The Supreme Court indicated Monday it could prohibit foreign investors from using U.S. securities law and American courts to sue a foreign bank for fraud.
The court heard argument in a challenge from Australian investors who want to sue the Melbourne-based National Australia Bank for securities fraud in U.S. federal court. The investors say they should have access to American courts because the claim of fraud relies on the actions of a bank-owned mortgage servicing company in Florida.
But none of the justices appeared to accept the investors' argument.
"Australian plaintiffs, Australian defendants, shares purchased in Australia. It has Australia written all over it," Justice Ruth Bader Ginsburg said. "Isn't the most appropriate choice the law of Australia rather than the law of United States?"
The court could use the case to clarify whether and when disputes over international dealings can be resolved in American courts, which often are more generous to plaintiffs than foreign courts.
Business interests and the governments of Australia, France and Great Britain are urging the court rule in favor of the bank.
They say a decision for the investors would deter foreign investment in U.S. companies and allow for a kind of American "legal imperialism," as the bank's lawyer George Conway III said, in which U.S. laws would trump rules made by other governments for policing their banking and financial systems.
The Australian government said in court papers that the investors could have sued under Australia law, although it acknowledged that the American system offers the complaining investors advantages not found in Australian law.
Among these are that the U.S. system allows easier access to bank documents, does not force losing plaintiffs to pay the defendants' legal bills and guarantees a jury trial.
Thomas Dubbs, the investors' lawyer, asked the justices to let his clients' lawsuit go forward. "This case has Florida written all over it."
The investors say that Florida-based HomeSide Lending Inc., which the bank has since sold, fraudulently overvalued its assets. In 2001, the bank reduced the value of its assets by $2.2 billion because of what it called mistakes by HomeSide. The bank's stock price dropped sharply as a result.
The Australia bank sold HomeSide to Washington Mutual, Inc., which played a major role in the crisis over subprime mortgages. In 2009, federal regulators seized Washington Mutual in the nation's largest bank failure.
Justice Sonia Sotomayor is not taking part in the Australian bank case, which came to the Supreme Court from her former court, the 2nd U.S. Circuit Court of Appeals in New York.
A decision is expected by late June.
The case is Morrison v. National Australia Bank, 08-1191.
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