The U.S. Supreme Court’s June 2010 decision broadly bars plaintiffs from bringing class actions under U.S. law based on securities traded outside the U.S. Naturally, plaintiffs lawyers would now like to bring such suits under non-U.S. law. And their first choice would be to bring them under non-U.S. law in U.S. courts. This argument was astutely anticipated in the essay “ After Morrison” by Shearman & Sterling’s Emmanuel Gaillard. But it has quickly gone nowhere, as plaintiffs have discovered in recent months in securities suits targeting Toyota and BP. Foreign-law plaintiffs whose claims somehow survive Morrison seem likely to be dismissed from U.S. court on forum non conveniens grounds.
So where else in the world might global class actions be filed? The two leading candidates are Canada and The Netherlands.
After Morrison trimmed more than $7 billion from a $9 billion verdict in favor of Vivendi shareholders, false rumors spread that some of those claims would be re-filed in Canada. Vivendi plaintiffs lawyer Michael Spencer said that, to his knowledge, the Vivendi claims winnowed by Morrison have not been re-filed anywhere, partly because of time bar concerns. But what is true is that Spencer, who serves on Milberg’s executive committee in New York, has joined the Canadian bar. And that is a sign of the times.
Last year, the Ontario Superior Court of Justice declined to adopt a narrow Morrison-style rule on global claims in the case of Abdula v. Canadian Solar. Moving dramatically in the other direction, it also cleared the way for Canada’s first global class action– Silver v. IMAX–by denying leave to appeal the certification of the global class. This is good news for plaintiffs who can take advantage, because Canada is strongly protective of investors.
But while the IMAX action is global, its implications are not universal. Canadian courts will only certify a global class action if the defendant has a real and substantial connection to Canada. IMAX Corporation passed the test because it is a Canadian company listed in Canada (although more than 80 percent of its shares trade on a U.S. exchange). Lawyers are now debating whether American International Group, Inc. is vulnerable to a class action brought by Canadian plaintiffs in Canada, despite being a U.S.-listed U.S. company, because it does significant business in Canada. In pre-Morrison terms, these two cases are at most F-squared. A bona fide F-cubed action—-involving foreign investors who bought shares of a foreign company on a foreign exchange-—seems unlikely to succeed in Canada. And on any facts, corporations with no Canadian business or listing can breathe easy.
Even where a Canadian global class action is available, it might not resolve all global claims. In the case of IMAX, the class action brought in Canadian court by all global investors coexists with a class action brought in U.S. court by NASDAQ purchasers. In late January the U.S. plaintiffs disclosed a U.S. settlement with IMAX, pending approval. A lawyer for the global class, Dimitri Lascaris of Siskinds, argues that the U.S. settlement requires a Canadian sign-off, and that the settlement, for $12 million, is inadequate to the needs of his overlapping class members. “Nobody,” he said, “has any business settling claims of our class members without our court’s approval.” It remains to be seen whether the first global class action to be certified in Canada will resolve all pertinent claims in one blow. What is clear is the IMAX model does not eliminate the potential for jurisdictional friction.
The Dutch experiment has wider ramifications. The well-known Shell settlement of 2008 resembled the IMAX case in recognizing a global class of shareholders from a corporation based in the court’s home country. But in contrast to Canada, the Dutch courts left the door open to a global or nearly-global settlement by corporations with only the slimmest of connections to their jurisdiction.
That moment arrived on Jan. 17, when a Dutch court approved a settlement between global non-U.S. investors and the reinsurer Converium Holding AG, even though the company is Swiss–and less than 2 percent of the shareholders are Dutch. It would thus seem that the Netherlands will bless a global class action settlement by virtually any corporation with widely-held stock. On the reading of plaintiffs’ lawyer Robert Roseman of Spector Kodroff Roseman & Willis, “the court’s primary concern was that, after Morrison, investors would have no relief in the entire world.” He is at least right that the court expressly cited Morrison as a consideration in its decision on jurisdiction.
However, in a potential parallel with IMAX, the U.S. claims against Converium settled separately. Indeed, in Converium the U.S. claims settled on markedly better terms, which may help to quantify the settlement premium enjoyed by a viable claim in U.S. as opposed to European courts. The pre-Morrison claims by U.S. shareholders settled for $85 million in December 2008. That’s about four times the amount per share implied by last month’s $58 million Dutch settlement with non-U.S. shareholders, who surrendered all potential claims in their home courts (mostly Switzerland and Britain).
It’s important to understand that while Canada is a global class action haven, Holland is merely a haven for global class settlements. Under the Dutch system, a class seeking damages may only come together to negotiate a deal. So the bargaining power of a Dutch global class is only as strong as the legal ecosystem is plaintiff-friendly in the nations where they have claims or potential claims. Outside of the U.S. and Canada, that’s not very strong. It should also be noted that the binding power of the settlement is unclear outside of the European Union and the three nations (Switzerland, Iceland, and Norway) that have signed the Lugano Convention to respect E.U. judgments. A smattering of Converium investors hailed from Asia or Latin America, but it remains to be seen whether a Dutch global settlement will be practical for a corporation with a less Euro-centric investor base.
Dutch law certainly holds promise for pan-European or global class settlements, and Canada will continue to attract global class actions against companies with strong Canadian ties. But the potential persists for both legal confusion and coordination problems in the resolution of worldwide securities claims. Is an international treaty in the cards?
Shearman’s Gaillard has advocated for a new convention on securities fraud under the Hague Conference on Private International Law. NYU School of Law professor Linda Silberman agrees that more global coordination is clearly warranted, whether in the form of greater regulatory cooperation or “perhaps even an international treaty.” Even George Conway of Wachtell, Lipton, Rosen & Katz, who successfully argued Morrison, told me that he sees some merit in the idea of a treaty. Securities trading is becoming so complex, he said, that it is increasingly difficult to determine where a trade has occurred and for the parties to a transaction to foresee what law will apply.
Whether a treaty is politically feasible is another matter. Gaillard essentially argues that the business community should get behind a treaty before Morrison is overturned by Congress. However, the repeal of Morrison looks so unlikely at the moment that I suspect business interests are content with the status quo. Plaintiffs lawyers generally dislike the idea of a treaty, but agree that it ain’t happening. That gives greater import to the freelancing of the Dutch and Canadian courts. In the post-Morrison world of global securities law, Converium and IMAX are the wave of the future.