Elliott Associates v. Porsche Automobil Holding SE
759 F. Supp. 2d 469
S.D.N.Y.2010Background
- Plaintiffs are Elliott Associates, L.P. et al. and Black Diamond Offshore, Ltd. et al., hedge funds that entered into security-based swap agreements referencing VW stock.
- Porsche Automobil Holding SE allegedly planned to take over VW by accumulating a large VW share stake and concealing its intent through various trades and statements.
- Plaintiffs allege §10(b) and Rule 10b-5 violations, plus §20(a) and common law fraud, arising from Porsche’s disclosures and market actions in 2008.
- The swaps were economically tied to VW, and the alleged misrepresentations occurred as Porsche disclosed takeover plans and engaged in related trading.
- Morrison v. National Australia Bank narrowed extraterritorial §10(b) reach, prompting consideration of whether the swaps constituted domestic transactions under §10(b) and whether Morrison applies to securities-based swaps.
- The court granted Defendants’ motions to dismiss the TAC and AC, dismissing all federal claims with prejudice and declining supplemental jurisdiction over state-law claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §10(b) applies to securities-based swaps after Morrison | Plaintiffs contend swaps are domestic transactions under §10(b) | Defendants argue Morrison bars such §10(b) claims for foreign-reference swaps | §10(b) does not apply to foreign-reference swaps under Morrison |
| Whether securities-based swaps are ‘domestic transactions’ under Morrison | Swaps executed in the U.S. qualify as domestic transactions | Economic reality ties swaps to foreign markets; not domestic transactions | Swaps are not domestic transactions; §10(b) claims fail |
| Applicability of §20(a) control-person claims | §20(a) premised on §10(b) violations | If §10(b) fails, §20(a) fails as well | §20(a) claims dismissed as §10(b) claims are dismissed |
| Whether district court should exercise supplemental jurisdiction over state-law claims | Declined; state-law claims dismissed without prejudice | ||
| Impact of Morrison on extraterritorial reach of the Exchange Act | Morrison constrains extraterritorial application; not all foreign-linked claims fall within §10(b) |
Key Cases Cited
- Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010) (limits extraterritorial reach of §10(b) to domestic transactions in securities)
- S.E.C. v. Berger, 322 F.3d 187 (2d Cir. 2003) (conduct/effects tests abrogated by Morrison)
- Reves v. Ernst & Young, 494 U.S. 56 (1989) (economic reality approach to defining ‘security’ in derivatives)
- Plumbers' Union Local No. 12 Pension Fund v. Swiss Reinsurance Co., 753 F. Supp. 2d 166 (S.D.N.Y. 2010) (extraterritorial reach and §10(b) application considerations)
- Pacific Investment Management Co. v. Mayer Brown LLP, 603 F.3d 144 (2d Cir. 2010) (supplemental jurisdiction and related secondary claims)