“The Second Circuit’s decision reaffirms the Supreme Court’s command that foreign-cubed securities lawsuits must involve a domestic transaction.”
—John Masslon, WLF Senior Litigation Counsel
WASHINGTON, DC— Today, the Second Circuit quickly disposed of a securities plaintiff’s appeal in Banco Safra v. Samarco Mineracao. The court found the case presented a straightforward application of the Supreme Court’s Morrison decision. There, the Supreme Court held that a “foreign-cubed” securities lawsuit—one with a foreign plaintiff, a foreign defendant, and involving foreign securities—cannot be brought in the United States unless the fraud is connected to a domestic security transaction.
WLF’s brief in the case—submitted on behalf of both itself and the Allied Educational Foundation—argued that the case was a straightforward application of Morrison. Although the plaintiff argued that money passed through domestic bank accounts, counterparties, and brokers, that’s true of many transactions that are clearly foreign. “It is the rare case,” the Supreme Court has observed, “that lacks all contact with the territory of the United States.” The plaintiff never explained how domestic bank accounts, counterparties, or brokers participated in the transactions. Money may have simply boomeranged into, then out of, the United States during transactions between foreign entities. WLF argued this was not enough to satisfy Morrison’s domestic-transaction test.
In affirming the district court’s order dismissing the case, the Second Circuit rejected the plaintiff’s attempt to creatively plead a domestic transaction. The court agreed with WLF’s argument that pleading that the transaction was in U.S. dollars and used New York banks is insufficient to plead that the fraud involved a domestic transaction. But it did not stop there. The court also held that the plaintiff was not entitled to serially amend the complaint until it pled a domestic transaction. WLF applauds the Second Circuit’s decision to faithfully apply the Supreme Court’s Morrison decision.
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