The Evolution of Securities Class Action Law: Morrison v. National Australia Bank (2010)

Over the decades, an increasing number of class actions filed in the U.S. began to have an international focus. This was the inevitable result of an increasingly globalized economy. More than ever before, consumers were buying products from all over the world, companies were establishing international footholds, and investors were buying shares in companies based outside their home countries. The U.S. class action was an effective vehicle for adjudicating many international grievances, especially when compared to the weaker mechanisms for aggregate litigation in other countries.

In the context of securities fraud, class actions could be “foreign” in three major respects: there could be foreign investors in the class, foreign companies being sued, or a foreign exchange that the securities were transacted on. Class actions that were “foreign” in all three of these respects were known as “f-cubed” class actions.

Rule 10b-5 and the fraud on the market theory were understood as being very flexible in accommodating international securities litigation. Courts followed a vague standard in determining whether private Rule 10b-5 litigation could be brought in the U.S. in connection with transactions that were predominantly foreign. This standard provided no clearly defined point at which a class action was so international in focus that it could no longer be litigated in the U.S. Even when the conduct, company, and exchange were all based outside the U.S., there was usually still room to argue that there were “substantial effects” in the U.S.

In 1998, National Australia Bank, an Australian company, acquired HomeSide Lending, a U.S. company. After errors in HomeSide’s accounting were discovered in 2001, National Australia Bank’s stock price fell and many of its investors lost money. A class action was filed against National Australia Bank, asserting several causes of action including a Rule 10b-5 claim. Morrison v. National Australia Bank initially began with three Australian plaintiffs and one U.S. plaintiff, but the U.S. plaintiff was excluded for a reason unrelated to this discussion, reducing Morrison to only Australian plaintiffs. All of the Australian plaintiffs bought shares on the Australian Stock Exchange. Therefore they were foreign plaintiffs who had purchased stock on a foreign exchange and were suing a foreign company—an “f-cubed” claim. Morrison came before the Supreme Court over the question of whether “f-cubed” class actions could be brought under U.S. law.

Read the full article to learn why Morrison has often been described as a game-changer when it came to global class action.