February 25, 2011

After The Vivendi Verdict

A trial verdict that results in $9.3 billion in potential damages is likely to engender a slew of post-trial motions. The court's decision on those motions in the Vivendi securities class action was made public this week.

The media focus has been on the court's application of the National Australia Bank (NAB) decision to dismiss the fraud claims by purchasers (including U.S. purchasers) of Vivendi shares on foreign exchanges. The dismissal was in line with other post-NAB cases, although the Vivendi court was quick to point out that the Supreme Court's decision contains imprecise language. In particular, on the issue of whether the decision permits, based on the existence of a dual listing (U.S. and foreign exchange), a U.S. cause of action for investors who purchased their shares on the foreign exchange, the court suggested that "perhaps Justice Scalia simply made a mistake." That is to say, "[Scalia] stated the test as being whether the alleged fraud concerned the purchase or sale of a security 'listed on an American stock exchange,' when he really meant to say a security 'listed and traded' on a domestic exchange." In any event, there was no indication that the Supreme Court "read Section 10(b) as applying to securities that may be cross-listed on domestic and foreign exchanges, but where the purchase and sale does not arise from the domestic listing."

The Vivendi court's other rulings are at least as interesting and two of them stand out.

(1) Corporate scienter - The court addressed how the jury could have found that Vivendi acted with scienter in committing securities fraud, while dismissing the claims against Vivendi's former CEO and CFO. The court agreed that to prove corporate scienter, the plaintiffs needed to establish that a Vivendi agent committed a culpable act with scienter. However, the court found, the "fact that the jury absolved [the former officers] of liability does not negate the fact that there was sufficient evidence in the record in the first instance to enable a reasonable jury to find against all three defendants on the issue of scienter, thereby foreclosing judgment as a matter of law in Vivendi's favor." As to whether the verdicts were inconsistent, which is a possible ground for a new trial, the court concluded that "significant evidence admitted against Vivendi, but not against [the former officers], could have led the jury to find that plaintiffs proved that Vivendi violated Section 10(b) based on the scienter of [the former officers], even if the jury was unable to conclude the plaintiffs had met their burden of proof against [the former officers]."

(2) Reliance - The court noted that "certain means of rebutting the presumption of reliance require an individualized inquiry into the buying and selling decisions of particular class members." Vivendi should have the opportunity to make this rebuttal as to individual class members, perhaps even through separate jury trials if necessary, although the exact procedures for the "individual reliance phase" would have to be determined. As a result, the court declined to enter a final judgment in the case.

Holding: Dismissed claims brought by purchasers of ordinary shares (as opposed to American Depositary Shares). Denied Vivendi motion for judgment as a matter of law or, in the alternative a new trial, except as to one statement. Denied entry of final judgment.

Posted by Lyle Roberts at February 25, 2011 11:19 PM | TrackBack
Email this entry to:


Your email address:


Message (optional):