Post-Morrison, State Law Rather Than Federal Supports Claims By Non-U.S. Investors for Alleged Securities Fraud

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We have been following the law’s development since the U.S. Supreme Court’s decision in the U.S. Supreme Court’s decision in Morrison v. National Australia Bank (No. 08-1191). Morrison held that Section 10(b) of the Securities Exchange Act of 1934 did not provide a private cause of action in “foreign-cubed” cases—cases where foreign plaintiffs sue foreign defendants for misconduct in connection with securities traded on foreign exchanges (hence “foreign cubed”). The Court rejected over 40 years of lower-court jurisprudence – which focused on where “conduct” and “effects” occurred or would be felt to determine the reach of Rule 10b-5. Instead the Supreme Court held that Section 10(b) reaches frauds only where “the purchase or sale is made in the United States, or involves a security listed on a domestic exchange”.

Since Morrison was decided, we have posted on the many decisions enforcing and expanding it (e.g., here and here). We have also commented on the use by plaintiffs of state courts (e.g., here) or non-U.S. courts (e.g., here) to keep claims alive that would otherwise fall prey to Morrison’s holding were a federal securities claim be the hoped-for key to the court house door.

In Dandong v. Pinnacle Performance Limited, 10 Civ. 8086 (S.D.N.Y. 2011), the Court breathed life back into a federal forum, albeit on the basis of state law causes of action. The case involves claims by a group of Singapore investors assering various claims against Morgan Stanley and various affiliates alleged fraud and other state-law claims relating to credit-linked notes. The notes are credit derivative instruments not different from those dismissed on the basis of Morrison when the claims have been asserted under federal law. Here the District Court granted in part but denied much of defendants’ motions to dismiss. The significant international practice rulings in the decision include...

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