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F-cubed Litigants & Forum non conveniens

Globalized everything, including financial markets, is creating new issues as well as controversies in law - both here in the U.S. and in other western nations.

One of them is what's called "f-cubed litigants." Those are foreign investors who bought shares of stock in U.S. corporations on foreign exchanges. When they discern securities fraud by those companies, reports The D & O Diary in May 2008, they want to file class-action suits in U.S. courts. Although nations ranging from Australia to England are introducing aspects of U.S. collective-style litigation, foreign investors prefer access to American justice. Cynically, that might be thought of globally as "jackpot justice." No surprise, the U.S. companies prefer access is denied.

Recently, U.S. courts, just as in the 1980s factor concentrate lawsuits [e.g. Factor VII and IX], have been avoiding those lawsuits, using both jurisdictional and forum non conveniens arguments. That is, the grounds presented are primarily practical: Overloaded U.S. courts.

Obviously, since financial markets are global, this could discourage foreign purchase of U.S. stocks. But it could keep U.S. corporations happy.

In an exclusive statement to this blog, Joseph Hetrick of Dechert Law Firm weighs in,

"If you're a foreign investor buying securities on a foreign exchange, it's unlikely you can bring suit in the U.S. unless you can show that the stock you bought was purely a U.S. company and that what you allege took place and was done entirely in the U.S. Otherwise it seems that U.S. federal courts will deny jurisdiction.

"This may seem out of date in a global economy but does it really trouble you that an English investor buying stock on the London exchange in a transaction with European connections is forced to proceed in London?"

The answer to Hetrick's rhetorical question will depend on how much foreign investors push to be heard in U.S. courts.

We'll be hearing lots more about this and other legal issues related to global financial markets. A heavy but useful backgrounder is "Globalisation and the Western Legal Tradition: Recurring Patterns of Law and Authority," by Australian law professor David B. Goldman.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.