Academic journal article Journal of Corporation Law

Morrison V. National Australia Bank Ltd.: A Clear Statement Rule or a Confusing Standard

Academic journal article Journal of Corporation Law

Morrison V. National Australia Bank Ltd.: A Clear Statement Rule or a Confusing Standard

Article excerpt

I. Introduction
II. Background
     A. The Scope of the Securities Exchange Act of 1934
     B. The Antifraud Provisions of the Securities Exchange
         Act of 1934: Section 10(b) and Rule 10b-5
     C. The Evolution of the Doctrine of Extraterritoriality
     D. The Law Before Morrison: Early Applications of
         Extraterritoriality to Section 10(b) and Rule 10b-5
         1. The "Conduct" Test
            a. The Second, Fifth, and Seventh Circuit's Approach
            b. The D.C. Circuit's Approach
            c. The Third, Eighth, and Ninth Circuit's Approach
         2. The "Effects" Test
     E. Morrison v. National Australia Bank Ltd
III. Analysis
     A. The Court's Application of the Presumption Against
         Extraterritoriality Has Been Inconsistent
     B. Beneficial and Detrimental Consequences of Applying the
         Presumption to Section 10(b)
         1. Deterrent Functions of Giving Section 10(b)
             Extraterritorial Application

         2. International Comity and the Convergence of
             Securities Laws
     C. Congressional Response to Morrison
IV. Recommendation
     A. A Purposive Approach to the 1934 Act
         1. The Inaccuracies of Legislative Intent
         2. The Merits of Legislative Purpose
     B. Amend Section 10(b)

V. Conclusion


It is difficult to overestimate the impact that the globalization of securities markets has had on legislative policy and judicial decision-making within the United States. Recently, globalization has raised difficult questions regarding when and to what extent U.S. securities laws will govern multinational securities markets. (1) In addition to legislative policy considerations, procedural, jurisdictional, and equitable considerations must be addressed. These concerns include whether the United States has subject matter jurisdiction, whether a U.S. court can obtain personal jurisdiction over foreign defendants, and whether U.S. courts can create and enforce fair and effective remedies. (2) These concerns--and other considerations (3) --present substantial challenges to the legislature and judiciary, who must determine whether U.S. securities laws have extraterritorial reach. Despite these challenges, courts have allowed extraterritorial reach of U.S. securities laws for more than 40 years. (4) Although there has been a four-decade tradition of allowing the extraterritorial reach of U.S. securities laws in the lower courts, with the recent decision in Morrison v. National Australia Bank Ltd., (5) the Supreme Court stands ready to prohibit such application absent clearly expressed intent to the contrary from Congress. However, Morrison provides more uncertainty than clarity about when U.S. courts should apply U.S. law abroad. The Court's presumption against extraterritoriality has not been consistent, and its reasons for applying--or not applying--the presumption have varied from one area of law to another. Although the Supreme Court in Morrison attempted to clarify that it would apply the presumption against extraterritoriality in the securities context, (6) its decision promotes uncertainty about the presumption's value and general application.

Part II of this Note first provides a brief background of the historical circumstances surrounding the establishment of the securities laws framework and the antifraud provisions contained in Section 10(b) of the Securities Exchange Act of 1934 (1934 Act) and Securities and Exchange Commission (SEC) Rule 10b-5. Part II then discusses the early extraterritorial application of these laws by U.S. courts and introduces Morrison. (7) Next, Part III of this Note examines the facts and reasoning of the Court's holding in Morrison regarding the extraterritorial application of Section 10(b) and Rule 10b-5 in relation to the Court's prior application of the presumption to other areas of U.S. law. Finally, Part IV of this Note recommends that the Supreme Court consider the remedial purpose of the 1934 Act when deciding its extraterritorial application. …

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