Congress and the U.S. Supreme Court are on course for a legal train wreck over global class actions. In granting certiorari in late November to Morrison v. National Australia Bank, 547 F.3d 1167 (2d Cir. 2008), the Court seems intent on cutting back on the extraterritorial scope of the federal securities laws. Congress is, however, simultaneously rushing to do the reverse, as the House passed legislation two weeks later that has precisely the opposite effect.
The story begins with the growth of the “f-cubed” class action, which refers to a class of (1) foreign purchasers who bought (2) a foreign issuer’s stock in (3) a foreign market. Predictably, plaintiffs wish to bring these actions in a U.S. court because (1) no class action is probably authorized in their own jurisdiction (at least not a large “opt out” class); (2) the contingent fee is prohibited in most of the world; or (3) “loser pays” fee-shifting rules threaten plaintiffs with high liability if they are unsuccessful. In addition, by adding a foreign class of plaintiffs to a domestic class, plaintiffs’ attorneys may be able to double or treble the potential damages and thereby gain settlement leverage.
