In the long-awaited rulings on the post-trial motions in the Vivendi securities case, Judge Richard Holwell has entered a February 22, 2011 order materially narrowing the plaintiff class based on the U.S. Supreme Court’s holding in Morrison v. National Australia Bank. A copy of Judge Holwell’s opinion, in which he eliminated ordinary shareholders from the class and further narrowed the class to only certain investors who purchased the company’s ADRs, can be found here.


The bulk of Judge Holwell’s 124-page opinion is taken up with the parties’ other post-trial motions, particularly Vivendi’s motion to set aside the verdict in whole or in part. Judge Holwell largely denied the motions. However, he declined to enter judgment for the plaintiffs, holding that Vivendi had the right to attempt to attempt to refute the presumption of reliance on an individual basis.



Vivendi is one of the very rare securities class action cases to have gone to trial, and (as far as I know) the only case to have gone to trial involving so-called "f-cubed" claimants – that is, foreign domiciled shareholders of foreign companies who bought their shares on a foreign exchange. As discussed here, on January 29, 2010, following a four-month trial, a federal jury found that with respect to the 57 allegedly misleading statements at issue, Vivendi had violated Section 10(b). However the jury concluded that Vivendi CEO Jean-Marie Messier and CFO Guillame Hannezo had not violated Section 10(b).


The parties filed post-trial motions, and after the U.S. Supreme Court entered its opinion in Morrison v National Australia Bank, the parties submitted supplemental briefs.


With respect to the Morrison-related issues, it is important to note that during the relevant time period, Vivendi’s ordinary shares had traded only on the Paris Bourse. The company’s American Depositary Receipts (ADRs) were listed and traded on the NYSE. In its revised May 2007 order (here), the district court had certified a class in the Vivendi case consisting of Vivendi shareholders located in the U.S., France, England and the Netherlands.


The February 22, 2011 Opinion

In his February 22 opinion, Judge Holwell rejected the plaintiffs’ argument that because Vivendi ADRs were "listed" on the NYSE, the entire class of underlying shares (and not just the specific shares backing the ADRs) were "registered" with the SEC and therefore within the ambit of Section 10(b) (an argument on which the plaintiffs had elaborated in an earlier post on this blog, here).


Judge Holwell worked through the plaintiffs’ "listing" argument, an analysis that because somewhat abstruse as he labored with the complex factual questions whether or not the ordinary shares underlying the ADRs had somehow become "untethered" from the ADRs (perhaps through share redemptions or otherwise). Judge Holwell conceded that plaintiffs’ arguments did give him "pause," but ultimately he concluded that the argument "cannot carry the freight that plaintiffs ask it to bear."


Ultimately, Judge Holwell pushed past the complexity, and even stepped over the question whether Justice Scalia made a mistake in the way he used the word "listing" in the Morrison opinion. Judge Holwell finally dismissed the "listing" argument as "contrary to the spirit" of Morrison’s holding, citing with approval earlier district court opinions in the RBS case (refer here) and in the Alstom case (refer here), among others.


Judge Holwell also rejected the plaintiffs’ argument that Section 10(b)’s ambit extended to U.S. domiciled investors who purchased ordinary Vivendi shares outside the U.S (so-called "f-squared" claimants). In doing so, Judge Holwell, by his own account, joined other courts in "rejecting the argument that a domestic transaction occurs whenever the purchaser or seller resides in the United States." He observed that "there can be little doubt" that the phrase "domestic transaction" was "intended to be with relevance to the location of the transaction, not to the location of the purchaser."


On the basis of these Morrison-related rulings, Judge Holwell amended the class certification to exclude all purchasers of ordinary shares. As amended, the class certification includes persons in the U.S, France, England and the Netherlands who purchased or otherwise acquired Vivendi ADRs during the class period.


The (lengthy) balance of the opinion addresses the parties’ other post-trial motions, which Judge Holwell largely denied, except as to one of the 57 statements at issue, on which he granted Vivendi’s motion to set aside. Of particular interest, among Judge Holwell’s post trial motions is his conclusion that there want nothing fundamentally inconsistent about the jury’s finding of liability against Vivendi while at the same time finding no liability against the two individual defendants.


Finally, Judge Holwell denied plaintiffs’ motion for entry of judgment, holding that Vivendi was entitled to try to rebut the presumption of reliance as to individual investors.



Given the prior district court rulings entered in the wake of Morrison, there is arguably nothing all that surprising about Judge Holwell’s Morrison-related rulings. To be sure, our friends in the plaintiffs’ bar had strong feelings about the "listed" argument, but at least one other judge had already rejected the argument, making Judge Holwell’s ruling that much less novel or noteworthy.


One issue that Judge Holwell did not address, because the parties apparently jointly conceded it, was the question whether or not the ADR transactions themselves did not did not come within the ambit of Section 10(b). At least one court has held, in light of Morrison, that ADR transactions are not "domestic transactions" within the meaning of Morrison. The Vivendi plaintiffs can at least be glad that they did not have the ADR transactions taken out of the class as well – there wouldn’t have been anything left.


But even with the ADR transactions (or at least some of them – see the discussion below) kept in the class, the class damages look materially smaller than they did when the verdict was first entered. At the time, the plaintiffs’ lawyers were quoted as saying that the aggregate class damages might be as much as $9.3 billion. In David Bario’s February 22, 2011 Am Law Litigation Daily article about Judge Holwell’s rulings (here), he quoted Vivendi’s counsel as saying that the effect of Judge Holwell’s rulings is to reduce the plaintiffs damages by 90%. (Of course, the 10% remaining still arguably represents a pretty big number – just not $9.3 billion.)


Though Judge Holwell substantially trimmed the class definition, the remaining class still has some rough edges as a result of the court’s prior class certification rulings. The complex process by which the court defined the class based on its determination that investors in certain countries might or might not enforce a securities law related judgment of a U.S. court is still a part of the revised class definition. Thus ADR investors in the U.S., France, England and the Netherlands are in the class, but not ADR investors in other countries (for example, Germany or Austria) are not . Though this particular issue does look different post Morrison, it is still a fundamental problem in the case left over from an earlier stage that is still out there as a potential source of further challenges, perhaps on appeal.


Judge Holwell’s final note about Vivendi’s right to rebut the presumption of reliance as to individual investors certainly poses some interesting procedural issues. It is not entirely clear how these issues are to be sorted out, although the possibility of individual trials certainly seems to be implied in Judge Holwell’s February 22 order. The possibility for further procedural wrangling seems high.


Special thanks to a loyal reader for sending along a copy of Judge Holwell’s ruling.