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Supreme Court Affirms Dismissal of F-Cubed Class Action and Holds That There is No Extraterritorial Application of Section 10(b)

June 25, 2010

By The Securities Litigation and Enforcement Practice

On Thursday, June 24, 2010, the Supreme Court affirmed the dismissal of Morrison v. National Australia Bank Ltd., a so-called F-Cubed securities class action in which a foreign issuer was sued by foreign plaintiffs who bought their securities on a foreign exchange. Morrison is of major significance to multinational corporations, particularly those with subsidiaries in the United States, as the Supreme Court held that there is no extraterritorial application of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. In so holding, the Supreme Court rejected the traditional conduct and effects tests previously employed by the Second Circuit and other courts, applied a presumption against extraterritorial application, and set forth a clear transactional requirement: a claim can only be brought in the United States when the purchase or sale [of securities] is made in the United States, or involves a security listed on a domestic exchange. . . . Absent some further development, such as action by Congress, Morrison sounds the death knell for F-Cubed cases in the United States.

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Kenneth M Breen
Partner, Litigation Department
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Barry G Sher
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William F Sullivan
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Kevin C Logue
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Christopher H McGrath
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Peter M Stone
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Morgan J Miller
Partner, Litigation Department