Determining extraterritoriality.

• Author: Gevurtz, Franklin A.
• Position: Introduction through II. Morrison and the Statutory Focus Test, p. 341-377

ABSTRACT

This Article addresses an underexplored but critical aspect of the presumption against extraterritoriality. The presumption against extraterritoriality--which the United States Supreme Court has increasingly invoked in recent years--calls for courts to presume that Congress does not intend U.S. statutes to govern events outside the United States. The most difficult issue presented by the presumption arises when relevant events occur both inside and outside the United States, as in the classic example, if a shooter on one side of the border kills a victim on the other, or if, as in the leading case, false statements originating inside the United States impact the price paid in purchasing stock outside the United States. How should a court decide whether such cases involve extraterritoriality and trigger the presumption? In a world in which both the performance and impact of regulated activities increasingly occur within more than one nation, the need for courts to resolve this sort of question is likely to arise with increasing frequency.

In Morrison v. National Australia Bank Ltd., the United States Supreme Court established the Court's test for resolving this question: determining extraterritoriality based upon the location of the event that constitutes the "focus" of the statute at issue. Yet, if the focus of the statute determines extraterritoriality, what is the test for determining the focus of the statute? The Court's answer was to evaluate the language and purpose of the statute in order to see whether Congress intended it to reach the events in question when they take place outside the United States. The result is entirely circular because it required the Court to determine whether Congress intended the statute to reach the situation in order to invoke the presumption to determine whether Congress intended the statute to reach the situation.

This Article argues that a better approach determines extraterritoriality in light of the purposes for the presumption against extraterritoriality: specifically whether applying the statute to the situation before the court will trigger international relations concerns. I explore the parameters and implications of this approach. This includes considering approaches to determine when applying U.S. law to situations involving events both inside and outside the United States triggers international relations concerns, and noting some of the unusual implications of this approach--for example, that international relations concerns may sometimes call for a presumption in favor of applying U.S. law to a situation involving events both inside and outside the United States.

TABLE OF CONTENTS INTRODUCTION I. BACKGROUND A. The Presumption Against Extraterritoriality B. The Problem of Identifying Extraterritoriality II. MORRISON AND THE STATUTORY FOCUS TEST A. Application of U.S. Law to Transnational Securities Frauds Pre-Morrison B. Morrison C. Morrison's Approach to Identifying Extraterritoriality 1. Roads Not Taken 2. The Statutory Focus Test a. Morrison s Circular Method for Identifying the Statutory Focus b. The Statutory Focus Test in Other Supreme Court Opinions c. Lower Courts and the Statutory Focus Test: Herein of RICO III. DETERMINING EXTRATERRITORIALITY BY THE REASONS BEHIND THE PRESUMPTION A. The Observational Rationale B. The Legislative Purpose Rationale C. The International Relations Rationale 1. Why This Works 2. Refining the Test 3. The Wrong Presumption? 4. A Two-Sided Presumption 5. Conflicts with Legislative Purpose CONCLUSION INTRODUCTION

The United States Supreme Court resolved significant cases by invoking the presumption against extraterritoriality twice in the last four years. (1) This presumption calls for the Court to interpret U.S. statutes, in the absence of evidence of intent to the contrary, as not applying to events outside the nation's borders. (2) The Court's current affinity for the presumption follows a trend that began a little over twenty years ago (3) and seems likely to continue in the future.

The most difficult issue presented by the presumption against extraterritoriality is determining when a proposed application of a statute actually involves extraterritoriality so as to trigger the presumption. To use the classic illustration, (4) if a person standing within the United States shoots a rifle and kills a victim standing across the border in Mexico, or if a person in Mexico shoots a rifle and kills a victim standing within the United States, would prosecuting the shooter under domestic law in the United States for murder involve, in either case, extraterritorial application of the domestic law? Or, to give a more likely example, if a corporation makes a false statement in the United States that impacts the price paid for its stock in sales taking place overseas, or if a corporation makes a false statement overseas that impacts the price paid for its stock in the United States, would the United States be applying its law extraterritorially, in either case, by prosecuting the corporation for violating the U.S. law prohibiting fraud in connection with the purchase or sale of a security? A court might say there is extraterritoriality in these examples and invoke the presumption because it would be applying domestic law to events--conduct, effect of the conduct, or elements of the prohibited act--that occurred beyond our borders. On the other hand, in each of these examples, a court might say there is no extraterritoriality and the presumption is irrelevant because it is applying domestic law to conduct, effects, or elements of the prohibited act that took place within the United States. Or, for all these examples, a court might say that whether the situation involves extraterritoriality depends upon the statute and the specific circumstances. In a world in which both the performance and impact of regulated activities increasingly occur within more than one nation, the need for courts to resolve this sort of question is likely to arise with increasing frequency.

The U.S. Supreme Court established its test for answering this question in its 2010 decision in Morrison v. National Australia Bank Ltd. (5) This test looks to the location of the event that constitutes the "focus" of the statute. If the event that constitutes the focus of the statute occurs outside the United States, the situation involves extraterritoriality; if the event that constitutes the focus of the statute occurs inside the United States, the situation does not involve extraterritoriality. (6) Yet, if statutory focus provides the test for determining if the situation involves extraterritoriality, what is the test for determining the statutory focus? For example, is the statutory focus of the law against murder the act of pulling the trigger with intent to kill, or is it the fatal impact of the bullet striking the victim?

In Morrison, the Supreme Court held that the focus of the U.S. law prohibiting fraud in connection with the purchase or sale of a security was the sale, not the fraud, and hence the prohibition did not reach the plaintiffs' claim that misrepresentations originating in the United States impacted the price they paid for their stock in Australia. (7) Critically, however, the reasons the Court gave for concluding that the sale was the focus of the statute involved various arguments, ranging from the language of the statute to policy considerations, which suggested to the Court that Congress did not intend the statute to reach fraud in connection with sales outside the United States. (8) This makes the test entirely circular because the purpose of asking whether the claim involves extraterritoriality is to decide whether to invoke the presumption as a means to determine Congress's intent. The circularity of the statutory focus test renders the presumption against extraterritoriality useless except in easy cases in which none of the challenged conduct or its effects occurs in the United States.

This Article proposes a better test for determining extraterritoriality in situations involving misconduct with performance or effect occuring both inside and outside the United States. Instead of looking to the focus or purpose of the statute, this Article proposes looking to the purpose of the presumption against extraterritoriality. Specifically, this Article advocates looking to the potential impact on international relations of applying the statute to the situation at hand in order to decide whether there is extraterritoriality. Put simply, if the situation is one in which the effort to apply U.S. law to events reaching outside the United States will trigger hostile foreign government reaction, the Court should demand some indication that this is what Congress really had in mind; if the situation is one in which no such reaction is likely, then the Court should determine whether Congress intended the statute to reach the situation in the same manner that the Court interprets statutes generally and without prejudging Congress's intent.

Determining the likely foreign government reaction may often not be straightforward, and this Article explores some approaches to address this question. This Article also explores some of the implications of determining extraterritoriality by the impact on international relations from applying U.S. laws to misconduct involving conduct or effect occurring both inside and outside the United States. For example, this Article will argue that the international relations rationale suggests that the presumption should work both ways: specifically, in situations in which failure to extend U.S. laws to misconduct risks a negative impact on international relations, there should in fact be a presumption in favor of applying the nation's laws even though some conduct or effect occurs outside the United States. (9)

This Article will proceed in three parts. Part I will provide some background regarding the presumption against...