763 F.3d 198 (2nd Cir. 2014), 11-397-cv(L), Parkcentral Global HUB Ltd. v. Porsche Auto. Holdings SE
|Docket Nº:||11-397-cv(L), [*] 11-403-cv(CON), 11-416-cv(CON), [*] 11-418-cv(CON), 11-428-cv(CON), 11-447-cv(CON)|
|Citation:||763 F.3d 198|
|Opinion Judge:||PER CURIAM|
|Party Name:||PARKCENTRAL GLOBAL HUB LIMITED, et al., Plaintiffs-Appellants, v. PORSCHE AUTOMOBILE HOLDINGS SE, f/k/a DR. ING. H.C. F. PORSCHE AG, WENDELIN WIEDEKING, HOLGER P. H|
|Attorney:||JAMES B. HEATON, III (Kaspar J. Stoffelmayr, on the brief), Bartlit Beck Herman Palenchar & Scott LLP, Chicago, IL, David Parker, Kleinberg, Kaplan, Wolff & Cohen P.C., New York, NY, Jay W. Eisenhofer, James J. Sabella, Grant & Eisenhofer P.A., New York, NY, Thomas E. Redburn, Jr., Sheila A. Sadi...|
|Judge Panel:||Before: LEVAL, SACK, AND HALL, Circuit Judges. Judge Leval joins in this per curiam opinion and concurs in a separate opinion. LEVAL, Circuit Judge, concurring. LEVAL, Circuit Judge, concurring:|
|Case Date:||August 15, 2014|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued February 24, 2012
Appeal by the plaintiffs from a judgment of the United States District Court for the Southern District of New York (Harold Baer, Jr., Judge) dismissing the plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6) . The district court concluded that the plaintiffs' securities fraud claims, based on their execution of securities-1 based swap agreements referencing the price of Volkswagen stock trading on foreign exchanges, represented an impermissibly extraterritorial application of United States securities laws. We agree--although for reasons somewhat different from those set forth by the district court--and conclude that the district court's judgment of dismissal should be affirmed.
In Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), the Supreme Court established that, by virtue of the presumption against extraterritorial application of U.S. statutes, § 10(b) of the Securities Exchange Act of 1934, the basic antifraud provision of the U.S. securities laws, has no extraterritorial application, and no civil suit under that section may be brought unless predicated on a purchase or sale of a security listed on a domestic
exchange or on a domestic purchase or sale of another security. See id. at 267 (" And it is in our view only transactions in securities listed on domestic exchanges, and domestic transactions in other securities, to which § 10(b) applies." ). In Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012), this Court set forth the means to be used to determine when a transaction in securities is " domestic" such that it may furnish the basis for a suit under that section. We concluded that in order for such a transaction to qualify as domestic, " the parties [must] incur irrevocable liability to carry out the transaction within the United States or . . . title [to the securities must be] passed within the United States." Id. at 69.
In this case, the securities transactions upon which the plaintiffs brought suit were so-called " securities-based swap agreements" relating to the stock of Volkswagen AG (" VW" ), a German corporation; the amount of gain and loss in the transactions depended on prices of VW stock recorded on foreign exchanges. The parties accused of fraud are Porsche Automobil Holding S.E. (" Porsche" ), also a major German corporation, and its executives. Their allegedly fraudulent statements consisted of assertions about Porsche's intentions with respect to the stock of VW; their statements were made primarily in Germany, but were also accessible in the United States and were repeated here by the defendants. The thorny issue presented by this appeal is how to apply the rules established by the Morrison and Absolute Activist decisions to this case.
The plaintiffs, more than thirty international hedge funds, employed securities-based swap agreements pegged to the price of VW shares, which trade on European stock exchanges, to bet that VW stock would decline in value. The positions they took through their swap agreements were roughly economically equivalent to short positions in VW stock, in that they would gain to the extent VW stock declined in value and would lose to the extent it rose. Plaintiffs allege that, in 2008, defendants made various fraudulent statements and took various manipulative actions to deny and conceal Porsche's intention to take over VW. The plaintiffs allege that they relied on defendants' fraudulent denial of Porsche's intention to take over VW in making their swap agreements. When, in October 2008, Porsche made its true intentions public, the price of VW shares rose dramatically, causing the plaintiffs to suffer large losses.
The plaintiffs brought the instant complaints in the United States District Court for the Southern District of New York against Porsche and two of its corporate officers alleging, among other things, that the defendants' fraudulent statements and manipulative actions violated U.S. securities laws. Following the Supreme Court's decision in Morrison, the defendants moved to dismiss the complaint because the plaintiffs' swap agreements referenced securities trading on foreign exchanges. The district court (Harold Baer, Jr., Judge ) granted the defendants' motion, concluding that the swaps were essentially transactions in securities on foreign exchanges.
We affirm the judgment, although on the basis of different reasoning. In our view, the imposition of liability under § 10(b) on these foreign defendants with no alleged involvement in plaintiffs' transactions, on the basis of the defendants' largely foreign conduct, for losses incurred by the plaintiffs in securities-based swap agreements based on the price movements of foreign securities would constitute an impermissibly extraterritorial extension of the statute. Our ultimate conclusion that
this suit seeks impermissibly to extend § 10(b) extraterritorially depends in some part on the particular character of the unusual security at issue. For reasons explained below, we express no view whether we would have reached the same result if the suit were based on different transactions. Out of an abundance of caution, however, we remand the matter to the district court so that it may consider motions, if any, by one or more of the plaintiffs to amend their complaints in response to our decision on this appeal.
Because this case comes to us on appeal from the district court's grant of the defendants' motion to dismiss, the facts are drawn from the plaintiffs' complaints, " accepting all well-pleaded allegations in the complaint as true and drawing all reasonable inferences in the plaintiff[s'] favor," Bigio v. Coca-Cola Co., 675 F.3d 163, 169 (2d Cir. 2012) (internal quotation marks and brackets omitted), and augmented by matters of which we may and do take judicial notice, see Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (" [C]ourts must consider the complaint in its entirety, as well as other sources . . . , in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." ); ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (" [W]e may consider . . . legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit." ).
Porsche's Alleged Scheme to Acquire VW
Porsche, the well-known German automobile manufacturer, is also an active investor in various securities and derivatives. Indeed, in the fiscal year ending July 31, 2008, the company, under the direction of defendants Chief Executive Officer Wendelin Wiedeking and Chief Financial Officer Holger Hä rter, derived eighty-eight percent of its total profits from its investments and twelve percent of its total profits from selling motor vehicles.
From late 2005 through 2007, Porsche gradually increased its investment in VW, another well-known German automobile manufacturer, whose shares trade primarily on European exchanges. At the time, a German statute known as the " VW Law" limited...
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