Class Action on Behalf of Purchasers of Stock on NASDAQ Europe More Properly Brought in Belgium, Warranting Dismissal of Class Action on Grounds of Forum Non Conveniens Massachusetts Federal Court Holds
Plaintiffs, three individuals from Belgium, filed a putative securities class action against Lernout & Hauspie N.V., a Belgian company that developed speech recognition software, and other defendants on behalf of those who purchased L&H securities on the European EASDAQ stock exchange for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and of Rule 10b-5. Warlop v. Lernout, 473 F.Supp.2d 260, 261 (D. Mass. 2007). This class action was but one of several class actions filed against L&H, and this court opinion is but one of “several extensive opinions concerning the alleged fraudulent scheme causing the collapse of L&H,” id., at 261-62 (citations omitted). Defense attorneys for Belgian defendants KPMG-Belgium, the Outside Directors, Vanderhoydonck and Willaert moved to dismiss the class action under Rule 12(b)(6) on the grounds of forum non conveniens. The district court granted the motion.
Briefly, L&H was at one time very successful, and traded simultaneously on both Europe’s EASDAQ market (known as “NASDAQ Europe”) and NASDAQ. Warlop, at 262. The class action complaint alleged that the company’s success was founded on misrepresentions by its directors concerning L&H’s finances, and on “the fraudulent creation of sham firms in Belgium and elsewhere which licensed software,” id. The fraud was discovered in August 2000 and EASDAQ suspending trading of the company’s securities; ultimately L&H collapsed. Id. A criminal investigation followed, leading to the arrest by the Belgian government of three L&H directors – Lernout, Hauspie and Willaert; by operation of Belgian law, all civil cases were stayed during the pendency of the still on-going criminal investigation, including a civil action by the class action plaintiffs in this case that essentially tracks the allegations in the class action complaint. Id. As noted above, several securities class actions were filed in various federal courts; the actions were eventually consolidated before the District of Massachusetts, and the consolidated amended class action complaint limited the scope of the class action to individuals who purchased L&H stock on NASDAQ. Id.
In analyzing the motion to dismiss, the federal court recognized the general rule that “The doctrine of forum non conveniens permits a trial court, on a discretionary basis, to dismiss a case where an alternative forum is … available in another country that is fair to the parties and substantially more convenient for them or the courts.” Walrop, at 262 (citation omitted). The defense bears the burden of proof, and the district court held that the burden had been satisfied. In part, the court explained that even though a class action device was not available in Belgium, shareholders are allowed to join in a single action to press claims for damages and, indeed, more than 4,000 L&H shareholders had done just that, including two of the plaintiffs in this case. Id., at 263. Moreover, “the bulk of the harm and activity rests in Europe” the theories advanced in the class action complaint “will be built primarily upon the testimony of many Belgian witnesses from KPMG-Belgium, L&H, and Dexia, and documents churned up in Belgium concerning the collapse of L&H in Belgium.” Id. Moreover, the securities were purchased in Europe, most class members live in Europe, and the case likely will involve “complex issues of European law.” Id. Finally, the district court noted that “it is not clear that Europe would enforce a class action judgment from this District.” Id.
NOTE: The district court also was influenced by the fact that the class action claims were likely time-barred under the applicable two-year statute of limitations. As the federal court noted at page 264, “Plaintiffs contend that they received actual notice under the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(a)(3)(A), that the NASDAQ case included EASDAQ purchasers, but did not receive actual notice of exclusion from the class definition until the notice of preliminary settlement notice. Defendants argue that the constructive notice afforded by the publicly available amended complaint for the class action and subsequent rulings by this Court is sufficient under the caselaw. This is a difficult question of first impression. Still, this Court need not reach this timeliness issue, on which I have waffled, as the case is dismissed in favor of Belgium under the doctrine of forum non conveniens.” (Italics added.)