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The federal court in Manhattan has subject matter jurisdiction over a class action suit in which foreign plaintiffs accused France’s Vivendi Universal of violating U.S. securities law, Southern District of New York Judge Richard Holwell ruled last week. His decision confirmed a similar ruling by Southern District Judge Harold Baer Jr. in November 2003. Vivendi, a French-based municipal water provider, grew into a media giant and became a Wall Street favorite under the leadership of Jean-Marie Messier. Messier’s run as chief executive officer ended in July 2002 with the company burdened by debt and its stock in a state of collapse. Eventually it merged its media assets with General Electric’s NBC unit. A securities class action accuses the company, Messier, and former chief financial officer Guillaume Hennezo of hiding its indebtedness and rigging its finances. In In re Vivendi Universal, S.A. Securities Litigation, 02 civ. 5571, Judge Holwell addressed the court’s subject matter jurisdiction in relation to a class of foreign plaintiffs who purchased Vivendi’s stock in foreign stock markets. A court has subject matter jurisdiction in securities claims by foreigners, Holwell said, if “there was conduct in the United States that directly caused the foreigners’ losses and … such conduct was more than ‘merely prepatory’ to a securities fraud conducted elsewhere.” The requirement for jurisdiction, he said, “is satisfied when the final step of fraud … occurred in the United States.” If the conduct were “secondary to the alleged securities fraud,” then the court would deny subject matter jurisdiction. “[T]he issue examined has always been the same,” said the judge in focusing on the core of the legal doctrine providing for subject matter jurisdiction: “Does the alleged conduct implicate a U.S. interest?” Vivendi did sell its products in the United States but was not registered to do business here and was registered with the Securities and Exchange Commission as a foreign corporation. The key element of the court’s analysis dealt with the actions of Messier and Hennezo. “Vivendi’s principal actors, Messier and Hennezo, moved their operations to New York and spent at least half their time managing the company from the United States during a critical part of the class period,” said Holwell. “This salient fact, combined with the detailed allegations in the complaint of a scheme authored by Messier … was sufficient, in Judge Baer’s view, to conclude that the U.S.-based conduct was integral and not merely prepatory to the alleged fraud upon foreign purchasers of Vivendi shares on foreign exchanges.” The United States “has a strong interest in imposing its law over the conduct of corporate officers operating out of the United States … even if the officers were only operating out of the United States for part of the alleged class period” and spent half their time elsewhere, Holwell said. “Messier’s and Hennezo’s conduct in the United States from September 2001 through August 2002,” said the court, “cannot be described … as de minimus.” The judge was not swayed by Vivendi’s evidence pinpointing the location in which the allegedly fraudulent press releases were prepared. Vivendi submitted evidence claiming that press releases were prepared by French officials and were distributed from its French offices. “A corporation acts through its officers,” said Holwell in referring to Messier and Hennezo, and their conduct, not the origin of the press releases, was of crucial importance for the court. John Coffey, an attorney at Bernstein Litowitz Berger & Grossmann who is not involved in this case, said that foreign investors, particularly large institutions, are increasingly availing themselves of U.S. courts. Other nations do not have the American system of organizing class actions, causing big investors abroad to sue here, said Coffey, a lead counsel for plaintiffs in WorldCom-related securities class actions. This decision, he said, supports a growing body of case law making it easier for foreign plaintiffs to adjudicate their securities cases in domestic courts.

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