Much ink has been spilled since the Supreme Court’s 2010 decision in Morrison v. National Australia Bank about the federal securities laws’ applicability to foreign transactions in foreign securities. But what happens when non-U.S. residents sue in the United States under foreign law based on U.S. securities transactions?
The federal court handling the BP securities litigation arising from the Gulf oil spill addressed that question in Kaynes v. BP, PLC, when Canadian residents who had purchased BP’s ordinary shares and American Depositary Shares on the New York Stock Exchange sought to assert claims under Canadian law. The U.S. District Court for the Southern District of Texas dismissed the Canadian-law claims on September 25, 2015, ruling that the Canadians fell within the U.S. class definition and were therefore subject to the control of the court-appointed lead plaintiffs.
The Canadians had first sued in Canada under the Ontario Securities Act, based on their U.S. purchases. The Ontario Court of Appeal ruled in 2014 that the trial court had jurisdiction to entertain the claims, but that it should nevertheless have declined to exercise its jurisdiction on forum non conveniens grounds. The appellate court concluded in Kaynes v. BP, PLC that comity considerations militated in favor of deferring to U.S. law and the pending U.S. class actions because the Canadian plaintiffs’ claims arose from purchases on a U.S. exchange. The Canadian court thus appeared to endorse – as a discretionary matter – its own version of Morrison’s transaction-based standard: “Order and fairness will be achieved by adhering to the prevailing international standard tying jurisdiction to the place where the securities were traded and a multiplicity of proceedings involving the same claims or class of claims will be avoided.”
The Canadian lead plaintiff then sued in the U.S. court on behalf of the Canadian NYSE purchasers, again asserting claims under the Ontario Securities Act. The U.S. court ruled, however, that its earlier order appointing lead plaintiffs for the class of purchasers on the U.S. market “‘vest[ed] the lead plaintiff[s] with authority to exercise control over the litigation as a whole,’ granting the lead plaintiffs the ‘sole authority to determine what claims to pursue on behalf of the class’” (which included the Canadian NYSE purchasers). The Canadians were therefore “not entitled to now assert a separate class action based on a claim that the lead plaintiffs determined not to pursue.” (The court also questioned whether the Canadian-law claims were timely in any event.)
The Kaynes case illustrates the jockeying for position in transnational securities litigation and the influence of Morrison’s transaction-based standard. We will see whether decisions such as this one will cause non-U.S. residents who purchased foreign issuers’ securities on U.S. markets either to argue for subclasses asserting foreign-law claims or to seek to intervene on the theory that lead plaintiffs who have sued only under U.S. law cannot adequately represent non-U.S. residents who wish to sue under non-U.S. law. Non-U.S. residents can, of course, opt out of U.S. classes asserting only U.S.-law claims based on U.S. transactions. But if the non-U.S. residents’ home-country courts follow the Ontario Court of Appeal’s approach and defer – as a matter of comity – to the law of the country where the securities transaction took place, an opt-out might be to no avail.