Recently, in Global Reinsurance Corp.–U.S. Branch v. Equitas Ltd., the New York Court of Appeals, New York’s highest court, refused to apply the state’s antitrust statute, the Donnelly Act, to allegedly anticompetitive conduct in Great Britain that had only incidental effects in New York.  Reversing a divided decision of the intermediate appellate court, the Court of Appeals reasoned that state antitrust law could not have a broader extraterritorial reach than federal antitrust law; otherwise, statutory and judicial limitations on the federal Sherman Act “would be undone if states remained free to authorize ‘little Sherman Act’ claims that went beyond it.”

This rationale may have significant implications beyond the antitrust arena, as the Court of Appeals more broadly reaffirmed that “[t]he established presumption is, of course, against the extra-territorial operation of New York law.”  For example, the potential impact on securities claims under state common law is particularly notable.  In the wake of the United States Supreme Court’s decision in Morrison v. National Australia Bank, which held that Section 10(b) of the Securities Exchange Act applies only to domestic securities transactions (see our memo here), a number of plaintiffs have attempted to invoke state common law to recover losses on extraterritorial transactions.  One potential obstacle to such state-law suits appeared to have been removed late last year, when the Court of Appeals, in Assured Guaranty (UK) Ltd. v. J.P. Morgan Investment Management, rejected a line of lower-court and federal precedents that had held common-law securities actions preempted by New York’s securities statute, the Martin Act (see our memo here).

…continue reading: Limits on Extraterritorial Reach of State Law

The Delaware Supreme Court has long recognized that a merger terminates the standing of the target corporation’s former shareholders to maintain a derivative action on the target’s behalf, with two narrow exceptions: if the merger is fraudulently designed solely to eliminate derivative standing or if it is merely a “reorganization” that does not affect the shareholders’ ownership of the enterprise. Despite efforts by the plaintiffs’ bar to circumvent this rule, two recent decisions relating to the Countrywide-Bank of America merger have reaffirmed these fundamental principles.

…continue reading: Recent Delaware Decisions Reaffirm Merger Terminates Derivative Standing

In a decision with substantial implications for class action suits arising out of Bernard Madoff’s Ponzi scheme and other fraud cases, the United States District Court for the Southern District of New York threw out a class action against Union Bancaire Privée, which advised funds of funds with allocations to Madoff feeder funds. Barron v. Igolnikov, No. 09 Civ. 4471 (S.D.N.Y. Mar. 10, 2010). In so doing, the federal court reaffirmed that private securities class actions alleging misrepresentations or omissions must be brought under the federal securities laws.

The court dismissed the case in its entirety, holding that the plaintiff’s claims, which were brought entirely under state law, were preempted by both the Securities Litigation Uniform Standards Act (“SLUSA”) and New York’s Martin Act. Congress enacted SLUSA in 1998 in response to concerns that state-law class actions were being used to circumvent the heightened pleading requirements that apply to suits under the federal securities laws. The statute mandates dismissal of class actions based on state law if they allege misrepresentations or omissions of material fact in connection with the purchase or sale of a “covered security,” including securities traded on a national exchange. The court in Barron held that the requirements for SLUSA preemption were satisfied. Of particular note for other Madoff-related cases, the court held that (1) the “purchase or sale” requirement of SLUSA was satisfied by Madoff’s representations that he was buying and selling securities, even though he apparently never did so; (2) the “misrepresentation or omission” requirement was satisfied by Madoff’s fraud; and (3) even though the funds in which the plaintiff and the other members of the proposed class invested were not themselves “covered securities,” that requirement of SLUSA was satisfied because Madoff purported to be trading exchange-listed securities.

…continue reading: Court Dismisses Madoff-Related Class Action as Preempted