Ten years ago, the U.S. Supreme Court issued its landmark decision in Morrison v. National Australia Bank Ltd., which limited the extraterritorial application of the federal securities laws in order to prevent the United States from becoming “the Shangri-La of class-action litigation for lawyers representing those allegedly cheated in foreign securities markets.” In Morrison, the Supreme Court threw out decades of lower court precedent that had applied Section 10(b) of the Securities Exchange Act if the conduct at issue occurred in the United States or had effects felt within the United States, criticizing that test as “unpredictable,” “inconsistent,” and unmoored from the statute’s text. Instead, Morrison found that when Section 10(b) is properly construed in light of the presumption against extraterritoriality, it allows only domestic claims brought by plaintiffs that (1) “transact in securities listed on domestic exchanges,” or (2) enter into “domestic transactions in other securities.”
Over the last decade, Morrison has had a sweeping impact on the application of the U.S. federal securities laws to alleged transnational securities fraud. However, it has not yet brought the predictability and consistency it promised – as courts have struggled to apply its transactional focus to the countless ways in which securities are traded in real world capital markets – and it has spawned a number of unintended consequences that have exposed foreign issuers to liability in U.S. securities class actions where none may have existed before. A striking example is a recent court decision allowing a foreign share issuer to be sued by investors that transacted in unsponsored American Depositary Receipts (“ADRs”), despite a lack of any significant involvement by the issuer with the ADRs or the related transactions. The risks to foreign issuers may be exacerbated by a recent trend that allows plaintiffs whose U.S. securities law claims would be limited under the Morrison principles to expand class actions by asserting foreign law claims in their complaints.
If these examples are followed widely by U.S. courts, they could significantly expand the effective extraterritoriality of the U.S. securities laws in a manner that seems inconsistent with the intention of the Morrison decision, reviving the “foreign cubed” actions (foreign plaintiff, foreign defendant, foreign law) that many thought would not survive Morrison. If such an expansion occurs, the Supreme Court may need to revisit these issues to determine more precisely how, and when, the U.S. class actions should apply to transactions in foreign securities.
The Continuing Difficulty Identifying A “Domestic Transaction” Under Morrison
With respect to securities traded on a domestic exchange, Morrison has succeeded in avoiding the “unpredictable” and “inconsistent” outcomes it identified in the prior conduct-and-effects test: under Morrison, it is now clear that if a plaintiff transacts on a domestic exchange then her claim is likely to be domestic. Similarly, because Morrison requires the transaction itself to occur domestically, lower courts have uniformly rejected the argument that merely cross-listing a foreign security on a domestic exchange brings all transactions in that security within the scope of Section 10(b), including transactions on a foreign exchange.
However, Morrison’s second prong – holding that Section 10(b) also covers “domestic transactions in other securities” – has proven considerably more difficult to apply. The Supreme Court did not elaborate on the standard in Morrison given the absence of any claim that the transactions at issue occurred within the United States.
In the absence of guidance from the Supreme Court, the Second Circuit issued the most comprehensive analysis of Morrison’s second prong to date in Absolute Activist Value Master Fund, Inc. v. Ficeto, holding that a “transaction in other securities” can be domestic where irrevocable liability is incurred within the United States, or where title transfers within the United States. Absolute Activist instructed courts to consider four non-exhaustive factors in assessing the location of an over-the-counter (“OTC”) transaction: (1) the formation of the contracts, (2) the placement of purchase orders, (3) the passing of title, and (4) the exchange of money. Absolute Activist also identified several additional factors that it considered irrelevant to the analysis, including: (1) the identity of the security, meaning whether it was issued by a United States company or registered with the SEC, (2) the citizenship or residence of the purchaser or seller of securities, (3) the location where the deception may have originated, and (4) the location where the broker-dealer performed tasks that irrevocably bound the parties to a securities transaction.
Under the Absolute Activist test, courts must both determine (1) when irrevocable liability is incurred, and (2) after determining the event that gives rise to irrevocable liability, where it occurred. Courts have generally looked to common law contract principles of offer and acceptance to interpret when a party became irrevocably bound to the transaction at issue. The relevant question is when the parties to the transaction lost the right to walk away. For that reason, a contract can be irrevocable even if closing had not yet occurred because of incomplete conditions precedent, or might not happen because of a termination condition outside of the party’s control.
As to where irrevocable liability occurs, courts have issued heavily fact-specific decisions necessarily limited to the particular cases and controversies before them. There are at this point very few clear rules and many unanswered questions for market participants about how courts will weigh factors to determine if the transaction itself occurred in the United States when it has many foreign and domestic component parts. This issue has been particularly challenging given that transactions are often negotiated electronically in impersonal markets, either by parties located in different countries or by agents whose locations may be unknown (it is also conceivable that the dislocations caused by the Covid-19 pandemic may present further complications in analyzing these issues). These factors are further complicated by courts’ repeated statements that the location and residency of the contracting parties or the use of a U.S. broker does not establish that a transaction is domestic. Similarly, courts have held that the use of U.S. dollars on its own is insufficient to establish liability and that payment to the United States to effect the transaction is also insufficient where it is only one step in a transaction negotiated abroad, without providing clear guidance on the factors that would be sufficient.
The end result is that, even a decade after Morrison, courts have not provided significant guidance on the features that would render an off-exchange transaction “domestic” for the purposes of the federal securities laws, and instead have created an unpredictable and inconsistent fact-and-circumstances test very much like the one the Supreme Court rejected in Morrison.
Uncertainty Regarding the Application of Morrison To Issuers With Limited Involvement in the Domestic Transaction
An additional source of ambiguity under Morrison concerns the degree of involvement in a domestic transaction required for a foreign issuer to be hauled into a U.S. court, which is an issue that has led to a circuit split between the Second and Ninth Circuits. In particular, the Second Circuit in Parkcentral found the reasoning of Morrison barred claims against a foreign issuer premised on U.S. derivatives transactions referencing its securities, where that issuer was not involved in the transactions and the alleged fraud was “predominantly foreign.” In contrast, the Ninth Circuit in Toshiba declined to dismiss claims against a foreign issuer concerning transactions in its unsponsored ADRs based on a foreign alleged fraud, concluding that a domestic transaction was sufficient to satisfy Morrison and that the foreign issuer’s involvement should be considered under the separate “in connection with” requirement in Section 10(b).
As a practical matter, the Ninth Circuit’s decision leaves foreign companies who issue securities abroad exposed to class action risk even if they take no steps to access the U.S. market, because those companies can do nothing to stop depositary banks from creating unsponsored ADRs referencing their securities. A test based on acquiescence to U.S. transactions over which issuers have little to no control seems unsatisfactory. Indeed, the Ninth Circuit indicated that relatively minor and routine activities by the foreign issuer, including “posting its annual report in English on its website and by not establishing a sponsored ADR,” could constitute sufficient “consent” to the creation of the unsponsored ADR program in the United States to satisfy the “in connection with” requirement, and, on remand, the District Court concluded that the mere fact that the depositary bank held a large amount of shares was sufficient to create a presumption of participation by the issuer.
Thus, notwithstanding Morrison’s stated concern about extending the U.S. securities laws to foreign fraud, this decision raises the prospect of imposing liability under the federal securities laws against foreign companies based on limited contacts with the United States.
Courts Increasingly Allow Plaintiffs to Sidestep Morrison’s Limitations By Sustaining Class Actions Asserting Foreign Law Claims
In recent years, plaintiffs have also attempted to circumvent the territorial limitations of Section 10(b) by bringing foreign law claims as add-ons to class actions under the U.S. securities laws on the basis of supplemental jurisdiction. These claims, which have been accepted by certain courts, threaten to impose the very harm to foreign issuers that Morrison sought to foreclose.
One such recent case is Stoyas v. Toshiba Corp., discussed above. There, the District Court earlier this year permitted purchasers of ADRs relating to common stock of Toshiba to bring a putative class action of shareholders with U.S. claims under U.S. law and Japanese law, after originally dismissing them on grounds of comity and forum non conveniens. The court permitted the Japanese law claims to proceed as a putative class action even though Japan does not provide a comparable class action mechanism.
While some courts have rejected such claims, plaintiffs continue to bring them with greater frequency, and it remains to be seen whether courts will curb efforts to bring these claims. Such foreign-law claims are particularly questionable when they concern foreign issuers from countries that lack a class action procedure (or an opt-out class action mechanism in particular), as such claims on a class-wide basis could never be brought against the issuer in its own country. Permitting these claims to proceed in the U.S. courts in those circumstances effectively creates an exception to Morrison, as it risks re-opening the U.S. courts to lawyers representing investors from around the world allegedly cheated in foreign securities markets. An express aim of Morrison was to put an end to that practice.
In the ten years since Morrison was decided, the decision has plainly had much of its intended effect. It is impossible to estimate how many securities class action cases have not been brought in the United States because of its significant changes to the law. And the estimated potential damages in many others that have been brought have been significantly reduced because of the exclusion from plaintiff classes of investors that transacted in securities abroad. Famously, in In re Vivendi Universal, S.A. Sec. Litig., which was pending at the time Morrison was decided, the estimated $9 billion potential trial verdict was reduced by nearly 80 percent due to the impact of Morrison.
Still, unresolved issues related to the extraterritorial scope of the U.S. securities laws and the availability of foreign law claims remain—some left unanswered by Morrison and others a consequence of lower court interpretation of Morrison. The territorial scope of Section 10(b) under Morrison’s “domestic transaction” prong remains a complex and unsettled area of the law. Judicial decisions to date on this prong have provided only limited guidance for foreign issuers hoping to manage risk. Moreover, data shows that Morrison has not discouraged plaintiffs from pursuing foreign issuers in U.S. courts. Surprisingly, while settlement amounts in transnational securities fraud cases would have been expected to decline after Morrison, at least one study suggests that the median and mean settlements actually increased post-Morrison, possibly due to the fact that the number of class actions against foreign issuers actually increased after Morrison. This trend may continue or even accelerate if courts follow the Ninth Circuit’s decision in Toshiba and treat transactions in unsponsored ADRs as domestic transactions of foreign issuers, even in the absence of any connection between those transactions and the issuers of the underlying shares. Furthermore, the fact that a U.S. securities plaintiff may now be able to piggy-back foreign law class claims onto a successful Section 10(b) class action substantially magnifies the risk to foreign issuers who could then face not only liability for domestic U.S. transactions but also potential liability for a class of foreign claims brought under foreign law (even if the foreign law does not provide a plaintiff with the same class action mechanism).
Such a state of the law, if it persists, runs counter to what Morrison aimed to achieve, and there is good reason to expect U.S. courts over the next decade to seek to define with more certainty which foreign-based securities claims can be brought in the United States. Depending on how these decisions develop, the Supreme Court may find a need to address these issues once again, in order to provide additional guidance on how the Morrison principles are intended to apply.
 Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247, 270 (2010).
 Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. §§ 78a et seq.).
 Morrison, 561 U.S. at 267.
 Over the last 10 years, Morrison’s transactional test has been applied to claims not only arising under Section 10(b), but also other U.S. laws regulating transactions in financial products. See, e.g., Loginovskaya v. Batratchenko 764 F.3d 266, 272 (2d Cir. 2014) (applying Morrison’s transactional test to the Commodity Exchange Act); SEC v. Tourre, 2013 WL 2407172, at *4 (S.D.N.Y. June 4, 2013) (same for Section 17(a) of the Securities Act of 1933). This Article focuses on Section 10(b) except to the extent cases interpreting other statutes provide useful guidance.
 Notably, Morrison’s transactional test also applies only to private actions because it was abrogated by statute with respect to federal criminal securities actions and SEC enforcement actions shortly after Morrison was issued. See United States v. Scoville, 913 F.3d 1204 (10th Cir. 2019) (noting Dodd-Frank Act abrogated Morrison to the extent it applies to civil and criminal enforcement actions by United States). Congress instead restored the conducts and effects test for those proceedings. Foreign issuers therefore still need to understand the pre-Morrison conducts and effects when assessing the risk that the United States or the SEC will pursue an action against them.
 The Second Circuit recently held that Morrison does not prohibit claims based on transactions ultimately clear and settled on a foreign exchange if orders are previously matched on an electronic trading platform in the United States that otherwise satisfies the second, domestic transaction prong of Morrison. See Myun-Uk Choi v. Tower Research Capital LLC, 890 F.3d 60 (2d Cir. 2018) (noting that in a prior decision the Second Circuit had assessed whether foreign exchange trades satisfied prong two of Morrison (citing City of Pontiac Policemen’s & Firemen’s Retirement Sys v. UBS AG, 752 F.3d 173 (2d Cir. 2014)).
 City of Pontiac, 752 F.3d at 179-181. Indeed, the National Australia Bank shares at issue in Morrison were listed on the New York Stock Exchange, but only ADRs representing such shares were traded on the exchange.
 See Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kayzna JSC, 2 F. Supp. 3d 550, 559 (S.D.N.Y. 2014) (noting that the “Morrison court provided little guidance on what constitutes a domestic purchase or sale”).
 Absolute Activist Value Master Fund, Inc. v. Ficeto, 677 F.3d 60, 62 (2d Cir. 2012).
 Id. at 70. In practice, parties litigating under Absolute Activist have largely focused on the “irrevocable liability” prong, rather than the “title transfer” prong, given that the Second Circuit has applied the “title transfer” test narrowly, rejecting claims based on transfers short of legal title within the United States. Loginovskaya, 764 F.3d at 274 (rejecting argument that title transferred in United States with purchase of interest in a company); In re Petrobras Sec. Litig., 862 F.3d 250, 272 n.24 (2d Cir. 2017) (rejecting argument that transfer of beneficial ownership is enough); cf. Absolute Activist, 677 F.3d at 70 (rejecting argument that subscription payments made to U.S. account were relevant where claim was based on fund’s investments and not subscriptions to fund). One of the few courts to seriously analyze where legal title is transferred found that the Second Circuit intended that title transfer occurs “when it is delivered to the location of the buyer.” SEC v. Ahmed, 308 F. Supp. 3d 628, 667 (D. Conn. 2018) (finding no reasonable juror could find title transferred outside the United States despite statement in contract that closing would be deemed to have occurred in China).
 Absolute Activist, 677 F.3d at 68-69.
 Giunta v. Dingman, 893 F.3d 73, 80 (2d Cir. 2018) (finding oral agreement in United States sufficiently definite where subsequent conduct confirmed contract was accepted).
 See Choi, 890 F.3d at 68 (“Whether the exchange can cancel or modify trades due to errors . . . says nothing about whether either trading party is free to revoke its error-free acceptance of a trade after matching”); Atlantica Holdings, 2 F. Supp. 3d at 561 (“Whether the circumstances allowing [the plaintiffs] to revoke their purchases would come to pass was an outcome out of their control . . . as a practical matter . . . liability was irrevocable by them, which is sufficient to satisfy the Absolute Activist test.”)
 See, e.g., Loginovskaya, 764 F.3d at 274 (analyzing language of contract and country where investment was solicited); Petrobras, 862 F.3d at 263 (noting that district court considered the area code of phone numbers of confirmations sent by underwriters); Schentag v. Nebgen, 2018 WL 3104092, at *11-13 (S.D.N.Y. June 21, 2018) (conducting analysis of multiple contracts to determine when plaintiff became owner of shares).
 See, e.g., Petrobras Litig, 862 F.3d at 262; City of Pontiac, 752 F.3d at 181 (“[W]e have never held that the placement of a purchase order, without more, is sufficient to incur irrevocable liability, particularly in the context of transactions in foreign securities on a foreign exchange”). Nonetheless, a few courts have permitted claims to survive a motion to dismiss where irrevocable liability is alleged to have occurred through a purchase order placed with a U.S. broker-dealer. See Banco Safra v. Samarco Minercao, 2019 WL 2514056, at *5 (S.D.N.Y. June 18, 2019) (collecting cases).
 See Loginovskaya, 764 F.3d at 274; see also U.S. v. Vilar, 729 F.3d 62, 77 n.10 (2d Cir. 2013); Banco Safra, 2019 WL 2514056, at *5; In re Petrobras Sec. Litig., 150 F. Supp. 3d 337, 341 (S.D.N.Y. 2015).
 Indeed, the fact-dependent nature of the inquiry required under Morrison’s domestic transaction test may even raise individualized, transaction-by-transaction questions that predominate over common questions and prevent class certification. See Petrobras, 963 F.3d at 274-75.
 Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198, 216 (2d Cir. 2014).
 ADRs are securities issued by depositary banks representing one or more shares (or a fraction of a share) of a foreign issuer, allowing the shares effectively to trade in the United States in a manner similar to domestic securities. Unsponsored ADRs are created by depositary banks alone, without any agreement with the issuer of the underlying shares. In most cases, they can be created without the consent (or even the knowledge) of the share issuer.
 Stoyas v. Toshiba Corp., 896 F.3d 933 (9th Cir. 2018). The lower court also rejected the argument that comity considerations should limit plaintiffs’ claims, because plaintiffs in the case were U.S. citizens. Stoyas v. Toshiba Corp., 424 F. Supp. 3d 821, 829 (C.D. Cal. 2020).
 Stoyas, 896 F.3d at 951-52.
 The court accepted plaintiffs’ argument at face value that “it is unlikely that [that] many shares could have been acquired on the open market without the consent, assistance or participation of Toshiba.” Stoyas, 424 F. Supp. 3d at 828.
 Stoyas, 424 F. Supp. 3d at 829; see also Roofer’s Pension Fund v. Papa, 2018 U.S. Dist. LEXIS 125885 at *72 n.24 (D. N.J. July 27, 2018) (exercising supplemental jurisdiction over claims brought by purchasers of Perrigo common stock under U.S. and Israeli law); In re VeriFone Holdings, Inc. Sec. Litig., 2014 WL 12646027, at *3 (N.D. Cal. Feb. 18, 2014) (approving settlement with purchasers of VeriFone stock cross-listed on U.S. and Israeli exchanges who sued under U.S. and Israeli law).
 In re Mylan N.V. Sec. Litig., 2018 WL 1595985, at *18-20 (S.D.N.Y. Mar. 28, 2018) (refusing to exercise supplemental jurisdiction over Israeli claims because (1) the claims raised complex issues of foreign law, (2) there were already two separate class actions pending before Israeli courts alleging similar claims, and (3) principles of comity and the United States’ “minimal interest, if any, in providing a forum to litigate the claims of foreign stockholders under foreign securities laws” counseled against it); In re Petrobras Sec. Litig., 116 F. Supp. 3d 368, 386-89 (S.D.N.Y. 2015) (dismissing Brazilian law claims for transactions on the Brazilian stock exchange Bovespa because Petrobras’s bylaws provided for mandatory arbitration).
 See Jackson Cty. Employees’ Retirement Sys. v. Ghosn, No. 3:18-cv-01368 (M.D.T.N. May 6, 2019) (pending claims for U.S. and Japanese law); Jansen v. Int’l Flavors & Fragrances Inc. et al., No. 1:19-cv-07536 (S.D.N.Y. Aug. 12, 2019) (pending claims for U.S. and Israeli securities laws against International Flavors & Fragrances Inc.).
 In re Vivendi Universal, S.A. Sec. Litig., 765 F.Supp.2d 512 (S.D.N.Y. 2011), aff’d 838 F.3d 223 (2d Cir. 2016); see also Angelo G.? Savino and Abby Sher, Vivendi – The Multi-Billion Dollar Impact Of Morrison On Foreign-Cubed Securities Litigation, Mondaq (Mar. 30, 2011), https://www.mondaq.com/unitedstates/insurance-laws-and-products/127648/vivendi-the-multi-billion-dollar-impact-of-morrison-on-foreign-cubed-securities-litigation.
 Bartlett, Robert; Cain, Matthew D.; Fisch, Jill E.; and Davidoff Solomon, Steven, “The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers,” at 6, Faculty Scholarship at Penn Law (Nov. 12, 2018), https://scholarship.law.upenn.edu/faculty_scholarship/2025.
This post comes to us from Cleary Gottlieb Steen & Hamilton LLP. It is based on the firm’s memorandum, “Morrison Ten Years Later: Uncertainty Remains and Extraterritoriality Lingers,” dated September 16, 2020. Sebastian Sperber, David Gottlieb, Ward Greenberg, Joe Kay and Morgan Miller also contributed to the memorandum.