On June 24, 2019, the United States Supreme Court denied a petition for certiorari to review a decision from the United States Court of Appeals for the Ninth Circuit, which held that a foreign issuer that has no involvement in establishing or selling ADRs can be subject to liability under Section 10(b) of the Securities Exchange Act of 1934 as long as plaintiff purchased or sold the ADRs in a domestic transaction. Toshiba Corp. v. Auto. Indus. Pension Trust Fund, et al.
, No. 18-486 (U.S. June 24, 2019). Pursuant to its typical practice, the Court did not comment on its reasons for denying certiorari.
The petition for certiorari and the underlying decision by the Ninth Circuit were discussed in our prior post
, in connection with the Supreme Court’s invitation to the Solicitor General to file a brief expressing the views of the United States. The Solicitor General recommended that the Court deny certiorari because, according to the Solicitor General, the Ninth Circuit had correctly applied Morrison v. Nat. Aust. Bank
, 561 U.S. 247 (2010), because the investors’ ADR purchases were undisputedly “domestic.” The denial of certiorari leaves in place a holding that subjects non-U.S. issuers to potential liability in the Ninth Circuit under Section 10(b) even if they are not involved in establishing the securities at issue, as in the case of unsponsored ADRs, and do not participate in the securities transactions that form the basis of the claim. In addition, the denial leaves in place an arguable circuit split between the Ninth Circuit and the Second Circuit regarding the extraterritorial reach of Section 10(b) and how to apply the Supreme Court’s holding in Morrison
. In Parkcentral Global Hub Ltd. v. Porsche Auto Holdings SE
, 763 F.3d 198, 215 (2d Cir. 2014) (per curiam), the Second Circuit held that a domestic transaction “is not alone sufficient to state a properly domestic claim under [Section 10(b)].” In Toshiba
, the Ninth Circuit concluded that Parkcentral
was “distinguishable on many grounds” (including that it did not involve ADRs), and “contrary to Section 10(b) and Morrison
itself.” 896 F.3d 933, 950 (9th Cir. 2018). The Solicitor General endorsed the Ninth Circuit’s rejection of Parkcentral
’s reasoning as adopting a repackaged version of the conduct-and-effects test rejected by Morrison
The Court’s decision not to grant certiorari at this time allows an opportunity for additional development of the case law on this issue at the Court of Appeals level.