WASHINGTON — The Supreme Court suggested Monday it wouldn't allow foreign investors to proceed with a U.S. lawsuit alleging that National Australia Bank Ltd. and a Florida-based subsidiary engaged in transnational securities fraud.
The case is a closely watched test on foreign shareholders' ability to bring class-action securities lawsuits against foreign companies in U.S. courts.
During an hour-long oral argument, several justices suggested that U.S. courts weren't the proper jurisdiction for a securities lawsuit that was brought by Australian shareholders who purchased shares of the Australian bank on an Australian exchange.
Justice Ruth Bader Ginsburg said the case "has Australia written all over it."
"Isn't the most appropriate choice the law of Australia rather than the law of the United States?" Ginsburg asked.
At issue are allegations that National Australia Bank's former U.S. mortgage unit, Florida-based HomeSide Lending Inc., deliberately manipulated the value of its mortgage portfolio in order to meet over-inflated earnings targets.
NAB said HomeSide, once the U.S.'s sixth-biggest mortgage servicing company, had used an incorrect mathematical model which caused it to overvalue its mortgage-servicing rights. The bank announced in July 2001 that it would incur a $450 million write-down on the value of the HomeSide rights. It also said in September 2001 that it would incur a second write-down of $1.75 billion.
The announcements caused an uproar in Australia and the bank's shares plunged.
Thomas A. Dubbs, a lawyer for the plaintiff shareholders, argued Monday that the lawsuit should proceed in the U.S. because the HomeSide executives who committed the alleged fraud "on a nuts and bolts level" were based in the U.S.
The case, Dubbs said, "has Florida written all over it."
NAB lawyer George Conway said a securities lawsuit should not proceed in U.S. courts when the case involved shares of a foreign issuer that were sold on a foreign exchange.
Countries should be able to set their own laws for shares traded on their exchanges, Conway said.
He said the case would be different if it involves shares of a foreign company that were purchased on a U.S. exchange.
Both the Australian and U.S. governments filed legal briefs arguing that the U.S. lawsuit against NAB shouldn't be allowed to proceed. The U.S. brief, however, said there may be some cases when similar lawsuits could go forward.
Justices Ginsburg and Antonin Scalia said that even if the alleged fraud originated in Florida, the alleged financial misrepresentations were reported to the public by NAB in Australia, not in the U.S.
"Here you're dragging the American courts into it," Scalia said.
Justice Anthony Kennedy repeatedly expressed concern about exposing foreign companies to litigation costs in the U.S. system, while Justice Stephen Breyer said several factors weighed against allowing the lawsuit.
The 2nd U.S. Circuit Court of Appeals in New York ruled in 2008 that the NAB investors' claims exceeded the territorial reach of U.S. securities laws.
Justice Sonia Sotomayor, who previously served as a judge on the 2nd Circuit, recused herself from the case.
The case is Morrison v. National Australia Bank, 08-1191. A decision is expected by the end of June.