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Antoine Garapon: In June of 2010, the United States Supreme Court, declaring that it lacked jurisdiction over the Morrison Affair, returned a decision favorable to French interests. The aforementioned affair implicated neither a French business nor a French plaintiff; so what was it exactly that led to the filing of an Amicus curiae brief by the French?
Emmanuel Gaillard: The Morrison Affair dealt specifically with Australian interests: Australian shareholders, after having purchased certain securities in Australia, filed suit against an Australian bank, yet they decided to do so in the United States in order to take advantage of the American litigation system. Moreover, they were able to profit from the complicity of an American citizen, Morrison, and it was quickly made apparent that he suffered no real harm in this implication. The trial courts therefore found that he had no legitimate implication in the case and consequently this affair now belongs to a particular group of cases which fall under the category known as “foreign-cubed class action suits” where everything in the case is foreign-based: the claimant, the respondent, and the location where the company is publicly traded. Until the decision was returned by the U.S. Supreme Court, putting a very clear halt to these sorts of practices, many claimants wanted to try and take their chances in the United States. And this sort of practice cost enormous amounts of money in terms of legal fees, especially for a certain number of French businesses.
Alexander Blumrosen: The filing of an Amicus Curiae brief refers to a specific procedure regarding the United States Supreme Court in which the Court solicits the intervention and opinions of different individuals which might potentially be affected by the outcome of the Court’s decision. Over the course of the past twenty years, the number of briefs filed by different civil society interest groups (business associations, law professors, NGOs, etc) has continued to multiply…
E.G.: In filing Amicus curiae for the Morrison affair, France fully exerted itself as a sovereign state with a real interest in the case. The brief the government filed stated plainly: we are a friend of the United States, but in France we have different ways of dealing with security fraud, and we dislike class action suits in which the parties are represented without so desiring it even if they do not specifically ask to get out of it, and we do not have the same “discovery” procedures that you do, etc. Inasmuch, France is a sovereign state and fully believes that American jurisdiction should not constitute jurisdiction over the whole world; France itself therefore is able to properly enforce its own laws and to sanction any potential fraud or misfeasance. Once the U.S. Supreme Court had ruled on this issue, this decision would be valid for decades to come. Thus, it was important that France, as well as other states like the United Kingdom and Australia, intervened and revealed their thoughts on the issue. These sovereign states insisted that their desire was for the sharing of international competences to be more equal and their hope was that everyone would not go filing suit in the United States when the situation had nothing to do with anything American.
A.B.: The French intervention was certainly quite important, as interventions on the part of sovereign states are taken quite seriously by the Court. And the Court’s final decision was, in fact, perfectly in line with French wishes.
A.G.: So the core of the issue here is what criteria would an American judge use in order to demine whether or not the court had jurisdiction over the case?
E.G.: Exactly. In this case, the real debate did not center around the plaintiff and the defendant. Everyone knew that Morrison was going to lose, so the real debate here dealt with different “friends of the Court”. On one side, you had the United States of America and the SEC (Securities and Exchange Commission, the police of the American treasury), who wanted to see Morrison lose but under large, general criteria. According to the SEC, when there is alleged fraud in the United States or even as soon as any sort of fraud has a material effect in the United States, American law applies, the SEC has the necessary jurisdiction to move forward, and a class action suit might legally be filed in the States. France, the United Kingdom, and Australia supported the fact that the case should have definitely been dismissed, but owing to much more precise criteria, namely that American law should only apply when the situation has to do with a business based in the United States or with securities bought or sold in the United States. This sort of criteria looks at the transaction itself and not the alleged fraud.
It sometimes happens that a defendant prevails even though the criterion used is alleged fraud, but this, in all cases, is exorbitantly expensive, especially as regards the discovery process. When the criteria used are clear, it is not necessary to follow through with discovery to no end before applying the criteria. The decision returned by the U.S. Supreme Court, which aligned with the wishes of France, Australia, and the United Kingdom and held to the aforementioned criteria, goes in the direction of juridical security and foreseeability. Moreover, the American Constitution specifies that citizens have a right to be judged in front of a “jury of one’s peers”, in civil as well as commercial meters, while in France trial before a jury exists only in penal cases. In the United States these extremely technical trials can be brought before a jury chosen at random from the population, with people who may not be very knowledgeable about the interests of large businesses. Oral advocacy before a jury relies more on the usage of emotion than on the merits of the case, and that is exactly what claimants are looking for in the United States.
A.B.: Trial by popular jury is indeed a fundamental right for Americans, though its usefulness has its occasional limits. All facts must be made clear to juries for their members to understand fully the situation. Resultantly, there exists quite an array of complex procedures and experts which “limit”, in a sense, the jury’s vision and interpretation of events, though they are asked to respond only to simple questions.
A.G: Naturally then, this brings to mind the Vivendi affair: is it not surprising that an affair such as this might be judged, as a last resort, by a jury of American citizens?
A.B: Trial by popular jury, embedded in the American Constitution, is a historical and revered procedure. It is not a sort of new device created for or against certain economic or political interests. Additionally, the foundation of the jurisdiction of the tribunals for the Vivendi affair, or even the Alsthom affair, rests on the fact that these last few trials have had an effect on the American territory. Juries have a legitimacy to judge the affairs linked to their territory.
E.G.: The social cost of this type of affaire can, however, be quite high; for businesses called to defend themselves in the United States prefer to compromise in order to avoid any sort of unwanted surprise. That is why the Morrison arrest is so important: it satisfies juridical security conditions by defining the jurisdictional criteria in a very precise way, and this constitutes a distinct non negligible economic advantage for businesses.
A.B.: In such cases as Vivendi or Alsthom, the modus operandi of the lawyers and plaintiffs in the United States has been to look to create incertitude using any means possible. Firstly, in requesting a judge’s validation of the class action suit (once validated the procedure encompasses all victims automatically without their having to individually file complaint) the class action suit allows for a large number of plaintiffs to efficiently organize and protest the actions of some company, organization, or individual. In expanding the right to file a class action to foreigners, we would see a considerable increase in the number of potential requests for damages and a higher pressure put on businesses. Resultantly, the advice given to plaintiffs considerably increases the stakes in the affair and, consequently, the risk involved for any implicated business.
A.G.: We can easily criticize class action suits, but what then are our alternatives? Might we not consider the idea that French shareholders went to the United States to look for what was being refused to them in France? Is there a way to resolve the tension between a increasingly globalized world market and the natural limits of national jurisdictions?
E.G.: What is really important here is to show that countries may very well have other conceptions than those which prevail in the United States. The sharing of jurisdictional competency must be balanced. The Morrison arrest will be a landmark case because it redefines forty years of continued jurisprudence from which we can extract many legal rules and criteria.
The SEC suffered a major setback with regard to this affair. It held that if there was an element of alleged fraud in the United States then American law should have applied. The Supreme Court responded that what is really important in this case is not the alleged fraud, rather the general transparency and overall quality of the available financial information. The legitimate expectancy of someone who buys a security in the United States is that he will be protected under American law. If the security is bought in France, in London, or in Australia, his legitimate expectancy is to have protection under the respective laws of those countries. In reality though the debate is not finished, for the SEC has made up on legislative ground what it managed to lose on judicial ground. Its right to act when a component of the fraud occurred in the United States or when the fraud had an effect in the United States was reintroduced by the law known as the Dodd-Frank law which came into force on July 21, 2010. However, the right of private parties to bring a class action suit on the same criteria has not yet been realized and the SEC must make a report to Congress in the next 18 months to propose – or not – the reintroduction of this law on the same criteria for private parties.
A.B.: The continuous drift toward more class action suits implies that requests by foreigners these past few years can effectively be explained by the acceleration of globalization, and the lack of international financial regulation which might allow for more of a resistance against fraud and market surveillance. These past few years, the SEC has been, by default, the main global actor when it comes to questions of stock market offenses, however with mitigated success if we think about the Enron or Madoff affairs. This assessment has not been implicated directly by the U.S. Supreme Court, but no authority likes to see the reduction of its area of competency and validity. It is, therefore, possible that the SEC and the Obama administration will come back to Congress to ask that the powers of the SEC be maintained in this area. This has already happened in the past: in 1991, the U.S. Supreme Court was engaged over a question of presumption of extraterritoriality in another law, the Civil Rights Act of 1964. The Supreme Court limited the field of territorial application of this law, but the following year Congress reversed this decision via legislative vote and formally amended the law so that it would apply abroad.
A.G.: The desire for extraterritorial application of laws then is not yet about to disappear. But might it one day as the marketplace, availability of information, and law are affected by the consequences of globalization? With regard to business conducted via the internet, for example, might not all jurisdictions, by way of a virtual presence, declare themselves competent?
A.B.: In reality, what we glean from the Morrison arrest is that if we want extraterritorial legislation, this desire must be expressly stated. If the law is silent, it is presumed to not have extraterritorial competency. Congress hardly has the right to adopt so-called extraterritorial legislation.
E.G.: With regard to the internet the essential paradox is that information is constantly diffused instantaneously at a global level so that any state which receives the information is bound by public international law in saying: “I can regulate the quality of this information because it has been received on my territory.” Thus, there really isn’t any sort of juridical security via an international convention which will fix the application criteria of each side. A reasonable criterion would be one which is based on the place or places where the business is based. If a law such as this is adopted the shareholder would be protected under British law if the business is based in London, under American law if the business is based in New York, etc. And we would know exactly what to expect.
A.B.: A multilateral treaty would be ideal, but is this a realistic desire? The American Congress would apply its own laws to the treaty. We see with the decision rendered by the Supreme Court, the majority ruling was quite slim, and so its future is not entirely certain. We must underscore its importance, especially with regard to the fact that it can apply to other laws concerning extraterritoriality.
E.G.: In my opinion, the Morrison decision created such a climate suitable to an international convention. International conventions on applicable law have seen a fair bit of success in defined areas, as has been the case here with stock market offenses. It would be entirely justified if the Hague Conference on Private International Law (HCCH) took hold of such a subject as the law pertaining to civil aspects of stock market offenses.
A.B.: The idea itself is good, but I’m still a bit skeptical. The subject matter here is very difficult to regulate, and, correspondingly, this might raise enormous diplomatic problems. The issues that the G20 and G8 had in trying to advance the fight against corruption are quite similar to those which would be raised owing to a treaty like this one.
The various world treasuries might also work together to reach an agreement, but in practical terms, it would be difficult. The Morrison decision is tied to facts which are simple: there was no American citizen implicated here who suffered any damage. So protection for American nationals under American law is clearly not at stake. I really cannot envision an American lawmaker abandoning protection for American citizens still on American soil if ever there is a question of American suffering damages due to the fact that a purchased security was listed in Paris or London.
E.G.: Indeed we will never get around the fact that American buyers have the power bring a class action suit against foreign businesses in the United States. The real challenge hear will be to prevent, as much as possible, all those who buy stock titles elsewhere from grabbing hold of such an idea as filing a class action suit. That’s why we should continue to follow the debates very closely, especially legislative debates, which will follow the Morrison arrest. And that’s also why negotiation with regard to some sort of international convention on the subject would be a good and welcome idea.