Citing the US Supreme Court’s Morrison opinion, a federal judge (CD Calif) ruled that comity required a refusal to exercise supplemental jurisdiction over claims under Japanese law in a US securities fraud action. In Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010), the Supreme Court ruled that the private right of action under Rule 10b-5 applies only to transactions in securities listed on domestic exchanges and domestic transactions in other securities. In re Toyota Motor Corp. Securities Litigation, CD Calif) CV 10-922 DSF, July 7, 2011.
The district judge said that the clear underlying rationale of the Supreme Court’s decision in Morrison is that foreign governments have the right to decide how to regulate their own securities markets. This respect for foreign law would be completely subverted if foreign claims were allowed to be piggybacked into virtually every American securities fraud case, the court reasoned, imposing American procedures, requirements, and interpretations likely never contemplated by the drafters of the foreign law. Several of the issues that the Supreme Court was concerned with in Morrison were Procedural, observed the court, and would apply with equal force to supplemental jurisdiction over foreign claims. While there may be instances where it is appropriate to exercise supplemental jurisdiction over foreign securities fraud claims, noted the court, any reasonable reading of Morrison suggests that those instances will be rare.