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District Court Dismisses Potential Securities Fraud Class Action Involving Only Foreign Parties

Posted In Class Actions, M&A
Blechner v. Daimler-Benz AG, C.A. No. 04-331-JJF, 2006 WL 167835 (D.Del. Jan. 24, 2005). Plaintiffs, on behalf of themselves and other foreign shareholders who invested in securities of DaimlerChrysler AG, filed a class action complaint alleging securities fraud in connection with the merger of Chrysler Corporation and Daimler-Benz AG. Defendants moved to dismiss the complaint. The plaintiffs filed a class action complaint alleging that in order to secure shareholder approval of the November 17, 1998 merger between Chrysler Corporation and Daimler-Benz AG, a Delaware corporation, the defendants fraudulently promised that the merger as a "merger of equals" in which control would be shared by managers from both companies and that the merger of the companies was merely to further ensure "greater synergies, cost savings and spirited cooperative enthusiasm." The plaintiffs alleged that (1) they were misled as to the risks of investing in DaimlerChrysler because the "merger of equals" was in fact an acquisition, as evidenced by the November 17, 2000 replacement of Chrysler senior managers on the Daimler-Chrysler board with Daimler-Benz employees; (2) as a result of the November 17 board replacement, DaimlerChrysler shares dropped $5.00 per share, a $5 million-plus loss in market capitalization; (3) they should have received a control premium because the merger was in fact an acquisition; and (4) the defendants had artificially inflated DaimlerChrysler's financials to create the appearance that the company was achieving the "greater synergies" and "cost savings" that it had promised. Plaintiffs filed claims, under Sections 10(b), 11, 14(a) and 20(a) of the Securities and Exchange Act of 1934 and Sections 12(a)(2) and 15 of the Securities Act of 1933, individually and on behalf of all others similarly situated "who are not citizens or residents of the United States" who acquired shares of DaimlerChrysler AG between November 17, 1998 and November 17, 2000. The defendants moved to dismiss the complaint, contending that (1) the court lacked subject matter jurisdiction because federal securities laws do not grant extraterritorial jurisdiction over plaintiffs' claims; (2) the court should decline to hear the case on grounds of international comity; (3) the plaintiffs' claims were barred by the statute of limitations; and (4) that even if plaintiffs' claims were not time-barred, plaintiffs failed to state a claim. The court rejected the plaintiffs' argument that the complaint alleged sufficient conduct occurring in the United States to warrant the exercise of extraterritorial jurisdiction. The court held that because the conduct complained of took place primarily outside of the United States and because the plaintiff investors were foreign investors who had no connection to the United States, did not surrender any shares on an American market, and did not suffer any effects from the alleged fraud in the United States, the exercise of extraterritorial jurisdiction was inappropriate, and dismissed the case.