March 20, 2018. One of the common arguments advanced by corporate defendants in shareholder litigation in provincial courts has been that the Canadian courts should not exercise their jurisdiction to adjudicate investors’ claims if the securities were purchased on the Nasdaq or NYSE. Often these lawyers will make submissions that Canadian courts should abstain from adjudicating these claims on the basis of alleged comity (e.g., Canadian courts should defer to U.S. courts to resolve Canadian investors’ claims) or forum non conveniens (e.g., do to various reasons it would be more convenient to litigate the claims elsewhere) while dropping a buzz-word “Morrison” or “National Australian Bank v. Morrison”.
Morganti & Co.’s lawyers have faced these red-herring arguments many times in the past and have defeated these arguments, e.g., in Paniccia v. MDC Partners, Inc., 2017 ONSC 7298, and Kaynes v. BP plc, 2016 ONCA 601.
Underscoring the theme that U.S. federal courts do not seek to have exclusive jurisdiction over all shareholder litigation, the U.S. Supreme Court has affirmed that U.S. federal courts share jurisdiction with state courts for class actions claims brought under the 1933 Securities Act. These types of claims are often referred to as “primary market claims” in Canada.
There, the investor’s claim arose from Cyan, Inc. conducting an initial public offering with a prospectus that allegedly contained misrepresentations. Soon after the IPO, Cyan, Inc. released a public correction (e.g., a statement that contradicted the statements within the prospectus) and the share price dropped. Investors that purchased shares offered by the prospectus issued a claim in California state court advancing, only, an U.S. federal securities claim for damages. Cyan, Inc. argued that the U.S. federal court had exclusive jurisdiction over federal securities claims for damages.
In an unanimous opinion, the U.S. Supreme Court disagreed with Cyan, Inc.’s views and has confirmed that investors could have always brought 1933 Securities Act claims outside of the U.S. federal courts.
This Opinion lays the foundation to allow Canadians to advance securities claims for damages provided relating to securities purchased pursuant to a prospectus from Canadian and U.S. distributions in Canadian courts.
Cyan, Inc. v. Beaver County Employees Retirement Fund, et al., 583 U.S. ___ (2018).