The U.S. Southern District of Manhattan Court is not allowing investors who bought Vivendi stock on the Paris stock exchange from 2000 to 2002 to pursue the company in an ongoing shareholder lawsuit that alleges the company misled investors about the firm’s financial health.
Under then-CEO Jean-Marie Messier, Vivendi a decade ago revamped itself from a water conglomerate to a company with media and entertainment holdings, such as Universal Pictures and Universal Music Group, the latter of which it still owns. The lawsuit alleges that management from 2000 to 2002 covered up Vivendi’s liquidity problems and inflated the firm’s stock price.
The lawsuit was first filed in 2002, and five years later, District Judge Richard Holwell made a controversial decision to certify a class of Vivendi shareholders from France, England and the Netherlands, along with those in the United States. A jury trial was held in January, 2010, where it was determined that misstatements or omissions inflated Vivendi’s stock price by as much as $11 per share. At the time, the plaintiffs’ lawyers said the decision would mean that Viacom was liable for up to $9.3 billion in one of the largest securities class action awards ever.
But recently, courts have been re-examining so-called “F-cubed” shareholder litigation, where foreign investors who purchase foreign companies on foreign exchanges sue in United States courts. In a June 2010 U.S. Supreme decision, Morrison v. National Australia Bank Ltd., the high court raised doubts about foreign investors’ right to pursue litigation of this nature.
In a decision today, Judge Holwell dismissed the individual plaintiffs’ “ordinary shares claim,” relating to shares sold on the Paris Bourse, which will limit Vivendi’s exposure in U.S. courts to many of its French investors. The judge indicated that the “foreignness” of the claims merited dismissal.
Vivendi said that it was “satisfied” with the decision and that it was in line with Supreme Court’s Morrison decision.
The lawsuit continues. Judge Holwell stressed that allegations over violations of the Exchange Act, Security Act, and other statutes for shares purchased on domestic exchanges “are still in play in this litigation.”
As the U.S. closes its borders to foreign class action plaintiffs, other countries are opening them.
For example, in Canada, a judge has certified a global class of investors arguing that Imax misled them. Recently, Imax settled a similar lawsuit with U.S. investors for $12 million in a deal that still needs a judge’s approval. The settlement is conditioned on U.S. investors having to choose between the settlement or continuing their pursuits in a Canadian court.
