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The United States: No Longer a Shangri-La for Plaintiffs’ Lawyers

Historically, plaintiffs' lawyers around the world have viewed the United States as the most plaintiff-friendly jurisdiction, and sought to file their cases in U.S. courts even when the underlying parties and facts have much stronger ties to other countries. As the late U.S. Supreme Court Justice Antonin Scalia wryly noted in the context of securities cases, "some fear that [the United States] has become the Shangri-La of class-action litigation for lawyers representing those allegedly cheated in foreign securities markets."2 Recently, however, U.S. federal and state courts have increasingly refused to hear claims that have stronger connections to other countries. If this trend continues, it could significantly reduce the litigation exposure that non-U.S. companies face within the United States and encourage further investment in the U.S. economy.

I. Background

Several distinct procedural and substantive aspects of the American legal system have made U.S. courts a particularly appealing place for plaintiffs.

Procedure. Contrary to most other jurisdictions, the United States, inter alia, (i) allows class actions, in which a single plaintiff can seek damages and other relief on behalf of hundreds or thousands of non-present plaintiffs, thus dramatically increasing defendants' exposure to large monetary awards, (ii) provides plaintiffs with the right to seek relatively broad and, for defendants, expensive "discovery" into documents and witness testimony, (iii) provides for trial by jury in most civil actions, (iv) does not require losing plaintiffs to pay the legal fees of victorious defendants, and (v) permits the award of contingent fees to plaintiffs' lawyers. These procedural mechanisms often afford plaintiffs a better opportunity to either win their claims or pressure defendants into a multi-million dollar settlement.

Substance. Certain American substantive laws are also relatively plaintiff-friendly. For example, in some circumstances, plaintiffs need not prove that they actually relied on any alleged misstatement to recover on private securities fraud claims. And plaintiffs can sometimes recover treble–yes, treble–damages on antitrust and products liability claims where other countries might not allow any lawsuit at all. Unsurprisingly, the prospect of showing less and recovering more makes the United States a good bet for plaintiffs' lawyers. Indeed, prominent U.S. plaintiffs' firms are increasingly opening overseas offices or teaming up with foreign consultants to recruit plaintiffs to U.S. courts. As with Coca-Cola, the United States is seen as exporting its plaintiff-friendly litigation system to the rest of the world.

II. A New Trend

In recent years, however, U.S. courts have increasingly said enough is enough. With heavy caseloads, U.S. federal and state courts have been less willing to expend limited judicial resources on cases that have little to nothing to do with the United States. This trend has been particularly evident in three areas of the law: personal jurisdiction and forum non conveniens, securities, and antitrust.

A. Personal Jurisdiction and Forum Non Conveniens

In 2014, the U.S. Supreme Court rejected Argentine plaintiffs' attempt to sue Daimler, a German company, in a California court for alleged participation by the company's Argentine subsidiary in human rights violations in Argentina.3 In doing so, the Court reiterated that, under the U.S. Constitution, a company can be sued on any and all claims in a state only if the company's affiliations with the state are "so continuous and systematic" as to make the company "essentially at home" there.4 And the Court clarified that this standard is usually met only when a company is incorporated or has its principal place of business in the state.5

Although Daimler addressed "general" or all-purpose jurisdiction, courts have also refused to hear cases without a substantial link to a state on "specific" or case-linked jurisdiction grounds, i.e., where a defendant's case-related conduct in a state was insufficient to subject it to litigation there. In Ace Decade Holdings Limited v. UBS AG, for example, a New York court held that it lacked specific jurisdiction where a British Virgin Islands company sued UBS, a Swiss company, in connection with an investment in the private placement of a Chinese company listed on the Hong Kong Stock Exchange.6

The Ace Decade court did not stop there. It also concluded that the case should be dismissed for forum non conveniens–a discretionary doctrine that allows courts to dismiss a case where another court is better suited to hear it.7 Forum non conveniens has increasingly come to the fore in cases with limited U.S. connections, especially in New York (the leading commercial law jurisdiction in the United States). For example, in Viking Global Equities, LP v. Porsche Automobil Holding SE, a New York court dismissed a case against Porsche, a German company, where "the only alleged connections between the action and New York [were] the phone calls between plaintiffs in New York and a representative of defendant in Germany, and the emails sent to plaintiffs in New York but generally disseminated to parties elsewhere" and the case could be brought in Germany.8 And in Hanwa Life Insurance v. UBS AG, a New York court dismissed a case against UBS where the claims "arose almost entirely from events and transactions" in Hong Kong and Korea and the case could be brought in Korea.9

B. Securities

The Supreme Court's 2010 decision in Morrison v. National Australia Bank Ltd. curtailed application of U.S. securities laws to foreign securities transactions.10 Morrison concerned so-called "f-cubed" cases where foreign plaintiffs sue foreign issuers over securities purchased on foreign exchanges.11 Applying the presumption against extraterritorial application of U.S. law, the Court held that such transactions were outside the scope of Section 10(b) of the Securities Exchange Act of 1934 because it does not apply extraterritorially.12 (Section 10(b) prohibits making material misstatements in connection with the purchase or sale of a security.) The Court established a new U.S.-centric test for Section 10(b) claims: such claims must be based on "the purchase or sale of a security listed on an American stock exchange" or "the purchase or sale of any other security in the United States."13

Morrison had an immediate effect on transnational securities litigation. Only a month later, a lower federal court relied on the "decisive force" of Morrison in dismissing claims brought by U.S. plaintiffs against Credit Suisse, a Swiss company, over shares purchased on the Swiss Stock Exchange.14 Although Morrison had not specifically addressed claims of U.S. plaintiffs who purchased foreign shares on foreign exchanges–"f-squared" cases–the court reasoned that Morrison was not designed "to be squeezed, as in spandex, only into the factual strait jacket of its holding."15 Similar claims, such as those brought by U.S. plaintiffs against Société Générale in the wake of the Jerome Kerviel trading scandal, were also dismissed.16

City of Pontiac Policemen's and Firemen's Retirement System v. UBS AG pushed Morrison further.17 UBS shares were purchased on foreign exchanges, but were cross-listed on the New York Stock Exchange.18 A federal appeals court held that such cross-listing did not save the case. The plaintiffs' claims based on purchases outside the United States were still covered by Morrison, because plaintiffs purchased the shares on a foreign exchange.19 And for U.S. plaintiffs, the mere placement of a buy order in the United States for shares on a foreign exchange did not bring the claims out from under Morrison.20 The claims were still not premised on "the purchase or sale of any other security in the United States," because irrevocable liability to carry out the transaction was not incurred in the United States and title did not pass in the United States.21

C. Antitrust

U.S. courts have also recently emphasized the limits on the reach of antitrust law, primarily governed in the United States by the Sherman Act. The Foreign Trade Antitrust Improvement Act excludes, with certain exceptions, foreign commercial conduct from the Sherman Act's scope. One such exception is for import commerce. In F. Hoffman-La Roche Ltd. v. Empagran S.A., foreign purchasers sued international vitamin sellers for price-fixing.22 The Supreme Court held that U.S. purchasers could bring Sherman Act claims based on domestic harm, but foreign purchasers could not bring Sherman Act claims based on independent foreign harm.23 The Court underscored the importance of restraint, warning of the "serious risk of interference with a foreign nation's ability independently to regulate its own commercial affairs."24

Since Empagran, courts have been increasingly alert to attempts to shoehorn claims into the import commerce exception. In Motorola Mobility LLC v. AU Optronics Corp., Motorola sued foreign LCD panel suppliers for price-fixing.25 The U.S. hook? The foreign suppliers sold the LCD panels to Motorola's foreign subsidiaries, which then assembled phones using those panels and imported them into the United States for sale.26 A federal appeals court rejected Motorola's attempt to step into the shoes of its foreign subsidiaries: "Distinct in uno, distinct in omnibus."27 Or, in other words, having submitted to foreign law, the subsidiaries had to seek relief under it; Motorola had no "right to forum shop" for "more fearsome" U.S. antitrust remedies.28

A lower federal court also rejected foreign plaintiffs' attempt to fit their claims under the import commerce exception in In re Foreign Exchange Benchmark Rates Antitrust Litigation.29 Plaintiffs claimed that dealers in the foreign exchange market conspired to manipulate a key benchmark rate.30 And plaintiffs argued, in essence, that the import exception applied because their foreign exchange transactions involved importation of currency into the United States.31 Rejecting this argument, the court explained that the exception is met only by conduct "directed at the U.S. import market," whereas plaintiffs alleged that defendants' conduct was directed at a "worldwide" and "global" market.32

States have been disinclined to extend the reach of their own antitrust statutes as well. Sounding a similar note of restraint, New York's highest court wrote in 2012 that extending the state antitrust statute to reach a purely extraterritorial conspiracy with no New York nexus would be a "highly intrusive international projection of state regulatory power."33

* * *

Daimler, Morrison, Empagran, and the cases that follow suggest that U.S. courts are striking a new balance in cases involving non-U.S. defendants. Where plaintiffs' claims have limited or no ties to the United States and extensive ties to other countries, U.S. courts are increasingly not hearing them.

  1. Vivek V. Tata contributed to this article.
  2. Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247, 270 (2010).
  3. Daimler AG v. Bauman, 134 S. Ct. 746, 750-51 (2014).
  4. Id. at 754 (citing Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)).
  5. Id. at 760.
  6. 2016 WL 7158077, at *6 (Sup. Ct. N.Y. Co. Dec. 8, 2016).
  7. Id. at *10-11.
  8. 958 N.Y.S.2d 35, 36 (N.Y. App. Div. 2012).
  9. 2014 WL 1978768, at *3 (Sup. Ct. N.Y. Co. May 16, 2014).
  10. 561 U.S. 247.
  11. Id. at 250-51.
  12. Id. at 255-65.
  13. Id. at 273.
  14. Cornwell v. Credit Suisse Grp., 729 F. Supp. 2d 620, 623 (S.D.N.Y. 2010).
  15. Id. at 625.
  16. In re Société Générale Sec. Litig., 2010 WL 3910286, at *2 (S.D.N.Y. Sept. 29, 2010).
  17. 752 F.3d 173 (2d Cir. 2014).
  18. Id. at 179-80, 181.
  19. Id. at 181
  20. Id.
  21. Id.
  22. 542 U.S. 155, 159 (2004).
  23. Id.
  24. Id. at 165.
  25. 775 F.3d 816, 817 (7th Cir. 2014).
  26. Id.
  27. Id. at 820.
  28. Id. at 820, 821.
  29. 74 F. Supp. 3d 581 (S.D.N.Y. 2015).
  30. Id. at 587.
  31. Id. at 599.
  32. Id. at 599-600.
  33. Global Reinsurance Corp. v. Equitas Ltd., 969 N.E.2d 187, 196 (N.Y. 2012).