Everyone knows that Morrison v. National Australia Bank, 561 U.S. 247 (2010), ended the ability of those who purchased or sold securities outside the United States to participate in U.S. class actions. Everyone knows this—and therefore, unsurprisingly, it turns out to be not quite true. As usual, people miss the exceptions to generalizations that they think are universal rules. In fact, there are at least two routes that permit a foreign purchaser to participate in a U.S. class action. Neither has been much exploited to date, but both may be pushed aggressively in the near future.

First, although a litigation class cannot be certified unless it can be shown (without an individual inquiry into each class member) that only domestic purchasers or sellers are covered, a settlement class can be broader and can contain non-domestic purchasers or sellers. This was shown last year in In re Petrobras Securities Litigation, 317 F. Supp. 3d 858 (S.D.N.Y. 2018), when Judge Rakoff certified the class and approved a $3 billion settlement against Petrobras, the Brazilian oil company, even though the Second Circuit had earlier reversed his certification of the class because the “domesticity” of various bond purchasers was in doubt. See In re Petrobras Secs. Litig., 862 F.3d 250 (2d Cir. 2017). Because determination of the domesticity of the bond purchasers seemed to require an individualized inquiry, the Second Circuit had overturned Judge Rakoff's certification of the class, finding that it flunked the “predominance” requirement of Rule 23(b)(3) of the Federal Rules of Civil Procedure (which requires common questions of law and fact to “predominate” over individual questions).

But then how could Judge Rakoff subsequently certify the class for settlement purposes? The answer lies in an aspect of Morrison that not everyone notices. Morrison said that Rule 10b-5 applies only in the cases of domestic transactions, but that this issue of domesticity was a “merits” issue and not an issue of subject matter jurisdiction. That means that, at settlement, the defendant can waive this issue (and Petrobras did). As Judge Rakoff explained, even a hopelessly non-meritorious case can be settled if the defendant is willing to waive “merits” issues.