bryan a. merryman (sbn 134357) white & case llp...2020/01/29 · bryan a. merryman (sbn 134357)...

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BRYAN A. MERRYMAN (SBN 134357) [email protected] WHITE & CASE LLP 555 South Flower Street, Suite 2700 Los Angeles, CA 90071-2433 Telephone: (213) 620-7700 Facsimile: (213) 452-2329 CHRISTOPHER M. CURRAN (pro hac vice) [email protected] OWEN C. PELL (pro hac vice) [email protected] JAIME M. CROWE (pro hac vice) [email protected] REUBEN J. SEQUEIRA (pro hac vice pending) [email protected] Attorneys for Defendant Toshiba Corporation

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION

MARK STOYAS, NEW ENGLAND TEAMSTERS & TRUCKING INDUSTRY PENSION FUND, and AUTOMOTIVE INDUSTRIES PENSION TRUST FUND, individually and on behalf of all others similarly situated,

Plaintiffs,

v. TOSHIBA CORPORATION, a Japanese Corporation,

Defendant.

Case No. 2:15-cv-04194-DDP-JC DEFENDANT TOSHIBA CORPORATION’S: (1) NOTICE OF MOTION AND

MOTION TO DISMISS THE SECOND AMENDED COMPLAINT; AND

(2) MEMORANDUM OF POINTS AND AUTHORITIES

Date: December 16, 2019 Time: 10:00 a.m. Courtroom: 9C Judge: Hon. Dean D. Pregerson

Case 2:15-cv-04194-DDP-JC Document 79 Filed 09/19/19 Page 1 of 32 Page ID #:1980

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TO: ALL PARTIES AND THEIR COUNSEL OF RECORD. PLEASE TAKE NOTICE that on December 16, 2019, at 10:00 am, or as

soon thereafter as counsel may be heard, before the Honorable Dean D. Pregerson,

in the United States District Court for the Central District of California, located at

350 W. First Street, Los Angeles, California, Courtroom 9C, Defendant Toshiba

Corporation (“Toshiba”) will and hereby does move to dismiss the Second

Amended Consolidated Class Action Complaint (“Second Amended Complaint”)

(ECF No. 75) of Plaintiffs Mark Stoyas, New England Teamsters & Trucking

Industry Pension Fund, and Automotive Industries Pension Trust Fund, individually

and on behalf of all others similarly situated.

Toshiba moves to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of

Civil Procedure on the grounds that the Second Amended Complaint fails to state a

claim upon which relief can be granted, as well as under principles of comity and

the doctrine of forum non conveniens.

On May 20, 2016, the Court granted Toshiba’s Motion to Dismiss Plaintiffs’

Amended Complaint (ECF No. 65), and on June 27, 2016, the Court entered

judgment in Toshiba’s favor dismissing this action with prejudice (ECF No. 67).

Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit from

the Court’s May 20, 2016 Order (ECF No. 68). On July 17, 2018, a panel of the

Ninth Circuit issued an Opinion reversing the Court’s May 20, 2016 Order and

remanding the case to allow Plaintiffs to amend their complaint (ECF No. 71).

Plaintiffs filed their Second Amended Complaint on August 8, 2019 (ECF No. 75).

For the reasons set forth in the Memorandum of Points and Authorities,

Toshiba respectfully moves to dismiss the Second Amended Complaint in its

entirety, with prejudice, pursuant to Rule 12(b)(6), as well as under principles of

comity and the doctrine of forum non conveniens.

This Motion is made following a conference of counsel pursuant to L.R. 7-3

that took place on August 14, 2019, during which Plaintiffs’ counsel indicated that


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Plaintiffs oppose this Motion.

Dated: September 19, 2019 WHITE & CASE LLP By: /s/ Bryan A. Merryman Bryan A. Merryman CHRISTOPHER M. CURRAN (pro hac vice) [email protected] OWEN PELL (pro hac vice) [email protected] JAIME M. CROWE (pro hac vice) [email protected] REUBEN J. SEQUEIRA (pro hac vice pending) [email protected] Attorneys for Defendant Toshiba Corporation


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TABLE OF CONTENTS Page

INTRODUCTION ............................................................................................ 1

BACKGROUND .............................................................................................. 3

ARGUMENT ................................................................................................... 8

A. The Second Amended Complaint Fails To State A Claim Under The U.S. Exchange Act ............................................................................... 8

The SAC Fails To Allege That Plaintiffs Purchased Unsponsored ADRs In Domestic Transactions ................................ 9

The SAC Fails To Allege That Toshiba’s Purported Conduct Was “In Connection With” Plaintiffs’ ADR Transactions ............. 11

a. The SAC Fails To Allege That Toshiba Induced Plaintiffs To Purchase The Unsponsored ADRs .............................................. 11

b. The SAC Fails To Allege That The Unsponsored ADRs Are Toshiba Securities ......... 12

c. The SAC Cannot State A U.S. Exchange Act Claim Based On Conduct “In Connection With” An Upstream Foreign Transaction In Toshiba Common Stock ............... 15

d. Comity Considerations Require Construing The “In Connection With” Requirement Narrowly ............................................................... 19

B. Even If The SAC Did State A U.S. Exchange Act Claim, Adjudicatory Comity Compels Dismissal ................................................ 21

C. Comity And Forum Non Conveniens Considerations Compel Dismissal Of Plaintiffs’ Japanese-Law Claim .......................................... 24

CONCLUSION .............................................................................................. 25


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TABLE OF AUTHORITIES

Page(s)

CASES Absolute Activist Value Master Fund Ltd. v. Ficeto,

677 F.3d 60 (2d Cir. 2012) ....................................................................... 9, 10, 17

Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017 (9th Cir. 1999) ............................................................. 2, 12, 16, 18

Arrington v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 651 F.2d 615 (9th Cir. 1981) ............................................................................... 11

Ashcroft v. Iqbal, 556 U.S. 662 (2009) .............................................................................................. 1

Auto. Indus. Pension Tr. Fund v. Toshiba Corp., 896 F.3d 933 (9th Cir. 2018) ........................................................................ passim

Banco Safra S.A. - Cayman Islands Branch v. Samarco Mineração S.A., No. 16 Civ. 8800, 2019 U.S. Dist. LEXIS 101561 (S.D.N.Y. June 18, 2019) .................................................................................... 11

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................ 1, 10, 13, 14

Carmell v. Texas, 529 U.S. 513 (2000) ............................................................................................ 18

Chadbourne & Parke LLP v. Troice, 571 U.S. 377 (2014) ............................................................................................ 17

Cohen v. NVIDIA Corp., 768 F.3d 1046 (9th Cir. 2014) ............................................................................... 1

Cummings v. Missouri, 71 U.S. 277 (1867) .............................................................................................. 18

Daniel v. Nat’l Park Serv., 891 F.3d 762 (9th Cir. 2018) ............................................................................... 11

Dehoog v. Anheuser-Busch InBev SA/NV, 899 F.3d 758 (9th Cir. 2018) ............................................................................... 13

F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004) ............................................................................................ 19

Hawai’i Wildlife Fund v. Cty. of Maui, 881 F.3d 754 (9th Cir. 2018) ............................................................................... 18

Howe v. Goldcorp Inv., Ltd., 946 F.2d 944 (1st Cir. 1991) ............................................................................... 25


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In re Petrobras Sec. Litig., 862 F.3d 250 (2d Cir. 2017) .................................................................................. 9

Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014) ................................................................................ 10

Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247 (2010) ..................................................................................... passim

Mujica v. AirScan, Inc., 771 F.3d 580 (9th Cir. 2014) .......................................................................... 21-24

Parkcentral Glob. Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198 (2d Cir. 2014) .................................................................................. 8

Pinker v. Roche Holdings Ltd., 292 F.3d 361 (3d Cir. 2002) ................................................................................ 12

Prime Int’l Trading, Ltd. v. BP P.L.C., No. 17-2233, 2019 U.S. App. LEXIS 26205 (2d Cir. Aug. 29, 2019) ......................................................................................... 8

Rezner v. Bayerische Hypo-Und Vereinsbank AG, 630 F.3d 866 (9th Cir. 2010) ............................................................................... 12

Rocky Mountain Farmers Union v. Corey, 913 F.3d 940 (9th Cir. 2019) ............................................................................... 24

SEC v. Tourre, No. 10 Civ. 3229, 2012 U.S. Dist. LEXIS 165214 (S.D.N.Y. Nov. 19, 2012) .................................................................................... 17

Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148 (2008) .............................................................................................. 2

Stoyas v. Toshiba Corp., 191 F. Supp. 3d 1080 (C.D. Cal. 2016) ........................................................ passim

Toshiba Corp. v. Auto. Indus. Pension Tr. Fund, 139 S. Ct. 2766 (2019) ............................................................................................

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) ................................................................................. 9

STATUTES, RULES & REGULATIONS

17 C.F.R. § 240.12g3-2(b) ........................................................................................ 14

Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. ................................................................................. passim

15 U.S.C. § 78j(b) ......................................................................................... passim

15 U.S.C. § 78t(a) .................................................................................................. 9

Japanese Financial Instruments and Exchange Act Article 21-2 ........................ 2-3, 8


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OTHER AUTHORITIES

Additional Form F-6 Eligibility Requirement Related to the Listed Status of Deposited Securities Underlying American Depositary Receipts, Securities Act Release No. 8287, Exchange Act Release No. 48,482, 68 Fed. Reg. 54,644 (Sept. 17, 2003) .......................................... 4, 15

Ronald R. Adee et al., Depository Receipt Program, 3F Sec. & Fed. Corp. Law § 28:15 (2d ed. 2018) .......................................................................... 5

Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private Issuers, Exchange Act Release No. 58,465, 73 Fed. Reg. 52,752 (Sept. 10, 2008) ................ 6, 13, 22, 24

FAQ on F Shares, OTCMarkets, https://www.otcmarkets.com/files/FAQ-F-Shares.pdf (last visited Sept. 19, 2019) ................................................................................... 4

France Amicus Brief, Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247 (2010) ............................................................................................ 23

J.P. Morgan, DR Advisor Insights, ADR Liquidity – There’s More Than Meets the Eye, OTC Markets Group 1-2 (2012), available at https://www.otcmarkets.com/files/WhitePaperDRInsight09_2012.pdf.......... 5, 16

Paul, Weiss, Rifkind, Wharton & Garrison LLP, SEC Amends Form F-6, Which Has Implications for Foreign Private Issuers That Do Not Have ADR Programs (2008), https://www.paulweiss.com/media/1053659/3nov08-f-6.pdf ............................. 13

U.S. Amicus Brief, Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247 (2010) ...................................................................................... 19, 23


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The U.S. Court of Appeals for the Ninth Circuit agreed that the First

Amended Complaint (“FAC”) was deficient, but reversed and remanded to allow

Plaintiffs to file another amended complaint. Plaintiffs’ Second Amended

Complaint (“SAC”) is also deficient and must be dismissed.

INTRODUCTION To survive Toshiba’s renewed motion to dismiss, the SAC must contain

“factual allegations” sufficient to give rise to a “plausible claim.” Ashcroft v. Iqbal,

556 U.S. 662, 679-80 (2009). “Legal conclusions” and “speculati[on]” do not plead

a plausible claim. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007); see

Cohen v. NVIDIA Corp., 768 F.3d 1046, 1051 (9th Cir. 2014) (affirming dismissal

of claims under Section 10(b), stating: “[f]actual allegations must be enough to

raise a right to relief above the speculative level” (quoting Twombly, 550 U.S. at

555)). In remanding, the Ninth Circuit directed this Court to consider whether the

SAC sufficiently pleads (i) that AIPTF purchased Toshiba ADRs in a domestic

transaction subject to the U.S. Exchange Act, and (ii) that the alleged fraud by

Toshiba was “in connection with” AIPTF’s purchase of Toshiba ADRs. Auto.

Indus. Pension Tr. Fund v. Toshiba Corp. (“AIPTF”), 896 F.3d 933, 949, 951 (9th

Cir. 2018).

The Ninth Circuit held that the FAC failed to satisfy the first prong of

Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010) (holding that the

U.S. Exchange Act applies to “any security registered on a national securities

exchange” (561 U.S. at 266)), because the over-the-counter (“OTC”) platform

through which Plaintiffs allegedly purchased unsponsored ADRs “is simply not an

‘exchange’ under the Exchange Act.” AIPTF, 896 F.3d at 943, 945, 947.

The Ninth Circuit held that the FAC also failed to satisfy the second prong of

Morrison (holding that the U.S. Exchange Act applies to “domestic transactions in

other securities” (561 U.S. at 267)), because the FAC failed to sufficiently allege a

domestic transaction. See AIPTF, 896 F.3d at 949, 951. On this issue, the Ninth


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Circuit held that Plaintiffs should be granted leave to amend their complaint. The

Ninth Circuit (like Toshiba) assumed that Plaintiffs “could almost certainly allege

sufficient facts to establish that AIPTF purchased its Toshiba ADRs in a domestic

transaction.” Id. at 949. Surprisingly, the SAC fails to cure the FAC’s deficiencies

and is still “[m]issing . . . specific factual allegations regarding where the parties to

the transaction incurred irrevocable liability,” including “relevant facts” specifically

required by the Ninth Circuit, such as who sold the securities and where those

persons were paid. Id.

The Ninth Circuit also held that “the FAC falls short” of stating a claim

under the U.S. Exchange Act because Plaintiffs failed to plead “‘a connection

between the misrepresentation or omission and the purchase or sale of a security,’”

specifically, “the securities transaction in question.” Id. at 951 (emphasis in

original) (quoting Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148, 157

(2008) and Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1026 (9th

Cir. 1999)). The SAC likewise “falls short,” because it, too, is devoid of factual

allegations plausibly showing any Toshiba role whatsoever in the issuance or sale

of the ADRs. Indeed, prodded by the Ninth Circuit (id. at 951), Plaintiffs finally

concede that Toshiba did not sponsor the ADRs. SAC ¶ 56.

The Ninth Circuit also directed this Court to apply the comity limitations

described in Morrison, stating that those limitations are “directly relevant to

whether the Funds have sufficiently alleged an Exchange Act claim.” AIPTF, 896

F.3d at 950-51. Japan, the United Kingdom, and numerous foreign and domestic

market participants expressed to the Supreme Court their grave concerns about the

implications of this case for foreign securities law enforcement, and the United

States acknowledged that those concerns are “weighty” and must be taken

“seriously.” U.S. Amicus Br. 21 (No. 18-486). Comity reinforces the need to

dismiss the SAC.

Finally, the SAC again brings a claim under the Japanese Foreign


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Instruments and Exchange Act (“JFIEA”). SAC ¶¶ 362-76 (Third Claim for

Relief). Previously, this Court analyzed and dismissed that claim based on comity

considerations and forum non conveniens. See Stoyas v. Toshiba Corp., 191 F.

Supp. 3d 1080, 1095-100 (C.D. Cal. 2016). The Ninth Circuit declined to address

that dismissal (AIPTF, 896 F.3d at 952 n. 25), and the SAC’s few conclusory

amendments to the JFIEA claim do not warrant a different outcome now.

All told, the SAC fails to cure the deficiencies that the Ninth Circuit

identified in the FAC. Dismissal is again warranted.

BACKGROUND As before, Plaintiffs seek to represent a class of persons who “acquired

beneficial ownership interests in Toshiba through the purchase of one or more of

the following securities: 6502, TOSBF and/or TOSYY.” SAC ¶ 37; see id. ¶ 334.

Having previously flouted the distinctions among those securities (see AIPTF, 896

F.3d at 951), Plaintiffs now concede some differences, while continuing to ignore

others.

6502 securities. 6502 securities are shares of Toshiba common stock that Toshiba issued and lists exclusively in Japan. See SAC ¶¶ 23, 38. There is no

allegation that Toshiba took any steps to place 6502 securities in the United States.

6502 securities are regulated by Japan’s Securities Exchange and Surveillance

Commission. See id. ¶ 301(c).

Only the SAC’s Third Claim for Relief under the JFIEA asserts a claim

concerning the 6502 securities. See id. ¶¶ 362-76. The SAC, like the FAC, alleges

that Plaintiff New England Teamsters & Trucking Industry Pension Fund purchased

only Toshiba 6502 securities on only Japanese stock exchanges (id. ¶ 23) — not

any securities even allegedly covered by the U.S. Exchange Act.

TOSBF securities. TOSBF securities are shares of Toshiba common stock that Toshiba issued and lists exclusively in Japan (i.e., like 6502 securities) but that

find their way onto a U.S. OTC platform. See id. ¶ 39. Plaintiffs admit that so-


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called “F-shares,” like TOSBF securities, are simply securities with ticker symbols

created by broker-dealers to facilitate the reporting, in U.S. dollars, of trades in

foreign securities during U.S. business hours. See id. According to OTC Markets

Group, F-shares are settled, cleared, and held outside the United States, except

under certain conditions that do not apply to TOSBF securities. See id. ¶ 39; FAQ

on F Shares, OTCMarkets, https://www.otcmarkets.com/files/FAQ-F-Shares.pdf

(last visited Sept. 19, 2019). The SAC does not allege that Toshiba brought

TOSBF securities into the United States — in fact, Plaintiffs do not plead any

involvement of Toshiba in any trading of TOSBF securities.

The SAC’s First and Second Claims for Relief under the U.S. Exchange Act,

and its Third Claim for Relief under the JFIEA, make allegations concerning the

TOSBF securities. See SAC ¶¶ 343-76. Like the FAC, however, the SAC fails to

allege that any named Plaintiff purchased any TOSBF securities. See id. ¶¶ 20-24.

TOSYY securities. TOSYY securities are American Depository Receipts (“ADRs”) traded through an OTC platform referencing shares of Toshiba common

stock that Toshiba issued and lists exclusively in Japan. See id. ¶ 40. ADRs are

negotiable certificates evidencing American Depositary Shares (“ADSs”). See

Additional Form F-6 Eligibility Requirement Related to the Listed Status of

Deposited Securities Underlying American Depositary Receipts, Securities Act

Release No. 8287, Exchange Act Release No. 48,482 (“F-6 Eligibility

Requirement”), 68 Fed. Reg. 54,644, 54,644 & n.4 (Sept. 17, 2003); SAC ¶ 51.

Market participants use the terms ADR and ADS interchangeably. See F-6

Eligibility Requirement, 68 Fed. Reg. at 54,644 & n.4. ADRs are created by

depositaries (banks or trust companies), and represent an ownership interest in

foreign securities held by the depositary. Id. Each ADR references “a fixed

number or fraction of underlying securities on deposit with a depositary.” Id.; see

also SAC ¶¶ 50-52.

When ADRs are not purchased on the secondary market but “issued” in


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exchange for deposited securities, as alleged here (SAC ¶ 21), the investor or its

agent must first purchase the underlying securities for deposit. As described on the

OTC Markets Group website:

[A] U.S. broker orders, on behalf of an investor, the shares of a non-

U.S. company. (See step 1 in the diagram). These shares are

purchased by the broker’s overseas office or via another broker

located in the foreign market (step 2). The shares are then deposited

with a custodian located in this market (step 3). After receiving

confirmation from the custodian (step 4), the depositary bank issues to

the U.S. broker ADRs that represent an equivalent number of the

deposited shares (step 5).

J.P. Morgan, DR Advisor Insights, ADR Liquidity – There’s More Than Meets the

Eye, OTC Markets Group 1-2 (2012) [hereinafter OTC, JPM Whitepaper],

available at https://www.otcmarkets.com/files/WhitePaperDRInsight09_2012.pdf

(providing diagram); see Ronald R. Adee et al., Depository Receipt Program, 3F

Sec. & Fed. Corp. Law § 28:15 (2d ed. 2018) (cited in AIPTF, 896 F.3d at 940 n.6)

(describing the same investment process).

ADRs may be sponsored or unsponsored: “ADRs are sponsored when a

depositary institution and the foreign company jointly file Form F-6 to register the

ADRs. Thus, purchasers of sponsored ADRs enter into essentially a three-party

contract with the depositary and the foreign company.” AIPTF, 896 F.3d at 941 n.8

(citations omitted); see Stoyas, 191 F. Supp. 3d at 1091-92. A foreign issuer may

use sponsored ADRs to raise capital. See AIPTF, 896 F.3d at 941 n.8.

As the Ninth Circuit observed: “Toshiba ADRs are unsponsored, which

means that the depositary institutions each filed Form F-6 without Toshiba’s

‘formal participation’ and possibly without its acquiescence. Accordingly, when

AIPTF purchased TOSYY ADRs, it was entering into ‘essentially a two-party

contract’ with the depositary institution” — a contract to which Toshiba was not a


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party. AIPTF, 896 F.3d at 941 (citations omitted); see also SAC ¶ 56 (“TOSYY is

an unsponsored ADS”).

Furthermore, while a depositary must file a Form F-6 with the SEC to create

an unsponsored ADR program, the SEC does not require the foreign issuer of the

referenced securities to register or make filings with the SEC. See Exemption from

Registration Under Section 12(g) of the Securities Exchange Act of 1934 for

Foreign Private Issuers, Exchange Act Release No. 58,465 (“Exemption from

Registration”), 73 Fed. Reg. 52,752, 52,762 (Sept. 10, 2008) (codified at 17 C.F.R.

pts. 239, 240, and 249).

The SAC’s First and Second Claims for Relief under the U.S. Exchange Act,

and its Third Claim for Relief under the JFIEA, make allegations concerning the

unsponsored ADRs. See SAC ¶¶ 343-76. According to the SAC, Lead Plaintiff

Automotive Industries Pension Trust Fund (“AIPTF”) purchased only unsponsored

ADRs. Id. ¶ 20. The SAC does not allege anything about any purchases by

Plaintiff Mark Stoyas. See id. ¶ 24.

Proceedings in this Court. In dismissing the FAC, this Court determined that the ADR transactions at issue “are securities transactions that occurred

domestically,” but that “Plaintiffs have not argued or pled that Defendant was

involved in those transactions in any way.” Stoyas, 191 F. Supp. 3d at 1094. The

Court concluded that the U.S. Exchange Act did not apply in light of Morrison. See

id. at 1094. The Court also dismissed the JFIEA claim, finding that “the comity

issues raised in this case weigh in favor of dismissal.” Id. at 1097-98. The Court

further held that private and public factors weighed in favor of dismissal under

forum non conveniens, including because “[m]ost of the evidence and witnesses

identified by both parties as material are in Japan,” and there would be “many

practical issues” with litigating the claim in this Court, particularly in “taking

discovery from and deposing” both willing and unwilling witnesses. Id. at 1100.

Plaintiffs appealed to the Ninth Circuit.


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Court of Appeals proceedings. As discussed above, the Ninth Circuit reversed and remanded to allow Plaintiffs to amend the FAC. Applying Morrison,

the Ninth Circuit held that the platform through which Plaintiffs purchased their

unsponsored ADRs was not an “exchange” under the U.S. Exchange Act. AIPTF,

896 F.3d at 945-47. The Ninth Circuit next held that Plaintiffs failed to

“sufficiently allege a domestic violation of the Exchange Act.” Id. at 947-50, 952.

The Ninth Circuit also held that Plaintiffs had failed to “clearly set[] forth the

transactions” and to allege facts showing that Toshiba was “‘involved in the

establishment’ of the ADRs.” Id. at 951-52. The Court remanded the case to allow

Plaintiffs to re-plead their U.S. Exchange Act claims. The Ninth Circuit declined to

review this Court’s dismissal of the FAC’s JFIEA claim. Id. at 952 n.25.

Supreme Court proceedings. Toshiba sought certiorari on the question of whether a domestic transaction, in and of itself, is sufficient for the U.S. Exchange

Act to apply, even when a case is essentially foreign in its other aspects. See

Petition for a Writ of Certiorari, Toshiba Corp. v. Auto. Indus. Pension Tr. Fund,

139 S. Ct. 2766 (2018) (No. 18-486). Numerous foreign and domestic amici

supported the petition, including sovereigns (Japan’s Ministry of Economy, Trade

and Industry, and the United Kingdom); domestic trade groups (the U.S. Chamber

of Commerce, the Securities Industry and Financial Markets Association, the

Competitive Enterprise Institute, and the Organization for International

Investment); and foreign trade groups (Keidanren (Japan Business Federation),

Europeanissuers, Économiesuisse, the International Chamber of Commerce

Switzerland, and the Association Française des Entreprises Privées).

Although the U.S. Solicitor General and SEC recommended against

certiorari, both suggested that Morrison’s animating comity concerns may be

“persuasive in challenging [Plaintiffs’] efforts to satisfy the ‘in connection with’

requirement.” U.S. Amicus Br. 16. The Supreme Court denied Toshiba’s petition.

Toshiba Corp. v. Auto. Indus. Pension Tr. Fund, 139 S. Ct. 2766 (2019).


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Proceedings on Remand. Plaintiffs filed the SAC on August 8, 2019, again asserting claims under Sections 10(b) and 20(a) of the U.S. Exchange Act and

Article 21-2 of the JFIEA. This motion follows.

Toshiba expressly preserves its argument that, under Morrison, application of

the U.S. Exchange Act to Toshiba in this case is impermissibly extraterritorial,

regardless of whether the SAC alleges a domestic transaction. Toshiba does not

repeat its arguments here given the Ninth Circuit’s binding holding, but notes that

the Second Circuit recently reaffirmed the approach of Parkcentral Global Hub

Ltd. v. Porsche Automobile Holdings SE, 763 F.3d 198 (2d Cir. 2014), which the

Ninth Circuit rejected. See Prime Int’l Trading, Ltd. v. BP P.L.C., No. 17-2233,

2019 U.S. App. LEXIS 26205, at *20 (2d Cir. Aug. 29, 2019) (affirming dismissal

of Commodity Exchange Act claims and endorsing Parkcentral’s “reasoning that ‘a

rule making [Section 10(b)] applicable whenever the plaintiff’s suit is predicated on

a domestic transaction,’ regardless of the ‘foreignness of the facts,’ would trample

on Morrison by requiring us to apply the statute to ‘wholly foreign activity’”).

ARGUMENT A. The Second Amended Complaint Fails To State A Claim Under The

U.S. Exchange Act The Ninth Circuit held that, to avoid dismissal, the SAC must (1) “allege

sufficient facts to establish that AIPTF purchased its Toshiba ADRs in a domestic

transaction,” and (2) “sufficiently plead[] Toshiba’s connection to the ADR

transactions.” AIPTF, 896 F.3d at 949, 951. The Ninth Circuit also held that

“Morrison’s animating comity concerns” are “directly relevant” to “sufficiently

alleg[ing] an Exchange Act claim.” Id. at 950.

As explained below, the SAC, like the FAC, does not allege a domestic

transaction. Nor does the SAC allege any Toshiba misconduct “in connection

with” a domestic transaction. Thus, under the express terms of the Ninth Circuit’s

remand, the SAC has failed to plead a claim under Section 10(b), and this Court


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should dismiss the SAC’s U.S. Exchange Act claims in their entirety. See Zucco

Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009) (“Section

20(a) claims may be dismissed summarily . . . if a plaintiff fails to adequately plead

a primary violation of section 10(b).”).

The SAC Fails To Allege That Plaintiffs Purchased Unsponsored ADRs In Domestic Transactions

On appeal, the Ninth Circuit adopted the “irrevocable liability test to

determine whether the securities were the subject of a domestic transaction.”

AIPTF, 896 F.3d at 949. According to the Ninth Circuit: “Looking to where

purchasers incurred the liability to take and pay for securities, and where sellers

incurred the liability to deliver securities, hews to Section 10(b)’s focus on

transactions and Morrison’s instruction that purchases and sales constitute

transactions.” Id. (citing Absolute Activist Value Master Fund Ltd. v. Ficeto, 677

F.3d 60, 68 (2d Cir. 2012), and Morrison, 561 U.S. at 267-68). The Ninth Circuit

then held that the FAC failed the irrevocable liability test because “[m]issing from

the FAC . . . are specific factual allegations regarding where the parties to the

transaction incurred irrevocable liability.” AIPTF, 896 F.3d at 949 (citing In re

Petrobras Sec. Litig., 862 F.3d 250, 262, 273 (2d Cir. 2017) as “identifying the

relevant facts as including who sold the relevant securities and how those

transactions were effectuated, as evidenced by documentation such as confirmation

slips”).

The SAC ’s account of AIPTF’s ADR transaction (see SAC ¶¶ 20-22) fails to

provide the “specific factual allegations” the Ninth Circuit requires, namely, the

sort of specifics “evidenced by documentation such as confirmation slips.” AIPTF,

896 F.3d at 949. The SAC does not specifically allege who sold or who purchased

the Toshiba common stock that was pledged to Citibank in exchange for issuance

of the ADRs. See SAC ¶ 22(e) & (f). The SAC does not specifically allege who

received payment for the ADRs, stating only that they were “issued by Citibank.”


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Id. ¶ 22(e). Taken together, the SAC’s new allegations (made mostly in the passive

voice) defiantly obscure “where” AIPTF and the seller actually incurred their

respective liabilities. See id. ¶¶ 21-22. The SAC alleges that AIPTF’s purchase of

the ADRs “was settled” in New York on March 26, 2015 (id. ¶ 22(f)), but that the

settlement occurred three days after AIPTF allegedly “purchased” the ADRs on

March 23, 2015 (id. ¶ 20). Title to the ADRs allegedly “was recorded” sometime

after the settlement payment. See id. ¶ 22(g). These allegations cannot establish a

domestic transaction. See Loginovskaya v. Batratchenko, 764 F.3d 266, 275 (2d

Cir. 2014) (holding “actions needed to carry out the transactions” were “not the

transactions themselves”).

The SAC’s allegations about where AIPTF is “based” (SAC ¶ 20), where its

investment advisor is “located” (id. ¶ 22(a)), where AIPTF’s broker is “located” (id.

¶ 22(b)), where OTC Markets Group has its “offices” or where its subcontractors’

servers are “located” (id. ¶¶ 87-88) — even if “consistent with” incurring

irrevocable liability in the United States — are all insufficient to allege a domestic

transaction. Twombly, 550 U.S. at 557; see AIPTF, 896 F.3d at 949 (rejecting as

insufficient the FAC’s allegations that AIPTF is a U.S. entity headquartered and

operating in the United States; that the depositaries’ principal offices, agents for

service, and offices where ADR holders can convert their ADRs into Toshiba

common shares “are all in New York”; and that OTC Markets Group “operates

OTC Link in the United States”); Absolute Activist, 677 F.3d at 68-69 (holding that

“‘[a] purchaser’s citizenship or residency does not affect where a transaction

occurs’” and “the location of the broker alone does not necessarily demonstrate

where a contract was executed”).

Transmitting messages “routed through” OTC Link’s U.S. servers also

cannot establish irrevocable liability. SAC ¶ 22(d). Otherwise, every OTC

transaction would be subject to the U.S. Exchange Act, regardless of the location of

the parties, subverting the Ninth Circuit’s holding that the OTC platform “is simply


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not an ‘exchange’ under the Exchange Act.” AIPTF, 896 F.3d at 945; see Banco

Safra S.A. - Cayman Islands Branch v. Samarco Mineração S.A., No. 16 Civ. 8800,

2019 U.S. Dist. LEXIS 101561, at *16-17 (S.D.N.Y. June 18, 2019) (holding that

“allegations that [plaintiff’s] purchases and sales of [securities] were conducted

‘through’ bank accounts in New York are insufficient to demonstrate a domestic

transaction,” reasoning that “‘there is almost no limiting principle. New York is the

financial capital of the world. Many wire transfers and other financial transactions

pass through our banking system here’” (citation and alterations omitted)).

Given these deficiencies, the SAC’s conclusory legal assertion that “AIPTF

incurred irrevocable liability in the United States” (SAC ¶ 22) is “not entitled to an

assumption of truth.” Daniel v. Nat’l Park Serv., 891 F.3d 762, 767 (9th Cir. 2018)

(citing Iqbal, 556 U.S. at 678-80).

The SAC Fails To Allege That Toshiba’s Purported Conduct Was “In Connection With” Plaintiffs’ ADR Transactions

The Ninth Circuit held that, even if the U.S. Exchange Act applies to

Plaintiffs’ purchase of ADRs, the SAC still must “sufficiently plead[] Toshiba’s

connection to the ADR transactions” to state a U.S. Exchange Act claim. AIPTF,

896 F.3d at 951. Specifically, Toshiba’s alleged conduct “must ‘touch’ the sale” of

the unsponsored ADRs, “i.e., it must be done to induce [AIPTF’s] purchase” of the

unsponsored ADRs. Id. (quoting Arrington v. Merrill Lynch, Pierce, Fenner &

Smith, Inc., 651 F.2d 615, 619 (9th Cir. 1981)).

a. The SAC Fails To Allege That Toshiba Induced Plaintiffs To Purchase The Unsponsored ADRs

The SAC does not allege that Toshiba “induce[d]” Plaintiffs to exchange

Toshiba common stock for the unsponsored ADRs from Citibank, or that Toshiba

had anything at all to do with that transaction. Id. at 951 (citing Arrington, 651

F.2d at 617-19 (holding that broker statements were “in connection with” securities

transaction where the statements induced retirees to purchase those securities);


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Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1026-27 (9th Cir. 1999)

(holding that statements about hotel construction costs were “in connection with” a

securities transaction where the statements induced the plaintiff to fund

construction in exchange for shares); and Rezner v. Bayerische Hypo-Und

Vereinsbank AG, 630 F.3d 866, 872 (9th Cir. 2010) (holding that

misrepresentations about tax treatment of investment collateralized with securities

were not “in connection with” a securities transaction, where the misrepresentations

were not “about the value of the securities [plaintiff] pledged”)).

b. The SAC Fails To Allege That The Unsponsored ADRs Are Toshiba Securities

The SAC attempts to allege a “connection” by asserting that the unsponsored

ADRs are effectively Toshiba securities because Toshiba somehow “consented” to

the creation of the ADRs. SAC ¶¶ 66-74. Like the FAC, however, the SAC fails to

allege facts plausibly showing that Toshiba had any involvement in — or consented

to or was even aware of — the creation and sale of the unsponsored ADRs at issue.

See id. ¶ 56 (admitting that “TOSYY is an unsponsored ADS”); Stoyas, 191 F.

Supp. 3d at 1091-92 (explaining that “[a]n unsponsored ADR is established with

little or no involvement of the issuer of the underlying security” whereas “[a]

sponsored ADR, in contrast, is established with the active participation of the issuer

of the underlying security” (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361,

367 (3d Cir. 2002))).

The SAC relies on vague and equivocal allegations that a depositary “in

practice,” or “typically,” or “frequently” requests a letter of non-objection from the

foreign issuer before establishing a program in unsponsored ADRs. SAC ¶¶ 67-68;

see also id. ¶ 69 (alleging purported “confirm[ation]” by unidentified individuals

that depositaries “are generally required to contact foreign issuers” or “had a

practice of contacting foreign issuers” or that such practice “was customary” at

unspecified times (emphases added)). These statements necessarily acknowledge


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that in establishing an unsponsored ADR program depositaries do not uniformly

seek or obtain a foreign issuer’s non-objection beforehand. Crucially, none of the

SAC’s sources refers to any contact by Citibank — or any other depositary — with

Toshiba seeking consent to issue any unsponsored ADRs, much less the ADRs

purchased by AIPTF. The SAC’s allegations, therefore, cannot support the

speculative leap that Plaintiffs urge. See Dehoog v. Anheuser-Busch InBev SA/NV,

899 F.3d 758, 765 (9th Cir. 2018) (holding that “general allegations regarding past

[behavior] in the market” amount to “only speculation” and “stop[] short of the line

between possibility and plausibility of entitlement to relief” (citing Twombly, 550

U.S. at 557)).

Moreover, the letter to the SEC from depositary Deutsche Bank (SAC ¶ 67)

described alleged industry practices before the SEC issued its 2008 rule that made it

easier to “establish unsponsored ADRs on [an] expanded group of foreign private

issuers,” without the foreign issuers’ participation, consent, or even knowledge.

Exemption from Registration, 73 Fed. Reg. at 52,762. Intending to facilitate U.S.

investors’ access to ADRs by expanding the market for unsponsored ADRs, the

SEC considered — and rejected — proposals to (1) require a foreign issuer’s

consent to the creation of unsponsored ADRs referencing its securities; (2) require

depositaries to notify the foreign issuer of the creation of unsponsored ADRs; or (3)

prohibit the registration of unsponsored ADRs if the foreign issuer objects. Id.

One source the SAC cites (see SAC ¶ 68 n.6) in fact emphasizes that, after the SEC

rule change, “it is now far easier for unsponsored ADR programs to be established

– without the consent of the issuer of the securities that underlie the ADRs,” and

that the foreign issuer has “no ability to stop the proliferation of unsponsored

programs” without entering the U.S. securities market. Paul, Weiss, Rifkind,

Wharton & Garrison LLP, SEC Amends Form F-6, Which Has Implications for

Foreign Private Issuers That Do Not Have ADR Programs 1-2 (2008),

https://www.paulweiss.com/media/1053659/3nov08-f-6.pdf (emphases added).


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The unsponsored ADRs at issue here were created within weeks after this

2008 SEC rule change. See SAC Ex. 11, Form F-6 filed by Citibank, N.A., dated

October 27, 2008. The SAC’s allegations of general practices before the rule

change are irrelevant, and cannot plausibly show Toshiba’s consent given the

“obvious alternative explanation” that Citibank availed itself of the new rule to

create TOSYY ADRs without Toshiba’s consent. Twombly, 550 U.S. at 567.

The SAC’s allegation that Toshiba’s registration exemption under SEC Rule

12g3-2(b) somehow “support[ed] the sale of unsponsored ADSs in the United

States” (SAC ¶ 74(a)) has already been rejected by the Ninth Circuit. See AIPTF,

896 F.3d at 952 n.24 (“[A]s Toshiba points out, there are many plausible reasons

for a company to provide English materials, precluding the inference that Toshiba’s

actions were to support unsponsored ADRs.”). And the SAC’s conclusory

allegation that depositaries’ “substantial holdings” of Toshiba stock imply

coordination with Toshiba (SAC ¶ 74(c)) is unsupported. No allegations back the

dubious inference that depositaries cannot freely purchase “substantial” amounts of

Toshiba stock on Japanese exchanges or in private transactions. The SAC also

ignores that a significant portion of a depositary’s holding may consist of stock

purchased and deposited by investors like AIPTF.

The Court should not credit Plaintiffs’ speculation that Citibank or any other

depositary “contacted Toshiba” before creating the unsponsored ADRs, much less

Plaintiffs’ further, baseless speculation that Toshiba “provided its affirmative

consent” to the creation of the unsponsored ADRs. SAC ¶¶ 70-71 (emphasis

added). The SAC’s fallback, that Toshiba’s “consent may be implied” (id. ¶ 71) —

while underscoring the SAC’s deficiency — likewise lacks any factual allegations

of Toshiba involvement with the unsponsored ADRs. See Twombly, 550 U.S. at

555 (“The pleading must contain something more than a statement of facts that

merely creates a suspicion . . . .” (citation and alterations omitted)).

In any event, Toshiba’s consent would not be enough to deem the


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unsponsored ADRs “Toshiba securities,” because Toshiba did not and could not

raise any capital through the issuance of unsponsored ADRs. In dismissing the

FAC’s U.S. Exchange Act claims, this Court held:

Some affirmative act in relation to the purchase or sale of securities is

required under the Supreme Court’s holding: “Section 10(b) reaches

the use of a manipulative or deceptive device or contrivance only in

connection with the purchase or sale of a security listed on an

American stock exchange, and the purchase or sale of any other

security in the United States.” [Morrison, 561 U.S.] at 273 (emphasis

added). . . . There are allegations that Toshiba committed accounting

fraud and misrepresented its profits to investors around the world. But

there is no allegation that those fraudulent actions were connected to

Toshiba selling its securities in the United States.

Stoyas, 191 F. Supp. 3d at 1094. This Court’s earlier reasoning comports with the

Ninth Circuit’s instruction and still compels dismissal of Plaintiffs’ U.S. Exchange

Act claims, albeit under the rubric of the “in connection with” requirement rather

than the inapplicability of the U.S. Exchange Act.

c. The SAC Cannot State A U.S. Exchange Act Claim Based On Conduct “In Connection With” An Upstream Foreign Transaction In Toshiba Common Stock

Plaintiffs undertake to manufacture a claim by conflating their purportedly

domestic purchases of unsponsored ADRs with purchases of Toshiba common

stock in Japan. SAC ¶ 50 (“The purchase of an ADS is equivalent to the purchase

of the underlying foreign securities (here, 6502 shares issued by Toshiba) . . . .”

(emphasis added)). But, like the FAC, the SAC “erroneously ignores the

distinction between ADRs and common stock.” AIPTF, 896 F.3d at 951; see also

id. at 942 (“ADRs and the deposited securities are separate securities . . . .” (quoting

F-6 Eligibility Requirement, 68 Fed. Reg. at 54,644 n.4, 54,646)). Any Toshiba


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conduct allegedly “in connection with” the purchase of Toshiba common stock

cannot be imputed somehow to a purchase of separate unsponsored ADR securities.

See AIPTF, 896 F.3d at 951(“The fraud ‘must have more than some tangential

relation to the securities transaction.’” (quoting Ambassador Hotel, 189 F.3d at

1026)).

Plaintiffs’ insistence that “the economic reality” of their ADR transaction

was the “purchase and ownership of shares of common stock – i.e., 6502,” issued

and listed exclusively in Japan (SAC ¶ 65), merely confirms that Plaintiffs’ fraud

claims arise from, in “reality,” foreign transactions. Indeed, the “transactional”

reality (Morrison, 561 U.S. at 269-70 (emphasis added)) appears to be that AIPTF

purchased its ownership interest in Toshiba common stock in Japan before

transacting with Citibank to repackage that interest into unsponsored ADRs. See

SAC ¶¶ 20-22.

According to OTC Markets Group, only after AIPTF or its agent purchased

Toshiba common stock in Japan and deposited the stock with Citibank’s custodian

in Japan could Citibank have issued the ADRs to AIPTF. See OTC, JPM

Whitepaper at 1-2 (explaining deposited shares first “are purchased by the

[investor’s] broker’s overseas office or via another broker located in the foreign

market”); see also SAC ¶ 21 (“The TOSYY ADR reflecting AIPTF’s purchase and

its beneficial ownership of the underlying 6502 shares was issued by Citibank . . . .”

(emphasis added)); id. ¶ 40 (alleging “TOSYY is an [ADR] reflecting ownership of

shares of 6502 common stock that have been deposited with or are otherwise

controlled by a depositary institution . . . .”); Citibank Form F-6 at Ex.(a)-4

(providing: “Every person presenting Shares for Deposit shall be deemed thereby

to represent and warrant that . . . (iv) the Shares presented for deposit are free and

clear” of any competing ownership interest).

Under Absolute Activist, “the securities transaction that the fraud must be ‘in

connection with’ is the allegedly fraudulent transaction itself—not one connected to


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it in some other way.” SEC v. Tourre, No. 10 Civ. 3229, 2012 U.S. Dist. LEXIS

165214, *21-22 (S.D.N.Y. Nov. 19, 2012) (applying Absolute Activist); see AIPTF,

896 F.3d at 949 (adopting Absolute Activist’s irrevocable liability test); see also

Chadbourne & Parke LLP v. Troice, 571 U.S. 377, 396-97 (2014) (holding fraud

“in connection with” plaintiff’s purchase of certain securities is not thereby “in

connection with” plaintiff’s upstream sale of other securities to fund the purchase).

In Tourre, the SEC alleged that Goldman Sachs and its employee Tourre had

fraudulently induced foreign bank IKB and its client Loreley to purchase notes of a

U.S. issuer. There, a domestic transaction (Goldman’s purchase in New York of

the U.S. issuer’s notes) “set the wheels in motion for the ultimate IKB/Loreley

transaction” (transfer of the notes from Goldman’s London affiliate to IKB’s client

in Jersey) “down the chain.” Tourre, 2012 U.S. Dist. LEXIS 165214 at *4, *19.

The court held that the “in connection with” requirement was not met with respect

to a domestic transaction, because “the SEC seeks to impose liability for a fraud

purportedly perpetrated on IKB/Loreley—not on Goldman” in New York. Id. at

*19. Just as the Ninth Circuit repeatedly emphasized here, Tourre further held that

“the alleged fraud . . . must be ‘in connection with’ the particular securities

transaction for which redress is sought.” Id. at *17; see AIPTF, 896 F.3d at 951

(holding “the FAC falls short” of alleging fraud in connection with “the securities

transaction in question” (emphasis in original)).

Although the Tourre situation is reversed here — AIPTF purportedly is a

domestic purchaser of the securities of a foreign issuer — the “in connection with”

requirement is not satisfied because, as in Tourre, the SAC does not seek to impose

liability on AIPTF’s purported domestic counterparty for the unsponsored ADRs

(Citibank). Nor, as discussed above, does the SAC allege any Toshiba misconduct

in connection with AIPTF’s transaction in the unsponsored ADRs with Citibank.

See Tourre, 2012 U.S. Dist. LEXIS 165214 at *17, *19.

The Ninth Circuit foreclosed any argument that the required “connection”


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can be found merely because Toshiba’s conduct affected the value of one security,

Toshiba common stock, which in turn affected the value of another security, the

unsponsored ADRs. The Ninth Circuit squarely acknowledged that the “ADR

value is directly linked to the value of Toshiba common stock,” but nonetheless

held that “the FAC falls short,” emphasizing the difference between alleging fraud

“in connection with” Toshiba common stock versus “the securities transaction in

question,” i.e., Plaintiffs’ transactions in the unsponsored ADRs:

The [district] court should consider whether the plaintiff has shown

some causal connection between the fraud and the securities

transaction in question. Deception related to the value or merit of the

securities in question has sufficient connection to securities

transactions to bring the fraud within the scope of § 10(b).

AIPTF, 896 F.3d at 941, 951 (emphases in original) (quoting Ambassador Hotel,

189 F.3d at 1026). The “in connection with” test requires allegations showing that

Toshiba “induce[d]” AIPTF’s exchange of Toshiba common stock for ADRs, not

merely caused the ADRs to lose value. Id. at 951; see Ambassador Hotel, 189 F.3d

at 1025-30 (analyzing “in connection with” and “loss causation” as distinct claim

elements).

To hold that Plaintiffs may purchase Toshiba common stock in a foreign

transaction but allege a domestic transaction, subject to the U.S. Exchange Act,

after merely repackaging the Toshiba stock into unsponsored ADRs “would make a

mockery of” Morrison’s bar on the extraterritorial application of the Act. Hawai’i

Wildlife Fund v. Cty. of Maui, 881 F.3d 754, 768 (9th Cir. 2018); see Carmell v.

Texas, 529 U.S. 513, 541 (2000) (“The legal result must be the same, for what

cannot be done directly cannot be done indirectly.” (quoting Cummings v. Missouri,

71 U.S. 277, 325 (1867))).


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d. Comity Considerations Require Construing The “In Connection With” Requirement Narrowly

The Ninth Circuit instructed this Court to assess the “in connection with”

requirement in light of “Morrison’s animating comity concerns,” which are

“directly relevant” to “sufficiently alleg[ing] an Exchange Act claim” — even if the

Act applies. AIPTF, 896 F.3d at 950. The U.S. Exchange Act thus must be

construed to avoid unreasonable interference with other nations’ sovereign

authority to regulate their securities markets in ways that “often differ[] from ours.”

Morrison, 561 U.S. at 269; see F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542

U.S. 155, 164-65 (2004) (stating that narrow construction of U.S. law “helps the

potentially conflicting laws of different nations work together in harmony—a

harmony particularly needed in today’s highly interdependent commercial world”);

Stoyas, 191 F. Supp. 3d at 1095 (“Morrison properly limited the reach of § 10(b)

claims based on the plain language of the statute, the presumption against

extraterritorial reach of U.S. laws, and comity concerns.”).

Allowing U.S. Exchange Act claims to proceed against foreign issuers

having no involvement in domestic transactions in unsponsored ADRs, or in the

creation of unsponsored ADRs, risks interference with foreign sovereigns’

regulation of their own securities markets and issuers. See U.S. Amicus Brief at 18,

Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247 (2010) (No. 08-1191) [hereinafter

U.S. Amicus Br. in Morrison] (warning of “international friction that might result if

the United States attempted to apply its laws to securities-related conduct that has

little relationship to this country” (citing Empagran, 542 U.S. at 164)). Numerous

amici supporting Toshiba’s certiorari petition agreed. See, e.g., U.K. Amicus Br. 10

(No. 18-486) (“If other nations believe that American policy unfairly disadvantages

their citizens . . . they are apt to resist enforcement efforts and perhaps to retaliate

with countermeasures of their own.”).

It remains true that “all the policy and reasoning in Morrison” point against


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subjecting to the U.S. Exchange Act “a foreign company that only listed its

securities on foreign exchanges but whose stocks are purchased by an American

depositary bank on a foreign exchange and then resold as a different kind of

security (an ADR) in the United States.” Stoyas, 191 F. Supp. 3 at 1094. As this

Court recognized, such an outcome would have profound extraterritorial

consequences and would be extremely unfair. See id. at 1094-95 (warning of the

“essentially limitless reach of § 10(b) claims because even if the foreign defendant

attempted to keep its securities from being sold in the United States, the

independent actions of [third parties] could create liability,” a result “inconsistent

with the spirit and law of Morrison”). Dismissal would not be unfair to holders of

Toshiba ADRs who, if necessary, could bring U.S. claims against their depositaries

to ensure that the depositaries seek recovery as shareholders in Japan for the benefit

of the ADR holders.

The prospect of overreaching U.S. law matters to foreign nations. Japan’s

Ministry of Economy, Trade and Industry (“METI”) has voiced its concern over

this case to the Supreme Court in an amicus brief inexplicably ignored by Plaintiffs.

See METI Amicus Br. (No. 18-486); SAC ¶ 373 (incorrectly stating: “Neither the

government of Japan or any prosecutorial or regulatory authority in Japan . . . has

objected to the pendency of this action . . . .”). METI expressly objected to the

“risk that Japanese companies and stakeholders could be put at a great disadvantage

by being subjected to damage claims for huge sums of money in a form that cannot

be at all anticipated, regardless of whether or not they are involved at all in the

issuance of the ADR or transactions related to it.” METI Amicus Br. 2. The United

Kingdom described lawsuits like this one as “a particularly alarming example of

interference with a foreign nation’s legal system.” U.K. Amicus Br. 2.

This Court, therefore, should hold that investors and depositaries transacting

domestically in unsponsored ADRs cannot thereby create a “connection” for U.S.

Exchange Act purposes with foreign issuers like Toshiba that are strangers to the


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transaction at issue and have not taken any step to enter the U.S. securities market.

B. Even If The SAC Did State A U.S. Exchange Act Claim, Adjudicatory Comity Compels Dismissal

The Ninth Circuit has also endorsed this Courts’ discretion to dismiss claims,

including claims under U.S. law, where the alternative forum is adequate and the

foreign government’s interests in adjudicating the dispute outweigh U.S. interests.

See Mujica v. AirScan Inc., 771 F.3d 580, 603 (9th Cir. 2014) (holding federal and

state law claims “nonjusticiable under the doctrine of international comity”).

This Court previously listed the relevant non-exclusive factors under Mujica:

(1) the location of the conduct in question, (2) the nationality of the parties, (3) the

character of the conduct in question, (4) the foreign policy interests of the

sovereigns, and (5) any public policy interests. Stoyas, 191 F. Supp. 3d at 1096. A

proper comity analysis recognizes that: “Foreign states, no less than the United

States, have legitimate interests in regulating conduct that occurs within their

borders, involves their nationals, impacts their public and foreign policies, and

implicates universal norms.” Mujica, 771 F.3d at 607. There is no dispute that

Japan offers a fair and adequate forum (Stoyas, 191 F. sup. 3d at 1097), and Japan’s

interest in adjudicating this dispute far outweighs any U.S. interest.

The weak U.S. nexus (first and second factors) favors dismissal. The “weaker the nexus between the challenged conduct and U.S. territory or U.S.

parties, the weaker the justification for adjudicating the matter in U.S. courts and

applying U.S. federal or state law.” Id. at 605-06 (setting forth comity’s “guiding

principle”). The primary comity consideration — “where the conduct in question

took place” — points directly to Japan. Id. at 604-05 (“[C]omity is most closely

tied to the question of territoriality.”); see SAC ¶¶ 154-212 (alleging misstatements

made only in Japan). The parties’ nationalities also favor deference to Japan.

Toshiba is “a citizen of Japan,” “headquartered in Tokyo” (SAC ¶¶ 13, 25), while

the putative class is multinational (SAC ¶ 2 (seeking to represent “all persons who


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purchased shares of TOSYY or TOSBF” and “all citizens and residents of the

United States who purchased shares of Toshiba common stock” (emphasis added))).

The nature of the claim (third factor) favors dismissal. Japan has a very strong interest in adjudicating these claims because the “character” of this action, to

enforce adequate disclosure by a Japanese issuer listed on Japanese exchanges,

implicates Japan’s sovereign prerogative to regulate its securities issuers and

markets. Mujica, 771 F.3d at 604; id. at 606 (“The closer the connection between

the conduct and core prerogatives of the sovereign, the stronger that sovereign’s

interest.”); see Decl. of T. Ishiguro, Ex. B, Art. 1 (Japanese Exchange Act), ECF

No. 46-2 (explaining that Japan’s Exchange Act was enacted to contribute to “the

sound development of the national economy and the protection of investors”); see

also SAC ¶ 301(g) (alleging approximately 75 percent of Toshiba stockholders are

Japanese, with the remainder disbursed globally). Here, the Japanese Government

supported Toshiba’s petition for a writ of certiorari, and declared Japan’s

“significant economic, political, and legal interests in ensuring that companies

based in Japan comply with the Japanese legal system.” METI Amicus Br. 1.

By contrast, the U.S. interest in adjudicating these claims is weak. The SEC

has exempted from registration foreign issuers whose securities are primarily listed

abroad, because a foreign regulator “principally regulates and oversees the trading

of the issuer’s securities and the issuer’s disclosure obligations to investors.”

Exemption from Registration, 73 Fed. Reg. at 52,755; see 17 C.F.R. § 240.12g3-

2(b); see also SAC ¶ 301(c) (acknowledging reporting regimes in Japan that

regulate Toshiba). The unsponsored ADRs here were created by depositaries

relying on this SEC exemption premised on the foreign regulation of foreign issuers

like Toshiba. See, e.g., Citibank Form F-6 at I-3, Ex.(a)-6 (SAC at 373, 383).

The United States in this case confirmed to the Supreme Court that, under the

SEC’s hands-off approach to foreign issuers that have not entered the U.S.

securities market, the Form F-6 that depositaries must file when creating


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unsponsored ADRs “does not elicit any information about the foreign issuer itself,

such as its financial statements or a description of its business.” U.S. Amicus Br. 3.

According to the United States: “That approach reflects Congress’s judgment that,

in this context, ‘registration of [a] foreign issuer’s securities generally is not

required.’” Id. That approach favors dismissal here.

Foreign policy (fourth factor) favors dismissal. U.S. interests also favor dismissal because litigating in a U.S. court “would be harmful to U.S. foreign

policy.” Mujica, 771 F.3d at 606. In Morrison, the United States confirmed that

“[p]rivate securities actions . . . present a significant risk of conflict with foreign

nations because the United States affords private plaintiffs litigation procedures and

remedies that other countries often do not provide.” U.S. Amicus Br. in Morrison at

27. One example is the conflict created by the opt-out (as opposed to opt-in) class-

action procedure that Plaintiffs seek to utilize here, which is unavailable in Japan.

See France Amicus Brief at 24, Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247

(2010) (No. 08-1191) (stating: “application of U.S. rules to foreign securities

transactions could upset a foreign nation’s carefully thought out balancing of

plaintiffs’ and defendants’ interests,” and that the U.S. opt-out class action

particularly “conflicts with the public policy of many nations”). Morrison took

such concerns seriously, acknowledging that U.S. litigation procedure as to “what

disclosures must be made . . . what discovery is available in litigation, what

individual actions may be joined in a single suit . . . and many other matters,” risks

“interference” with other countries’ regulatory policies. 561 U.S. at 269-70.

The risk of interference is acute where, as here, (i) the foreign regulator has

investigated the foreign issuer, and (ii) the matter is the subject of foreign litigation.

Potentially disparate treatment of overlapping issues, witnesses and evidence could

compromise the integrity and efficiency of foreign civil or criminal proceedings.

Public policy (fifth factor) favors dismissal. The Japanese Government is greatly concerned that Japanese issuers, regulated in Japan, that have not entered


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the U.S. securities markets nevertheless would be subject to U.S. securities

litigation. METI Amicus Br. 1-2; see Mujica, 771 F.3d at 607 (“[D]eference to

foreign state’s position on matters that took place within its territory is ‘inherent in

the concept of comity.’”). The U.S. Government’s statements above support

deferring to Japan, given the U.S. policy of deference to foreign regulators

regarding foreign securities markets and issuers, including issuers of securities

referenced in ADRs. This deference aligns with the U.S. policy to facilitate U.S.

investors’ trading in unsponsored ADRs. See Exemption from Registration, 73

Fed. Reg. at 52,762 (explaining SEC’s 2008 amendment of foreign private issuer

exemption was to make it easier to “establish unsponsored ADRs on [an] expanded

group of foreign private issuers,” without the foreign issuers’ involvement). In

short, deference to Japan is consistent with the Ninth Circuit’s acknowledgement

that Morrison’s comity concerns support a “forceful[]” argument for dismissal of

the U.S. Exchange Act claims, even if the Act applies. AIPTF, 896 F.3d at 950.

C. Comity And Forum Non Conveniens Considerations Compel Dismissal Of Plaintiffs’ Japanese-Law Claim

Plaintiffs again assert a Third Claim for Relief under the JFIEA on behalf of

all purchasers in the United States of Toshiba’s 6502 common stock, and all

purchasers of TOSBF securities and unsponsored ADRs. SAC ¶¶ 362-76. On

appeal, the Ninth Circuit “decline[d] to address” this Court’s previous analysis or

dismissal of Plaintiffs’ JFIEA claim on the alternative grounds of international

comity and forum non conveniens. AIPTF, 896 F.3d at 952 n.25.

Because that dismissal was predicated on a detailed consideration and

analysis of the relevant legal factors, this Court should not reconsider its prior

decision. See Rocky Mountain Farmers Union v. Corey, 913 F.3d 940, 951 (9th

Cir. Jan. 18, 2019) (stating law of the case doctrine “precludes reconsideration of an

issue that has already been decided by the same court . . . in the identical case”).

In any event, Toshiba hereby incorporates as if fully set forth here its prior


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arguments urging dismissal of the JFIEA claim on comity and forum non

conveniens grounds (ECF No. 44-1, at 16-25; ECF No. 63, at 14-23), as well as the

supporting declarations of Toru Ishiguro (ECF No. 46) and Ayumi Wada (ECF No.

47) to the extent previously permitted by this Court. See Stoyas, 191 F. Supp. 3d at

1087-88. None of the SAC’s new allegations, almost exclusively attempting to

state a claim under the U.S. Exchange Act, warrants altering this Court’s prior

dismissal of the JFIEA claim on the grounds of comity and forum non conveniens.

Finally, if this Court concludes that Plaintiffs somehow state U.S. Exchange

Act claims, forum non conveniens, as well as comity, warrants dismissal of those

claims. See Howe v. Goldcorp Inv., Ltd., 946 F.2d 944, 950-53 (1st Cir. 1991)

(affirming forum non conveniens dismissal of U.S. Exchange Act claims).

CONCLUSION For the foregoing reasons, the Court should grant Toshiba’s Motion and

dismiss the Second Amended Complaint in its entirety with prejudice.

Dated: September 19, 2019 WHITE & CASE LLP By: /s/ Bryan A. Merryman Bryan A. Merryman CHRISTOPHER M. CURRAN (pro hac vice) [email protected] OWEN PELL (pro hac vice) [email protected] JAIME M. CROWE (pro hac vice) [email protected] REUBEN J. SEQUEIRA (pro hac vice pending) [email protected] Attorneys for Defendant Toshiba Corporation


bryan a. merryman (sbn 134357) white & case llp...2020/01/29 · bryan a. merryman (sbn 134357)...

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