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lundi 16 septembre 2013

Disgruntled Buyers of Facebook Shares Better Think Twice Before Attempting to Institute a Class Action in Québec

By Sarah D. Pinsonnault
Revenu Québec

Facebook’s initial public offering (IPO) on May 18th 2012, was the largest tech offering in history, and the third-largest IPO in US history. Shortly thereafter, a series of lawsuits were filed due to, inter alia, alleged misrepresentations by Facebook and talks of insider trading. In Mouaikel c. Facebook (2013 QCCS 4176), the Petitioner sought to institute a class action before the Québec Superior Court on behalf of all Québecers who purchased Facebook stocks following its IPO.
The respondents, which included Mark Zuckerberg and several Facebook directors, US banks and brokerage firms, responded with a motion seeking the dismissal of the petitioner’s motion. They contended that the Québec Superior Court lacked jurisdiction in accordance with sections 163 and 164 of the Code of Civil Procedure. Alternatively, should the Superior Court find that it has jurisdiction, they argued that it should nevertheless decline to hear the case on the basis of forum non conveniens. In fact, they purported that the matter should be referred to the New York District Court because a number of lawsuits against Facebook have already been centralized and are currently proceeding in that State.

As a result, the petitioner had the burden of proving the connecting factors that would attribute jurisdiction to Québec. Ultimately, the only connecting factor the petitioner was able to raise was that the damages suffered by the proposed group occurred in Québec, pursuant to s. 3148(3) of the Québec Civil Code (CCQ).

The presiding judge of the case at bar, Justice David R. Collier, proceeded with an analysis of s. 3148(3)’s “damage (…) suffered in Québec”. In citing several Québec Court of Appeal cases, he noted the distinction between cases where the party suffered damages in Québec solely due to the fact that his/her patrimony is located here, versus cases where the actual causal events took place in Québec. Justice Collier then went on to conclude as follows:

“[20] Although the TD Waterhouse statement records the petitioner’s purchase and sale of shares, it does not indicate where the transactions occurred or where she paid for her shares.  Nothing in the record indicates that the sales transactions occurred in Québec, and, in the absence of such proof, the law presumes that they occurred in the United States.  In this regard, article 1734 CCQ stipulates that a buyer is bound to take delivery of the property sold, and to pay the price, at the time and place of delivery.  In our case, the Facebook shares would have been notionally delivered either at the NASDAQ exchange in New York or at Facebook’s head office in California, the deemed situs of the shares.[18]  According to article 1734 CCQ, the petitioner’s payment would therefore have been owed at one of these two US locations.

[21] It follows that the petitioner’s alleged overpayment and loss would have occurred in the United States where the purchase and sale transactions were concluded.  Nothing happened in Québec other than the recording of the petitioner’s loss in her brokerage account.  Based on the legal principles cited above, it cannot be said that the petitioner suffered damage in Québec within the meaning of article 3148(3) CCQ.

[22] In the absence of proof that the petitioner suffered damage in Québec as a result of a material event that occurred here, there is no basis to conclude that a real and substantial connection exists between the alleged facts of her motion and this Court, which consequently has no jurisdiction to hear the present matter.”

In light of the absence of any connection between Québec and the petitioner’s motion in question, the Court was not required to rule on the forum non conveniens considerations pursuant to article 3135 CCQ. Nevertheless, Justice Collier remarked that the consolidated actions before the New York District Court would ultimately include the petitioner given that the lead plaintiff in these actions is seeking to include “all persons and entities who purchased or otherwise acquired the Class A common stock of Facebook in or traceable to Facebook’s IPO, and were damaged thereby.”:

“[24] Given the allegations of misrepresentation and insider trading in the United States, and considering that Facebook issued its prospectus under the rules of the US Securities and Exchange Commission and traded its shares on the NASDAQ exchange in New York, there is little question that New York law will apply to the actions against the respondents.  The petitioner’s contention that its action in Québec would proceed solely according to Civil Code rules of liability is far from convincing.  Moreover, the majority of the underwriter defendants are domiciled in New York and it appears certain that much of the relevant discovery will be conducted there.  A final judgment would have to be executed in the United States.  The New York District Court appears to be the natural forum to hear the actions against the respondents, and Québec shareholders appear to have no advantage in proceeding by way of a duplicative and costly action in this province.  There is no reason to believe that their interests would be less well protected in the New York litigation than they would be here.”

The Respondents’ motion for declinatory exception was thus granted and, consequently, the petitioner’s attempted class action suit was dismissed.

To read this decision in its entirety, click here.

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