561 U.S. 247, 255 (2010)
In February 1998 National Australia Bank Limited acquired HomeSide Lending, Inc., a mortgage-servicing company headquartered in Florida.1 HomeSide's business was to receive fees for servicing mortgages, essentially the administrative tasks associated with collecting mortgage payments.2 HomeSide calculated the present value of its mortgage-servicing rights by using valuation models designed to take the likelihood of early repayment into account.3
From 1998 until 2001 National's annual reports and other public documents touted the success of HomeSide's business, and respondents Frank Cicutto, Kevin Race, and Hugh Harris did the same in public statements.4 HomeSide, Race, Harris, and another HomeSide senior executive manipulated HomeSide's financial models, thereby making the rates of early repayment unrealistically low and causing the mortgage-servicing rights to appear more valuable than they really were.5 On July 5, 2001 National announced that it was writing down the value of HomeSide's assets by $450 million, and then again on September 3 by another $1.75 billion.6 The prices of both Ordinary Shares and ADRs slumped.7
As relevant here, petitioners Russell Leslie Owen and Brian and Geraldine Silverlock, all Australians, purchased National's Ordinary Shares in 2000 and 2001 before the write-downs.8 Robert Morrison, an American investor in National's ADRs, also brought suit, but his claims were dismissed by the District Court because he failed to allege damages.9 Petitioners did not appeal that decision.10 They sued National, HomeSide, Cicutto, and the three HomeSide executives in the United States District Court for the Southern District of New York for alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.11 Respondents moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6).12 The District Court granted the former motion. The Court of Appeals for the Second Circuit affirmed on similar grounds.13 The Supreme Court granted certiorari.14
Whether the extraterritorial reach of section 10(b) of the Securities Exchange Act of 1934 raises a question of subject-matter jurisdiction that permits dismissal under Federal Rule of Civil Procedure 12(b)(1)?15
No. The Second Circuit erred in considering section 10(b)'s extraterritorial reach to raise a question of subject-matter jurisdiction, thus allowing dismissal under Rule 12(b)(1).1920
The District Court granted the motion on the former ground, finding no jurisdiction because the acts in this country were at most a link in the chain of an alleged overall securities fraud scheme that culminated abroad.21 The Court of Appeals for the Second Circuit affirmed on similar grounds. The Supreme Court granted certiorari to review that decision.
The error in treating extraterritoriality as jurisdictional does not require remand because the same analysis justifies dismissal under Rule 12(b)(6).22 The District Court possessed jurisdiction under the Exchange Act's jurisdictional provision to decide whether section 10(b) applied to the alleged conduct.23
The extraterritorial reach of section 10(b) does not raise a subject-matter jurisdiction question that permits dismissal under Rule 12(b)(1).24
Whether section 10(b) of the Securities Exchange Act of 1934 provides a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges?25
It is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.26 When a statute gives no clear indication of an extraterritorial application, it has none.27 Section 10(b) applies only to transactions in securities listed on domestic exchanges and domestic transactions in other securities.28
No. Section 10(b) does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.2930
In February 1998 National Australia Bank Limited acquired HomeSide Lending, Inc., a mortgage-servicing company headquartered in Florida. HomeSide calculated the present value of its mortgage-servicing rights by using valuation models designed to take the likelihood of early repayment into account. From 1998 until 2001 National's annual reports and other public documents touted the success of HomeSide's business.31
HomeSide, Race, Harris, and another HomeSide senior executive manipulated HomeSide's financial models, thereby making the rates of early repayment unrealistically low and causing the mortgage-servicing rights to appear more valuable than they really were. On July 5, 2001 National announced that it was writing down the value of HomeSide's assets by $450 million, and then again on September 3 by another $1.75 billion. The prices of both Ordinary Shares and ADRs slumped.
As relevant here, petitioners Russell Leslie Owen and Brian and Geraldine Silverlock, all Australians, purchased National's Ordinary Shares in 2000 and 2001 before the write-downs. They sued National, HomeSide, Cicutto, and the three HomeSide executives in the United States District Court for the Southern District of New York for alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The District Court granted the motion on the former ground.32 The Court of Appeals for the Second Circuit affirmed on similar grounds. The Supreme Court granted certiorari.
Applying the presumption against extraterritoriality shows that the purchases occurred on foreign exchanges and involved only foreign plaintiffs and foreign securities.33 This case involves no securities listed on a domestic exchange, and all aspects of the purchases complained of by those petitioners who still have live claims occurred outside the United States.34 Section 10(b) supplies no cause of action.35
Section 10(b) does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.
Related opinions on this issue
Justice Breyer concurred in part and concurring in the judgment.36 Section 10(b) applies to fraud in connection with the purchase or sale of any security registered on a national securities exchange or the purchase or sale of any security not so registered.37 In this case the purchased securities are listed only on a few foreign exchanges, none of which has registered with the Securities and Exchange Commission as a national securities exchange.38
The first category therefore does not apply.39 Further, the purchases of these unregistered securities took place entirely in Australia and involved only Australian investors.40 In accordance with the presumption against extraterritoriality, Justice Breyer did not read the second category to include such transactions.41
Thus while state law or other federal fraud statutes may apply to the fraudulent activity alleged here to have occurred in the United States, section 10(b) does not.42 This case does not require consideration of other circumstances.43
Joined by Justice Ginsburg
Justice Stevens, joined by Justice Ginsburg, concurred in the judgment.44 While agreeing that petitioners failed to state a claim, his reasoning differed from the Court's.45 He would have adhered to the general approach that has been the law in the Second Circuit and most of the rest of the country for nearly four decades.46
The Second Circuit's conduct-and-effects test became the north star of section 10(b) jurisprudence not just regionally but nationally as well.47 With minor variations other courts converged on the same basic approach.48 Neither Congress nor the Securities and Exchange Commission acted to change the law.49
The Commission's enforcement proceedings pose a lesser threat to international comity.50 He agreed that these plaintiffs failed to state a claim because the bulk or the heart of the fraud did not occur in the United States.51 The fraud had no adverse impact on American investors or markets.52 Some cases involving foreign securities transactions have extensive links to and ramifications for this country; this case has Australia written all over it.53