurisdiction over Roche. In our view, by sponsoring an ADR
facility, Roche "purposefully avail[ed] itself of the privilege of
conducting activities" in the American securities market,
and thereby established the requisite minimum contacts
with the United States. Hanson, 357 U.S. at 253. As
discussed above, sponsored ADRs such as Roche’s require
the issuer to deposit shares with an American branch of a
depositary and to enter a deposit agreement with the ADR
holders defining the rights of ADR holders and the
corresponding duties of the issuer. By sponsoring an ADR,
therefore, Roche took affirmative steps purposefully
directed at the American investing public.3 The aim of
_________________________________________________________________

3. Although the plaintiff’s complaint does not explain in detail what an
ADR is and how an ADR facility is established, we believe that these
facts may be judicially noticed. See Fed. R. Evid. 201(b).

                                12

sponsoring an ADR, after all, is to allow American investors
to trade equities of a foreign corporation domestically.
Roche, therefore, clearly took "action" -- sponsoring an
ADR in a deliberate attempt to solicit American capital --
"purposefully directed toward the [United States]." Asahi
Metal Indus., 480 U.S. at 112.

Roche’s sponsorship amounted to an active marketing of
its equity interests to American investors. Just as
solicitation of business in the forum state is generally
sufficient to establish personal jurisdiction over the
defendant for claims arising out of injuries to purchasers
within the forum state, see, e.g., McGee v. Int’l Life Ins. Co.,
355 U.S. 220 (1957) (upholding personal jurisdiction over a
defendant who solicited in the forum state a reinsurance
agreement that formed the basis for plaintiff’s breach of
contract claim), so too is personal jurisdiction appropriate
where a foreign corporation has directly solicited
investment from the American market. A foreign
corporation that purposefully avails itself of the American
securities market has adequate notice that it may be haled
into an American court for fraudulently manipulating that
market. Although the plaintiff’s complaint does not allege
that the fraudulent media releases and annual reports were
specifically directed to American investors, a foreign
corporation that has created an American market for its
securities can fairly expect that that market will rely on
reports and media releases issued by the corporation.

Roche argues that the exercise of personal jurisdiction in
this case is inappropriate because its ADRs were not listed
on any American exchanges. This factor, Roche contends,
distinguishes this case from others in which federal courts
have found the issuers of ADRs to be subject to personal
jurisdiction. See, e.g., Itoba Ltd. v. LEP Group PLC, 54 F.3d
118, 120 (2d Cir. 1995) (foreign issuer listed ADRs on the
NASDAQ). We disagree. The mere fact that its ADRs were
not listed on an American stock exchange does not
demonstrate that Roche did not seek to avail itself of the
American securities market, for even though Roche ADRs
were not traded on an exchange, the complaint alleges that
Roche ADRs were actively traded on the over-the-counter
market and that the average daily trading volume of Roche
ADRs was about 25,000.

                                13

We also conclude that the exercise of personal
jurisdiction over Roche comports with "traditional notions
of fair play and substantial justice." Roche submits that
because unlisted ADRs are subject only to minimal
disclosure requirements under federal securities laws, it is
therefore unfair to subject Roche to the disclosure
requirements of S 10(b). Roche argues that it could not have
been expected to know that American investors would
assume that its disclosures abided by American standards
or that American investors might later claim to have been
defrauded under a fraud-on-the-market theory. However,
even though Roche’s ADRs were unlisted, they were still
subject to some reporting requirements -- namely, whatever
requirements Switzerland imposes. See 17 C.F.R.
S 240.12g3-2(b) (requiring foreign issuers to furnish the
SEC with shareholder communications and other materials
as are required to be prepared pursuant to home market
regulations in order to maintain exemption from the
reporting requirements applicable to American companies).
Moreover, while the parties have not addressed the issue, it
would appear that the alleged fraudulent misstatements of
Roche, being affirmative misrepresentations and not simply
material omissions, would violate the disclosure
requirements of any securities regulatory regime, including
Switzerland’s.4

Additionally, we believe that the national interest in
furthering the policies of the American securities regulatory
system militates in favor of exercising personal jurisdiction
over Roche. As explained in Section I.B, ADRs are the
preferred method for trading in foreign securities in the
United States in part because they are a more secure
_________________________________________________________________

4. Even if Roche is correct that the fraud-on-the-market theory is unique
to American law and that, as a Swiss corporation, it could not have
expected that its misrepresentations would subject it to liability under
this theory, this is a problem that can be addressed by choice-of-law
doctrine, for it goes to the merits of the case rather than to the question
of personal jurisdiction. See Burger King, 471 U.S. at 481-82 ("[C]hoice
of law analysis -- which focuses on all elements of a transaction, and
not simply on the defendant’s conduct -- is distinct from minimum-
contacts jurisdictional analysis -- which focuses at the threshold solely
on the defendant’s purposeful connection to the forum.").

                                14

investing option for Americans than purchasing the foreign
corporation’s stock directly due to the fact that they are
subject to reporting and regulatory requirements under the
Securities Act and the Exchange Act. Allowing Roche to
escape the personal jurisdiction of the federal courts would
in essence nullify the regulatory protection that American
investors seek when they purchase ADRs.5 If ADRs are
subject to the United States securities regulatory regime in
theory, but are exempt in practice due to the inability of
American courts to exercise personal jurisdiction over the
foreign corporation issuer, one would expect them to be
considered a less attractive option for American investors.

In sum, we do not think it unfair or inconsistent with
"traditional notions of fair play and substantial justice" to
subject Roche to personal jurisdiction in a United States
court when it has taken affirmative steps to market its
ADRs to the American investing public, and when it is
alleged to have made material misrepresentations about its
business practices that have artificially inflated the market
price of those ADRs. We therefore conclude that the District
Court erred in dismissing Pinker’s complaint pursuant to
Rule 12(b)(2) for failing to adequately allege personal
jurisdiction.6
_________________________________________________________________

5. We also note that without this regulatory protection, Roche and other
foreign corporations might have a more difficult time obtaining American
capital through ADR facilities.

6. As a holding company, Roche conducted its operations in the United
States through an array of subsidiaries and sub-subsidiaries. An issue
is raised in the briefs as to the extent to which the activities of these
subsidiary entities are chargeable to Roche for the purposes of personal
jurisdiction. We recognize that an argument can be made that the
activities of Roche and these entities -- particularly, F. Hoffman-La
Roche Ltd., a Swiss corporation, and the New Jersey corporations of
Hoffman-La Roche, Inc., and Roche Vitamins, Inc., which, it appears,
were responsible for the marketing and sale of bulk vitamins in the
United States -- were so intertwined as to justify imputing the
subsidiaries’ conduct to Roche for personal jurisdiction purposes. In
particular, although not alleged in Pinker’s complaint, it could also be
argued that we should judicially notice the fact that the same person,
Dr. Fritz Gerber, simultaneously served as Chairman of the Board of
Roche and Chairman and Chief Executive Officer of F. Hoffman-La Roche

                                15

III. Reliance

To state a valid claim for securities fraud underS 10(b)
and Rule 10b-5, a plaintiff must allege that the defendant:
(1) made a misstatement or an omission of a material fact;
(2) with scienter; (3) in connection with the purchase or the
sale of a security; (4) upon which the plaintiff reasonably
relied; and (5) that the plaintiff’s reliance was the proximate
cause of his or her injury. See In re Ikon Office Solutions,
Inc., 277 F.3d 658, 666 (3d Cir. 2002). If a plaintiff fails to
allege any of these elements, the complaint must be
dismissed. See In re Westinghouse Sec. Litig. , 90 F.3d 696,
712-13 (3d Cir. 1996).

A plaintiff may prove reasonable reliance under a fraud-
on-the-market theory. See Semerenko v. Cendant Corp., 223
F.3d 165, 178 (3d Cir. 2000). Under this theory, a plaintiff
is entitled to a presumption of reliance if he bought
securities in an efficient market; in an efficient market, the
price of the security is assumed to have incorporated the
alleged misrepresentations of the defendant. See id. Pinker
alleges that "[a]t all relevant times, the market for Roche’s
ADRs was an efficient market that promptly digested
current information with respect to the Company from all
publicly available sources and reflected such information in
Roche’s stock price." In light of Roche’s numerous alleged
misrepresentations about the competitiveness of the
vitamin market, Pinker contends that he has adequately
pled reliance under a fraud-on-the-market theory because
he bought Roche ADRs at a price that was artificially
inflated due to the market’s reliance on these
misrepresentations.

The District Court concluded that Pinker had failed to
plead reliance in light of the complaint’s acknowledgment of
_________________________________________________________________

Ltd. during times relevant here. We ultimately decline to delve into these
complicated legal and factual issues of corporate veil-piercing, however,
because we are satisfied, for the reasons set forth above, that Roche
purposefully availed itself of the American market and legal system
through its sponsorship of an ADR facility. Although veil-piercing issues
may be relevant at the merits stage of this litigation, we do not consider
it necessary to address them for the purposes of Rule 12(b)(2).

                                16

both Pinker’s and the market’s awareness of a Minneapolis
law firm’s public announcement of its plans to sue Roche
for antitrust violations on March 12, 1999. Because Pinker
did not purchase his Roche ADRs until April 27, the Court
concluded that the announcement of the antitrust lawsuit
had been integrated into the price of Roche ADRs and that,
as a result, Pinker could not show reliance under a fraud-
on-the-market theory because the market was already
aware of Roche’s anti-competitive activities at the time at
which Pinker purchased his ADRs.

While we think that the complaint could have been more
artfully drafted, in light of our responsibility at this stage to
construe its allegations in the light most favorable to the
plaintiff, we conclude that Pinker has adequately pled
reliance.7 Although the complaint alleges that the March 12
"revelation . . . caused the share price of Roche to drop,"
this allegation lies within a section of the complaint entitled
"The Truth Begins to Emerge." (Emphasis added). Later in
the same section Pinker alleges that on May 20, 1999-- a
point in time after he purchased his ADRs in Roche --
Roche and a former Roche executive agreed to plead guilty
to criminal antitrust charges. These allegations make clear
Pinker’s assertion that although the truth about Roche’s
anti-competitive activities might have begun to emerge to
both Pinker and the market on March 12, 1999, the full
extent of Roche’s illegal activities was not disclosed until
May 20, 1999.
Moreover, the disclosure of a private law firm’s filing of
an antitrust suit against Roche hardly indicated to the
market with any degree of certainty that Roche had indeed
engaged in anti-competitive activity. Although the market
knew that Roche would have to incur legal expenses as a
result of the suit, the market may well have thought that
_________________________________________________________________

7. We exercise de novo review over dismissal of claims under Fed. R. Civ.
P. 12(b)(6). See A.D. Bedell Wholesale Co. v. Philip Morris Inc., 263 F.3d
239, 249 n.25 (3d Cir. 2001). In evaluating the propriety of the
dismissal, we accept all factual allegations as true, construe the
complaint in the light most favorable to the plaintiff, and determine
whether, under any reasonable reading of the complaint, the plaintiff
may be entitled to relief. See Colburn v. Upper Darby Twp., 838 F.2d
663, 665-66 (3d Cir. 1988).

                                17

the lawsuit was frivolous, or that at the very least Roche
stood a good chance of successfully defending itself or
reaching an acceptable settlement. The revelation of May
20, on the other hand, amounted to an outright admission
by Roche of wrongdoing. At that point, the investing public
became aware not only of Roche’s illegal activity, but also
that it had agreed to pay a record $500 million fine for its
antitrust violations.8

In sum, reading the complaint in the light most favorable
to the plaintiff, it is possible that the full truth about
Roche’s anti-competitive activity had not yet emerged by the
time at which Pinker purchased his ADRs, and, therefore,
he has adequately pled reasonable reliance under a fraud-
on-the-market theory of liability.

Conclusion

Having concluded that dismissal of the plaintiff’s
complaint was inappropriate under both Rules 12(b)(2) and
12(b)(6), the order of the District Court dismissing the
complaint will be reversed, and the case remanded for
further proceedings.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit
_________________________________________________________________

8. Roche points out that although Pinker’s complaint alleges that "Roche
agreed to plead guilty," it was actually one of Roche’s subsidiaries, F.
Hoffman-La Roche Ltd., that entered into the plea agreement, and Roche
itself was not involved. The plea agreement filed in the Northern District
of Texas does indeed reflect that only the United States government and
F. Hoffman-La Roche Ltd. were parties to the agreement. However, even
if, despite our obligation to accept all of the complaint’s factual
allegations as true, we were to agree that Pinker’s allegation is a factual
mischaracterization, it is likely that Pinker has adequately pled reliance
in light of the fact that the value of ADRs in Roche, a holding company,
is necessarily tied to the actions and fluctuations in value of its
subsidiary operating entities, including F. Hoffman-La Roche.

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