U.S. Supreme Court Takes on Class Action Suits by Non-Americans

On Monday, March 29, 2010, the United States Supreme Court should begin hearings on the Morrison affair — a file that will define case law — on the possibility of non-Americans going after non-American enterprises suspected of stock market infractions in the United States, where, notably, half of the cases are class action suits. And, this even includes cases when the fraud was not committed in the United States.

The Morrison case against the National Australia Bank (NAB) is one example: Three Australian plaintiffs and one American, who have not been subject to a single prejudice, are going to explain to the judges of the Supreme Court that they were right to blame NAB in New York because of misleading information provided by the American subsidiary of NAB on its future profits. And yet, NAB is publicly listed in Australia, New Zealand, Tokyo and London, but not in the United States.

The federal court for the Southern District of New York, and then the Federal Court of Appeals for the 2nd circuit declared themselves as lacking jurisdiction since the accused activities unfolded outside of the United States and the plaintiffs do not have a right to damages in the country. Knowing that other federal courts determined themselves to have jurisdiction in similar cases, the Supreme Court took up the case to decide on the matter. Whether or not Morrison is dismissed, the decision will define the range of jurisdiction for American federal courts and the Court of Appeals in the future.

The international stakes of the issue are such that not less than fifteen amicus curiae briefs (friends of the court) have been submitted to the Supreme Court. The system of “friends of the court” allows moral persons, states or enterprises to submit arguments to clarify the issue for the American judges or attempt to influence them. Australia, the United Kingdom and France, but also Medef (the Movement of French Enterprises), Lagardere (a media group), Thales, Technip and Vivendi — recently condemned in New York for having hidden a major liquidity crisis at the beginning of the decade in Paris — fear that the Supreme Court is allocating federal jurisdiction to a large domain.

The European and Asiatic states, from their side, fear seeing American courts become the judicial soldier of the entire world. France, as the intermediary for the office of Shearman & Sterling, pointed out that a stretched design of the federal courts contradicts the “international courtesy” that governs the judicial relationships between states.

Beyond wrinkled sensitivities, the possibility of a French citizen or a Chinese citizen acting in the United States suddenly places judicial systems in competition with one another and interferes with the possibility that each sovereign state rules its own commercial businesses.

According to Emmanuel Gaillard, professor of law and associated with Shearman & Sterling in France, “class action suits in which individuals are represented, without even having wanted it, are incompatible with the French concept of international public order, and results in certain decisions of constitutional advice, in particular those rendered July 25, 1989.” Like France, the United Kingdom and Australia defend their sovereignty and wish that American jurisdiction, meaning the international plan for commercial law, be founded on clear criteria that is respectful of the rights of a third country. Many states ban class action suits to better protect enterprises.

From its side, the American government submitted a brief in favor of an enlarged jurisdiction of the American federal courts. The Supreme Court should reach its decision before the end of June 2010.

Whatever happens in the Morrison case, this judgment will be examined under a magnifying glass everywhere in the world because it will define the face of international stock exchange litigation for the next twenty years.