Forum Competition and Choice of Law Competition in Securities Law after Morrison v. National Australia Bank

Abstract

In Morrison v. National Australia Bank, the U.S. Supreme Court in 2010 held that U.S. securities laws apply only to securities transactions within the United States. The transactional test in Morrison could be relatively short lived because it is rooted in geography. For cases involving private securities transactions in which geographic determinants of a transaction and thus applicable law are unclear, this article suggests redirecting the inquiry away from the geographic location of securities transactions towards the parties’ choice of law. In the long run, allowing parties to choose the law pertaining to private transactions could be more effective than relying on geography that is both indeterminate and easy to manipulate. Jurisdictions could then compete to induce transacting parties to bring private transactions within their jurisdictional reach by designing substantive law and procedures that parties choose ex-ante ("Choice of Law Competition”). Recent cases expanding the jurisdictional reach of Dutch courts suggest that the Netherlands or another EU member state could engage in a different type of jurisdictional competition. Jurisdictions performing this role adjust their procedural rules to set up a forum within their borders for litigation that appeals to plaintiffs and their lawyers ("Forum Competition"). The U.S. engaged in some Forum Competition for extraterritorial securities litigation prior to Morrison, and the Dodd-Frank Act of 2010 empowers the SEC to continue to bring suits in the United States over securities transactions outside the United States. For many issuers and investors who do not choose the forum ex-ante, Forum Competition can be suboptimal. Depending on future developments, the acceptable outer bounds of Forum Competition between the United States and Europe may need to be defined by treaty or multilateral agreement.