T jgoldfarb@jonesday.com he United States Supreme Court Securities - PDF document

Jones฀Day,฀Sydney Jones฀Day,฀New฀York Jones฀Day,฀Sydney COUNTRY DEVELOPMENTS – UNITED STATES of the documents. But the court recognised Implications in cross-border consultations that doing so would in fact violate principles and investigations of comity. Why? Because Korean law does not Gucci reflects the importance, in the US, permit compulsory document production. of a client’s reasonable expectations that a Thus, as the court recognised, ‘where virtually communication will be privileged. But human no disclosure is contemplated, it is hardly resources professionals and US in-house surprising that Korea has not developed a counsel who consult with overseas counsel substantive law relating to attorney-client should not assume that their communications privilege and work product that is co- will be protected by US privilege law. Prior extensive with our own law.’ to seeking advice, companies should seek Another interesting privilege case arose out guidance from outside counsel, whether in of a family spat between siblings located in the US or overseas, regarding the privileged This article first appeared in the April 2011 issue of International Litigation News of the the US and Argentina. In Madanes v Madanes , nature of communications, and should Legal Practice Division of the International Bar Association, and is reproduced by kind 199 FRD 135 (SDNY 2001), this family feud take all reasonable steps to assure that permission of the International Bar Association, London, UK. resulted in RICO charges over sharing communications are indeed subject to all family assets. One attorney in Argentina had measures to assure their confidentiality. represented all the siblings with respect to the disputed family assets. Notes The brothers sought discovery from the 1 This article was also published on 13 January 2011 in the New York Law Journal . shared attorney, who resisted disclosure 2 Upjohn Co, v US , 499 US 383, 389 (1981). on the basis of the privilege. But the 3 Golden Trade, SRL v Jordache, Inc, 143 FRD 514 (SDNY 1992). court rejected the argument, holding 4 Akzo Nobel Chemicals Ltd v EU (Case-550/07) at paragraph that the attorney had violated Argentine 47. 5 2010 US Dist LEXIS 65871 (SDN 29 June 2010). professional ethics and committed a breach 6 89 F Supp 357, 358–59 (D Mass 1950). of fiduciary duty through his conduct 7 Gucci America, Inc v Guess?, Inc , 09 CV 04373 (SDNY and that the requested documents were, 3 January 2011). 8 Gucci America Inc v Guess?, Inc , 2010 US Dist LEXIS 65873 therefore, not privileged. (SDNY 29 June 2010). 9 Madanes v Madanes , 199 FRD 135, 140 (SDNY 2001) (citing Societe Nationale Industrielle Aerospatiale v United States District Court , 482 US 522, 539–41 (1987). 10 208 FRD 92 (SDNY 2002). Steven W ‘Foreign cubed’ cases put back in Fleming their box: United States Supreme sfleming@jonesday.com Peter T Brabant Court reins in extraterritorial pbrabant@jonesday.com application of securities fraud law James K Goldfarb* T jgoldfarb@jonesday.com he United States Supreme Court Securities Exchange Act of 1934 (the ‘1934 Act’) recently held in Morrison v National only when there has been a purchase or sale Australia Bank Ltd, 130 S Ct 2869 of securities in the US or the purchase or (2010) ( Morrison ), that US laws sale of securities listed on an American stock against securities fraud do not apply to private exchange. In adopting this ‘transactional test’, civil actions arising from the purchase or the Court overturned more than 40 years sale of securities on exchanges outside the of jurisprudence of the US Federal Courts United States. The high court ruled that and effectively barred foreign plaintiffs from private investors may pursue claims alleging bringing proceedings in the United States securities fraud under Section10(b) of the against a foreign company arising out of a INTERNATIONAL LITIGATION NEWSLETTER ฀ ApRIl฀2011 45

INTERNATIONAl฀BAR฀ASSOCIATION฀ lEgAl฀pRACTICE฀DIvISION COUNTRY DEVELOPMENTS – UNITED STATES foreign securities transaction – commonly investors. Indeed, between 2005 and 2009, referred to in the US as ‘foreign cubed’ cases. securities fraud class actions filed against non- The application of the decision in US companies constituted as much as 16.4 Morrison will quickly be tested in proceedings per cent and no less than 11 per cent annually commenced by Australian hedge fund, Basis of all securities fraud class action filings in the Yield Alpha Fund (‘Basis’), in the United US. 4 Most recently, for example, plaintiffs’ States District Court, Southern District of lawyers have targeted foreign financial New York. Basis claims more than US$1 institutions that have suffered losses from billion in damages from the global investment US mortgage-related investments, including bank Goldman Sachs Group Inc (‘Goldman Credit Suisse, UBS, RBS, CIBC, Société Sachs’). 1 Basis argues that Goldman Sachs Générale, and Fortis. engaged in securities fraud under the 1934 In a recent reminder of the economic Act and common law fraud in 2007 when impact of those suits, the US and European it sold exposure to collateralised debt shareholders who obtained a jury verdict in a obligations to Basis via credit default swaps. securities fraud class action against the French Goldman Sachs has filed a motion to dismiss conglomerate Vivendi in a federal court in the action, principally on the basis of the Manhattan claim that the judgment could decision in Morrison . be worth more than US$9 billion, a figure This article examines the decision of that excludes attorneys fees for the eight-year the US Supreme Court in Morrison and in litigation. 5 But the judgment could be reduced particular its implications on the prevalence by more than 80 percent if non-US investors of ‘foreign cubed’ litigation in the United are ultimately excluded from the class. 6 Vivendi States, including in the Basis proceedings. has moved to set aside the judgment or for a new trial based, in part, on Morrison . In Morrison , the United States Supreme The decision in Morrison – Court considered the territorial scope of the ‘foreign cubed’ cases 1934 Act, specifically, whether Section 10(b) ‘Foreign cubed’ or ‘f-cubed’ securities lawsuits of the Act permits fraud-on-the-market claims are claims brought under the 1934 Act in the by a class of foreign investors who purchased, US by foreign investors against foreign issuers on a foreign securities exchange, foreign to recover losses from purchases on foreign stock issued by a foreign company. securities exchanges. Until the late 1960s, US courts consistently The facts in Morrison concluded that they lacked subject-matter jurisdiction to hear Section 10(b) lawsuits The defendant in Morrison , National Australia arising from overseas securities transactions Bank Limited (‘NAB’), is one of Australia’s because the 1934 Act did not specify that it leading domestic financial institutions. In reached conduct outside the US (see 130 February 1996, NAB bought HomeSide S Ct at 2878). But beginning in 1967, the Lending, Inc (‘HomeSide’), an American Second Circuit and the district court for the company. HomeSide’s business consisted of Southern District of New York concluded mortgage servicing which involved collecting that, in certain circumstances, US courts did mortgage payments and performing have subject-matter jurisdiction over those associated administrative work for a fee, disputes. Under the ‘effects’ test, the courts known as a ‘mortgage servicing right’. On 5 had jurisdiction when the wrongful conduct July 2001, NAB announced to the Australian had a substantial effect in the US or upon US Stock Exchange (‘ASX’) that it would write citizens. Under the ‘conduct’ test, the courts down the value of HomeSide’s mortgage had jurisdiction when the wrongful conduct servicing rights by US$450 million. On 3 took place in the US (see idem at 2879). 2 September 2001, NAB announced to the ASX Owing to those permissive jurisdictional that the carrying value of HomeSide would rules, as well as the globalisation of the be reduced by a further US$1.75 billion. The securities markets, and competitive pressures value of NAB shares fell sharply. within the plaintiffs’ bar to identify new Three Australian shareholders and one clients, securities fraud class actions became a American shareholder brought a class action major American export. 3 Today, it is common in the United States District Court for the for securities fraud lawsuits to be brought Southern District of New York on behalf of against foreign issuers and on behalf of a class non-American investors who bought ordinary that includes foreign, as well as American, NAB shares outside the US and American 46