On February 23, 2012, the U.S. District Court for the Southern District of Texas dismissed the federal securities claims brought by a group of U.S. purchasers of a foreign company's stock on the London Stock Exchange based on the U.S. Supreme Court's decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). The court found that the plaintiffs had not only adequately alleged material misrepresentations, but that these misrepresentations were not protected by the Private Litigation Reform Act's safe harbor provisions, and that the plaintiffs had adequately alleged scienter against certain defendants. The plaintiffs also brought New York and English common law claims relating to the same purchases. The defendants argued that, at least for those U.S. investors who purchased the corporation's stock on the London Stock Exchange, the Morrison decision required the federal securities claims be dismissed.
In analyzing the plaintiffs' claims, the court first turned to the Supreme Court's decision in Morrison and noted that Morrison limited the extraterritorial reach of the federal securities laws to "domestic transactions." The plaintiffs argued this was in fact a "domestic transaction" because the corporation's stock was listed on the NYSE, though not traded there, and because the plaintiffs both resided and made the original decision to purchase in the United States. The court rejected this argument, noting that "a majority of district courts have found the citizenship of the investors involved or mere 'listing' on the NYSE insufficient reasons to extend section 10(b) liability." The plaintiffs also argued that this was a "domestic transaction" because of a London Stock Exchange rule that allowed trades to occur directly through third-party, U.S.-based market makers. This meant that the physical location of the trade was not necessarily London, even if the corporation's stock only traded on the London Stock Exchange. The court rejected this second, "more novel" argument as an overly technical reading of the Morrison decision because "carving out an exception for the purchase of securities on the [London Stock Exchange] because some acts that ultimately result in the execution of a transaction abroad take place in the United States would be to reinstate the conduct test" rejected by the Supreme Court in Morrison. Ultimately, this case demonstrates the important difference between a stock being listed versus traded on a U.S. exchange, and the plaintiffs' attempt to circumvent Morrison too closely resembled the previously rejected "effects" test for the court to survive a motion to dismiss.
In re BP P.L.C. Sec. Litig., 10-MD-2185, 2012 WL 432611 (S.D. Tex. Feb. 13, 2012)