(Article from Securities Law Alert, December 2014)
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On August 14, 2014, the Second Circuit considered whether the whistleblower antiretaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act “protects a foreign worker employed abroad by a foreign corporation where all events related to the disclosures occurred abroad.” Liu Meng-Lin v. Siemens AG, 763 F.3d 175 (2d Cir. 2014) (Lynch, J.). Applying the presumption against extraterritoriality established in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), the Second Circuit held that the Dodd-Frank Act whistleblower antiretaliation provision “does not apply extraterritorially.” The Second Circuit found “absolutely nothing in the text … or in the legislative history” of the Dodd-Frank Act whistleblower antiretaliation provision suggesting that Congress intended the provision “to regulate the relationships between foreign employers and their foreign employees working outside the United States.”
Notably, the Second Circuit determined that Morrison “decisively refutes [the] contention that the United States securities laws[,]”including the Dodd-Frank Act whistleblower antiretaliation provision, “apply extraterritorially to the actions abroad of any company that has issued United States-listed securities.” The court found that “the listing of securities alone is the sort of ‘fleeting’ connection that ‘cannot overcome the presumption against extraterritoriality’” Id. (quoting Morrison, 561 U.S. 247).
Second Circuit Interprets Morrison to Hold That Section 10(b) Does Not Necessarily Reach All Domestic Transactions in Securities Not Listed on a Domestic Exchange
On August 15, 2014, the Second Circuit interpreted the Supreme Court’s decision in Morrison to hold that “in the case of securities not listed on domestic exchanges, a domestic transaction is necessary but not necessarily sufficient to make § 10(b) applicable.” Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198 (2d Cir. 2014) (per curiam).
The Second Circuit explained that “under Morrison, a domestic transaction in a security (or a transaction in a domestically listed security) … [is] a necessary element of a domestic § 10(b) claim.” However, the Second Circuit found that the Supreme Court “never said that an application of § 10(b) will be deemed domestic whenever” a domestic securities transaction or a transaction in a domestically listed security “is present.” The Second Circuit observed that “a rule making the statute applicable whenever the plaintiff’s suit is predicated on a domestic transaction, regardless of the foreignness of the facts constituting the defendant’s alleged violation, would seriously undermine Morrison’s insistence that § 10(b) has no extraterritorial application.” Such a rule “would require courts to apply the statute to wholly foreign activity … solely because a plaintiff in the United States made a domestic transaction, even if the foreign defendants were completely unaware” of that transaction.
Significantly, the Second Circuit did “not purport to proffer a test that [would] reliably determine when a particular invocation of § 10(b) [should] be deemed appropriately domestic or impermissibly extraterritorial.” Rather, the Second Circuit emphasized that “courts must carefully make their way with careful attention to the facts of each case and to combinations of facts that have proved determinative in prior cases, so as eventually to develop a reasonable and consistent governing body of law on this elusive question.”
Second Circuit Applies Morrison to Limit the Extraterritorial Reach of Private Rights of Action Under the Commodity Exchange Act
On September 4, 2014, the Second Circuit applied the Supreme Court’s decision in Morrison to hold that § 22 of the Commodity Exchange Act (“CEA”), which provides a private right of action for CEA violations, “is limited to claims alleging a commodities transaction within the United States.” Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014) (Jacobs, J.). Notably, the Second Circuit rejected plaintiff’s contention that Morrison only “governs substantive (conduct-regulating) provisions rather than procedural provisions such as § 22.” The court explained that “Morrison . . . draws no such distinction, and holds that the presumption applies generally to ‘statutes.’”
The Second Circuit determined that “[g]iven the absence of any ‘affirmative intention’ by Congress to give the CEA extraterritorial effect,” it “must ‘presume [the CEA] is primarily concerned with domestic conditions’” Id. (quoting Morrison, 561 U.S. 247). Moreover, because “courts have [traditionally] looked to the securities laws when called upon to interpret similar provisions of the CEA,” the Second Circuit found that the test it had articulated in Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012) for pleading a “domestic transaction” under Morrison also applies when determining whether a “domestic transaction” took place for purposes of CEA § 22. (The Absolute Activist court held that, in order “to sufficiently allege the existence of a ‘domestic transaction in other securities’” for Morrison purposes, “plaintiffs must allege facts indicating that irrevocable liability was incurred or that title was transferred within the United States.”)
Significantly, the Second Circuit found it unnecessary “to decide how the presumption against extraterritorial effect defines the reach of § 4o,” one of the CEA’s antifraud provisions. The court found that plaintiff had to “satisfy the threshold requirement of CEA § 22” before the court could “reach[ ] the merits of her § 4o fraud claim.”
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