Morrison v. NAB’s 2nd act: way beyond securities fraud and RICO

By Alison Frankel
October 17, 2011

A month ago, when I wrote about the dismissal of a securities class action against UBS, George Conway III of Wachtell, Lipton, Rosen & Katz told me that the UBS case had been the last, best chance for plaintiffs lawyers to find a way around the U.S. Supreme Court’s June 2010 ruling in Morrison v. National Australia Bank. Morrison, as you know, barred U.S. courts from hearing securities fraud cases against companies whose shares aren’t listed on U.S. exchanges. In the 16 months since the Supreme Court issued its Morrison ruling, federal courts have made it indelibly clear that securities suits against foreign companies — whether they involve the 1933 Act, the Exchange Act, common stock, CDOs, or swaps — are a non-starter under Morrison’s strictures. (Here’s Sullivan & Cromwell’s Sept. 29 overview of Morrison’s impact on securities litigation.) “Now it’s all over,” Conway told me. “They don’t even bother to bring these cases anymore.”

But it turns out that securities litigation was only the beginning of the story of the Morrison v. NAB ruling. Morrison citations are now turning up in the darnedest places: not just racketeering cases, where Morrison has been invoked since it first came down, but in trade secrets litigation, bankruptcy clawback cases, antitrust and alien tort suits, even criminal defense. If you represent a foreign defendant — or even a U.S. defendant accused of overseas wrongdoing — and you’re not at least considering Morrison’s implications, you’re not thinking hard enough.

The ruling’s key sentence is this one: “When a statute gives no clear indication of an extraterritorial application, it has none.” In other words, unless Congress specifies in any law that the statute applies to conduct that took place overseas or to non-U.S. defendants, then the law simply doesn’t cover that conduct or those defendants. Foreign racketeering defendants were the first to capitalize on the broad language of Morrison, arguing that the federal Racketeering Influenced and Corrupt Organizations Act doesn’t apply outside of the U.S. In the biggest Morrison ruling in a RICO case, Washington, D.C., federal court judge Gladys Kessler found in March that under Morrison, the U.S. government has no racketeering case against British American Tobacco even though she’d already entered a final judgment against BAT.

What about trade secrets defendants, though? The question of whether Morrison bars trade secrets litigation against foreign defendants is just beginning to hit the court. Here’s one example. The U.S. International Trade Commission barred imports of steel train wheels from a Chinese company called TianRui because the company misappropriated a confidential manufacturing process developed by a U.S. competitor. TianRui’s lawyers at Adduci, Mastriani & Schaumber and McDermott Will & Emery appealed to the U.S. Court of Appeals for the Federal Circuit, arguing, among other things, that under Morrison, federal trade secrets laws don’t apply to overseas conduct. (TianRui’s alleged theft occurred in China.) In a ruling Tuesday, two judges on the Federal Circuit panel disagreed and upheld the ITC’s import ban because, they found, TianRui’s conduct affected the domestic market. In a forceful dissent, however, Judge Kimberly Moore invoked Morrison: “United States trade secret law simply does not extend to acts occurring entirely in China,” she wrote. “Absent clear intent by Congress to apply the law in an extraterritorial manner, I simply do not believe that we have the right to determine what business practices, conducted entirely abroad, are unfair.”

And in another case against a Chinese defendant accused of stealing a U.S. competitor’s confidential information, Sidley Austin and Morgan, Lewis & Bockius argued in a brief to the Fourth Circuit that under Morrison, the Lanham Act and the Copyright Act don’t apply to overseas conduct. (That appeal is pending.)

Morrison also just cropped up in ABN Amro’s Sept. 30 brief asking Manhattan federal judge Jed Rakoff to take over Bernard Madoff bankruptcy trustee Irving Picard’s clawback case against the Dutch bank. “A [federal] court must determine whether [the Securities Investor Protection Act] has extraterritorial application in light of Morrison v. National Australia Bank,” wrote Morrison & Foerster lawyers for ABN’s co-defendant Rye Portfolio. “Rye Portfolio intends to move to dismiss the trustee’s claims because the alleged subsequent transfers are clearly extraterritorial and SIPA does not apply extraterritorially under Morrison.” (I haven’t found a previous Morrison invocation by a foreign SIPA defendant, but Skadden, Arps, Slate, Meagher & Flom, which represents Madoff defendant UniCredit, did cite Morrison in arguing that Picard’s RICO claims against it should be dismissed.)

You want more examples of Morrison’s influence? Here’s the Seventh Circuit’s Sept. 23 opinion dismissing a multidistrict antitrust litigation alleging a global price-fixing conspiracy in the market for potash, a component of agricultural fertilizer. The Seventh Circuit decision concluded that Morrison offers support for the defense’s argument that Congress did not intend U.S. antitrust laws to govern overseas conduct, despite the passage of the Foreign Trade Antitrust Improvement Act in 1982. (A Third Circuit panel applied similar reasoning in an August 2011 ruling in another antitrust class action.)

Wachtell’s Conway, who tracks Morrison citations with an Inspector Javert-like dedication, told me Thursday that the most intriguing debate over the ruling’s reach is taking place in criminal cases. That’s because of a conflict between Morrison’s caution against presuming a law applies overseas and language in a 1922 Supreme Court opinion called U.S. v. Bowman, which holds that extraterritorial jurisdiction can be inferred from U.S. criminal laws. The federal government has argued that Bowman is still the guiding precedent in criminal cases (see, for example, this brief in the BAT case), but that hasn’t stopped criminal defendants from trying to make use of Morrison. An Australian citizen indicted for soliciting a bribe from a U.S.-funded contractor in Afghanistan, for instance, moved to dismiss the indictment, arguing that the criminal statute he was charged under doesn’t extend overseas; Washington, D.C., federal judge Rosemary Collyer ruled in July that the indictment stands under Bowman. The Second Circuit, meanwhile, looked at Morrison in a hideous case involving a New York man who flew overseas to sexually abuse his young daughter. The defendant argued that he could not be convicted, under Morrison, for a count of the indictment involving travel between Belgium and Israel. The appellate panel found that Congress specifically anticipated foreign conduct under the law, which holds it is illegal to travel overseas to engage in illicit sexual activity, but agreed that there has to be a connection to the U.S.

I asked Conway if he ever imagined that Morrison — a ruling that stemmed from a securities class action — would turn up in such a broad range of cases having absolutely nothing to do with securities law. “There was never any question that Morrison would affect other statutes, especially RICO. Still, it’s been amazing to see the decision’s extraordinary impact actually unfold,” he said in an e-mail. “Morrison straightforwardly applied a longstanding canon of construction, the presumption against extraterritoriality. But it did so more emphatically than ever before, perhaps because the justices realized that their earlier decisions, like Aramco, hadn’t always been followed. By overturning four decades of significant lower-court securities cases, the Supreme Court made quite sure this time that its message on extraterritoriality will get through.”

Morrison’s impact may eventually weaken; as Conway noted, the ruling only calls upon Congress to be clear if it intends laws to extend overseas. Lawmakers can, of course, revise statutes undermined by Morrison if they want to. Dodd-Frank, for instance, not only includes a provision that requires the Securities and Exchange Commission to report to Congress in January on Morrison’s impact on securities litigation, but also includes provisions that except SEC enforcement from Morrison restrictions.

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