Eight years after the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), lower federal courts have struggled to consistently apply Morrison in the context of American Depository Receipts (“ADRs”).  Last month, the United States Court of Appeals for the Ninth Circuit in Stoyas v. Toshiba Corp., — F.3d —, 2018 WL 3431764 (9th Cir. July 17, 2018) became the first circuit court to address the application of Morrison to unsponsored ADRs purchased in the over-the-counter (“OTC”) market.

The Ninth Circuit held that Morrison did not preclude purchasers of Toshiba’s United States-based ADRs from bringing securities claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and increased the potential exposure of foreign issuers to federal securities claims.  In doing so, the Ninth Circuit reversed the decision of the Central District of California and granted plaintiffs leave to amend to allege that the purchases were a domestic securities transaction under the irrevocable liability test, which several circuits have used to determine whether a securities transaction that did not involve a national exchange nevertheless occurred within the United States.  Toshiba Corp., 2018 WL 3431764 at *13-14.  On August 3, Toshiba requested that the Ninth Circuit stay an issuance of its mandate, as Toshiba plans to seek Supreme Court review.

American Depository Receipts