Appendix — Vivendi, S.A. v. Gerard (No. 07-154)
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No.07- 07-154 AUGE ~ 2007
INTHE OFFICE OF THE CLERK
Supreme Court of the Gnited States
VIVENDI, S.A.,
Petitioner,
Vv.
OLIVIER GERARD, GERARD MOREL, WILLIAM CAVANAGH,
RETIREMENT SYSTEM FOR GENERAL EMPLOYEES OF THE CITY OF
MIAMI BEACH, and BRUCE DONIGER, INDIVIDUALLY AND, AS
CLASS REPRESENTATIVES, ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED,
Respondents.
ON PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
PAUL C. SAUNDERS
Counsel of Record
DANIEL SLIFKIN
TIMOTHY G. CAMERON
TEENA-ANN V. SANKOORIKAL
CRAVATH, SWAINE & MOORE LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Telephone: (212) 474-1000
Counsel for Petitioner
August 6, 2007
a ae CR A NR I a RR A LL SRE NA
TABLE OF CONTENTS
Page
Opinions & Orders
Appendix A
Appendix B
Appendix C
Rule
Appendix D
Order of the United States Court of
Appeals for the Second Circuit, filed
EEC A-]
Revised Memorandum Opinion and
Order of the United States District Court
for the Southern District of New York,
SERGTOS RABY 24, 2007 occcccovesrsesscesscccceosecesees B-i
Memorandum Opinion and Order of the
United States District Court for the
Southern District of New York, entered
a C-]
Rule 23 of the Federal Rules of Civil
Procedure and Advisory Committee
Notes accompanying _ the 1966
Amendments to Rule 23 .............:.cceceeeseeeeee D-1
Other Material Filed Before the United States Court of
Appeals for the Second Circuit
Appendix E
Motion and Petition of Capital Invest, die
Kapitalanlagegesellschaft der Bank
Austria Creditanstaldt Gruppe Gmbh for
Permission to Appeal Pursuant to Fed. R.
Civ. P. 23(f), filed April 5, 2007................ E-]
Appendix F
Appendix G
Appendix H
Appendix I
Appendix J
ii
Petition of Defendant Vivendi, S.A.
Pursuant to Fed. R. Civ. P.23(f) for
Leave to Appeal from the Distrct Court’s
Class Certification Order, filed April 9,
Motion of Vivendi, S.A. for Leave to
Attach a Letter And Brief from the
Ministére de la Justice of France as
Exhibit B to its Petition for Leave to
Appeal, Pursuant to Fed. R. Civ. P. 23(f),
SS FE Fe BT towsinclitcintitteicnionvitindeniniaian
Brief of the Chamber of Commerce of
the United States of America as Amicus
Curiae in Support of the Petition of
Vivendi, S.A. for Leave to Appeal
Pursuant to Rule 23(f) of the Federal
Rules of Civil Procedure, filed April 17,
Defendant Vivendi, S.A.’s Response to
Plaintiff Capital Invest’s Motion and
Petition for Permission to Appeal
Pursuant to Fed. R. Civ. P. 23(f), filed
PE ee iaieciecintenisnisiitcilatieteeileamhassideaaniatan
Answer of Class Plaintiffs to the
Petitions Filed Pursuant to Fed. R. Civ.
P. 23(f) for Leave to Appeal from the
District Court’s Class Certification
Order, filed April 27, 2007..................:2002+
Other Material Filed Before the United States District
Court for the Southern District of New York
Appendix K Notice of Plaintiffs’ Motion For Class
Certification, filed October 20, 2004..........
Appendix L
Appendix M
Appendix N
Appendix O
Appendix P
Appendix Q
Appendix R
ii
Memorandum of Law in Support of
Plaintiffs’ Motion for Class Certification,
filed October 20, 2004..............cccscscescescsoees L-1
Notice of Plaintiffs’ Substituted Motion
For Class Certification, filed July 15,
TT cesdisnasltiinesessdachinsiahasinitihaiaiiaticaaitibsdinccnaatigehens M-1
Memorandum of Law in Support of
Plaintiffs’ Substituted Motion for Class
Certification, filed July 15, 2005S................ N-1
Vivendi Universal, S.A.’s Memorandum
in Opposition to Plaintiffs’ Substituted
Motion for Class Certification, filed
I Te ikea accnccteccten tein O-]
Plaintiffs’ Reply Memorandum of Law in
Further Support of their Substituted
Motion for Class Certification, filed
po es Bip. SEE ee ee P-]
Vivendi Universal, S.A.’s Sur-Reply
Memorandum of Law in_ Further
Opposition to Plaintiffs’ Substituted
Motion for Class Certification, filed
Be ecestintisnciesinltnsnnsicccsedaiioeasssaias Q-1
Transcript of Oral Argument before
United States District Court for the
Southern District of New York Judge
Richard J. Holwell Concerning Plaintiffs’
Substituted Motion for § Class
Certification, dated July 18, 2006. ............. R-|
iV
Other Materials
Appendix S
Appendix T
Appendix U
Appendix V
Andrew Longstreth, ““Coming to America
When Can Foreign Investors Who
Bought Shares of Foreign Companies on
Foreign Exchanges Sue in the U.S.?
Billions of Dollars in Settlements and
Attorneys’ Fees Can Hang on the
Answer’, Am. Law., Nov. 2006.................. S-1
Mary Jacoby, “Courting Abroad: For the
Tort Bar, A New Client Base: European
Investors”, Wall St. J., Sept. 2, 2005.......... T-1
Richard O. Faulk, “Armageddon
Through Aggregation? The Use and
Abuse of Class Actions in International
Dispute Resolution”, 37 Tort & Ins. L.J.
SPP EG siiccisshiaicasnvinthisnuasinaieidataniaaes U-1
Institutional Shareholder _—_ Services,
“Accountability Goes Global
International Investors and USS.
Securities Class Actions”, (2007),
http://www.issproxy.com/pdf/
AccountabilityGoesGlobal.pdf................... V-1
APPENDIX A
ORDER OF THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT,
FILED MAY 8, 2007
A-]
United States Court of Appeals
FOR THE
SECOND CIRCUIT
At a stated Term of the United States Court of Appeals
for the Second Circuit, held at the Daniel Patrick Moynihan
United States Courthouse, 500 Pearl Street, in the City of
New York, onthe day of two thousand seven,
Present:
Hon. Wilfred Feinberg,
Hon. Guido Calabresi,
Hon. Richard C. Wesley,
Circuit Judges.
In re Vivendi Universal, S.A.
Securities Litigation.
Capital Invest, die
Kapitalanlagegesellschaft der Bank
Austrial Creditanstalt Gruppe GmbH,
Plaintiff-Petitioner-
Cross-Respondent, 07-1419-mv (L)
* 07-1463-mv (con.)
; Sori | 07-1465-mv (con.)
Vivendi Universal, S.A., et ai., 07-1468-mv (con.)
Defendants-Respondents-
Cross-Petitioners.
Petitioners move pursuant to Fed. R. Civ. P. 23(f) for leave to
pursue an interlocutory appeal of the district court’s order
granting in part and denying in part the plaintiffs’ motion for
class certification. The Chamber of Commerce of the United
States of America moves for leave to file a brief in support of
the petitions as amicus cunae. Upon due consideration, it is
hereby ORDERED that the motion of the Chamber of
A-2
Commerce is GRANTED. It is further ORDERED that the
Fed. R. Civ. P. 23(f) petitions are DENIED.
FOR THE COURT:
Thomas Asreen, Acting Clerk
By:_/s/ Lucille Carr
APPENDIX B
REVISED MEMORANDUM OPINION AND ORDER
OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK,
ENTERED MAY 24, 2007
B-]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Eo wewerwcesawenenscrecenss x 02 Civ. 5571
(RJH) (HBP)
IN RE VIVENDI UNIVERSAL, S.A. REVISED
SECURITIES LITIGATION MEMORANDUM
OPINION AND
ORDER
Plaintiffs bring this securities fraud class action against
defendants Vivendi Universal, S.A. (“Vivendi”) and its two
most senior former officers, Jean-Marie Messier (former
CEO) and Guillaume Hannezo (former CFO), individually
and on behalf of similarly situated Vivendi security
purchasers. Plaintiffs allege that defendants’ materially false
and misleading statements caused Vivendi securities to trade
at artificially inflated prices, and further, that defendants
induced them to purchase or otherwise acquire Vivendi
securities pursuant to a registration statement and prospectus
dated October 30, 2000, issued in connection with the
December 8, 2000 three-way merger of Vivendi, Seagram
Company Limited (“Seagram”) and Canal Plus, S.A. (“Canal
Plus”), in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 (“Exchange Act”), as
amended, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated
thereunder, and Sections 11, 12(a) , and 15 of the Securities
* The Court’s Memorandum Opinion and Order entered on March 26,
2007 is hereby revised to correct typographical errors on page two and
sixty-eight that incorrectly stated that plaintiff's proposed class period
begins on October 20, 2000; plaintiff's proposed class period begins on
October 30, 2000.
B-2
Act of 1933 (“Securities Act”), as amended, 15 U.S.C. § 77k,
respectively.’
Plaintiffs now move to certify a class pursuant to Rules
23(a) and 23(b)(3) of the Federal Rules of Civil Procedure
consisting of all persons, foreign and domestic, who
purchased or otherwise acquired ordinary shares or American
Depository Shares (“ADSs”) of Vivendi Universal, S.A.
between October 30, 2000 and August 14, 2002. For the
reasons discussed below, the Court grants plaintiffs’ motion
[234] in part and denies it in part.
BACKGROUND
Prior History
This litigation was commenced on July 18, 2002 with
the filing of the original complaint. On August 19, 2002,
plaintiffs filed an amended consolidated complaint. By Order
dated October 1, 2002, the Hon. Harold Baer, Jr., to whom
this action was originally assigned, consolidated fourteen
related actions against Vivendi. On January 7, 2003,
plaintiffs filed a consolidated class action complaint.
Additional shareholder cases were consolidated herewith by
Orders dated July 25, 2003 and September 3, 2003. By notice
dated January February 24, 2003, defendants moved to
dismiss the consolidated class action complaint arguing, inter
alia, that the Court lacked subject matter jurisdiction over the
claims brought by foreign class members who acquired
Vivendi’s ordinary shares on foreign exchanges. Applying
the “conduct test” to determine whether extraterritorial
application of the federal securities laws was warranted,
' The Section 12(a)(2) claim as alleged against defendant Hannezo in his
individual capacity was dismissed in Jn re Vivendi Universal, S.A. Sec.
Litig., 381 F. Supp. 2d 158, 187 (S.D.N.Y. 2003), and was not repleaded
in the first amended consolidated class action complaint. (See Stipulation
and Order [107] , Dec. 17, 2003.) The Section 12(a)(2) claim as alleged
against defendant Messier remains.
B-3
Judge Baer, by opinion dated November 4, 2003, denied
defendants’ motion to dismiss for lack of subject matter
jurisdiction. See In re Vivendi Universal, S.A., 381 F. Supp.
2d at 169. Judge Baer concluded that plaintiffs’ complaint
adequately alleged that “‘defendants’ conduct in the United
States was more than merely preparatory to the fraud, and
particular acts or culpable failures to act within the United
States directly caused losses to foreign investors abroad.’”’ Jd.
(quoting Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991));
see also id. at 170 (inferring “that the alleged fraud on the
American exchange was a ‘substantial’ or ‘significant
contributing cause’ of [foreign investor’s] decision[s] to
purchase [Vivendi’s] stock abroad”) (bracketed language in
original, citation omitted). Plaintiffs filed a first amended
consolidated class action complaint (“FACC”) on
November 24, 2003. Shortly thereafter, on December 4, 2003
this case was reassigned to this Court. Defendants then
moved for reconsideration of Judge Baer’s order, which this
Court denied by order dated September 21, 2004. The Court
issued a separate Memorandum Opinion and Order
addressing one of the many issues raised in defendants’
motions for reconsideration; namely, whether this Court has
subject matter jurisdiction over foreign plaintiffs’ claims
pursuant to Section 10(b) of the Exchange Act and Rule 10b-
5 promulgated thereunder. See In re Vivendi Universal, S.A.,
No. 02 Civ. 5571 (RJH), 2004 WL 2375830 (S.D.N.Y. Oct.
22, 2004). In concluding that the claims of foreign class
members who acquired Vivendi’s ordinary shares on foreign
exchanges were properly before the Court and subject to U.S.
federal securities laws, the Court reasoned that the United
States—based conduct alleged by plaintiffs “significantly
contributed to the alleged fraud and that such conduct
directly caused foreign investors’ alleged losses.” /d. at *7
(citing Europe & Overseas Commodities Traders, S.A. v.
Banque Paribas London, 147 F.3d 118, 128-29 (2d Cir.
1998)).
B-4
By notice dated July 15, 2005, plaintiffs filed a
substituted motion to certify a class pursuant to Rules 23(a)
and 23(b)(3) of the Federal Rules of Civil Procedure.” As
noted, the proposed class consists of all persons who
purchased or otherwise acquired Vivendi ordinary shares or
ADSs between October 30, 2000 and August 14, 2002. The
motion seeks appointment of plaintiffs Olivier M. Gerard, the
Retirement System for General Employees of the City of
Miami Beach (“RSMB”), Bruce Doniger, Gerard Morel,
Capital Invest Die Kapitalanlagegesellschaft der Bank
Austria Creditanstalt Gruppe GmbH (in its capacity as
manager of and attorney-in-fact for APK EU-Big Caps Fund)
(“Capital Invest”), and William Cavanagh (collectively,
“proposed class representatives”), as class representatives,
and Milberg, Weiss, Bershad & Shulman LLP and Abbey
Gardy, LLP as class counsel. (/d.)
? In the First Amended Consolidated Complaint, plaintiffs defined the
proposed class as follows:
(a) on behalf of themselves and all persons who purchased or
otherwise acquired the common stock and American
Depository Shares (“ADSs”) of Vivendi (the “Purchaser
Class”) between October 30, 2000 and August 14, 2002
inclusive (the “Class Period”), alleging violations of the
Securities Exchange Act of 1934 (the “Exchange Act’); (b) on
behalf of themselves and all persons who acquired Vivendi’s
common stock or ADSs (the “Merger Subclass”) pursuant to a
registration statement and prospectus dated October 30, 2000
issued in connection with the three-way merger (the “Merger”)
of Vivendi, $.A., The Seagram Company Limited (““Seagram’’)
and Canal Plus, S.A. (“Canal Plus”) that created Vivendi
Universal, S.A., alleging violations of the Securities Act of
1933 (the “Securities Act”); and (c) on behalf of themselves
and all persons who were shareholders of Vivendi or Seagram
as of November 25, 2000 and entitled to vote on the Merger
(the “Proxy Subclass”) pursuant to the Joint Proxy Statement-
Prospectus issued in connection with the Merger, alleging
violations of the Exchange Act.
(FACC 4 1.) Plaintiffs’ class certification motion and supporting
memoranda do not propose any subclasses for certification.
B-5
Factual Background
Vivendi is a corporation organized under the laws of
France. It is a global conglomerate engaged in business in
two primary areas: “Media and Communications” and
“Environmental Services.” (FACC 4 30.) Throughout the
class period, Vivendi’s total number of outstanding shares
(ordinary shares and ADSs inclusive) was approximately
1.08 billion. (Declaration of Francois Bisiaux in Support of
Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion for
Class Certification, Sept. 30, 2005 (“Bisiaux Decl.”), Exs. 1-
5.) Approximately twenty-five percent of these were held by
United States shareholders. (/d.) Around thirty-seven percent
of Vivendi’s total shares were held by French shareholders.
(id.) The remainder of Vivendi’s shares were held
predominantly by non-French but European persons or
entities, and a small percentage (around five percent) was
consistently held by shareholders in other unidentified
countries. (/d.) During this time, virtually all of Vivendi’s
ADSs—which traded on the NYSE—were held by persons
or entities in North America, while virtually all of Vivendi’s
ordinary shares—traded predominantly on the Paris
Bourse—were held by persons or entities outside the United
States, predominantly in France and the rest of Europe.
(Bisiaux Decl. 4] 7.)
Beginning in June of 1996, at which time defendant
Messier became CEO and defendant Hannezo was CFO,
Vivendi (then Générale des Eaux, and later, as of April 1999,
Vivendi, S.A.) embarked upon a massive acquisitions
venture, which included a number of multi-billion dollar
purchases. (FACC 4] 48-51.) Vivendi purchased substantial
equity positions in several U.S. companies and non-US.
companies by using Vivendi stock as payment and by
borrowing cash against future earnings. Financing this
growth strategy caused Vivendi to accumulate sizeable debt.
(Id. § 50.) Plaintiffs allege that in order to sustain Vivendi’s
growth strategy, the company was compelled to continue
B-6
reporting favorable financial results (see id. | 53), resulting
in a series of false and misleading public statements reporting
“better than expected” and “strong” financial results, while
consistently denying rumored problems (see generally id.
56-113), and the filing of financial statements with the
United States Securities and Exchange Commission (“SEC”)
that were materially false and misleading because, inter alia,
they failed to timely record goodwill impairments’ and
improperly applied generally accepted accounting principles
(“GAAP”) (see generally id. fj 54-55, 119-80).
As discussed in Judge Baer’s prior opinion denying
defendants’ motion to dismiss, 381 F. Supp. 2d 158, and this
Court’s prior supplemental opinion denying defendants’
motion for reconsideration, 2004 WL 2375830, the fraud
alleged in the FACC was perpetrated, in important part, in
the United States. Vivendi’s rapid-expansion scheme
involved the acquisition of numerous well-known U.S.
entertainment and publishing companies, such as Universal
Studios, Houghton Mifflin and USA Networks (FACC 23),
and in order to successfully accomplish this plan, it took on a
$21 billion debt while, allegedly, fraudulently assuring all
investors through false and misleading reports filed with the
SEC and news releases that it had sufficient cash-flow to
manage its debts (id. {J 24, 54-192). Significantly, both of
the alleged principal actors in this scheme, Messier and
Hannezo, moved to the United States during 2001. Messier,
in particular, moved his primary residence to New York in
September 2001, and spent half of his time in the United
States from that time through the end of the class period
(August 31, 2002), for the stated purpose of increasing
> Goodwill is the excess of the purchase price over the fair market value
of an asset. It reflects the value of intangible assets like reputation, brand
name, good customer relations, good employee relations, any patents and
proprietary technology, and other intangibles that improve a company’s
business. Goodwill is a value in a company’s balance sheet, and is
amortized over a period of time.
B-7
United States investments in Vivendi. (Jd. J] 69, 77, 90-92,
105.) Many of the statements alleged to be false and
misleading were made by defendant Messier after he had
moved to New York. See 2004 WL 2375830, at *4; (see also
FACC 4 73-76, 81-97.)
Following the December 8, 2000 merger of Vivendi,
Seagram, and Canal Plus, Vivendi repeatedly predicted
“strong growth prospects” and touted financial results as
exceeding even their “too ambitious” expectations. (Jd. § 57-
68.) In September 2001—the same time that Messier and
Hannezo moved to the United States—rumors began to
circulate that Vivendi’s earnings would be disappointing.
Messier responded by consistently denying any problems—
indeed, until the day before his ultimate resignation he
disavowed there was any serious problem—which quelled
some of the negative speculation. (See id. §] 73-77.) In late
2001, Vivendi announced its acquisition of USA Networks
for $10.3 billion, and reported that the transaction would
increase Vivendi’s net free cash flow by a projected $350
million. (/d. $f] 80-81.) Throughout the spring of 2002,
Vivendi (and Messier) continued to make positive statements
in the press to “dispel concerns about the Compan[y’s] debt
levels and accounting practices.” (/d. 983; see also id. | 84—
87, 89, 94-97.) However, on May 3, 2002, Moody’s lowered
Vivendi’s long-term debt rating to one notch above “junk”
status assigned to speculative investments, due to concerns
that Vivendi “might not be able to reduce debts as quickly
and comprehensively as planned.” (/d. { 99.) In response,
Vivendi downplayed the rating and announced it had “no
impact on Vivendi Universal’s cash situation,” which it
described as “comfortable” and capable of financing
Vivendi’s continued debt reduction. (/d. $j 100, 102-03.)
In response to continued concerns about Vivendi’s debt
levels, a June 25, 2002 press release was issued, noting steps
taken to reduce debt and that its cash situation was not
precarious, and Messier held a June 26, 2002 conference call
B-8
to assure investors there was “no hidden liability’ and
expressing confidence with respect to Vivendi’s debt and
cash outlook. (/d. §] 104-05.) On July 2, 2002, Messier e-
mailed his employees stating that despite reports that Vivendi
was in danger of default, there were no hidden risks in the
company’s accounting. (/d. J 109.) The very next day,
however, Messier resigned and Vivendi’s securities prices
collapsed. (/d.) Vivendi issued a press release through new
management acknowledging its “short-term liquidity issue,”
though Messier continued to claim that Vivendi’s financial
statements were transparent. (/d. § 110.) Contrary to
Vivendi’s numerous press releases, financial statements, and
SEC filings throughout the class period, plaintiffs allege that
the company was in fact on the brink of financial disaster. At
the time of the USA Networks acquisition, announced on
December 17, 2001 (id. ¥ 8), “Vivendi was already in dire
financial straits,” despite representations made to the contrary
by Messier to investors and the board of directors (id. { 184).
Vivendi was allegedly on the verge of insolvency by the end
of 2001, and had barely enough “cash needed to pay the
bills” as of May 2002. (Jd. § 185.) Nevertheless, Vivendi had
continued to reassure investors that it could meet its
obligations for the next twelve months, despite being
privately advised of its dire financial outlook. (Jd. ¥ 186.)
On August 14, 2002, new management announced that
Vivendi had suffered a €12 billion net loss for the first half of
2002 and would take a €11 billion goodwill write-down of
depreciated assets, the same day that Standard & Poor’s rated
Vivendi’s long-term corporate credit at junk status. (/d. {
114.) New management later admitted that Vivendi “would
have been forced to declare bankruptcy within 10 days if
Jean-Marie Messier had not resigned.” (Jd. | 187.)
B-9
DISCUSSION
I. Legal Standard
A district court’s analysis of a class certification request
generally proceeds in two steps, both of which are governed
by Rule 23 of the Federal Rules of Civil Procedure. As a
threshold matter, the court must be persuaded, “after a
rigorous analysis, that the prerequisites of Rule 23(a) have
been satisfied.” Gen. Tel. Co. of Southwest v. Falcon, 457
U.S. 147, 161 (1982). Rule 23(a) provides:
(a) Prerequisites to a Class Action. One or more
members of a class may sue or be sued as
representative parties on behalf of all only if
(1) the class is so numerous that joinder of all
members is impracticable, (2) there are questions
of law or fact common to the class, (3) the claims
or defenses of the representative parties are typical
of the claims or defenses of the class, and (4) the
representative parties will fairly and adequately
protect the interests of the class.
Fed. R. Civ. P. 23(a).
If a court determines that the Rule 23(a) requirements
have been met, it must then decide whether the class is
maintainable pursuant to one of the subsections of
Rule 23(b), which govern, inter alia, the form of available
relief and the nghts of absent class members. When seeking
to certify a class pursuant to Rule 23(b)(3), plaintiffs must
meet the following two additional criteria: (1) questions of
law or fact common to class members must predominate over
any questions affecting individual members; and (2) the class
action device must be superior to any other method of
adjudication. Fed. R. Civ. P. 23(b)(3). The requirement of
“nigorous analysis” to ensure “actual, not presumed
conformance” with Rule 23(a) applies with “equal force to
all Rule 23 requirements, including those set forth in
B-10
Rule 23(b)(3).” Miles v. Merrill Lynch & Co. (In re Initial
Public Offering Sec. Litig.), 471 F.3d 24, 33 & n.3 (2d Cir.
2006) (citing Falcon, 457 U.S. at 160-61). Thus it is not
sufficient for plaintiffs to make merely “some showing” that
the requirements of Rule 23 have been met. Jd. at 35-36
(citing and distinguishing Caridad v. Metro-North Commuter
Railroad, 191 F.3d 283, 292 (2d Cir. 1999) and Jn re Visa
Check/Master Money Antitrust Litigation, 280 F.3d 124, 134-
35 (2d Cir. 2001)). To the contrary, the following standard
now applies to class certification motions in this circuit:
(1) a district judge may certify a class only after
making determinations that each of the Rule 23
requirements has been met; (2) such
determinations can be made only if the judge
resolves factual disputes relevant to each Rule 23
requirement and finds that whatever underlying
facts are relevant to a particular Rule 23
requirement have been established and _ is
persuaded to rule, based on the relevant facts and
the applicable legal standard, that the requirement
is met; (3)the obligation to make such
determinations is not lessened by overlap between
a Rule 23 requirement and a merits issue, even a
merits issue that is identical with a Rule 23
requirement; (4) in making such determinations, a
district judge should not assess any aspect of the
merits unrelated to a Rule 23 requirement; and
(5)a district judge has ample discretion to
circumscribe both the extent of discovery
concerning Rule 23 requirements and the extent of
a hearing to determine whether such requirements
are met in order to assure that a class certification
motion does not become a pretext for a partial tral
of the ments.
In re IPO Sec. Litig., 471 F.3d at 41. With these principles in
mind, the Court turns to the Rule 23 analysis.
B-11
Il. Rule 23(a)
A. Numerosity
Rule 23(a)(1) requires that the proposed class be “so
numerous that joinder of all members is impracticable.” Fed.
R. Civ. P. 23(a)(1). “Impracticability means difficulty or
inconvenience of joinder [not] . . . impossibility of joinder,”
In re Blech Sec. Litig., 187 F.R.D. 97, 103 (S.D.N.Y. 1999)
(citation omitted), and the Second Circuit has observed that
“numerosity is presumed at a level of 40 members.” Consol.
Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir.
1995), cert. denied, 515 U.S. 1122 (1995) (citing 1 Newberg
on Class Actions § 3.05 (2d ed. 1985)); see also Presbyterian
Church v. Talisman Energy, Inc., 226 F.R.D. 456, 466
(S.D.N.Y. 2005) (“Numerosity is presumed when a class
consists of forty or more members.”). “Precise quantification
of the class members is not necessary because a court may
make common sense assumptions regarding numerosity.” Jn
re Blech Sec. Litig., 187 F.R.D. at 103 (citations omitted);
see aiso de la Fuente v. DCI Telecomms., Inc., 206 F.R.D.
369, 390 (S.D.N.Y. 2002); Weissman v. ABC Fin. Servs.,
Inc., 203 F.R.D. 81, 84 (E.D.N.Y. 2001).
“In securities fraud class actions relating to publicly
owned and nationally listed corporations, the numerosity
requirement may be satisfied by a showing that a large
number of shares were outstanding and traded during the
relevant period.” Teachers’ Ret. Sys. of La. v. ACLN Lid.,
No. O01 Civ. 11814 (LAP), 2004 WL 2997957, at *3
(S.D.N.Y. Dec. 27, 2004) (citations and internal quotation
marks omitted)); see also In re Globalstar Sec. Litig., No. 01
Civ. 1748 (PKC), 2004 WL 2754674, at *3—*4 (S.D.N.Y.
Dec. 1, 2004) (“{I]t is not unusual for district courts to certify
plaintiff classes in securities actions based on the volume of
outstanding shares.” (citations omitted)); Jn re Deutsche
Telekom AG Sec. Litig., 229 F. Supp. 2d 277 (S.D.N.Y.
2002) (“Class certification is frequently appropriate in
B-12
securities fraud cases involving a large number of shares
traded publicly in an established market.”’); /n re Frontier
Group Ins., Inc. Sec. Litig., 172 F.R.D. 31, 40 (E.D.N.Y.
1997). With more than 107 million ADSs and approximately
| billion ordinary shares outstanding during the relevant class
period, plaintiffs have established that joinder is
impracticable and that the proposed class satisfies the
numerosity requirement. (See FACC 4] 41; Bisiaux Decl. Ex.
2 (indicating 1.086 billion outstanding Vivendi shares,
ordinary shares and ADSs inclusive, as of June 30, 2001).)
B. Commonality
The class certification prerequisite of commonality
requires that “there are questions of law or fact common to
the class ... .” Fed. R. Civ. P. 23(a)(2); Marisol A. v.
Giuliani, 126 F.3d 372, 376 (2d Cir. 1997) (per curiam)
(“[Pjlaintiffs’ grievances [must] share a common question of
law or of fact.””). Not every “issue[] must be identical as to
each [class] member, but . . . plaintiff [must] identify some
unifying thread among the members’ claims that warrants
class treatment.” Cutler v. Perales, 128 F.R.D 39, 44
(S.D.N.Y. 1989) (internal quotation marks and citation
omitted). The commonality requirement “has been applied
permissively” in securities fraud litigation. Jn re Nortel
Networks Corp. Sec. Litig., No. 01 Civ. 1855 (RMB), 2003
WL 22077464, at *3 (S.D.N.Y. Sept. 8, 2003) (internal
quotation marks omitted); see also In re Frontier, 172 F.R.D.
at 40. Here, plaintiffs allege the following questions of fact or
law are common to all members of the proposed class:
(1) whether defendants violated the securities laws by the
acts and conduct alleged in the FACC; (2) whether
defendants issued false and misleading statements during the
class period; (3) whether defendants acted with scienter in
issuing materially false and misleading statements;
(4) whether the market prices of Vivendi ordinary shares and
ADSs during the class period were artificially inflated
because of defendants’ misconduct, and (5) whether the
B-13
members of the class sustained damages, and, if so, what is
the appropriate measure of damages. (FACC ¥ 45.) Cf Jn re
Interpublic Sec. Litig., No. 02 Civ. 6527 (DLC), 2003 WL
22509414, at *3 (S.D.N.Y. Nov. 6, 2003) (finding
commonality requirement satisfied where plaintiffs raised
common issues as to whether defendants’ public filings and
statements contained material misstatements, whether the
defendants acted with scienter in misrepresenting material
facts in the company’s public filings and press releases, and
whether the damages to the investors were caused by the
defendants’ misstatements); Jn re Ashanti Goldfields Sec.
Litig., No. CV 00-0717 (DGT), 2004 WL 626810, at *12
(E.D.N.Y. Mar. 30, 2004) (finding commonality on similar
allegations). Defendants do not dispute commonality.
Plaintiffs have adequately demonstrated that these claims are
common to the members of the proposed class, and the Court
finds the commonality requirement is satisfied.
C. Typicality and Adequacy
Rule 23(a)(3) requires that “the claims or defenses of
the representative parties are typical of the claims or defenses
of the class.” Fed. R. Civ. P. 23(a)(3). “While the
commonality inquiry establishes the existence of a certifiable
class, the typicality inquiry focuses on whether the claims of
the putative class representatives are typical of the class
sharing common questions.” Jn re Frontier, 172 F.R.D. at 40.
Typicality requires that “the claims of the named plaintiffs
arise from the same practice or course of conduct that gives
rise to the claims of the proposed class members.” Marisol A.
v. Giuliani, 929 F. Supp. 662, 691 (S.D.N.Y. 1996), aff'd 126
F.3d 372 (2d Cir. 1997); see also Robidoux v. Celani, 987
F.2d 931, 936-36 (2d Cir. 1993) (“When it is alleged that the
same unlawful conduct was directed at or affected both the
named plaintiff and the class sought to be represented, the
typicality requirement is usually met irrespective of minor
variations in the fact patterns underlying individual claims.”).
Rule 23(a)(4) requires plaintiffs to establish that “the
B-14
representative parties will fairly and adequately protect the
interests of the class.” Fed. R. Civ. P. 23(a)(4). This showing
requires that plaintiffs demonstrate that the proposed class
representatives have no “interests [that] are antagonistic to
the interest of the other members of the class.” Baffa v.
Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 60
(2d Cir. 2000). As many courts have observed, the issues of
typicality and adequacy tend to merge because they “serve as
guideposts for determining whether . . . the named plaintiff's
claim and the class claims are so inter-related that the
interests of the class members will be fairly and adequately
protected in their absence.” Falcon, 457 U.S. at 157 n.13.
In this case, proposed class representatives argue that
the typicality requirement is met because their claims “arise
out of the same uniform pattern of conduct—i.e., defendants’
failure to disclose that Vivendi’s operations and financial
condition were dramatically weaker than what their public
statements portrayed.” (Pls.” Supp. Mem. 11.) In the First
Amended Consolidated Complaint, named plaintiffs, like the
other purported class members, have asserted that they
purchased or otherwise acquired Vivendi securities during
the class period, and were injured by defendants’ false and
misleading representations made throughout the class period
in violation of the securities laws. Central to all the proposed
class representatives claims is defendants’ alleged course of
conduct throughout the class period. In prosecuting their
case, plaintiffs will necessarily seek to develop facts relating
to the alleged accounting irregularities and the dissemination
of allegedly false or misleading statements underlying their
claims. Such allegations are generally considered sufficient
to satisfy the typicality requirement. See, eg, In re
Interpublic Sec. Litig., No. 02 Civ. 6527 (DLC), 2003 WL
22509414, at *3 (S.D.N.Y. Nov. 6, 2003); In re WorldCom
Inc. Sec. Litig., 219 F.R.D. 267, 280-81 (S.D.N.Y. 2003).
Furthermore, defendants’ individualized arguments regarding
the adequacy and typicality of the proposed class
representatives are unavailing. The Court will address
B-15
seriatim the arguments made with respect to the six named
plaintiffs.
1. Olivier Gerard
Proposed class representative Gerard is a resident of
France who, on December 11, 2000, exchanged Vivendi,
S.A. shares for Vivendi Universal shares pursuant to the
three-way merger with Seagram and Canal Plus. (See
Deposition of Olivier Marie-Guillaume Gerard, June 24,
2005 (“Gerard Dep.) at 81:05—82:13; Gerard Second
Corrected Certification, June 24, 2005 at Schedule A, Zach
Decl. Ex. 7.)
Defendants submit that Gerard is not an adequate class
representative for two reasons. First, defendants argue that
persons such as Gerard who obtained Vivendi Universal
shares and/or ADSs only in the one-to-one exchange of
Vivendi, S.A. securities may not be properly included in the
putative class, because such persons’ did not suffer economic
damage and cannot prove materiality. (See Defs.’ Opp’n
Mem. (“Opp’n’”) 21-23, 27.)
Defendants argue that this group of class members, as
preexisting Vivendi shareholders, “cannot show that the
alleged misstatement inflating the value of shares or ADSs
that they already owned was material to them or caused them
any economic damage.” (Opp’n 21.)
Plaintiffs propose as a solution to defendants’ concerns
that the words “and were damaged thereby” be inserted into
the class definition. Plaintiffs also argue that it would be
premature to exclude class members who have exchanged
Vivendi S.A. shares for Vivendi Universal shares because the
* Defendants’ contention that all foreign persons should be excluded from
the proposed class is discussed infra in connection with an evaluation of
whether a class action including foreign shareholders would be superior
to alternative methods of adjudication.
B-16
question of whether defendants’ misstatements were material
to these plaintiffs cannot be determined at the class
certification stage.
Given the teaching of Jn re IPO Sec. Litig., 471 F.3d at
41-42, it is not inappropriate to consider either damages or
materiality in assessing the typicality of the individual
plaintiffs’ claims, even though some assessment of the merits
of their claims is required. However, the Court is not
persuaded that either issue precludes a finding that the
typicality requirement is satisfied here. Materiality for all
class members will turn on the nature and accuracy of all
defendants public statements including, obviously, those
made in connection with the three-way merger of Vivendi,
Seagram and Canal Plus in December, 2000. That Vivendi
S.A. shareholders received Vivendi Universal shares as a
result of the merger does not alter the materiality of
defendants alleged misstatements to plaintiff-shareholders’
decision to approve the merger and accept shares in a new
entity. And to the extent that, as alleged, defendants were
constructing an ever-expanding house of cards, old Vivendi
S.A. shareholders who accepted shares in Vivendi Universal
were likely damaged thereby.° Therefore, the Court declines
* In addition to opposing the inclusion of those who acquired Vivendi
shares through the one-for-one exchange, defendants oppose the inclusion
of so-called in-and-out purchasers in any class certified—i.e., those who
purchased shares and sold them during the class period. Defendants do
not oppose the appointment of any of the proposed class representatives
on this basis. However, even if they did raise such an argument, courts
have consistently found that this does not render a representative’s claim
atypical. See, e.g., In re Gaming Lottery Sec. Litig., 58 F. Supp. 2d 62,
69-71 (S.D.N.Y. 1999) (rejecting defendants’ argument that in-and-out
purchaser proposed as class representative was inadequate because, inter
alia, he was not injured because he sold as well as purchased at inflated
prices); Werner v. Satterlee, Stephens, Burke & Burke, 797 F. Supp.
1196, 1215 (S.D.N.Y. 1992) (rejecting attempt to disqualify proposed
class representatives because of the timing of their purchases, and stating
that although timing issues could eventually surface differing interests
among class members, “the greater weight of recent authority militates
B-17
to exclude members of the class who acquired their shares in
the one-to-one exchange, including Gerard as class
representative, on the basis of defendants’ arguments
regarding damages or materiality.
Defendants also allege that Gerard is incapable of
performing the fiduciary responsibilities as a class
representative because Gerard admitted to destroying
documents. (Opp’n 27-28 n.23.) The documents to which
defendants allude, however, appear to be French and other
European newspaper articles relating to the Vivendi scandal,
and perhaps some personal notes taken by Gerard during
meetings with his French attomey. (Gerard Dep. 28:24-
29:16, 30:23—31:02.) Gerard testified that he discarded the
news articles because he believed the attorneys in this matter
had collected all the relevant documentation and articles
published in the press, and there was no reason for him to
keep it. (Jd. at 29:11-30:05.) Defendants cite no authority to
support the proposition that such conduct renders Gerard
inadequate to represent the interests of the class, and the
Court finds Gerard to be an adequate class representative.
See, e.g., In re Initial Pub. Offering Sec. Litig., 227 F.R.D.
65, 88 (S.D.N.Y. 2004) (rejecting defendants’ credibility
argument to defeat appointment of named plaintiff as class
representative where “[tJhere [was] no evidence that any of
the conduct here was the result of bad faith or an attempt to
deceive defendants or the court”).
denying class certification on that ground” (internal citation omitted)); Jn
re Sumitomo Copper Litig., 182 F.R.D. 85 (S.D.N.Y. 1998) (rejecting
defendants’ arguments regarding conflicts created by inclusion of in-and-
out purchasers in proposed subclasses and noting that “it is well settled in
this Circuit that factual differences in the amount of damages, date, size
or manner of purchase, the type of purchaser, the presence of both
purchasers and sellers, and other such concerns will not defeat class
action certification when plaintiffs allege that the same unlawful course
of conduct affected all members of the proposed class” (citing Green v.
Wolf, 406 F.2d 291, 299-301 (2d Cir. 1968), cert. denied sub nom.
Troster, Singer & Co. v. Green, 395 U.S. 977 (1969))).
B-18
2. Gerard Morel
Gerard Morel is also a French resident who exchanged
his shares in Vivendi, S.A. and Canal Plus for Vivendi
Universal shares after the December 2000 merger.
(Declaration of Gerard Morel, Feb. 19, 2005 (“Morel Decl.”)
at Schedule A, Zach Decl. Ex. 8.) He also bought and sold
Vivendi ordinary shares on the Paris Bourse during the
proposed class period. (/d.) His last transaction in Vivendi
securities occurred on January 11, 2002. (/d.)
Defendants argue that Morel only has standing to
represent a class including Europeans who purchased
Vivendi securities on a European exchange up to the latest
date on which he engaged in a transaction involving Vivendi
stock. (Opp’n 28.) Without an adequate proposed class
representative who purchased Vivendi ordinary shares on the
Paris Bourse after January 11, 2002, defendants argue, the
period of any class including French shareholders cannot
extend beyond this date.° Defendants further argue that
inconsistencies in Morel’s testimony, submissions, and
document production on the issue of his transactions in
Vivendi securities will become a focal point of cross-
examination and unique defenses at trial to the detriment of
the class. (/d. at 28 n.25.)
With respect to class representative standing, it is well
established that where, as here, plaintiffs allege that their
losses were the result of a sustained course of conduct that
propped up defendant’s stock price throughout the class
period, the class may be represented by an individual who
purchased his shares prior to the close of the class period. See
Robbins v. Moore Med. Corp., 788 F. Supp. 179, 187
(S.D.N.Y. 1992) (finding class representatives entitled to
° Defendants, as noted, object to the inclusion of any foreign shareholders
in the proposed class. See supra, fn. 5, and the discussion of the issue of
superionity, infra.
B-19
assert Section 10(b) claims “arising from statements made
both before and after the purchase date if the statements
allegedly were made in furtherance of a common scheme to
defraud” (citing Nicholas v. Poughkeepsie Savings
Bank/FSB, No. 90 Civ. 1607 (RWS), 1990 WL 125154, at *5
(S.D.N.Y. Sept. 27, 1990))); Zucker v. Sasaki, 963 F. Supp.
301, 306-07 (S.D.N.Y. 1997) (discussing Robbins and noting
that where defendants with an identity of interest make a
series of “inter-related misstatements” as part of a “common
course of conduct,” post-purchase statements are relevant to
the course of wrongful conduct alleged); cf Denny v. Barber,
576 F.2d 465, 468-69 (2d Cir. 1978) (finding that proposed
Class representative could not properly represent persons who
bought securities in reliance on fraudulent statements where
he had purchased before any alleged false statements were
made). As such, the Court finds that Morel may adequately
represent later purchasers. See Nicholas, 1990 WL 145154, at
*6 (rejecting implication that only someone who bought on
the last day of the class period would be able to bring an
action on her own behalf or on behalf of the entire class, and
stating “there is considerable authority allowing class
plaintiffs to represent later purchasers” (internal citations
omitted)).
3. Capital Invest
Capital Invest, the fund management company of the
Bank Austria Greditanstalt Gruppe GmbH (“Bank Austria’),
seeks to represent the claims of APK EU-Big Caps fund
(“Big Caps Fund”), in its capacity as manager and attorney-
in-fact. (Declaration of Irene Reisenberger, August 30, 2005
(“Reisenberger Decl.”) 4 2, Zach Decl. Ex. 12.) The sole
owner of the shares (i.e., units) in the Big Caps Fund is a
large Austrian pension entity known as APK Pensionskasse
Aktiengesellschaft (“APK”). The Big Caps Fund obtained
Vivendi Universal shares in exchange for previously held
Vivendi, S.A. shares, and also purchased and sold Vivendi
Universal shares on foreign exchanges, the last purchase of
B-20
which occurred on January 21, 2002. (Zach Decl. Exs. 15,
16.) For reasons discussed in greater detail below, Austrian
claimants shall be excluded from the class in this action.
Therefore, the Court finds it unnecessary to address
typicality/adequacy of representation issues as they relate to
this plaintiff as it cannot properly serve as a class
representative.
4. William Cavanagh
William Cavanagh is a United States resident. He
purchased 100 Vivendi Universal ADSs on the NYSE on
June 13, 2002. (Zach Decl. Ex. 31, at 21; Deposition of
William Cavanaugh, July 29, 2005, Parr Decl. Ex. 24
(“Cavanaugh Dep.”) at 170:23-171:07.) Defendants dispute
Cavanagh’s adequacy as a class representative because of his
“striking” lack of knowledge regarding his claim. (Opp’n
34.) Defendants cite the following examples in support of
this argument: (1) Cavanagh’s inability to recall the year the
complaint was filed, the relevant dates for the proposed class
period, or how he decided to seek to become a proposed class
representative, or to articulate key elements of the claims;
(2) Cavanagh’s similar inability to testify regarding his
transactions in Vivendi securities beyond testifying that he
sold his 100 Vivendi Universal shares at some point, though
he did not ki” wien or at what price (Cavanaugh Dep.
259:23-260:11, 1$1:14-182:03); (3) Cavanagh’s failure to
monitor class coumsel, as evidenced by his inability to
recollect ever meeting or speaking with any attorney
associated with the Milberg Weiss law firm, and only works
with attorneys from the law firms of Murray Frank and
Abbey Gardy (id. at 15:25—16:19, 278:25—280:02).
“The Supreme Court... expressly disapproved attacks
on the adequacy of a class representative based on the
representative’s ignorance.” Baffa, 222 F.3d at 61 (citing
Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 370-74
(1966)). Courts in this district have held that “{p]laintiffs are
B-21
entitled to rely on the ‘expertise of counsel,” and “a class
representative will be found inadequate due to ignorance only
when they ‘have so little knowledge of and involvement in
the class action that they would be unable or unwilling to
protect the interests of the class against the possibly
competing interests of the attorneys.” /n re Worldcom Inc.
Sec. Litig., 219 F.R.D. 267, 286 (S.D.N.Y. 2003) (quoting
Baffa, 222 F.3d at 61); accord Maywalt v. Parker & Parsley
Petroleum Co., 67 F.3d 1072, 1077-78 (2d Cir. 1995). “{I]t
is well established that ‘in complex litigations such as
securities actions, a plaintiff need not have expert knowledge
of all aspects of the case to qualify as a class representative,
and a great deal of reliance upon the expertise of counsel is to
be expected.’” Fogarazzo v. Lehman Bros., Inc., 232 F.R.D.
176, 181 (S.D.N.Y. 2005) (quoting Jn re AM Ini’l, Inc. Sec.
Litig., 108 F.R.D. 190, !-2-97 (S.D.N.Y. 1985)).
Despite defendants’ concerns regarding Cavanaugh’s
imperfect recollections outlined above, there is nothing in the
record to suggest that Cavanaugh is unwilling or unable to
pursue the litigation on behalf of the class. Cavanaugh’s
deposition testimony reflects that he is aware that he is a
proposed class representative (Cavanaugh Dep. 97:22-
97:24), he understands the role carries an obligation “to
represent the class members to the best of [his] ability, in
discussions with [his] attorney” and an obligation to
supervise class counsel (id. at 278:04~-278:09, 278:25-
279:04), he knows the action is against Vivendi and its
former CEO and CFO and is aware of the claims (id. at
117:20-117:25, 254:10-255:22; 306:02-306:08), and
expressed a desire to “vigorously” pursue the case, in
consultation with counsel (id. at 306:02-306:08). Cf Baffa,
222 F.3d at 62. Defendants’ criticism that Cavanaugh is only
In communication with one of the two firms appointed as
class counsel is insignificant. In light of the foregoing, the
Court finds Cavanaugh to be an adequate class
representative.
B-22
5. RSMB
RSMB administers the pension fund of the retirement
system for the general employees of Miami Beach, Florida.
In the December 2000 merger, RSMB exchanged Vivendi,
S.A. and Canal Plus ADSs for Vivendi Universal ADSs in
the three-way merger. (Zach Decl. Ex. 33 at 3.) RSMB did
not acquire any other Vivendi Universal securities during the
proposed class period. As such, defendants argue that RSMB
could only represent North American residents who acquired
Vivendi Universal ADSs as part of the merger and does not
have standing to bring claims based on alleged misstatements
issued after the exchange of shares pursuant to the merger.
As discussed supra in section 2.C.ii. (discussing adequacy of
proposed class representative Gerard Morel), these
arguments are unpersuasive in a case such as this, where a
common scheme to defraud renders later-made statements
relevant to the course of wrongful conduct underlying an
earlier purchaser’s (or acquirer’s) claims.’
Defendants further argue that RSMB is an inadequate
class representative because RSMB’s “most knowledgeable”
representative, Rick Rivera, RSMB’s pension administrator,
lacks sufficient knowledge to demonstrate RSMB is an
adequate class representative. Defendants contend that
Rivera’s testimony demonstrates that RSMB does not
understand important aspects of this action or the
responsibilities attendant to being a class representative.*
’ The Court notes that RSMB stands in a slightly different position from
Morel in that it held both Vivendi S.A. and Canal Plus shares at the time
of the merger. This distinction does not alter the Court’s analysis of
materiality, damages, or a shareholder’s ability to adequately represent
shareholders who purchased later in the class period.
* For example, Rivera could not (1) describe the scope of the proposed
class (Rivera Dep. 107:15—108:07); (2) identify any document relevant to
the action that RSMB has reviewed, or state with any certainty that
RSMB reviewed the complaint (or understand the term “complaint’’) (id.
at 27:07-27:20, 58:02-58:04); (3) state with any certainty that RSMB
B-23
However, plaintiffs have established that Rivera understands
that the pension fund seeks to be appointed a class
representative, in which capacity it would seek damages on
behalf of the entire class, and that his responsibilities would
include following the case, reviewing documents and filings,
and consulting with counsel. (Deposition of Rick Rivera,
May 20, 2005 (“Rivera Dep.”) 152:21-153:14, 150:02-
150:11.) He also understood that as class representative
RSMB would have to represent the best interests of the class,
which includes all members who sustained damages as a
result of Vivendi’s alleged fraud. (/d. at 153:24~154:03,
107:03—108:07.) He also understood that the complaint
alleges that “defendants provided false statements that
inflated the stock price.” (/d. at 59:15—59:23.) The Court has
been presented with no evidence suggesting that RSMB will
be unable or unwilling to adequately represent the class, or
that RSMB has interests antagonistic to those of the class as a
whole, which are the relevant inquiries at issue here. The lack
of knowledge of which defendants complain does not rise to
the sort of ignorance that warrants denial of class
representative status. See, e.g., In re Worldcom, 219 F.R.D. at
286.
6. Bruce Doniger
Bruce Doniger is a resident of the United States.
Doniger acquired Vivendi Universal ADSs in exchange for
his previously held Seagram shares following the December
read its responses to defendants’ interrogatories, though he personally
verified the responses (id. at 73:08-73:25); (4) identify how many times
RSMB has spoken with plaintiffs’ counsel, or whether RSMB had ever
done so within the last year (id. at 57:03—57:25); (5) identify the number
of shares RSMB acquired during the proposed class period, or when such
shares were acquired or sold (id. at 85:14-86:09); (6) state with certainty
whether RSMB had disposed of all its Vivendi securities during the
proposed class period (id. at 185:16-186:02); (7) describe the interests of
the class members or how RSMB would determine those interests (id. at
124:16—124:10).
B-24
2000 three-way merger. Defendants argue that Doniger lacks
standing to bring claims for alleged misstatements made after
he exchanged his shares, and note that there are no other
representatives with standing to represent post-December
2000 claims. This argument has already been addressed and
rejected by the Court.
Defendants also point out that Doniger is a second
cousin to Edgar Bronfman, Sr. and Charles Bronfman (father
and uncle, respectively, to Edgar Bronfman, Jr.) and sponsor
of former Vivendi Board member Samuel Minzberg. Prior to
the December 2000 merger, the principal owners of Seagram
were Edgar Bronfman, Jr. and the Bronfman family, which
became the largest shareholders of Vivendi following the
merger. (FACC 4 51.) Edgar Bronfman, Jr. held the position
of Executive Vice Chairman of the Vivendi Board until
December 2001, at which time he resigned. (FACC 4 79.)
Defendants further state that Doniger received his Seagram
shares because of his familial relationships. (Doniger Dep.
20:03—23:10, 38:23-—39:08, 101:11-102:11.) Based on these
relationships, defendants appear to argue that Doniger would
be subject to unique defenses likely to become the focus at
trial, rendering him atypical and prejudicing absent class
members. However, defendants do not point to any evidence
that Doniger is subject to unique defenses concerning, for
example, lack of reliance because of the receipt of nonpublic
information obtained by virtue of these relationships. Cf
Landry v. Price Waterhouse Chartered Accountants, 123
F.R.D. 474, 475-76 (S.D.N.Y. 1989) (finding proposed class
representatives atypical where their deposition testimony
reflected that they had received nonpublic information and
recommendations from friends and associates). Furthermore,
the Court does not find that Doniger’s familial relationships,
without more, are sufficient to conclude that Doniger has
interests antagonistic to those of the class, or that he would
be unwilling or unable to fairly and adequately represent the
class.
B-25
III. Rule 23(b)(3)
Having addressed the requirements of Rule 23(a), the
Court now turns to whether Rule 23(b)(3) has been satisfied.
Rule 23(b)(3) requires a court to find “that the questions of
law or fact common to the members of the class predominate
over any questions affecting only individual members, and
that a class action is superior to other available methods for
the fair and efficient adjudication of the controversy.” Fed. R.
Civ. P. 23(b). A class certified pursuant to Rule 23(b)(3) is
sometimes referred to as an “opt-out” class because
Rule 23(c)(2) mandates that members of a class certified
under Rule 23(b)(3) be afforded an opportunity to “request
exclusion” from that class.” Particularly relevant to a
purported class including foreign purchasers, anyone who
does not affirmatively inform the Court that they wish to be
excluded from the class is bound by the final disposition of
the case.
A. Predominance of Common Issues
Rule 23(b)(3) allows for certification of a class where
“questions of law or fact common to the members of the
class predominate over any questions affecting only
individual members.” Fed. R. Civ. P. 23(b)(3). This inquiry
“trains on the legal or factual questions that qualify each
class member’s case as a genuine controversy . . . [and] tests
whether proposed classes are sufficiently cohesive to warrant
adjudication by representation.”” Amchem Prods. v. Windsor,
521 U.S. 591, 623 (1997). The Rule 23(b)(3) predominance
inquiry “is a more demanding criterion than the commonality
inquiry under Rule 23(a). Class-wide issues predominate if
resolution of some of the legal or factual questions that
* Rule 23(c)(2)(B) provides, in relevant part, that notice to members of
“any class certified under Rule 23(b)(3) . . . must concisely and clearly
state in plain, easily understood language . . . that the court will exclude
from the class any member who requests exclusion.”
B-26
qualify each class member’s case as a genuine controversy
can be achieved through generalized proof, and if these
particular issues are more substantial than the issues subject
only to individualized proof.” Moore v. Paine Webber, Inc.,
306 F.3d 1247, 1252 (2d Cir. 2002) (internal citations and
quotation marks omitted). However, the Supreme Court has
noted that “{p]redominance is a test readily met in certain
cases alleging . . . securities fraud.” Amchem Prods., 521
U.S. at 625 (citing Fed. R. Civ. P. 23 Advis 3ry Committee
Notes, 1966 Amendment, 28 U.S.C.A. Rule 23, at 385).
In this case, there are common questions of law and fact
involving violations of the securities laws based on a
common course of conduct directed at the entire class, and
that predominate over any individualized questions that may
exist. The common issues in this action include whether
defendants issued materially false and misleading statements
as to Vivendi’s earnings (both in connection with a
registration statement and prospectus dated October 30,
2000, and thereafter), scienter, reliance, and causation. All
plaintiffs will rely on the same or substantially similar
documents, statements, and legal theories to prove the
defendants’ liability. Defendants do not present any argument
that the claims at issue here may not be largely resolved by
class-wide proof. Indeed, they do not appear to contest that
the predominance requirement in met in this case. Because
common factual and legal questions predominate over
individual issues, the Court determines that this requirement
has been satisfied. See, e.g., In re AOL Time Warner, Inc.
Sec. and ERISA Litig., No. 02 Civ. 5575 (SWK), 2006 WL
903236, at *5 (S.D.N.Y. Apr. 6, 2006) (finding
predominance requirement readily met because “allegations
of defendants’ misrepresentations and the improper inflation
of AOL’s accounting revenues underlie the factual and legal
claims of every Class Member’); /n re Globalstar Sec. Litig.,
No. 01 Civ. 1748 (PKC), 2004 WL 2754674, at *5 (S.D.N.Y.
Dec. 1, 2004) (finding predominance prong met where there
were common issues with respect to whether defendants
B-27
issued materially false and misleading statements as to
Globalstar’s subscription rate and revenues, scienter,
reliance, and causation).
B. Superiority of Class Action Treatment
The superiority requirement asks courts to balance, in
terms of fairness and efficiency, the advantages of a class
action against those of alternative available methods of
adjudication. See Fed. R. Civ. P. 23 Advisory Committee
Notes, 1966 Amendment, 28 U.S.C.A. Rule 23, at 385
(“Subdivision (b)(3) encompasses those cases in which a
class action would achieve economies of time, effort, and
expense, and promote uniformity of decision as to persons
similarly situated, without sacrificing procedural fairness or
bringing about other undesirable results.”). Rule 23(b)(3)
identifies several factors to consider in determining whether a
class action is in fact “superior to other available methods for
the fair and efficient adjudication of the controversy”:
(A) the interest of members of the class in
individually controlling the prosecution or defense
of separate actions; (B) the extent and nature of
any litigation concerning the controversy already
commenced by or against members of the class;
(C) the desirability or undesirabilily of
concentrating the litigation of the claims in the
particular forum; (D) the difficulties likely to be
encountered in the management of a class action.
Fed. R. Civ. P. 23(b)(3). This list of pertinent
factors is nonexhaustive, see Fed. R. Civ. P. 23
Advisory Committee Notes, 1966 Amendment, 28
U.S.C.A. Rule 23, at 386 (1992), “and the
purposes of Rule 23 should weigh heavily in this
determination,” 2 Alba Conte & Herbert Newberg,
Newberg on Class Actions § 4:28 (4th ed. 2002).
B-28
1. Interests in Prosecuting Individual Suits;
the Extent and Nature of Other Pending
Litigation
As the advisory committee’s notes to Rule 23 indicate,
“(t]he court is to consider the interests of the individual
members of the class in controlling their own litigations and
carrying them on as they see fit.” Fed. R. Civ. P. 23 Advisory
Committee Notes, 1966 Amendment, 28 U.S.C.A. Rule 23,
at 386. In considering this interest, “the court should inform
itself of any litigation actually pending by .. . the
individuals,” because the existence of pending actions may
reveal that “(t]he interests of individuals in conducting
separate lawsuits [are] so strong as to call for denial of a class
action.” Jd.; see also In re “Agent Orange” Prod. Liability
Litig., 818 F.2d 145, 165 (2d Cir. 1987) (“All plaintiffs may
not desire class certification . . . because those with strong
cases may be better off going it alone.”).
As courts have frequently noted, class action treatment
is particularly appropriate when plaintiffs seek redress for
violations under the securities laws. See Mills v. Elec. Auto-
Lite Co., 396 U.S. 375, 382 (1970); Green v. Wolf Corp., 406
F.2d 291, 296 (2d Cir. 1968) (“[A] class action in a federal
securities action may well be the appropriate means for
expeditious litigation of issues, because a large number of
individuals may have been injured, although no one person
may have been damaged to a degree which would have
induced him to institute litigation solely on his own behalf.”’);
Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir. 1985)
(“{C}lass actions are a particularly appropriate and desirable
means to resolve claims based on the securities laws, since
the effectiveness of the securities laws may depend in large
measure on the application of the class action device.”
(internal quotation marks and citations omitted)); /n re Blech,
187 F.R.D. at 101; Baron v. Commercial & Indus. Bank of
Memphis, No. 75 Civ. 1274 (LBS), 1978 WL 168588, at *2
(S.D.N.Y. Aug. 21, 1978) (“Because most securities fraud
B-29
cases involve purchasers’ claims which might otherwise be
too paltry to justify individual litigation, courts have
concluded in securities actions, the class action procedure is
not only superior, but probably indispensable for the
vindication of plaintiffs’ rights . . . and to assure that the
securities laws will be vigorously enforced.” (internal
quotation marks and citation omitted)); 5 James Wm. Moore
et al., Moore's Federal Practice § 23.03 (3d ed. 2004). Ina
case such as this, where each individual plaintiff can only
have a fraction of the interest in the outcome of the litigation
as the defendants, any interest the members of the class
might have in individually controlling the prosecution of
separate actions is heavily outweighed by the obvious
benefits of pressing their claims as a class. See Amchem, 521
U.S. at 617 (“The policy at the very core of the class action
mechanism is to overcome the problem that small recoveries
do not provide the incentive for any individual to bring a solo
action prosecuting his or her rights. A class action solves this
problem by aggregating the relatively paltry potential
recoveries into something worth someone’s (usually an
attorney’s) labor.”” (quoting Mace v. Van Ru Credit Corp.,
109 F.3d 338, 344 (1997))).
The actions by putative class members currently
pending before French courts against Vivendi do not, in the
Court’s view, change this calculus. According to submissions
made by both parties, at present Vivendi is defending two
individual shareholder suits filed in the Paris Tribunal de
Grande Instance (trial court) in France, Société Richard Hugo
v. Vivendi Universal, S.A. and Courage v. Vivendi Universal,
S.A. (Bisiaux Decl. 9] 12-13 & Exs. 8-9).'° The pendency of
these actions does not persuade the Court that any individual
shareholder has an interest in conducting separate lawsuits
'° A hind action, Pasturaud v. Vivendi Universal, S.A., a suit by ninety-
seve im@yvidual shareholders, was dismissed without prejudice due to
plawti 1s’ failure to register the complaint. (Defs.’ Sur-Reply Mem. !
n.1.)
B-30
sufficient to outweigh the advantages to all shareholders of
proceeding on a class basis. See, Fed. R. Civ. P. 23 Advisory
Committee Notes, 1966 Amendment, 28 U.S.C.A. Rule 23,
at 386 (noting that even where additional litigation is
pending, the interests in conducting separate lawsuits may be
“theoretical rather than practical” because, inter alia, “the
amounts at stake for individuals may be so small that
separate suits would be impracticable”).
2. Desirability or Undesirability of
Concentrating the Litigation of the Claims
in this Particular Forum
Plaintiffs’ proposed class definition encompasses a
significant number of foreign class members; indeed, thirty-
seven percent of Vivendi’s ordinary shares were held by
citizens of France who purchased them on the Bourse, while
U.S. investors held twenty-five percent of Vivendi shares in
the form of ADSs purchased on the NYSE. (Bisiaux Decl.
47.) Relying primarily on Judge Friendly’s opinion in
Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 996 (2d Cir.
1975), defendants argue that all foreign plaintiffs must be
excluded from the class because it is a “near certainty” that if
this action is dismissed, taken to judgment, or settled,
defendants would not be able to assert claim prelusion to bar
subsequent actions in the countries in which foreign plaintiffs
reside. Although defendants do not consistently characterize
their argument as such, the Court will consider this aspect of
their opposition to be an attack on the superiority of class
action treatment of the claims of foreign purchasers.
(a) The “Near Certainty” Test
Bersch involved an action on behalf of all purchasers of
stock in a Swiss-based, Canadian corporation asserting
claims for violations of the federal securities laws relating to
stock offerings made outside the United States. The proposed
class included approximately 50,000 purchasers of whom
8-31
386 were American and the balance of whom were
foreigners. Jd. at 977-78 n.2. The Court first determined that
federal securities laws did not reach losses from sales of
securities to foreigners outside the United States because no
acts occurred within the United States directly causing such
losses, see id. at 986-90. Having dismissed these federal
securities law claims for lack of subject matter jurisdiction,
the Court then addressed whether the class might still be
certified to include foreign purchasers with respect to their
state law claims. The Bersch plaintiffs argued that there was
pendent jurisdiction over their alleged common law fraud
claims and that this would justify the inclusion of foreign
purchasers in the proposed class. /d. at 993. The Second
Circuit rejected this argument, calling it “ludicrous” to
consider the state law claims of foreign purchasers pendent,
and finding it would be an abuse of discretion for the district
court to exercise pendent jurisdiction over the foreign
purchasers’ common law fraud claims. Jd. at 996 (citing
United Mine Workers v. Gibbs, 383 U.S. 715, 726-27
(1960)). The Court also articulated practical concerns, such
as the introduction of complex choice-of-law issues, and the
resultant necessity to look at the laws of at least fourteen
other countries where sales were made, and the minimal
domestic impact of a substantially foreign transaction, which
together also weighed heavily against the exercise of pendent
jurisdiction.
While not necess=ry to its finding of lack of jurisdiction,
the Court noted that the management of a class including
thousands of foreign purchasers could impose burdens on
overtaxed district courts. In addition, and of critical
importance to defendants’ argument here. Judge Friendly
also considered the likelihood of foreign recognition of any
U.S. judgment that might be ultimately entered in the action:
“Also, while an American court need not abstain from
entering judgment simply because of a possibility that a
foreign court may not recognize or enforce it, the case stands
differently when this is a near certainty,” because, as Judge
B-32
Frankel had observed in his district court decision certifying
a Class, “if defendants prevail against a class they are entitled
to a victory no less broad than a defeat would have been.” /d.
(emphasis added).'' In light of “uncontradicted affidavits that
England, the Federal Republic of Germany, Switzerland,
Italy, and France would not recognize a United States
judgment in favor of the defendants as a bar to an action by
its their own citizens” and an affidavit stating that several
hundred individually brought claims were pending in
Switzerland and that at least ninety had been settled, the
Second Circuit directed the district court to exclude from the
class action all foreign purchasers over whose claims—
importantly—there was neither federal nor pendent
jurisdiction. /d. at 996-97.
(b) The Progeny of Bersch
Since Bersch, and without the benefit of any further
guidance from the Second Circuit, courts in this district and
elsewhere have considered, in a somewhat haphazard way,
the risk of nonrecognition by a foreign court as a factor
relevant to whether, for purposes of satisfying Rule 23(b)(3),
class treatment of foreign purchasers’ claims is a superior
method of adjudication.
Defendants point to three post-Bersch cases to support
the exclusion of foreign purchasers from the proposed class
here. In CL-Alexanders Laing & Cruickshank v. Goldfeld,
127 F.R.D. 454, 459 (S.D.N.Y. 1989), Judge Mukasey
denied class certification in a securities fraud action because
the combination of (1) an uncontested affidavit stating that a
British court “will not” recognize a foreign judgment in a
U.S. opt-out class action, (2) a class size of only twenty-five
members, and (3) atypical claims by the named plaintiff
'' Judge Frankel’s decision of June 28, 1972 was not reported, but it
appears that despite his concern about claim preclusion he certified a
class of all purchasers, foreign and domestic. /d. at 982.
B-33
together failed to satisfy the requirements of Rule 23. “[T}he
combination of these problems,” Judge Mukasey noted, “no
one of which standing alone would necessarily require denial
of class certification, virtually mandates the rejection of the
class action form here.” Jd. at 460. While it is not clear what
standard Judge Mukasey applied with respect to the claim
preclusion issue, it would appear that he considered an
uncontested affidavit stating to a certainty that a British court
would not recognize a U.S. judgment insufficient on its own
to deny class certification. Similarly in Ansari v. New York
University, 179 F.R.D. 112 (S.D.N.Y. 1998), Judge Mukasey
found that doubts regarding claim preclusion in foreign
jurisdictions tipped the scales against an already weak motion
for class certification. In Ansari, a dentist sued New York
University, its college of dentistry, and various university
officials, alleging breach of contract and violation of state
statutes relating to an alleged failure to provide education
services. The proposed plaintiff class included only thirty-
five members, some of whom were foreigners, and failed to
satisfy Rule 23(a)(1)’s numerosity requirement. /d. at 116.
Second, though “not as significant as the failure to satisfy the
numerosity requirement,” class certification was denied
because “limited case law . . . suggests” that at least six of the
relevant foreign countnes would not accord claim preclusion
to an opt-out class action. /d. at 117. Judge Mukasey
considered this fact “further evidence that class certification
is inappropriate,” though of course the decision could have
rested entirely on plaintiffs’ failure to establish numerosity.
Id.
In In re Daimler Chrysler AG Securities Litigation, 216
F.R.D. 291 (D. Del. 2003), on which defendants also rely,
plaintiffs asserted securities fraud claims against a German
automobile manufacture based on false statements allegedly
made in connection with the acquisition of an American
automobile manufacturer. The court did not cite Bersch but
did cite Ansari and CL-Alexanders for the proposition that
class certification may be inappropriate where “obstacles”
B-34
exist due to the inclusion of foreign class members. /d. at
301. Finding “practical difficulties” in maintaining a class
with foreign investors, and further that plaintiffs had not
adequately addressed manageability and damage issues, the
court limited the class to U.S. investors.
Reaching a different result in Cromer Finance Limited
v. Berger, 205 F.R.D. 113 (S.D.N.Y. 2001), Judge Cote
considered the res judicata effect of a class action judgment
as “a factor that must be considered in evaluating the
superiority of the class action device,” but distinguished
those cases “in which there is a ‘possibility’ that a foreign
court may not recognize a judgment, and those in which there
is ‘near certainty’ that it will not be recognized.” Jd. at 134—
35 (citing Bersch, 519 F.2d at 996). Judge Cote concluded,
upon review of the competing expert affidavits, that it was
“at most a ‘possibility’” that foreign courts would not
recognize a U.S. judgment, and certified a class including
foreign claimants alleging federal securities fraud against an
operator of an offshore investment fund and Bermuda
accounting firms. /d. at 135. Taking a different tack, Judge
Sweet, in Jn re Lloyd's American Trust Fund Litigation, No.
96 Civ. 1262 (RWS), 1998 WL 50211, at *15 (S.D.N.Y. Feb.
6, 1998), read Bersch as applying only to whether a class
action should proceed under principles of pendent
jurisdiction, and emphasized that Bersch did not directly
address the issue of superiority under 23(b)(3). Without
applying the “near certainty” test, Judge Sweet concluded
that “a foreign court may look to the results achieved here for
guidance, thereby contributing to the superiority of the class
action procedure,” and certified the class. /d.; see also In re
U.S. Fin. Sec. Litig., 69 F.R.D. 24, 50 (S.D. Cal. 1975)
(stating that defendant’s “reliance upon Bersch is misplaced
because Bersch does not preclude foreign nationals from
membership in any class alleging violations of the federal
securities acts simply because of res judicata problems” and
noting that “‘[ajlthough the res judicata problem is one factor
to consider . . . it should not be used to deny {class
B-35
certification] . . . especially when this Court otherwise has
subject matter jurisdiction”).
In Frietsch v. Refco, Inc., 92 C. 6844, 1994 WL 10014
(N.D. Ill. Jan. 13, 1994), the district court for the Northern
District of Illinois considered a motion to certify a class of
investors in commodity pools, including a number of German
putative class members. The plaintiffs alleged, inter alia,
violations of Sections 10(b) and 12(2) of the Exchange Act.
Id. at *1. There, as here, the defendants argued that the class
action device failed under Rule 23(b)(3) because German law
would not recognize a judgment in a U.S. class action. /d. at
*11. In support of this argument, the defendants’ German law
expert stated that a judgment in defendants’ favor would
““most likely’ not be given res judicata effect.” fd. By
contrast, the plaintiffs’ German law expert stated that the
“issue of res judicata cannot be predicted with certainty
because there are no precedents, and any decision by a
German court would be fact specific.” Jd. Faced with dueling
affidavits, the court concluded that the preclusion issue
“remain{ed] an uncertainty that [would] not paralyze the
court from making a ruling that will provide all parties with
the most efficient tools available to litigate the claims in this
case.” Id. The Freitsch court distinguished CL-Alexanders
and Bersch, because in those cases the record contained
uncontradicted affidavits that persuaded the respective courts
that foreign courts would certainly not afford res judicata
effect to a U.S. judgment on behalf of a class. Jd.
The foregoing cases, regardless of their ultimate
outcome, reveal that res judicata concerns have been
appropriately grafted onto the superiority inquiry. It does not
appear, however, that res judicata concerns should be
dispositive without either an evaluation of the likelihood of
nonrecognition or a consideration of other factors which
impact a determination of the superiority requirement.
Ansari, 179 F.R.D. at 116 (res judicata is “one of the factors
that must be considered.”); Cromer, 205 F.R.D. at 134; Jn re
B-36
U.S. Fin. Sec. Litig., 69 F.R.D. at 49 (“[T]he issue of res
judicata was one of several factors to be considered.” (citing
Bersch, 519 F.2d 974)). With regard to an evaluation of the
risk of nonrecognition, the Court does not find the “near
certainty” standard to be a particularly useful analytical tool.
In Bersch, Judge Friendly found, based on unopposed
affidavits that nonrecognition was almost certain; however,
there is no indication that only this degree of certitude calls
into question the superiority of a class action. Nor is it likely
that only where nonrecognition is a “mere possibility” ought
a court find superiority to be established. It seems more
appropriate, instead, to evaluate the nsk of nonrecognition
along a continuum. Where plaintiffs are able to establish a
probability that a foreign court will recognize the res judicata
effect of a U.S. class action judgment, plaintiffs will have
established this aspect of the superiority requirement. See Jn
re IPO Sec. Litig., 47) F.3d at 33 (placing burden on plaintiff
not just to produce “some evidence” of compliance with
Rule 23, but to show that its requirements are met). Where
plaintiffs are unable to show that foreign court recognition is
more likely than not, this factor weighs against a finding of
superiority and, taken in consideration with other factors,
may lead to the exclusion of foreign claimants from the class.
The closer the likelihood of non-recognition is to being a
“near certainty,” the more appropriate it is for the Court to
deny certification of foreign claimants. With these principles
in mind, the Court now turns to the parties’ arguments with
respect to the degree of risk of foreign nonrecognition in this
case.
(c) Recognition in France
Both sides have submitted voluminous competing
expert declarations on the question of whether foreign courts
would grant preclusive effect to a United States judgment or
B-37
settlement in this action.'? Because a vast majority of the
foreign shareholders are French nationals, the Court will
address first, and in greater detail, the likelihood of
recognition by a French court.
As both parties agree, there is no bilateral (or
multilateral) agreement between France and the United States
governing the recognition and enforcement of judgments and
jurisdictional decisions rendered by their respective courts.
(See Mourre Decl. § 19; Renard-Payen Decl. § 12; Audit
'? The following citation conventions wil] be followed with respect to the
parties’ competing expert declarations. Declaration of Bernart Audit in
Support of Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion for
Class Certification, Sept. 27, 2005 (“Audit Decl.””); Declaration of Guy
Carcassonne in Support of Vivendi Universal, S.A’s Opposition to
Plaintiffs’ Motion for Class Certification, Sept. 23, 2005 (“Carcassone
Decl.”); Declaration of Daniel Cohen in Support of Vivendi Universal,
S.A’s Opposition to Plaintiffs’ Motion for Class Certification, Oct. 3,
2005 (“Cohen Decl.”); Declaration of Gérard de Geouffre de la Pradelle
in Support of Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion
for Class Certification, Sept. 29, 2005 (“de la Pradelle Decl.”);
Declaration of Olivier Renard-Payen in Support of Vivendi Universal,
S.A’s Opposition to Plaintiffs’ Motion for Class Certification, Sept. 27,
2005 (“Renard-Payen Decl.”); Declaration of Francois Terré in Support
of Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion for Class
Certification, Sept. 30, 2005 (“Terré Decl.”); Joint Declaration of Daniel
Cohen and Géraud de Geouffre de la Pradelle in Support of Vivendi
Universal, S.A’s Sur-Reply in Opposition to Plaintiffs’ Substituted
Motion for Class Certification, Feb. 3, 2006 (“Cohen/de la Pradelle
Deci.”); Declaration of Alexis Mourre in Support of Plaintiffs’ Motion
for Class Certification, Dec. 6, 2005 (“Mourre Decl.”); Declaration of
Héléne Gaudemet-Tallon in Support of Plaintiffs’ Motion for Class
Certification, Dec. 1, 2005 (“Gaudemet-Tallon Decl.”); Declaration of
Hans Smit in Support of Plaintiffs’ Motion for Class Certification, Dec.
20, 2005 (“Smit Decl.”); Supplemental Declaration of Alexis Mourre in
Support of Plaintiffs’ Motion for Class Certification, June 22, 2006
(“Mourre Suppl. Decl.””); Joimt Declaration of Bemard Audit, Guy
Carcassonne, Daniel Cohen, Gérard de Geouffre de la Pradelle, and
Olivier Renard-Payen Setting Forth Observations with Respect to the
Supplemental Declaration of Alexis Mourre and the Decision of the Cour
de Cassation in Prieur v. De Montenach, July 7, 2006 (“Defs.’ Suppl.
Decl.”).
B-38
Decl. 4 13; de la Pradelle Decl. 9 15.) French law also does
not follow the condition of reciprocity, whereby a foreign
judgment may have effect in France only if the foreign
jurisdiction gives effect to French decisions. (See Terré Decl.
§ 14.) Thus the United States’s rules for recognition of
foreign judgments are not relevant, and French recognition of
a United States judgment is determined with reference solely
to French law. The issue of whether a United States class
action judgment would be recognized and enforced in France
has never been directly addressed by French courts. (See
Mourre Decl. § 17; de la Pradelle Decl. § 35; Gaudemet-
Tallon Decl. § 26; Smit Decl. § 91.) However, French
decisional law does address in general terms the
circumstances in which foreign judgments may be
recognized. (See de la Pradelle Decl. 4 15.)
Under French case law, before a foreign decision may
be enforced or recognized (i.e., given preclusive effect) in
France, it must first be subjected to the “exequatur”
procedure. (Terré Decl. § 15;.de la Pradelle Decl. 4 30;
Mourre 4 154.) Exequatur proceedings are concerned with
the enforceability of a foreign decision under French law, and
not with the substance of the underlying dispute. (Terré Decl.
¥ 16; Smit Decl. ¥ 56.) If exequatur is granted, the underlying
judgment is not changed, but rather its content is
incorporated into the exequatur judgment, which then
receives enforceability and res judicata effect in France.
(Terré Decl. 9 16; Mourre Decl. 9] 154-56.) The competing
expert declarations agree that the recognition and
enforcement of foreign judgments (grant of exequatur) in
France is primarily governed by the Munzer case, decided by
France’s highest court, the Cour de cassation, in 1964. (See,
e.g., Audit Decl. 9] 14, 16; Mourre Decl. § 20; de la Pradelle
Decl. § 17; Terré Decl. 9 19; Renard-Payen Decl. ¥ 13.) The
conditions that must be met under Munzer in order to grant
exequatur may be summarized as follows: (1) the foreign
court must properly have jurisdiction under French law (the
“jurisdictional prong’); (2) the foreign court must have
B-39
applied the appropriate law under French conflict-of-law
principles (the “applicable-law prong”); (3) the decision must
not contravene French concepts of international public policy
(the “public policy prong”); and (4) the decision must not be
a result of fraude a la loi (evasion of the law) or forum
shopping (the “forum shopping prong”). (See Cohen/de la
Pradelle Decl. 4 5.)
(i) Jurisdictional Prong
Whether this Court would be viewed as having properly
asserted jurisdiction over the French defendants is governed
by the Cour de cassation case of Simitch v. Fairhurst (Cass.
le civ. Feb. 6, 1985) (see Defs.’ Suppl. Decl. 4 3; Mourre
Decl. { 22; Smit Decl. 9 58). The Simitch test requires that, in
order for a foreign court to have properly exercised its
jurisdiction, the following requirements must be met: (1) the
case must not fall within the exclusive jurisdiction of the
French courts, (2) the circumstances of the case or judgment
at issue must be linked in a “characterized manner” to the
foreign court, and (3) the choice of the foreign court must not
be fraudulent. (See Mourre Decl. { 24; see also Defs.’ Suppl.
Decl. ¥ 3.) Defendants’ initial submissions relied heavily on
the proposition that French courts had exclusive jurisdiction
over French defendants under Article 15 of the French Civil
Code and that, absent waiver, French courts would never
recognize a U.S. judgment entered against a French entity.
That position is no longer tenable in light of the recent
decision of the Cour de cassation in Prieur v. Montenach
(Cass. le civ. May 23, 2006) holding that “Article 15 only
provides for an optional jurisdiction of French courts.”
The question then becomes whether there is a sufficient
or “characterized link” to warrant the exercise of jurisdiction
by a U.S. court. Plaintiffs’ experts contend that in order to
satisfy this requirement, a French court does not need to
determine that the foreign court has jurisdiction according to
French conflict-of-jurisdictions rules, but rather must find
B-40
that there were sufficient connections between the case and
the foreign court such that its exercise of jurisdiction was not
inappropriate. (Mourre Decl. 4 76.) Although there are no
precise criteria to define what might constitute a
“characterized link” (id. at § 75), one of plaintiffs’ experts,
Professor Hans Smit, likens it to the American concept of
subject matter jurisdiction. (Smit Decl. 4 58). This Court, of
course, has determined that subject matter jurisdiction exists
based on plaintiffs’ allegations that a substantial number of
Vivendi’s securities were traded in the United States, that
individual defendants allegedly moved to the United States to
expand Vivendi’s presence there, and that a number of the
alleged fraudulent acts took place in the United States. (See
Mourre Decl. 4 77.) Based on the foregoing, plaintiffs’
experts conclude that the “characterized link” requirement is
“easily met in this case” (id. at § 78), and indeed, that “there
can be no doubt” of that fact (Smit Decl. § 58).
Defendants’ experts, however, express no such sanguine
view of the likelihood of the “characterized link” test being
met. They are instead “firmly of the view that a French court
would reject a U.S. Court’s assertion of jurisdiction over
those foreign/absent class members as improper.” (Defs.’
Suppl. Decl. 4 5.) Defendants’ experts base this conclusion in
large part on the circumstances underlying the Cour de
cassation’s recognition of foreign jurisdiction in the above-
mentioned Prieur case. There, the French court found that
the exercise of jurisdiction by the Swiss courts was
appropriate in an annulment proceeding where the husband
and wife were both bom in Switzerland, marred in
Switzerland under Swiss law, and established their marital
residence in Switzerland. Although the husband was a French
citizen, these “ties” to Switzerland, the French court
concluded, justified referring the case to Swiss courts to rule
on the annulment of the marnage. (See Mourre Suppl. Decl.
Ex. A, at 3.) Defendants’ experts contend that the Prieur case
shows a French court will require a similar showing of
substantial contacts between the parties and the foreign
B-41
jurisdiction before recognizing a “characterized link.” (Defs.’
Suppl. Decl. 4] 8-9.) Unlike the parties in the Prieur case,
the foreign shareholders in the putative class had no direct
contacts with the United States, and did not purchase their
Vivendi shares in the United States. (/d. at 7 10.) In addition,
the foreign shareholders have not expressly indicated any
desire to sue Vivendi—a French corporation with its
headquarters in Paris—in the United States or to be included
in the putative class here. (/d.)
The acknowledged difference in degree of the contacts
between the parties and the foreign forum in Prieur and in
the instant case, however, is not sufficient to persuade this
Court that a French court would not find a sufficient
characterized link between the alleged fraud in this action
and the United States sufficient to support the Court’s
exercise of jurisdiction. Defendants’ experts merely show
that where the ties of a case to the foreign jurisdiction are so
significant as to be considered near absolute, a characterized
link is readily established. It does not follow that the
connection between defendants’ alleged fraudulent course of
conduct, occurring in sufficient part in the United States to
warrant a finding of subject matter jurisdiction under our
laws, would be insufficient under the “characterized link”
standard. The links between the parties and the foreign forum
in Prieur tend more to establish the paradigmatic case than to
illuminate what a French court would decide when faced
with the potentially closer question presented here. Upon the
record presented, where Vivendi’s CEO and CFO moved
their operations to the United States and, allegedly, continued
their fraudulent scheme there, the Court concludes that a
French court would likely find a “characterized link”
sufficient to satisfy the second element of the Simititch test.
The final element of the Simititch test is that plaintiffs’
choice of a United States court must not have been
fraudulent. This requirement has two different elements.
First, the foreign judgment must not have been “obtained
B-42
through deceitful maneuvers.” (Mourre Decl. 4 79.)
Defendants do not contest this element. Second, the case
must not have been brought “in a foreign court in order to
obtain a ruling from that foreign court, under foreign law that
differs from the law to which a litigant would otherwise be
subjected domestically.” (Terré Decl. 4 45.) That is, plaintiff
must not have manufactured jurisdiction in order to choose a
more favorable forum when French law should have applied.
Defendants argue that plaintiffs’ U.S. action is “engineered”
to evade a judgment under French law. In 2002, the
“ADAM” association (protecting minority shareholders)
along with certain Vivendi shareholders (designated by
name) petitioned the Paris Commercial Court to investigate
Vivendi during the basic class period. The court found the
claim “ill-founded” and dismissed it. The ADAM
chairwoman allegedly stated that the dismissal prompted her
to introduce a class action in the United States on behalf of
French shareholders. Thus, defendants argue, the U.S. action
is an attempt to avoid the proper application of French law,
and will preclude a grant of exequatur. (Terré Decl. 4 46; see
also Cohen/de la Pradelle Decl. § 21.)
As an initia] matter, there is no evidence that the action
pending before the Court was in fact brought at the
instigation of the ADAM chairwoman. Furthermore, while
plaintiffs in this case have clearly come before this Court in
order to avail themselves of causes of action and procedural
devices unavailable in France, it is by no means a certainty
that this alleged forum shopping would form a bar to
recognition. Indeed, it is difficult to see how plaintiffs in this
case are operating a fraud on the court by bringing US.
securities law claims that are, in part, based on activities in
the United States, and which have been found to be within
the Court’s subject matter jurisdiction. The Court concludes,
therefore, that a French court is unlikely to find that plaintiffs
engaged in improper forum shopping in pursuing this action
in the United States, and would conclude that the third
B-43
element of the Simititch test (and thereby the jurisdictional
prong of Munzer) is satisfied.
(ii) Applicable-Law Prong
The applicable-law prong asks whether under French
choice-of-law principles the application of U.S. law in this
action is appropriate. Although French law recognizes that
when a French company trades securities on foreign
exchanges it is subject to the laws of those countries (see
Mourre Decl. ¥ 139), the issue here is whether U.S. law was
properly applied with respect to non-U.S. investors who did
not purchase Vivendi securities on the NYSE. Neither party
provides guidance on what recognized French choice-of-law
principles in fact are, nor what rules of analysis are applied in
determining whether, in the French view, the proper law has
been applied.
Defendants’ expert opinions are not uniform with
respect to their analysis of the applicable-law prong. Two of
defendants’ experts believe that a French court would
determine that the appropriate applicable law would be
French law, because the defendants are French, much of the
alleged wrongdoing occurred in France, and many of the
relevant transactions were made by French investors in
France. (See Terré Decl. § 28; Audit Decl. 4 25.) However,
Terré and Audit both acknowledge that the application of
foreign law may be recognized as appropriate where the
doctrine of “equivalence” applies. (See Terré Decl. § 29;
Audit Decl. § 26.) Equivalence exists where the resolution of
the matter under French law would have been the same as the
one made under the foreign law at issue. (See Terré Decl.
{ 29.) Both Terré and Audit argue that the application of U.S.
law and French law in these circumstances would not be
considered equivalent because of fundamental procedural
differences, such as the opt-out mechanism and the
B-44°
calculation of damages contemplated by Rule 23.'° (See
Terré Decl. $j 30-31; Audit Decl. ¥ 26.)
Defendants’ experts Cohen and de la Pradelle take a
slightly different view, though arriving at the same
conclusion that a French court would not consider the
applicable-law prong satisfied. Under French law, a company
whose office is in French territory is subject to French law.'*
(See Cohen Decl. 4 18.) Cohen and de la Pradelle conclude
that based on the foregoing provisions of French law, any
judgment applying U.S. law to a case involving a French
company would not be recognized. (See Cohen/de la Pradelle
Decl. 9 15; see also Cohen Decl. § 18.) These provisions
standing alone, however, do not provide any basis for
concluding that a company whose registered office is located
on French territory may not, under certain circumstances, be
subject to the laws of any other jurisdiction. In addition to
these provisions of French law, Cohen and de la Pradelle rely
on a 1997 decision by the Cour de cassation, Société
Africatours (Cass. le civ. July 1, 1997). (See Cohen Decl. 4
20, Ex. 6.) A translation of the case was not provided but the
entire summary provided by Cohen reads as follows:
In [Société Africatours], the Cour de cassation set
aside the decision of the Court of Appeal which
had declared Senegalese law applicable to a
company with its registered office in Senegal but
had interpreted it from the point of view of French
law which it had believed was similar: in doing so,
'> Notwithstanding the procedural differences, Terré concedes that
substantively the claims in this action and in suits by two shareholders
pending actions in France are undeniably similar. (Terré Decl. § 31; see
also Cohen Decl. 4 24 regarding similarity of causes of action alleged
under French law.)
'* “According to Article 1837 of the French Civil Code and Article L.
210-3 of the French Commercial Code ‘companies whose registered
office is located on French terntory shall be subject to French law.’”
(Cohen/de la Pradelle Decl. 4 15; Cohen Decl. Ex. 5.)
B-45
it had falsely applied ordinarily applicable law and
had misinterpreted it.
(Cohen Decl. § 20.) Although Cohen and de la Pradelle assert
that this case “specifically [rules] that if a company’s
registered office is located in France, then any legal action
against that company brought by shareholders must be
conducted according to French law” (Cohen/de la Pradelle
Decl. | 16), without more the conclusion simply does not
follow from the described reasoning of the Cour de
cassation.
As with the jurisdictional prong, plaintiffs’ experts
believe the applicable-law prong is easily met in this case:
“(T]he requirement that the foreign court must have applied
the law that governs according to French choice of law
trule[{s] is flexible and . . . it is sufficient if the law applied is
substantively equivalent under French choice of law
principles. That requirement appears amply met.” (Smit Decl.
4 87.) More specifically, plaintiffs’ expert Mourre argues
first that the dominant view among French scholars is that
the applicable-law prong should not be applied, and states
that in fact the requirement is frequently not applied by
courts. (Mourre Decl. 4 142.) Under this “dominant view”
the proper inquiry asks only whether the foreign judge
“seized” jurisdiction with the intent of avoiding the
application of French law, or if the application of foreign law
would constitute a violation of public policy. (/d.)
Alternatively, Moure contends that the applicable-law may
be met under the doctrine of equivalence, which accepts the
application of a law other than that designated by French
choice-of-law rules where the application of that foreign law
leads to a result equivalent to the result that would have been
reached under French law. (/d. at § 146.) Considering the
elements of plaintiffs’ Section 10(b) claim, together with the
fact that no punitive or other special or exemplary damages
may be awarded in this action, Mourre concludes that the
result in this action would be equivalent to that reached under
Article L. 465-2 of the Code monétaire et financier."” (Id. at
{ 148.) This conclusion is supported indirectly by
defendants’ expert, Professor Cohen, who details at great
length the substantive similarities of U.S. and French laws
prohibiting the dissemination of false and misleading
information to shareholders. (Cohen Decl. {J 27-43).
Defendants’ expert Audit opines that procedural differences
between French and U.S. shareholder litigation code preclude
a finding of equivalence, but he provides no basis for his
views. (Audit Dec., J 26). On balance, the Court concludes
(a) that procedural differences are more properly the subject
of a public policy analysis and (b) that the substantive
similarities between U.S. and French law regarding securities
fraud are likely sufficient under the doctrine of equivalence
to meet the applicable-law prong of the Munzer test.
(iii) Public Policy Prong
This prong of the Munzer test requires that the foreign
judgment to be recognized must be in “conformity with
international public policy.” (Audit Decl. Ex. 5.) This
requirement is perhaps the most problematic of all the
Munzer conditions inasmuch as French law does not
recognize opt-out class actions. (Cohen Decl. § 49-51;
Mourre Decl. $7] 102-05). The fact that opt-out class actions
are not presently permitted is, of course, some indication that
such actions are contrary to French public policy. However,
the fact that a particular night is not recognized in France will
only lead to nonrecognition of a foreign judgment where the
judgment would “infringe principles of universal justice.”
Lautour v. Guiraud (Cass. le civ. May 25, 1948) (Mourre
'S This provision “provides for the liability of any individual or entity
who ‘disseminates in the public, by any means, false or misleading
information on the perspectives of evolution or on the situation of an
issuer of securities whose secunties are traded on a regulated stock
exchange or on the perspectives of evolution of a financial instrument
traded on a regulated market, in a manner that can influence the market
value.’” (Mourre Decl. 4 148.)
B-47
Decl, Annex 27) (“[FJoreign rules . . . are not contrary to the
French conception of international public policy merely
because they differ from mandatory provisions of French
law, but only insofar as they infringe principles of universal
justice considered in French conception as having universal
value.”’).)
Defendants contend that an opt-out class action offends
such universal principles in three respects. First, it is an
accepted principle of French law that no one may claim in
court by proxy. This principle—in French, nul ne plaide par
procureur—procedurally requires anyone acting as a plaintiff
or defendant in a lawsuit to make his identity known
individually in the legal proceedings. (See Terré Decl. § 38.)
As a result, defendants’ argue, the fact that not all members
of the putative class will be identified by name, but instead
represented by court-appointed class representatives, will be
fatal to recognition of a U.S. judgment in this case by a
French court. (See id. at ] 39; Renard-Payen Decl. {| 15; de la
Pradelle Decl. 4] 40-43; Cohen/de la Pradelle 4] 19-20.)
Defendants further argue that the failure to identify each
plaintiff individually contravenes French notions of due
process. (Audit Decl. 4 30.) This is because of a “strong
principle” of French law that no one should be a plaintiff
without consenting affirmatively to do so. (Audit Decl. ¥ 31).
Members of an opt-out class, of course, are not required to
take any steps to be included in this class. Defendants also
argue that the opt-out class is inconsistent with the
fundamental principle of adversarial proceedings, /e principe
du contradictoire, which gives every litigant the “personal
freedom” to appear and be heard during any proceeding
affecting his nghts. (Cohen/de la Pradelle Decl. § 20; Audit
Decl. § 32) Particularly where individual notice is not
required (as is permissible under Rule 23), a class member
could be deprived of his fundamental right to appear without
ever having received actual notice. (Cohen/de la Pradelle
Decl. 4 20.) Finally, contingency fees are prohibited under
French law because such fees reduce the amount of
B-48
compensation available to plaintiffs, and, therefore, a U.S.
judgment which provided contingent fees “could likely be
regarded” as a violation of French public policy. (Audit Decl.
q 34.)
Plaintiffs’ experts reject the notion that U.S.-style class
actions are incompatible with fundamental principles of
justice as interpreted by the French courts. (Smit Decl.
9] 85-90; Mourre Decl. 4] 97-105.) Thus, Mourre points out
that group actions may be instituted by trade unions on
behalf of employees without individual consent, and that
associations of copyright holders are permitted to act in court
on behalf of the members of their group. (Mourre {J 99—
101.) Furthermore, as one of defendants’ own experts points
out, shareholder associations have the right to sue companies
and their directors, and to solicit a mandate from individual
shareholders (using mail and public notice) to act on their
behalf. (Cohen Decl. §] 45—48.) Though these procedures are
surely distinguishable from a Rule 23(b)(3) opt-out class,
they do not evince a fundamental hostility to the concept of
collective actions.
Plaintiffs’ experts further argue that defendants
misinterpret and misapply the principle of nul ne plaide par
procureur. In Mourre’s view, the principle of nul ne plaide
par procureur stands for the proposition that a party to a
court proceeding cannot 2ppear as acting in its own interest
when in reality it exercises the nghts of a third party whose
identity is concealed. The purpose is to avoid procedural
fraud so that a defendant knows about specific defenses.
(Mourre Decl. ¥ 131; see also Smit Decl. J 74 (opining that
the rule is the French equivalent of the real party-in-interest
requirement of Rule 17).) In this case, defendants know the
plaintiffs represent the absent class members, who are the
real parties bound together by Rule 23’s requirement of
commonality and typicality. (See Smit Decl. § 74, Mourre
Decl. § 132.) Moreover, Mourre points to case law
confirming that nul ne plaide par procureur is not part of the
B-49
French conception of international public policy and is not a
basis to set aside a foreign judgment. (Mourre Decl. {ff 133-
34 (citing Chenue v. Brachat (Paris Se. B, Oct. 24, 1991);
Colmar, Kruger v. Fougerolle (Apr. 30, 1996); Mandel v.
Coprim (Paris le. C, Oct. 27, 1998)).
Plaintiffs’ experts acknowledge that French citizens
have the right as “personal freedom” to appear and be heard
in any action but contend, simz!y, that Rule 23(b)(3) honors
such rights by providing every class members the
opportunity to opt-out of the class. (Smit. Decl. 4] 88; Mourre
Decl. 4 109-10. Mourre also notes that collective actions by
trade unions have been permitted by French courts on the
equivalent of an opt-out basis, provided that member-
employees are given notice of the action. (Mourre Decl. §
99.) Thus it may well be that the French courts would enforce
a U.S. class action judgment against a class member who
received actual notice and, therefore, had a meaningful
opportunity to exercise his “personal freedom,” but decline to
enforce the judgment against a class member who can show
that he did not receive actual notice.
Weighing both parties detailed affidavits, the Court
concludes that an opt-out class judgment would not offend
French concepts of international public policy. While it is
clear that such class actions are presently not permitted, it is
equally clear that the ground is shifting quickly. Defendants’
own expert, Professor Cohen, noted this development:
French law does not cease to evolve in a
direction favorable to class actions. Following the
practice of the United States, the President of the
French Republic seriously wished to develop
collective actions and put in place a commission of
study on April 13, 2005 responsible for the
introduction of a sort of “class action” for
relationships with consumers.
B-50
Quite naturally the issue of the introduction into
French law of “securities class actions’’ was raised
in order to more effectively protect shareholders
and investors. . . . The least that one can say is that
this tendency is strongly gaining ground and that
the evolution of French law seems very rapid.
While not long ago one considered that they
seemed far from French law, works are
multiplying today to attempt to take the exact
measure and to acclimate them in France. .
French law is thus oriented toward “class actions”
in matters of protection of shareholders and
investors.
(Cohen Decl. §§] 49-50.) Defendants are quick to point out
that the study referred to by Professor Cohen observed that
most of the study group’s members viewed on opt-out class
to be contrary to French law. (Cohen/de la Pradelle Decl. Ex.
D at 32). On the other hand, a number of the members of the
study recommended legislation establishing an opt-out class
mechanism based on the U.S. and Quebecois models. (See,
e.g., id. Ex. D, Working Group Report, Comment by Jean-
Guy Lévy, President of the Bar.) Of course, whether or when
France adopts class action legislation and whether it includes
an opt-out mechanism cannot be foretold. However, the
expressed views of the French President, as well as the
ongoing debate in legal \and business sectors is strong
evidence that the class action model is not so contrary to
French public policy that its use would likely be deemed an
infringement of “principles of universal justice” or contrary
to “international public policy.” Accordingly, the public
policy prong of the Munzer test is likely satisfied.
(iv) Absence of Fraud
The final prong of the Munzer test — that the action
before the foreign court was not fraudulent — has been
addressed in the course of the Court’s consideration of the
B-51
Simitch decision. See discussion supra. For the reasons stated
above, it appears unlikely that a French court would find
fraud or improper forum shopping in plaintiffs’ pursuit in this
Court of claims arising under the U.S. securities laws.
* * *
In sum, the Court concludes that plaintiffs’ experts have
shown a probability that French courts will find that (i) this
Court has properly asserted jurisdiction over claims that have
a “characterized link” to this jurisdiction; (2) U.S. securities
laws satisfy the doctrine of equivalence and are appropriately
applied; (3) a judgment herein will not infringe principles of
universal justice; and (4) plaintiffs have not engaged in
prohibited forum shopping. Accordingly, a judgment in this
case would, more likely than not, be granted recognition at
such time as an exequatur proceeding js instituted.
(d) Recognition in England
There is no clear authority addressing the res judicata
effect of a U.S. class action judgment in England. As there is
no statute or convention at play, the issue is addressed under
common law rules. English common law provides for
enforcement of a foreign judgment where the foreign court
was “competent.”'® English authoritics consistently discuss
the competency of a foreign court in terms of whether there
was jurisdiction over the defendant. Thus, a court is
competent when (i) the defendant was present within its
jurisdiction when proceedings were instituted, or (ii) the
defendant submitted to its jurisdiction. (Declaration of
Laurence Rabinowitz in Support of Vivendi Universal, S.A’s
'© The other elements generally required to establish res judicata are (i)
that the judgement be final, (ii) that there is an identity of parties and (iii)
that there is an identity of subject matter. (Rabinowitz Decl. 4 34 (citing
Good Challenger v. Navegante SA v. Metalexportimport SA (2003)
EWCA Civ. 1668).) The defendants do not argue that these elements
would not be met.
B-52
Opposition to Plaintiffs’ Motion for Class Certification, Sep.
29, 2005 (“Rabinowitz Decl.”), § 25.) By this standard, of
course, this Court would be competent as Vivendi’s
extensive U.S. operations place it within the Court’s
jurisdiction.
Defendants contend, however, that if presented with the
issue, English courts would also require that a U.S. court
have personal jurisdiction over non-U.S. class members
through their individual appearance in the action (Rabinowitz
Decl. ¥ 26.) Some support for this position can be found in
dicta in Campos v. Kentucky & Indiana Terminal Railroad
Company [1962] 2 Liloyd’s Rep. 459 (QB). Therein the court
ruled in favor of defendant on the merits of the case but went
on to note that defendant’s alternative defense of res judicata
with regard to a favorable U.S. class action judgment would
likely fail because (i) the U.S. action was a “spurious” class
action,'’ which did not bind absent parties even under U.S.
law and (ii) in any event, plaintiff was not a class member at
the initiation of the U.S. proceeding. Lastly, the court found
“great force” in the argument that res judicata would not
operate in an English court against a party who has not been
served with process in the foreign proceeding. This begs the
question of whether a class member is a party. Thus, it is far
from clear how the court’s observation—accurate as far as it
goes—would have been applied in the case of a “true”
Rule 23(b)(3) class wherein absent class members are not
parties for a variety of procedural purposes, including service
of process. Conte & Newberg, supra, § 1.4 n.2. Defendants’
expert simply ignores the issue and assumes, without
analysis, that absent members are subject to the same English
common law jurisdictional rules that, as noted, refer only to
the need for service upon, or an appearance by, individual
'7 «S)purious class action was little more than a permissive joinder
device, which would be binding only on the onginal parties to the suit
and those who might subsequently intervene.” 1 Conte & Newberg,
supra, § 1:9.
B-53
party defendants. While English courts are not bound
thereb* the Supreme Court has explicitly rejected this
reasor...°% holding that non-resident class members need not
appear individually, and that adequate notice with an
opportunity to opt-out is sufficient to establish a limited
consent to jurisdiction. Phillips Petroleum Co. v. Shutts, 472
U.S. 797, 806-14 (1984). In addition, the inference that an
English court would not find a U.S. court competent where
non-resident class members had not personally been served,
appears inconsistent with English law governing class or
“representative” actions which, in fact, allows absent parties
to be bound. Rule 19.6 of the 1998 Civil Procedure Rules
| provides as follows:
(1) Where more than one person has the same
interest in a claim —
a. the claim may be begun; or
b. the court may order that the claim be continued,
by or against one or more of the persons who
have the same interest as representatives of any
other persons who have that interest.
(2) The court may direct that a person may not act
as a representative.
(3) Any party may apply to the court for an order
under paragraph (2).
(4) Unless the court otherwise directs any judgment
or order given in a claim in which a party is
acting as a representative under this rule —
a. Is binding on all persons represented in this
claim; but
b. may only be enforced by or against a person who
is not a party to the claim with the permission of
the court.
(Harris Decl. { 44.) Thus, English representative actions will
bind those on whose behalf a claim is brought (and, under
section 4(b), persons who are not parties to the claim with the
court’s permission). See generally Neil Andrews, Multi-Party
B-54
Proceedings in England: Representative and Group Actions,
11 Duke J. Comp. & Int’l L. 249 (2001). There is no
requirement, express or implied, that class members, foreign
or domestic, must appear or be served in order to be bound. It
is true that the scope of representative actions relating to
claims for damages is considerably narrower in England than
in the United States and that it is unlikely that the present
action could proceed as a representative action in England.
(Declaration of Jonathan Harris in Support of Plaintiffs’
Motion for Class Certification, Dec. 8, 2005, 4 45.)"
However, this appears to be more of a procedural distinction
than a jurisdictional one, the point being that English law
recognizes the competency of its own courts to bind absent
parties in appropriate situations. While the issue is hardly
free from doubt, based on the affidavits before it, the Court
concludes that English courts, when ultimately presented
with the issue, are more likely than not to find that U.S.
courts are competent to adjudicate with finality the claims of
absent class members and, therefore, would recognize a
judgment or settlement in this action. (Harris Decl. {J 14-20
and 50—51 (citing John C. L. Dixon, The Res Judicata Effect
In England of a US Class Action Settlement, 46 Int’! &
Comp. L.Q. 134, 145-50 (1997)).)'?
(e) Recognition in Germany
Whether a foreign judgment would be recognized in
Germany is a matter of German procedural law. Plaintiffs’
expert, Dr. Peter Mankowski, and defendants’ expert, Dr.
Gerhard Herman Otto Wegen, agree that there is no decision
by a German court as to whether a judgment in a U.S. class
'8 But defendants’ expert noies that “an English court might even
entertain a class (or representative) action against Vivendi. Such a
procedure is permitted by CPR Rule 19.6. . .” (Rabinowitz Decl. 23.)
'? As in France, English courts will not recognize foreign judgments that
are contrary to “principles of natural justice.” Dixon, supra, at 148.
Significantly, Defendants’ expert does not contest this point. (See
generally Rabinowitz Decl.)
B-55
action would be recognized under the German Code of Civil
Procedure (Zivilprozessordnung) (“ZPO”). (Declaration of
Peter Mankowski in Support of Plaintiffs’ Motion for Class
Cerification, Dec. 12, 2005 (“Mankowski Decl.”), § 8;
Declaration of Gerhard Hermann Otto Wegan in Support of
Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion for
Class Certification, Sep. 27, 2005 (“Wegan Decl.”), 4] 7-8.)
Section 328 of the ZPO provides for the recognition of
foreign judgments if five conditions are met:
(1) if the foreign court was competent for deciding
on the claims based on the German provisions on
jurisdiction, (2) if the defendant was properly
served (in the legal relationships of the United
States and Germany according to the Hague
Service Convention) in a timely manner enabling
defendant to defend itself properly, (3) if the
judgment is not inconsistent with an earlier
German or foreign judgment which would be itself
recognised in Germany, (4) if the contents of the
judgment do not infringe the German ordre public,
i.e. the indispensable provisions of German law
and (5) if reciprocity is guaranteed, i.e. if the
foreign court would recognise a corresponding
German judgment.
(Wegen Decl. § 7.) Defendants’ expert does not question the
satisfaction of the first, second, third and fifth conditions.
Dr. Wegen contends, however, that a U.S. class action
judgment would violate the “ordre public.” (Wegen Decl.
{ 7.) The constitutional premise for this position is found in
Article 103 of the German Constitution which establishes the
right of a citizen to be heard and to participate in legal
proceedings. (Wegen Decl. 4 9; Mankowski Decl. § 36.) This
right, in the nature of a due process protection, is referred to
as the right of “correct representation,” (Wegen Decl. 4 10),
or the “disposition maxim,” (Mankowski Decl. 4 39).
B-56
Interestingly, Dr. Wegen appears to conclude that the right of
correct representation could be satisfied, and a U.S. judgment
would be enforced as to absent class members, provided they
were to receive actual notice of the class action and had the
opportunity to opt-out. (Wegen Decl. § 12.) However,
according to Dr. Wegen, service of notice must be made “‘in a
manner that strictly complies with the requirements of the
Hague Service Convention.””° (Wegen Decl. § 17.)
It is true that service of process in conformity with the
Hague Service Convention would require individual service
through the German Central Authority and local German
courts. (Wegen Decl. ff] 13-14.) But service of process in
this context refers to the formal delivery of an initial pleading
to an opposing party, i.e., the defendant. It cannot readily be
thought of as a means of providing notice by plaintiff to a
member of the plaintiff class. (Mankowski Decl. §] 49-54.)
By analogy, in the U.S. context, it makes little sense to
evaluate a class member’s due process right to adequate
notice in terms of whether the service requirements of Rule 4
of the Federal Rules of Civil Procedure have been satisfied.
Plaintiffs, then, appear to have the better of the
argument that compliance with the due process requirements
of the German constitution could be satisfied by measures
reasonably calculated to give actual notice to class members
of their right to opt-out of a U.S. class action and pursue, or
decline to pursue, their individual claims. But even under Dr.
Mankowski’s analysis, it would seem that a U.S. judgment
would not be enforced against a class member who did not in
fact receive actual notice despite plaintiffs’ efforts to broadly
disseminate notice.
2° Under German law, German nationals can only be served by foreign
claimants in conformity with the provisions of the Hague Service
Convention.
B-57
There is a further concern regarding enforceability of a
class action judgment that is not directly addressed by
defendants’ expert. Leaving aside the question of whether the
Hague Service Convention is the exclusive means for
notifying absent class members, can it be said that the use of
a collective action is so contrary to German public policy that
a U.S. class action judgment will not be recognized under
any circumstance? In this regard the Court notes that, in
contrast to France and England, collective actions remain
unknown in Germany. Germany has recently passed the
Investor Protection Model Procedure Act which addresses
multiple suits by shareholders that allege violations of the
capital market laws. (Mankowski Decl. 4] 32-33.) This act
provides for the use of test cases whose outcome would be
binding in other individual shareholder actions. (/d.)
However, it is not a collective action in the sense that non-
party shareholders are bound by the results. By comparison,
both France and England, albeit in limited circumstances,
recognize collective actions in which the interests of non-
parties are pursued and non-parties are bound by the results.
See discussion supra. Taking the parties’ expert affidavits as
a whole, the Court is left with the distinct impression that the
formalities of German law may well preclude the recognition
of a judgment in the instant case. Indeed, plaintiffs’ expert
concludes only that “one cannot rule out a U.S. class action
settlement or judgment . . . will be recognized or enforced in
German.” This candid opinion is insufficient on its face and
leads the Court to conclude that plaintiffs have not shown a
probability that German courts will give res judicata effect to
a judgment in this case.
(f) Recognition in Austria
With respect to Austrian law, the parties’ experts agree
that under the current applicable law, there must be “formal
reciprocity” between the foreign state and the Republic of
Austra as a condition to recognition of a foreign judgment.
(Declaration of Christian Herbst in Support of Vivendi
B-58
Universal, S.A’s Opposition to Plaintiffs’ Motion for Class
Certification, Oct. 1, 2005 (“Herbst Decl.”), 9 34;
Declaration of Leopold Specht in Support of Plaintiffs’
Motion for Class Certification, May 12, 2005 (“Specht
Decl.”), 4] 23.) Formal reciprocity may be established by a
treaty to which the foreign state and the Republic of Austria
are a party, or a duly published Austrian decree that states the
existence of reciprocity. (Herbst Decl. { 34; Specht Decl.
4 23.) The United States and Austria are not party to a
reciprocity treaty, nor has an Austrian decree been published
that would provided for the enforcement of a U.S. judgment.
(Herbst Decl. ¥ 35.) Plaintiffs’ expert, in response, provides
only the opinions of various Austrian legal scholars that the
Austrian law establishing these requirements is
unconstitutional. (Specht Decl. {| 23-24.) These opinions
fall far short of establishing a probability that an Austrian
court would grant preclusive effect to any judgment or
settlement issuing from this action.
(g) Recognition in The Netherlands
Plaintiffs have submitted the opinion of Professor Smit
that Dutch courts would give binding effect to a judgment in,
or settlement of a U.S. class action. As is true in other
European jurisdictions, a shareholder class action does not
appear to be available in the Netherlands. (Smit Decl. 4 46).
Nevertheless, the Dutch Legislature has recently enacted
class action legislation in other contexts indicating that
recognition of a judgment in this case would not be contrary
to fundamental principles of fairness in Dutch law (/d. 4] 36—
39.) Defendants have offered no evidence to dispute the Smit
Declaration. Based on the record before it, the Court finds
plaintiffs have shown a probability that Dutch courts would
recognize a judgment or settlement in this action.
(h) The Risk of Nonrecognition Does Not
Compel Exclusion of All Foreign
Class Members
B-59
Having considered the arguments presented by both
sides on the risk of nonrecognition of a U.S. judgment or
settlement abroad, the Court concludes that such concerns,
without more, do not warrant exclusion of the citizens of
France, England, and the Netherlands, who are otherwise
putative members of the proposed class. If and when the
issue is presented to these countries, it is more likely than not
that the courts in these countries would recognize the
enforceability of a judgmer.. or settlement in the present case.
However, it is more likely than not that German and
Austrian courts, at present, will not give res judicata effect to
judgments or settlements in a U.S. opt-out class action.
Because lawsuits could be brought by Austrian and German
nationals against defendants alleging the same wrongdoing
that underlies the allegations in this case, the Court concludes
that the adjudication of German and Austrian shareholders’
claims in this class action is mot necessarily superior. The
likelihood of nonrecognition in Germany and Austria raise
weightier issues of fairness and lessen, albeit in limited
realistic situations, the promise of economy, consistency, and
finality made possible when class members are bound to a
final judgment or settlement. See Fed. R. Civ. P. 23(b)(3)(C);
see also 7AA Charles Alan Wright et al., Federal Practice
and Procedure § 1780 (3d ed. 2005) (noting that
Rule 23(b)(3)(C) requires, inter alia, a court to “evaluate
whether allowing a Rule 23(b)(3) action to proceed will
prevent the duplication of effort and the possibility of
inconsistent results”); Edward F. Sherman, American Class
Actions: Significant Features and Developing Alternatives in
Foreign Legal Systems, 215 F.R.D. 130, 130 (2003) (“{The
American class action] serves the interests of economy by
not having to try the same issues again and again in separate
cases. It also serves the interests of consistency and finality
by avoiding the possibility of inconsistent outcomes in
separate trials of similar cases and resolving all claims in a
single case that is binding on all class members.”).
B-60
A countervailing concern, however, is that in a global
economy, companies do business across international borders
and sell their securities worldwide, and acts of corporate
misconduct—whether committed in the United States,
abroad, or both—may have substantial effects on the United
States market. Where, as here, the Court has determined that
significant alleged conduct occurred in the United States
warranting application of the federal securities laws to
foreign actors, see In re Vivendi, 381 F. Supp. 2d at 169, the
United States has a strong interest in the enforcement of
those laws where applicable. Cf Dirienzo v. Philip Servs.
Corp., 294 F.3d 21, 32 (2d Cir. 2002) (rejecting defendant’s
forum non conveniens arguments in part because of United
States’ interest in enforcing its securities laws, and also
noting that “[f]or securities markets to function efficiently,
securities fraud law must be clear and enforceable”); Fidenas
AG v. Compagnie Internationale Pour L’Informatique CII
Honeywell Bull, S.A., 606 F.2d 5, 9 (2d Cir. 1979)
(“Congress did not intend ‘to allow the United States to be
used as a base for manufacturing fraudulent security devices
for export, even when they are peddled only to foreigners.’”
(quoting /7T v. Vencap, Ltd., 519 F.2d 1001, 1017 (2d Cir.
1975))); Ilana T. Buschkin, Note, The Viability of Class
Action Lawsuits in a Globalized Economy—Permitting
Foreign Claimants to be Members of Class Action Lawsuits
in the U.S. Federal Courts, 90 Cornell L. Rev. 1563, 1569
(2005) (arguing in favor of “default presumption in favor of
including foreign claimants in small claim securities, class
actions law suits,” because to do otherwise would lessen the
deterrent effect of class adjudication).
Furthermore, in considering whether the threat of
nonrecognition defeats the superiority of the proposed class,
the Court should not ignore practical realities that reduce the
risk that defendants would in fact be prejudiced by any
potential nonrecognition in the form of duplication of effort
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or inconsistent results. See Cromer, 205 F.R.D. at 135 n.32;7!
In re U.S. Fin. Sec. Litig., 69 F.R.D. at 48 (noting “that
practical difficulties in each country make lawsuits by these
{foreign plaintiffs] virtually impossible”); see also Buschkin,
supra, at 1597. In this sense, defendants’ res judicata
concerns are “more hypothetical than real,” since the
likelihood of relitigation by absent class members in a
European forum is low. (Pls.’ Reply Mem. 11.) As plaintiffs’
expert points out, absent class members who were
dissatisfied with an adverse judgment, would be pressing
claims (1) already adjudicated against them, (2) without the
benefit of contingency fee arrangements, (3) with the added
risks of having to pay defendants’ counsel fees and costs of
litigation. Further, such plaintiffs would be facing the risk
that defendants would be able to successfully invoke this
Court’s jurisdiction to prevent recovery. (See Smit Decl. §
105) Similar disincentives would apply to absent class
members dissatisfied with a favorable judgment they deemed
inadequate. (/d.) And in the case of a settlement, the Court
?! The contingencies that would have to be met before genuine res
judicata concerns might arise in the context of a judgment were described
as follows:
“(MJany events would have to occur before [defendant] would
be prejudiced by an imability to assert the defense of res
judicata successfully. Specifically, (1) the class action would
have to be tried to judgment, despite the greater likelihood that
the case would instead be settled; (2) the class would have to
lose on the merits; (3) an absent class member would have to
bring a subsequent lawsuit in [a foreign] court, despite such
practical deterrents as the unavailability of contingent-fee
representation or a class action vehicle in those courts; (4) the
absent class member would have to succeed in establishing
jurisdiction over the defendants in that foreign court; (5) the
foreign class member would have to convince the foreign court
to ignore this Court’s ruling and render judgment in its favor
on the merits; and (6) the absent class member would have to
then convince a Bermuda court to enforce the foreign
judgment and ignore the judgment rendered by this Court.”
Cromer, 205 F.R.D. at 135 n.32.
B-62
can fashion a proof-of-claim mechanism intended to bind all
participants and discourage relitigation. See Cromer, 205
F.R.D. at 135. While it could be argued that practical
considerations weigh strongly in favor of allowing all foreign
purchasers to participate in plaintiffs’ proposed class, the
Court elects to proceed with caution and limit the class to
foreign shareholders whose courts, in the unlikely event of
successive litigations, are likely to give res judicata effect to
any judgment herein. This double layer of security should
allay defendants’ legitimate concerns, and argues in favor of
including French, British and Dutch shareholders in the
proposed class.
3. Manageability
In determining whether a class action is a superior
method of adjudication for a particular action, courts must
also consider the management difficulties likely to be
encountered if the action is continued as a class suit, such as
the burden of complying with Rule 23’s notice requirements.
See 7AA Charles Alan Wnight et al., Federal Practice and
Procedure § 1780, at 187—90. The determination of whether
a particular action is manageable is “peculiarly” within the
discretion of the district court In re _ Visa
Check/Mastermoney Antitrust Litig., 280 F.3d 124, 141 (2d
Cir. 2001), cert. denied, 536 U.S. 917 (2001).
Rule 23(c)(2) requires that “notice must be ordered, and
is not merely discretionary, to give the members in a
subdivision (b)(3) class action an opportunity to secure
exclusion from the class.” Fed. R. Civ. P. 23 Advisory
Committee Notes, 1966 Amendment, 28 U.S.C.A. Rule 23,
at 388. Rule 23(c)(2) states that the required notice must be
“the best notice practicable under the circumstances,
including individual notice to all members who can be
identified through reasonable effort.” Fed. R. Civ. P.
23(c)(2)(B). Further,
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{t]he notice must concisely and clearly state in
plain, easily understood language: the nature of the
action, the definition of the class certified, the
class claims, issues or defenses, that a class
member may enter an appearance through counsel
if the member so desires, that the court will
exclude from the class any member who requests
exclusion, stating when and how members may
elect to be excluded, and the binding effect of a
class judgment on class members under
Rule 23(c)(3).
Id. Defendants argue that because Vivendi does not keep,
does not have access to, and does not have the nght to access
information that would enable individual notice to
shareholders carrying “bearer shares,” individual notice
would only be possible to a small number of European class
members holding “registered shares.” (See Bisiaux Decl. § 9;
Heiser Decl. FJ 13, 23.) Publication notice in a number of
foreign countries and in a variety of foreign languages,
defendants’ argue, would be unmanageable and insufficient
to comport with due process.
While individual notice, where reasonably possible, is
required, when class members’ names and addresses may not
be ascertained by reasonable etfort, publication notice has
been deemed adequate to satisfy due process. See Eisen, 417
U.S. at 173 (requiring individual notice to all class members
whose names and addresses may be ascertained through
reasonable effort); Mullane v. Cent. Hanover Bank & Trust
Co., 339 U.S. 306 (1950) (finding notice by publication
constitutionally sufficient as to trust beneficiaries whose
names and addresses are unknown). As long as the Court is
persuaded that “class counsel acted reasonably in selecting
means likely to inform persons affected,” notice will be
considered adequate. Denney v. Jenkins & Gilchrist, No. 02
Civ. 5460, 2005 WL 388562, at *20 (S.D.N.Y. Feb. 18,
2005); see also In re Western Union Money Transfer Litig.,
B-64
No. 01 Civ. 0335 (CPS), 2004 WL 3079932, at *5 (E.D.N.Y.
Oct. 19, 2004) (finding, in case involving class partially
comprised of foreign class members, that individual notice
must be sent to all class members identifiable in defendant’s
computer database, and requiring publication notice
including, inter alia, “media outreach in the form of a press
release, video news release, and radio news release, to be
translated into various foreign languages and distributed
internationally”); Jn re Austrian & German Bank Holocaust
Litig., 80 F. Supp. 2d 164, 175 (S.D.N.Y. 2000) (describing
notice of settlement to foreign class members as including
direct mail notice to ascertainable members, and publication
notice including, inter alia, a widespread notice campaign in
foreign newspapers, promotional announcements in key
foreign cities.); Jn re Holocaust Victim Assets Litig., 105 F.
Supp. 2d 139, 144 (E.D.N.Y. 2000) (approving multi-faceted
notice plan involving direct mail, worldwide publication,
public relations, Internet and grass roots community outreach
in light of inability to send notice exclusively by direct mail).
Indeed, in a recent class action settlement including global
purchasers of Royal Ahold N.V. American Depository
Receipts and/or ordinary shares, the United States District
Court for the District of Maryland found that notice including
direct mailings to all reasonably identifiable persons and
entities, posting of documents on websites, and publication
of notice in numerous different countries and different
languages “fully satisfied the requirements of Rule 23 of the
Federal Rules of Civil Procedure and the requirements of due
process.” In re Royal Ahold N.V. Sec. & ERISA Litig., 437 F.
Supp. 2d 467, 472 (D. Md. 2006).
In response to defendants’ manageability concerns,
plaintiffs have filed a comprehensive affidavit outlining the
effectiveness of its proposed method of providing notice in
foreign countries. (See Affidavit of Todd B. Hilsee on Ability
to Provide Multi-National Notice to Class Members, Dec. 19,
2005 (“Hilsee Aff.”) § 7.) According to this affidavit, the
following methods of notification will be used to execute the
B-65
dissemination of notice required under Rule 23(c)(2): (1)
individual mailed notice to al] reasonably identifiable class
members; (2) publication notice in appropriate multi-national
media to reach, in combination with direct mailings, a high
percentage of the shareholders in each country; (3) a neutral
informational press release, to be approved by the Court in
advance, announcing the commencement of the notice
program to increase awareness; (4) notice through any
shareholder communication channel that might exist,
including Vivendi’s website; and (5) a neutral website, to be
approved by the Court in advance, translated into all relevant
language, posting the notices, the plaintiffs’ complaint,
defendants’ answers, the class certification order; an
exclusion request form, and other relevant documents. (/d.
4 11.) Although the issue of executing appropriate notice will
necessarily be revisited, for purposes of considering
plaintiffs’ motion to certify a class the Court is satisfied that
plaintiffs intend to provide individual notice to those class
members whose names and addresses are ascertainable, and
that plaintiffs’ proposed form of publication notice, while
complex, will prove both manageable and the best means
practicable of providing notice.” At this stage, “the issue of
foreign notice is not sufficiently grave to defeat class
certification.” Jn re Lloyd's, 1998 WL 50211, at *16; cf In re
DaimlerChrysler, 215 F.R.D. at 301 (noting difficulties
involved in maintaining class including foreign investors,
and observing that lead plaintiffs had not adequately
2 Defendants’ contention that providing notice to foreign class members
is unmanageable is further undercut by the recent approval by Judge P.
Kevin Castel of a comprehensive program to provide notice to eligible
claimants of money received from the settlement between the Securities
Exchange Commission and Vivendi, Messier and Hannezo for the
violation of securities laws. See SEC v. Vivendi Universal, S.A., No. 03
Civ. 10195 (PKC) (S.D.N.Y. Dec. 18, 2006). The notice plan was in
many respects similar to the one proposed by Hilsee in this proceeding.
While that decision is of court not binding on the Court, it suggests that it
is realistic to provide notice to foreign class members involved in this
very case.
B-66
responded to defendants’ concerns relating to class
management).
IV. Subclasses
Defendants argue that there is no single integrated
worldwide market for Vivendi ordinary shares and Vivendi
ADSs and, therefore, that a single class consisting of holders
of both securities cannot be certified. (Opp’n 4-6). Implicit
in their argument is the contention that if plaintiffs’ motion
for certification is granted, separate subclasses should be
established for purchasers of ADSs and for purchasers of
ordinary shares. The Court has the authority under
Rule 23(c)(4)(B) of the Federal Rules of Civil Procedure to
divide a class into subclasses. The existence of divergent
interests is the primary reason to establish subclasses. See 1
Conte & Newberg, supra, § 8:12. Defendants argue that a
single class cannot be certified because American and
European stock markets are not fully integrated and,
therefore, each group of purchasers will require separate
proof on the issues of reliance and damages. (Defs.’ Sur-
Reply Mem. 8-9). According to defendants’ expert, Professor
Gompers, there are two district trading markets because
(1) U.S.-based investors faced a foreign exchange risk not
faced by foreign investors; and (2) investors in each security
followed different trading strategies and had different trading
opportunities because of the time zone difference between
the markets. (Declaration of Paul A. Gompers in Support of
Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion for
Class Certification, Oct. 3, 2005, 4 6.) The lack of full
integration is evidenced by market metrics that show
segmentation and an alleged market lag with news being
incorporated into the price of ordinary shares on the Paris
Bourse before impacting the price of ADSs on the NYSE.
(Id. %§ 40-44.) Plaintiffs present their own expert, Jane D.
Nettesheim, who opines that the markets for Vivendi
ordinary shares and ADSs are “highly integrated,” although
concededly not “perfectly integrated.” (Declaration of Jane
B-67
D. Nettesheim in Support of Plaintiffs’ Motion for Class
Certification, Dec. 19, 2005, 9 7.) Analyzing the relative
prices of each security during the period where both markets
are trading, Nettesheim finds that prices were “almost always
effectively equivalent.” (Jd. § 8 & Exs. 4, 5.) While the
NYSE and the Bourse may not be perfectly integrated, such
that Vivendi ordinary shares and ADSs are perfect substitutes
with identical prices and returns, this distinction does not
require creation of subclasses. It is undisputed that the two
markets are highly integrated and nothing in defendants’
submission supports the proposition that such minor
inefficiencies between the markets that may exist will have
any impact on class-wide proof of the element of reliance.
And small differences in returns experienced by holders of
ADSs and ordinary shares may affect the amount of damage
but unlikely to alter the methodologies of calculation, at least
to a degree necessary to warrant, at this juncture, the creation
of subclasses.
CONCLUSION
Consistent with the foregoing, plaintiffs motion to
certify the class [234] is GRANTED in part. A class is
hereby certified consisting of all persons from the United
States, France, England, and the Netherlands who purchased
or otherwise acquired ordinary shares or American
Depository Shares of Vivendi Universal, S.A. between
October 30, 2000 and August 14, 2002.
SO ORDERED.
Dated: New York, New York
May 21, 2007
/s/ Richard J. Holwell
Richard J. Holwell
United States District Judge
APPENDIX C
MEMORANDUM OPINION AND ORDER OF THE
UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK,
ENTERED MARCH 26, 2007
C-1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
xX
02 Civ. 5571
(RJH) (HBP)
IN RE VIVENDI UNIVERSAL, S.A.
SECURITIES LITIGATION MEMORANDUM
OPINION AND
ORDER
Xx
Plaintiffs bring this securities fraud class action against
defendants Vivendi Universal, S.A. (““Vivendi’’) and its two
most senior former officers, Jean-Marie Messier (former
CEO) and Guillaume Hannezo (former CFO), individually
and on behalf of similarly situated Vivendi security
purchasers. Plaintiffs allege that defendants’ materially false
and misleading statements caused Vivendi securities to trade
at artificially inflated prices, and further, that defendants
induced them to purchase or otherwise acquire Vivendi
securities pursuant to a registration statement and prospectus
dated October 30, 2000, issued in connection with the
December 8, 2000 three-way merger of Vivendi, Seagram
Company Limited (““Seagram”) and Canal Plus, S.A. (“Canal
Plus”), in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 (“Exchange Act”), as
amended, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated
thereunder, and Sections 11, 12(a) , and 15 of the Securities
Act of 1933 (“Securities Act”), as amended, 15 U.S.C. § 77k,
respectively.
' The Section 12(a)(2) claim as alleged against defendant Hannezo in his
individual capacity was dismissed in /n re Vivendi Universal, S.A. Sec.
Litig., 381 F. Supp. 2d 158, 187 (S.D.N.Y. 2003), and was not repleaded
C-2
Plaintiffs now move to certify a class pursuant to
Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedure consisting of all persons, foreign and domestic,
who purchased or otherwise acquired ordinary shares or
American Depository Shares (“ADSs”’) of Vivendi Universal,
S.A. between October 20, 2000 and August 14, 2002. For the
reasons discussed below, the Court grants plaintiffs’ motion
[234] in part and denies it in part.
BACKGROUND
Prior History
This litigation was commenced on July 18, 2002 with
the filing of the original complaint. On August 19, 2002,
plaintiffs filed an amended consolidated complaint. By Order
dated October 1, 2002, the Hon. Harold Baer, Jr., to whom
this action was originally assigned, consolidated fourteen
related actions against Vivendi. On January 7, 2003,
plaintiffs filed a consolidated class action complaint.
Additional shareholder cases were consolidated herewith by
Orders dated July 25, 2003 and September 3, 2003. By notice
dated January February 24, 2003, defendants moved to
dismiss the consolidated class action complaint arguing, inter
alia, that the Court lacked subject matter jurisdiction over the
claims brought by foreign class members who acquired
Vivendi’s ordinary shares on foreign exchanges. Applying
the “conduct test” to determine whether extraterritorial
application of the federal securities laws was warranted,
Judge Baer, by opinion dated November 4, 2003, denied
defendants’ motion to dismiss for lack of subject matter
jurisdiction. See In re Vivendi Universal, S.A., 381 F. Supp.
2d at 169. Judge Baer concluded that plaintiffs’ complaint
adequately alleged that “‘defendants’ conduct in the United
in the first amended consolidated class action complaint. (See Stipulation
and Order [107] , Dec. 17, 2003.) The Section 12(a)(2) claim as alleged
against defendant Messier remains.
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States was more than merely preparatory to the fraud, and
particular acts or culpable failures to act within the United
States directly caused losses to foreign investors abroad.’” Jd.
(quoting Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991));
see also id. at 170 (inferring “that the alleged fraud on the
American exchange was a ‘substantial’ or ‘significant
contributing cause’ of [foreign investor’s] decision[{s] to
purchase [Vivendi’s] stock abroad’’) (bracketed language in
Original, citation omitted). Plaintiffs filed a first amended
consolidated class action complaint (“FACC”) on November
24, 2003. Shortly thereafter, on December 4, 2003 this case
was reassigned to this Court. Defendants then moved for
reconsideration of Judge Baer’s order, which this Court
denied by order dated September 21, 2004. The Court issued
a separate Memorandum Opinion and Order addressing one
of the many issues raised in defendants’ motions for
reconsideration; namely, whether this Court has subject
matter jurisdiction over foreign plaintiffs’ claims pursuant to
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder. See In re Vivendi Universal, S.A.,
No. 02 Civ. 5571 (RJH), 2004 WL 2375830 (S.D.N.Y.
Oct. 22, 2004). In concluding that the claims of foreign class
members who acquired Vivendi’s ordinary shares on foreign
exchanges were properly before the Court and subject to U.S.
federal securities laws, the Court reasoned that the United
States—based conduct alleged by plaintiffs “significantly
contributed to the alleged fraud and that such conduct
directly caused foreign investors’ alleged losses.” Jd. at *7
(citing Europe & Overseas Commodities Traders, S.A. v.
Banque Paribas London, 147 F.3d 118, 128-29 (2d Cir.
1998)).
By notice dated July 15, 2005, plaintiffs filed a
substituted motion to certify a class pursuant to Rules 23(a)
and 23(b)(3) of the Federal Rules of Civil Procedure.” As
> In the First Amended Consolidated Complaint, plaintiffs defined the
proposed class as follows: )
C-4
noted, the proposed class consists of all persons who
purchased or otherwise acquired Vivendi ordinary shares or
ADSs between October 30, 2000 and August 14, 2002. The
motion seeks appointment of plaintiffs Olivier M. Gerard, the
Retirement System for General Employees of the City of
Miami Beach (“RSMB”), Bruce Doniger, Gerard Morel,
Capital Invest Die Kapitalanlagegesellschaft der Bank
Austria Creditanstalt Gruppe GmbH (in its capacity as
manager of and attorney-in-fact for APK EU-Big Caps Fund)
(“Capital Invest”), and William Cavanagh (collectively,
“proposed class representatives”), as class representatives,
and Milberg, Weiss, Bershad & Shulman LLP and Abbey
Gardy, LLP as class counsel. (/d.)
Factual Background
Vivendi is a corporation organized under the laws of
France. It is a global conglomerate engaged in business in
(a) on behalf of themselves and all persons who purchased or
otherwise acquired the common stock and American
Depository Shares (“ADSs”) of Vivendi (the “Purchaser
Class”) between October 30, 2000 and August 14, 2002
inclusive (the “Class Period”), alleging violations of the
Securities Exchange Act of 1934 (the “Exchange Act”); (b)
on behalf of themselves and all persons who acquired
Vivendi’s common stock or ADSs (the “Merger Subclass’’)
pursuant to a registration statement and prospectus dated
October 30, 2000 issued in connection with the three-way
merger (the “Merger”’) of Vivendi, S.A., The Seagram
Company Limited (“Seagram”’) and Canal Plus, S.A. (“Canal
Plus”) that created Vivendi Universal, S.A., alleging
violations of the Securities Act of 1933 (the “Securities
Act’); and (c) on behalf of themselves and all persons who
were shareholders of Vivendi or Seagram as of November
25, 2000 and entitled to vote on the Merger (the “Proxy
Subclass”) pursuant to the Joint Proxy Statement-Prospectus
issued in connection with the Merger, alleging violations of
the Exchange Act.
(FACC 41.) Plaintiffs’ class certification motion and supporting
memoranda do not propose any subclasses for certification.
C-5
two primary areas: “Media and Communications” and
“Environmental Services.” (FACC { 30.) Throughout the
class period, Vivendi’s total number of outstanding shares
(ordinary shares and ADSs inclusive) was approximately
1.08 billion. (Declaration of Frangois Bisiaux in Support of
Vivendi Universal, S.A’s Opposition to Plaintiffs’ Motion for
Class Certification, Sept. 30, 2005 (“Bisiaux Decl.’’), Exs. 1-
5.) Approximately twenty-five percent of these were held by
United States shareholders. (/d.) Around thirty-seven percent
of Vivendi’s total shares were held by French shareholders.
(Id.) The remainder of Vivendi’s shares were held
predominantly by non-French but European persons or
entities, and a small percentage (around five percent) was
consistently held by shareholders in other unidentified
countries. (/d.) During this time, virtually all of Vivendi’s
ADSs—which traded on the NYSE—were held by persons
or entities in North America, while virtually all of Vivendi’s
ordinary shares—traded predominantly on the Paris
Bourse—were held by persons or entities outside the United
States, predominantly in France and the rest of Europe.
(Bisiaux Decl. 4 7.)
Beginning in June of 1996, at which time defendant
Messier became CEO and defendant Hannezo was CFO,
Vivendi (then Générale des Eaux, and later, as of April 1999,
Vivendi, S.A.) embarked upon a massive acquisitions
venture, which included a number of multi-billion dollar
purchases. (FACC 4] 48-51.) Vivendi purchased substantial
equity positions in several U.S. companies and non-U.S.
companies by using Vivendi stock as payment and by
borrowing cash against future earnings. Financing this
growth strategy caused Vivendi to accumulate sizeable debt.
(Id. § 50.) Plaintiffs allege that in order to sustain Vivendi’s
growth strategy, the company was compelled to continue
reporting favorable financial results (see id. ¥ 53), resulting
in a series of false and misleading public statements reporting
“better than expected” and “strong” financial results, while
consistently denying rumored problems (see generally id.
C-6
{9 56-113), and the filing of financial statements with the
United States Securities and Exchange Commission (“SEC”)
that were materially false and misleading because, inter alia,
they failed to timely record goodwill impairments’ and
improperly applied generally accepted accounting principles
(“GAAP”) (see generally id. {| 54-55, 119-80).
As discussed in Judge Baer’s prior opinion denying
defendants’ motion to dismiss, 381 F. Supp. 2d 158, and this
Court’s prior supplemental opinion denying defendants’
motion for reconsideration, 2004 WL 2375830, the fraud
alleged in the FACC was perpetrated, in important part, in
the United States. Vivendi’s rapid-expansion scheme
involved the acquisition of numerous well-known U.S.
entertainment and publishing companies, such as Universal
Studios, Houghton Mifflin and USA Networks (FACC 23),
and in order to successfully accomplish this plan, it took on a
$21 billion debt while, allegedly, fraudulently assuring all
investors through false and misleading reports filed with the
SEC and news releases that it had sufficient cash-flow to
manage its debts (id. FJ] 24, 54-192). Significantly, both of
the alleged principal actors in this scherne, Messier and
Hannezo, moved to the United States during 2001. Messier,
in particular, moved his primary residence to New York in
September 2001, and spent half of his time in the United
States from that time through the end of the class period
(August 31, 2002), for the stated purpose of increasing
United States investments in Vivendi. (/d. J] 69, 77, 90-92,
105.) Many of the statements alleged to be false and
misleading were made by defendant Messier after he had
> Goodwill is the excess of the purchase price over the fair market value
of an asset. It reflects the value of intangible assets like reputation, brand
name, good customer relations, good employee relations, any patents and
proprietary technology, and other intangibles that improve a company’s
business. Goodwill is a value in a company’s balance sheet, and is
amortized over a period of time.
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moved to New York. See 2004 WL 2375830, at *4; (see also
FACC 4 73-76, 81-97.)
Following the December 8, 2000 merger of Vivendi,
Seagram, and Canal Plus, Vivendi repeatedly predicted
“strong growth prospects” and touted financial results as
exceeding even their “too ambitious” expectations. (/d. § 57-
68.) In September 2001— the same time that Messier and
Hannezo moved to the United States—rumors began to
circulate that Vivendi’s earnings would be disappointing.
Messier responded by consistently denying any problems—
indeed, until the day before his ultimate resignation he
disavowed there was any serious problem—which quelled
some of the negative speculation. (See id. {| 73-77.) In late
2001, Vivendi announced its acquisition of USA Networks
for $10.3 billion, and reported that the transaction would
increase Vivendi’s net free cash flow by a projected $350
million. (Ud. §§| 80-81.) Throughout the spring of 2002,
Vivendi (and Messier) continued to make positive statements
in the press to “dispel concerns about the Compan[y’s] debt
levels and accounting practices.” (/d. 983; see also id. Fj 84—
87, 89, 94-97.) However, on May 3, 2002, Moody’s lowered
Vivendi’s long-term debt rating to one notch above “junk”
status assigned to speculative investments, due to concerns
that Vivendi “might not be able to reduce debts as quickly
and comprehensively as planned.” (/d. § 99.) In response,
Vivendi downplayed the rating and announced it had “no
impact on Vivendi Universal’s cash situation,” which it
described as “comfortable” and capable of financing
Vivendi’s continued debt reduction. (/d. {| 100, 102-03.)
In response to continued concerns about Vivendi’s debt
levels, a June 25, 2002 press release was issued, noting steps
taken to reduce debt and that its cash situation was not
precarious, and Messier held a June 26, 2002 conference call
to assure investors there was “no hidden liability” and
expressing confidence with respect to Vivendi’s debt and
cash outlook. (/d. J 104-05.) On July 2, 2002, Messier e-
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mailed his employees stating that despite reports that Vivendi
was in danger of default, there were no hidden risks in the
company’s accounting. (Jd. § 109.) The very next day,
however, Messier resigned and Vivendi’s securities prices
collapsed. (/d.) Vivendi issued a press release through new
management acknowledging its “short-term liquidity issue,”
though Messier continued to claim that Vivendi’s financial
statements were transparent. (/d. 4 110.) Contrary to
Vivendi’s numerous press releases, financial statements, and
SEC filings throughout the class period, plaintiffs allege that
the company was in fact on the brink of financial disaster. At
the time of the USA Networks acquisition, announced on
December 17, 2001 (id. § 8), “Vivendi was already in dire
financial straits,” despite representations made to the contrary
by Messier to investors and the board of directors (id. | 184).
Vivendi was allegedly on the verge of insolvency by the end
of 2001, and had barely enough “cash needed to pay the
bills” as of May 2002. (/d. J 185.) Nevertheless, Vivendi had
continued to reassure investors that it could meet its
obligations for the next twelve months, despite being
privately advised of its dire financial outlook. (Jd. § 186.)
On August 14, 2002, new management announced that
Vivendi had suffered a €12 billion net loss for the first half of
2002 and would take a €11 billion goodwill write-down of
depreciated assets, the same day that Standard & Poor’s rated
Vivendi’s long-term corporate credit at junk status. (/d.
4 114.) New management later admitted that Vivendi “would
have been forced to declare bankruptcy within 10 days if
Jean-Marie Messier had not resigned.” (/d. § 187.)
DISCUSSION
5. Legal Standard
A d
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