Morrison v. National Australia Bank Ltd.

561 U.S. 247 (2010)

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Nature of the Case

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Facts

D was the largest bank in Australia. Its Ordinary Shares are traded on the Australian Stock Exchange Limited and on other foreign securities exchanges, but not on any exchange in the United States. There are listed on the New York Stock Exchange as National's American Depositary Receipts (ADRs), which represent the right to receive a specified number of National's Ordinary Shares. D bought HomeSide Lending, Inc., a mortgage servicing company headquartered in Florida. HomeSide's business was to receive fees for servicing mortgages. From 1998 until 2001, D's annual reports and other public documents and public statements from key management touted the success of HomeSide's business. But on July 5, 2001, D announced that it was writing down the value of HomeSide's assets by $450 million; and then again on September 3, by another $1.75 billion. The prices of both Ordinary Shares and ADRs slumped. Ps sued Ds claiming that Ds manipulated HomeSide's financial models to make the rates of early repayment unrealistically low in order to cause the mortgage-servicing rights to appear more valuable than they really were. The complaint also alleges that D and its CEO were aware of this deception by July 2000, but did nothing about it. Ps, all Australians, purchased D's Ordinary Shares in 2000 and 2001, before the writedowns. Ps sued Ds alleging violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934, 48 Stat. 881, 15 U.S.C. §§ 78j(b) and 78t(a), and Securities and Exchange Commission Rule 10b-5, 17 CFR § 240.10b-5 (2009), promulgated pursuant to § 10(b). Ds moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). The Court granted the motion because the acts in this country were, “at most, a link in the chain of an alleged overall securities fraud scheme that culminated abroad.” The Court of Appeals for the Second Circuit affirmed in that the acts performed in the United States did not “comprise the heart of the alleged fraud.” The Supreme Court granted certiorari.