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Unsponsored ADR-Traders’ Case Dismissed: A U.K. and Swiss Company Allegedly Bribed Congolese, Nigerian, and Venezuelan Official, But Had No Ties to the Garden State

On July 31, 2020, Judge Wigenton of the District Court for the District of New Jersey dismissed a class action filed against Glencore PLC, Church VI v. Glencore PLC et al., which was brought on behalf of investors that traded Glencore’s unsponsored ADRs in the New York OTC market. While Glencore is incorporated in the United Kingdom, trades on the London Stock Exchange, and is headquartered in Switzerland, the Plaintiffs had brought suit in New Jersey; however, because Glencore had no ties with New Jersey, and because none of the events relevant to the litigation occurred in New Jersey, Judge Wigenton dismissed on grounds of forum non conveniens. Thus, Glencore investors who purchased ADRs on the OTC market were denied a U.S. forum for relief, even though the case may have been strong on the merits.  Indeed, several plaintiffs firms are investigating bringing foreign suits against Glencore, suggesting the claims may have some merit.

Plaintiffs Allege that Glencore Bribed Congolese, Nigerian, and Venezuelan Officials

The case was filed two years ago, in the wake of investigations into bribery by Glencore in the Congo, Nigeria, and Venezuela. Specifically, the investigations examined whether Glencore—which operates mines across the world, and trades the commodities that those mines produce—violated the Foreign Corrupt Practices Act, by bribing officials during the purchase, sale, and operation of its various mines. The Plaintiffs allege that, from its Swiss headquarters or U.K location, Glencore’s executives ordered or facilitated these pay-offs, including bribes to President Kabila of the Congo and to employees of a Venezuelan state-owned energy company. The Plaintiffs further allege that, in spite of these bribes, Glencore made statements that it “takes ethics and compliance very seriously” and is “committed to complying with or exceeding” legal requirements, and that Glencore failed to disclose material facts relating to its mining operations—namely, the fact that those operations were facilitated in part through bribery. Based on these facts, the Plaintiffs allege violations of Section 10(b) of the Exchange Act and Rule 10b-5, and violations of Section 20(a) of the Exchange Act.

As these facts demonstrate, this case centers on events that occurred in the United Kingdom and Switzerland, or perhaps the Congo, Nigeria, or Venezuela. But, regardless of which of these locations takes primacy, the Defendants’ Motion to Dismiss pointed out that none of these locales have any connection to the United States, much less New Jersey. For this reason, the Defendants argued (among other things) that: (1) New Jersey lacked personal jurisdiction over Glencore; (2) the claims are impermissibly extraterritorial under Morrison v. National Australia Bank Ltd.; and (3) the District of New Jersey was an improper venue for the lawsuit.

The Court Found That New Jersey was an Improper Forum for the Dispute

Considering these arguments in his July 31 opinion, Judge Wigenton was indeed concerned that the case lacked any connection with New Jersey (or the broader United States). However, he was able to sidestep the issues of personal jurisdiction and extraterritoriality (along with the Defendants’ other grounds for dismissal) by first examining whether or not, considering the parties’ convenience and the interests of justice, the District of New Jersey was the proper venue to hear this dispute. This analysis—formally known as the doctrine of forum non conveniens—led Judge Wigenton to consider four factors, before dismissing the case:

  1. The amount of deference to be granted to the plaintiffs’ choice of forum — In analyzing this factor, the Judge considered where the parties are located, and where the relevant evidence and events are centered; if either of those places is New Jersey (or close thereto), it would weigh in favor of granting more deference to a plaintiff’s choice to file in New Jersey. Here, the Plaintiffs appear to be from Florida, while Glencore has ties to the United Kingdom and Switzerland. Similarly, the alleged bribery stems from decisions made by Glencore in the United Kindom and Switzerland, which is also where Glencore made the allegedly fraudulent statements regarding such bribery.
  2. The adequacy of other forums to adjudicate the dispute — Other forums are only “adequate” under two conditions: first, Glencore must be capable of being sued in that forum, and second, that forum’s laws must afford a remedy to the plaintiffs for their claims. Here, Judge Wigenton determined that Switzerland was an adequate alternative forum, because Glencore had consented to being sued in Switzerland, and because Switzerland has its own robust system of securities fraud law under which the Plaintiffs can seek redress.
  3. The parties’ private interests — Like deference to the plaintiff’s choice of forum, the analysis of private interests mostly comes down to where the case’s relevant evidence and witnesses are located. Here, as in the deference analysis, the Court found that the evidence and witnesses had no connection to New Jersey. Instead, it appears that the only connection to the United States (let alone New Jersey) is that Glencore’s shares were traded in New York; however, those shares were unsponsored, and traded over-the-counter, demonstrating that the shares were not traded at Glencore’s behest or with Glencore’s involvement.
  4. The public’s interests — In evaluating the public’s interests, the Court primarily relied on a simple heuristic: that the place where the conduct occurred has the greatest public interest in the litigation. Under this heuristic, the Court explained that Switzerland (or perhaps the United Kingdom) have the greatest interest in hosting the litigation; in contrast, none of the conduct occurred in New Jersey. Also weighing against New Jersey, Judge Wigenton mentioned that the District of New Jersey has one of the busiest dockets in the country, and that New Jersey courts would be forced to apply Swiss law, with which they are generally unfamiliar.

Because each of these factors indicated that holding the trial in New Jersey was neither convenient for the parties, nor in service of the interests of justice, Judge Wigenton dismissed the case. The Plaintiffs have now passed their deadline to file an appeal, and will need to refile the case, whether elsewhere in the U.S. or abroad. Should the Plaintiffs be forced to file abroad, this could mean that their available relief will change: Although Switzerland may be an “adequate alternative forum” under Judge Wigenton’s analysis, that does not mean that Swiss law will offer the same types and amounts of relief that would otherwise be available under U.S. law, nor that Swiss courts will adjudicate the issue in the same way a U.S. court would.

Going Forward, These Plaintiffs May Face Other Difficulties Suing in the United States

While Judge Wigenton declined to reach the merits of Glencore’s personal jurisdiction, extraterritoriality, and other grounds for dismissal, his opinion may give the Plaintiffs pause before choosing to refile in the United States. Throughout the opinion, Judge Wigenton was consistently skeptical that the United States had any interest in the suit, for example noting that “other than Plaintiffs’ location in the United States, and their purchase of Glencore securities on an OTC market from within the United States, Plaintiffs do not dispute that the witnesses or evidence relevant to their claims are located abroad.” He also alludes to some of the issues that the Plaintiffs would have in demonstrating personal jurisdiction, explaining that jurisdiction was “not entirely clear where, as here, Plaintiffs purchased ADRs or foreign shares listed on an OTC market.”

On this point, Judge Wigenton’s skepticism does not fully comport with other courts nationwide. Specifically, the Ninth Circuit in the Toshiba case determined that ADR trades—even of unsponsored ADRs—are “domestic” transactions, as required by Morrison. Additionally, as we’ve reported in the past, in February 2020 the District Court for the Central District of California held that unsponsored ADRs, traded in the New York OTC market, could form the basis for a plausible allegation that a foreign company was liable in the United States.  Judge Wigenton’s decision in Glencore threatens to undercut these ruling by providing foreign companies with ADRs that trade in the U.S. an additional ground for dismissal of cases brought in a U.S. forum.

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Aaron R. Fenton is a Mintz attorney who focuses his practice on complex commercial litigation for clients in the financial services and many other industries. He was a Mintz Summer Associate in 2018.