Cornwell v. Credit Suisse Group

Decision Date11 August 2010
Docket NumberNo. 08 Civ. 3758(VM),08 Civ. 3758(VM)
Citation729 F.Supp.2d 620
PartiesKevin CORNWELL et al., Plaintiffs, v. CREDIT SUISSE GROUP et al., Defendants.
CourtU.S. District Court — Southern District of New York

Bernard M. Gross, Deborah R. Gross, The Law Office of Bernard M. Gross, P.C., Philadelphia, PA, Darren J. Robbins, David C. Walton, Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA, David Avi Rosenfeld, Samuel Howard Rudman, Jarrett Scott Charo, Marisa N. Demato, Robbins Geller Rudman & Dowd LLP, Melville, NY, Beth Ann Kaswan, Scott + Scott, L.L.P., Paul J. Scarlato, Jonathan Gardner, Labaton Sucharow LLP, New York, NY, William H. Narwold, Motley Rice LLC, Hartford, CT, Elizabeth S. Smith, John Brandon Walker, Motley Rice LLC, Mount Pleasant, SC, for Plaintiffs.

Richard W. Clary, Cravath, Swaine & Moore LLP, New York, NY, for Defendants.

Thomas Livezey Laughlin, IV, Scott + Scott, L.L.P., New York, NY.

CORRECTED DECISION AND ORDER

VICTOR MARRERO, District Judge.

Plaintiffs Kevin Cornwell ("Cornwell"), John M. Grady ("Grady"), and Louisiana Municipal Police Employees Retirement Systems ("LAMPERS") (collectively, "Plaintiffs") filed a Second Amended Class Action Complaint dated March 10, 2010 (the "Complaint"), naming as defendants Credit Suisse Global ("CSG"), Brady W. Dougan, Renato Fassbind, D. Wilson Ervin, and Paul Calello (collectively, "Defendants"). Plaintiffs assert claims under § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b) ("§ 10(b)"), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). Plaintiffs bring these claims on behalf of themselves and all other persons or entities, except for Defendants, who, during the period February 15, 2007 through April 14, 2008, purchased CSG securities either on the Swiss Stock Exchange ("SWX") or as American Depositary Shares ("ADSs") on the New York Stock Exchange ("NYSE").

On June 24, 2010, the United States Supreme Court issued Morrison v. National Australia Bank, --- U.S. ----, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), which set forth a new rule for determining the extraterritorial application of the United States securities laws. Invoking Morrison, Defendants moved via letter on July 6, 2010 for a partial judgment on the pleadings to dismiss plaintiffs, such as LAMPERS, who had purchased CSG shares on the SWX. Letter-briefs from each party were submitted to the Court on July 19, 2010.

For the reasons discussed below, Defendants' motion is GRANTED.

I. BACKGROUND

The facts as alleged in the Complaint in this case are set forth in detail in prior Decisions and Orders of the Court. See Cornwell v. Credit Suisse Group, 689 F.Supp.2d 629 (S.D.N.Y.2010); Cornwell v. Credit Suisse Group, 666 F.Supp.2d 381 (S.D.N.Y.2009). As relevant for the motion at hand, Plaintiffs allege that Defendants made material misrepresentations or omissions concerning the robustness of CSG's risk management practices (which were actually very poor), CSG's financials were heavily impacted by the implosion of the American housing market (which their risk management practices were supposed to prevent), and Plaintiffs were injured by the concomitant devaluation of their stock. Plaintiffs are divided into two categories: (1) those such as Cornwell and Grady who purchased ADSs on the NYSE and (2) those such as LAMPERS who are United States residents who purchased shares of CSG on the SWX. ( See Complaint ¶¶ 1, 2, 20, 34-36, 346-47, 354(a); see also id. ¶ 24 ("U.S. institutional investors, and other U.S. residents, routinely purchase Credit Suisse shares trading on the SWX from their offices in the United States.").)

Plaintiffs contend that Morrison does not prevent the latter group from maintaining their claims. Their chief argument is that Morrison is limited to its facts and applies only to so-called "foreign cubed" plaintiffs-foreign plaintiffs who bought foreign stock on a foreign exchange. To bolster this conclusion, Plaintiffs suggest that "the real question left open by Morrison ... is what factors control when a purchase or sale has some foreign and some domestic 'aspects.' " (Plaintiffs' Letter-Brief dated July 19, 2010 at 3.) To answer this question, Plaintiffs suggest, a court must consider "the text and purpose of the [Exchange Act]" as well as "interpret [ations of] the terms 'purchase' and 'sale' in the context of § 10(b) and common law principles prevailing at the time the [Exchange Act] was enacted." ( Id.) In particular, the Court should consider choice of law principles as described in the 1934 edition of the Restatement (First) of Conflict of Laws. ( See id. at 3-5.) Application of these considerations, Plaintiffs contend, would reveal that LAMPERS "made an investment decision and initiated a purchase of CSG from the U.S." and "took the CSG stock into its own account in the U.S. and incurred an economic risk in the U.S." ( Id. at 3.) Thus, Lead Plaintiffs conclude that merely because LAMPERS' stock "order was settled overseas on the [SWX]" does not prevent § 10(b) from applying. ( Id.) As described below, the Court is not persuaded that the Supreme Court had such a multi-factor analysis in mind when it issued Morrison.

II. DISCUSSION

In Morrison, the Supreme Court roundly (and derisively) buried the venerable "conduct or effect" test the Second Circuit devised and for years had employed to determine whether the protections and remedies contained in § 10(b) of the Exchange Act apply extraterritorially to reach fraudulent securities transactions abroad under the facts of a case. Yet here, Plaintiffs seek to exhume and revive the body. They argue that § 10(b) claims by investors such as LAMPERS survive Morrison on the grounds that such plaintiffs are American citizens, and that some aspects of the foreign securities transactions at issue occurred in the United States. This Court is not persuaded. As this Court reads Morrison, the conduct and effect analysis as applied to § 10(b) extraterritoriality disputes is now dead letter. Plaintiffs' cosmetic touch-ups will not give the corpse a new life. The standard the Morrison Court promulgated to governthe application of § 10(b) in transnational securities purchases and sales does not leave open any of the back doors, loopholes or wiggle room to accommodate the distinctions Plaintiffs urge to overcome the decisive force of that ruling on their § 10(b) claims here.

The Second Circuit's case law interpreting the extraterritorial application of § 10(b) focused on whether wrongful conduct associated with a particular transaction (1) had a substantial effect on United States markets or upon American citizens, or (2) occurred in the United States. See SEC v. Berger, 322 F.3d 187, 192-93 (2d Cir.2003); Schoenbaum v. Firstbrook, 405 F.2d 200, 206 (2d Cir.1968) (finding that § 10(b) was "necessary to protect American investors"); see also Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (2d Cir.1972) (applying § 10(b) to encompass a transaction involving an American company that was fraudulently induced to purchase in England the securities of a corporation whose shares were not traded on any American exchange, and where some of the acts that comprised the deceptive conduct occurred in the United States). The Morrison Court unequivocally repudiated this longstanding jurisprudence. It found the rule inconsistent with the presumption against extraterritorial application of statutes, and not supported by any provision of the Exchange Act evincing Congress' clear intent to extend the remedies of the law to foreign securities transactions.

Textually, the Morrison Court not only found no affirmative language in the Exchange Act to suggest that § 10(b) extends to foreign transactions, it rejected both the Second Circuit's extraterritoriality doctrine as well as the Government's amicus argument, which had suggested that § 10(b) or the Exchange Act in general has at least some application abroad, and which proposed an alternative "significant and material conduct" rule derived as a variation of the Second Circuit's conduct test. See Morrison, 130 S.Ct. at 2881-83, 2886-87. In fact, the Court noted that while § 10(b) lacks a clear expression of extraterritorial effect, in §§ 30(a) and 30(b) of the Exchange Act, Congress explicitly provided for application of the statute to certain transactions abroad, but limited the scope to very narrow circumstances.1

In stating its threshold conclusion that § 10(b) has no extraterritorial effect and affirmatively enunciating the new rule specifying the transactions to which § 10(b) does apply, the Supreme Court declared that the purchases and sales which comprise the objects of the Exchange Act's "solicitude," id. at 2883-84-the dealings the statute seeks to regulate and the investors it seeks to protect-narrow exclusively to domestic transactions, specifically "[1] only ... the purchase or sale of a security listed on an American exchange, and [2] the purchase or sale of any other security in the United States." Id. at 2888 (emphasis added). The determinant of the first factor is the listing of the security in a domestic exchange, and that of the second factor is the occurrence of the purchase or sale within United States territory. A corollary of this rule embodies its converse: that § 10(b) would not apply to transactionsinvolving (1) a purchase or sale, wherever it occurs, of securities listed only on a foreign exchange, or (2) a purchase or sale of securities, foreign or domestic, which occurs outside the United States. In either case, a threshold event determines the applicability of § 10(b): an actual purchase or sale of covered securities.

Morrison makes clear that in overturning a generation of Second Circuit precedent, despite the preeminence of its pedigree and however well-established its grounding in other circuit case law, the Supreme Court sought to strike at the...

To continue reading

Request your trial
20 cases
  • In re Universal
    • United States
    • U.S. District Court — Southern District of New York
    • February 17, 2011
    ...had a substantial effect on United States markets or citizens or occurred in the United States. Id. at 2881; Cornwell v. Credit Suisse Group, 729 F.Supp.2d 620, 622 (S.D.N.Y.2010) (“In Morrison, the Supreme Court roundly (and derisively) buried the venerable ‘conduct or effect’ test the Sec......
  • Anwar v. Fairfield Greenwich Ltd.
    • United States
    • U.S. District Court — Southern District of New York
    • August 18, 2010
    ...of any other security in the United States." Id. at 2888 (emphasis added); see also Cornwell v. Credit Suisse Group, No. 08 Civ. 3758, 729 F.Supp.2d 620, 2010 WL 3069597 (S.D.N.Y. July 27, 2010) (holding that sales of securities listed on a foreign exchange, even if purchased by United Stat......
  • In re Satyam Computer Servs. Ltd. Sec. Litig.
    • United States
    • U.S. District Court — Southern District of New York
    • January 2, 2013
    ...are asking the Court to apply the conduct test specifically rejected in Morrison.”) (citationsomitted); Cornwell v. Credit Suisse Grp., 729 F.Supp.2d 620, 624 (S.D.N.Y.2010) (“[T]o carve out of the new rule [Plaintiffs'] purchase ... of securities on a foreign exchange because some acts tha......
  • In re BP P.L.C. Sec. Litig.
    • United States
    • U.S. District Court — Southern District of Texas
    • February 13, 2012
    ...involved or mere “listing” on the NYSE insufficient reasons to extend section 10(b) liability. See, e.g., Cornwell v. Credit Suisse Group, 729 F.Supp.2d 620, 623–24 (S.D.N.Y.2010) (holding that section 10(b) does not extend to foreign securities traded on foreign exchanges even if purchased......
  • Request a trial to view additional results
3 firm's commentaries
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT