China Oil Fends Off U.S. Investors

The 10b-5 Daily has been carefully following events related to the relationship between China and securities class actions, posting as recently as last Friday on the emerging issue. This is all very timely, as last week Judge Robert P. Patterson (S.D.N.Y.) issued a ruling in China Aviation Oil (which is majority owned by the Chinese government) regarding Plaintiffs’ request "for Letters Rogatory to effect service on defendants residing in Singapore." (The company is managed from Singapore).

Judge Patterson, in applying the oft-used "conduct and effects tests" denied Plaintiffs’ request because the complaint did not "indicate any activity by the Defendants in the United States." He also rejected Plaintiffs attempt to use China Oil’s website as a basis for jurisdiction, holding that "were the Court to view it otherwise, any foreign corporation with a website would be subject to securities fraud litigation in the United States if a United States resident had bought its securities from some market maker in this country." So looks like this one may have to be litigated somewhere else. Of course, that doesn’t mean investors should shy away from Chinese companies, as other investors have enjoyed a different outcome.

You can read Burke v. China Aviation Oil, issued November 29, 2005, at 2005 U.S. Dist. LEXIS 30124.

Nugget: "Plaintiff's attempt to equate information obtained via a website with mail directed to the stockholder… is rejected."