In Stoyas v. Toshiba Corp., a securities class action that has produced a number of notable decisions about the application of the federal securities laws to unsponsored ADRs, the Ninth Circuit recently declined to review the district court’s ruling denying to certify a class.  In doing so, the Ninth Circuit let stand the district court’s novel ruling, which found the relevant named plaintiff to be an atypical class representative after determining that it had purchased the unsponsored ADRs in foreign transactions.[1]

The plaintiffs in Stoyas (investors in Toshiba’s unsponsored ADRs) brought an Exchange Act class action against Toshiba in the Central District of California amidst allegations from the Japanese government of Toshiba’s widespread, fraudulent accounting practices.  The plaintiffs also brought claims concerning Toshiba’s common stock, which is listed on the Tokyo Stock Exchange, under Japan’s Financial Instruments & Exchange Act (“JFIEA”). [2]   The district court initially granted Toshiba’s motion to dismiss, finding that Toshiba was not sufficiently involved in the sale of the unsponsored ADRs to satisfy Supreme Court decision Morrison v. National Australia Bank, which held that the federal securities laws do not apply extraterritorially, and that the JFIEA claims should be dismissed on comity and forum non conveniens grounds. [3]  On appeal, the Ninth Circuit reversed, rejecting the district court’s reasoning (adopted from a prior Second Circuit ruling) that engaging in a domestic transaction was necessary but not sufficient for the Exchange Act to apply under Morrison.[4]  On remand, applying the Ninth Circuit’s guidance, under which the level of Toshiba’s involvement in the plaintiff’s allegedly domestic transaction should be considered under the “in connection with” requirement, the district court denied Toshiba’s motion to dismiss, in part because plaintiffs had adequately alleged that Toshiba was involved in the issuance of the unsponsored ADRs.[5]

The case then proceeded to discovery and plaintiffs subsequently moved to certify a class consisting of (1) all persons who purchased the ADRs over the counter and (2) all citizens and residents of the United States who purchased Toshiba’s common stock, during the relevant time period.[6]  In a decision issued on January 7, 2022, the district court denied the plaintiffs’ class certification motion.  With respect to the Exchange Act claims, the court held that Rule 23’s typicality requirement was not satisfied because the relevant named plaintiff had not acquired its securities in domestic transactions, and instead became irrevocably bound to acquire the unsponsored ADRs in Japan, when a broker executed the purchase of the underlying common stock for conversion.[7]  With respect to the JFIEA claims, the district court denied class certification without prejudice on the ground that there were “potentially dispositive questions of law” under Japanese law that were better suited for resolution on summary judgment.[8]  The parties have since started briefing a motion for summary judgment on the JFEIA claims pursuant to the district court’s ruling.

On January 21, 2022, plaintiffs filed a petition under Rule 23(f), asking the Ninth Circuit to review the district court’s class certification decision.  Among other things, that petition argued the district court erroneously “imposed a heightened standard” under Morrison by requiring a “triggering event” to have occurred in the United States, misapplied Rule 23 in deciding that a class-wide question about the location of transactions in unsponsored ADRs was unique to the lead plaintiff, and erred by deflecting “potentially dispositive” class-wide issues to summary judgment.[9]  However, on April 21, 2022, the Ninth Circuit denied plaintiffs’ petition, summarily stating it did so “in its discretion.”[10]  As a result, the district court’s decision denying class certification stands.[11]  As discussed in a prior alert memo, this decision underscores that courts should require plaintiffs to plead detailed information about the location of their transactions in their complaints (in order to avoid burdening foreign issuers with full-scale discovery based on claims that do not actually fall within the scope of the federal securities laws).[12]  Similarly, the decision demonstrates that courts should be cautious about entertaining class actions asserting foreign-law securities claims, given Morrison’s directive that such transactions fall outside the scope of the federal securities laws and because they can burden district courts with unsettled questions of foreign law.

[1] Additional background on the Toshiba securities litigation can be found in Cleary Gottlieb’s three prior memorandums on the subject, which can be accessed here, here and here.

[2] Stoyas v. Toshiba Corp., 191 F. Supp. 3d 1080, 1084-86 (C.D. Cal. 2016).

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

[4] Stoyas, 896 F.3d at 952.

[5] Stoyas v. Toshiba Corp., 424 F. Supp. 3d 821, 830 (C.D. Cal. 2020).  The district court also rejected Toshiba’s arguments that comity and forum non conveniens required dismissal of the JFIEA claims.  Id. at 829.

[6] Stoyas v. Toshiba Corp., No. 2:15-cv-04194 DDP-JC, 2022 WL 80469, at *3 (C.D. Cal. Jan. 7, 2022).

[7] Id. at *10.

[8] Id. at *13.

[9] Stoyas v. Toshiba Corp., No. 22-80001, Docket Nos. 1-2 (9th Cir. January 21, 2022).

[10] Stoyas v. Toshiba Corp., No. 22-80001, Docket No. 3 (9th Cir. April 21, 2022).

[11] Id.

[12] Roger Cooper, Jared Gerber and Andrew Khanarian, “Another Twist in the Toshiba Securities Litigation: Denial of Class Certification Concerning Unsponsored ADRs,” Cleary Gottlieb Alert Memorandum, January 21, 2022,