State Law, U.S. Power, Foreign Disputes: Understanding the Extraterritorial Effect of State Law in the Wake of Morrison v. National Australia Bank
42 Pages Posted: 27 Feb 2013
Date Written: 2012
The recent Supreme Court case of Morrison v. National Australia Bank embraced a sweeping version of the presumption against extraterritorial application of federal law, and in doing so dramatically restricted the potential applicability of federal securities law to foreign litigants and transactions. This development has attracted a wealth of commentary, most of which has focused on the implications for the future treatment of federal statutes that may apply to foreign conduct.
Scholars have overlooked, however, perhaps the most remarkable consequence of the Court’s opinion in Morrison: the fact that it in effects makes state law more widely applicable abroad than is federal law. Court decisions applying state law have never been constrained by a presumption against extraterritoriality. Indeed, when applying state choice-of-law principles, courts have treated state law and foreign law as essentially interchangeable. Further, the constitutional restrictions limiting the circumstances under which states can apply their own law to disputes are quite modest. Thus, though foreign plaintiffs may be precluded from relying on federal securities law, they may be able to state near-identical causes of action under state law. The same may soon be true in other areas of law if the Court’s trend toward expanding its use of the presumption against extraterritoriality continues.
My article considers the implications of this phenomenon. It argues that, in addition to the deficiencies already identified by commentators, Morrison is also problematic because it has the perverse effect of substituting state law for federal law in securities cases involving substantial foreign contacts. This is troublesome both because it undermines the Court’s articulated justifications for the presumption and because it is likely to create continued – and indeed intensified – discord and unpredictability in international transactions. In addition, the Article attempts to draw attention to an additional facet of a problem I have discussed earlier: the general failure of courts to analyze the application of state law under choice-of-law principles as an extraterritoriality problem. This failure undermines the ability of courts to apply state conflicts doctrine in a way that takes account of the special problems of the international arena.
Keywords: Conflict of Laws, Extraterritoriality, Jurisdiction
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