Toshiba’s title category denial of certification fails to elicit 9th Circ review.

The Toshiba Corp logo is seen at the company’s premises in Kawasaki, Japan. REUTERS/Issei Kato

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(Reuters) – Foreign companies facing U.S. securities class action lawsuits by owners of unsponsored U.S. certificates of deposit received good news on Thursday from the 9th U.S. Circuit Court of Appeals.

The court refused a Robbins Geller Rudman & Dowd petition for leave to appeal to a trial court on January 7 decision which rejected Toshiba Corp.’s ADR investor class certification.

Robbins Geller, as I reported, argued that the appeals court should intervene to review the class certification decision because the trial judge, U.S. District Court Judge Dean Pregerson of Los Angeles, made a serious error of law by creating a new test to determine whether a securities transaction is extraterritorial, and therefore not actionable in US courts under the 2010 decision of the US Supreme Court in Morrison v. National Australia Bank.

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But 9th Circuit Judges Richard Paez and Paul Watford apparently agreed with Toshiba’s lawyers from White & Case, who argued that Pregerson’s decision not to certify the class was not based on a legal issue but on the specific facts of the ADR purchases by Robbins Geller’s client. (ADRs, as I’ll explain below, are US-traded securities based on the common stock of companies listed on foreign stock exchanges.) Chamberlan vs. Ford Motor Co.that interlocutory appeal of class certification decisions is only justified when the decision is “clearly wrong”.

Clearly, Toshiba is taking advantage of the appeals court’s refusal to give Robbins Geller a chance to revive class-wide claims for Exchange Act violations. (Pregerson left open the possibility that the investors could sue as a group for violating Japanese securities laws.) But Toshiba is not the only beneficiary of the 9th Circuit order: other companies companies can take advantage of the same litigation tactics that White & Case have used. to defeat class certification.

Key to this strategy was what I have previously called a clever redirection of extraterritoriality arguments. In case you forgot the long history of the Toshiba case, Pregerson initially dismissed the class action lawsuit because he concluded that the investors had not entered into a domestic transaction with Toshiba, which had no role in the creation or offering of the unsponsored US depository receipts involved in (Foreign corporations may sponsor ADRs based on their common stock, but unsponsored ADRs are created by US depository institutions that issue negotiable on common stock of companies whose stock is publicly traded.) The 9th Circuit revived the case in 2018, ruling that the group could proceed if the investors’ ADR transactions were domestic transactions, regardless of Toshiba’s involvement.

While on remand (after Toshiba unsuccessfully tried to get the U.S. Supreme Court to review the 9th Circuit’s decision), Pregerson denied the company’s motion to dismiss the class action lawsuit. The judge ruled that Robbins Geller’s client, an autoworkers’ pension fund, had rightly alleged that he had acquired ADRs from Toshiba in a domestic transaction, after his New York-based adviser had placed an order for the securities with New York-based traders at Barclays Capital Inc.

But Toshiba and White & Case refused to drop the issue of extraterritoriality when Robbins Geller decided to certify the investor class. After intensive discovery by the pension fund, its investment adviser and Barclays, Toshiba argued that the fund’s ADR deal actually happened not in the United States, when it passed an order for the securities, but in Japan, when Barclays acquired the common shares of Toshiba which it turned over to Citigroup Global Markets Inc, a registered depository institution, for conversion into ADR. The pension fund, White & Case argued, could not serve as a representative of the group for other Toshiba ADR investors because it had acquired its ADRs in a foreign transaction and was therefore not a typical member of the group. .

Additionally, Toshiba said, determining the actual location of the pension fund’s ADR agreement took more than a year of discovery by the fund, its advisor and its brokers. This factual process, he argued, has proven that ADR investor claims are too individualized for class-wide litigation.

Pregerson did not address the issue of dominance, arguing only that the pension fund was not a typical member of the class. But in customer alerts about its decision to deny class certification, two law firms have weighed in on Toshiba’s argument that ADR trading is too factual for class litigation.

“Even if it is uncertain whether a plaintiff’s transactions are foreign or domestic, the typicality requirement may be ignored if resolving this issue requires a considerable amount of time and is detrimental to absent class members “, wrote Cleary Gottlieb Steen & Hamilton in a January 21 alert.

Paul, Weiss, Rifkind, Wharton & Garrison asked the big question in their January 28 report on Pregerson’s class certification decision. “How can a court certify a class of unsponsored ADR buyers when a factual investigation will be required to determine, investor by investor, which investors (if any) have incurred irrevocable liability in the United States and are properly part of of a class?” says the alert. “This issue likely impacts, among other things, the verifiability and predominance requirements of Rule 23, and could make class treatment inappropriate in securities class actions involving unsponsored ADR holders.”

Robbins Geller can still appeal Pregerson’s class certification decision, but not until there is a final judgment in the case. Until then, the 9th Circuit’s rejection of an interlocutory appeal means foreign companies facing ADR class actions should continue to raise extraterritoriality arguments against class certification.

Toshiba’s attorney, Christopher Curran of White & Case, declined to comment. Robbins Geller’s pension fund attorneys Joseph Daley and Willow Radcliffe did not respond to my email query.

Read more:

Robbins Geller Asks 9th Circuit to Save Toshiba Investor Class Action Again

Foreign issuers beware: Toshiba didn’t sponsor ADRs, but investor class action gets green light

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