Personal Jurisdiction Over Foreign Directors in Cross-Border Securities Litigation

Abstract

Securities litigation against non-U.S. companies – on the rise over the past decade – forces U.S. courts to address a variety of procedural and jurisdictional issues. This article considers one such issue: the circumstances under which the directors of foreign companies that engage in U.S. securities markets may be subject to the personal jurisdiction of U.S. courts. It argues that jurisdictional standards are sometimes applied in a way that undermines the effectiveness of private litigation in enforcing director accountability norms. This result is particularly problematic in cases based upon a director’s failure to meet an accountability obligation expressly imposed upon it by statute. The article considers possible ways of resolving this tension, and ultimately advocates that courts adopt a two-part presumption: (1) In a claim against a foreign director based upon a corporate filing with respect to which Congress has expressly created a director accountability requirement, there should be a strong presumption that the director is subject to the personal jurisdiction of the U.S. court; and (2) In a claim against a foreign director based only upon allegations that the director failed to meet his or her oversight responsibilities over management, there should be a strong presumption that the director is not subject to the personal jurisdiction of the U.S. court. The article argues that these presumptions will satisfy the due-process protections embodied in jurisdictional law while bringing that law into better alignment with regulatory expectations regarding the responsibility of corporate directors for an issuer’s securities activity.

Keywords: securities enforcement, securities litigation, personal jurisdiction, director liability, foreign issuer, sarbanes-oxley, audit committee

JEL Classification: K22, K41