OVER 3,000 CLASS ACTIONS have been commenced under the anti-fraud provisions of the federal securities laws since the enactment of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). It is exceedingly rare, however, for these massive actions to actually proceed to trial, as most are either settled or dismissed. In fact, only 15 such class actions have actually proceeded to trial during the 14 years since the PSLRA’s enactment. Of those, only eight have been tried to a verdict (the other seven settled during trial).
The largest federal securities class action ever to proceed to a trial concluded on Jan. 29 in the U.S. District Court for the Southern District of New York, resulting in a jury verdict completely exonerating Schulte Roth & Zabel’s client, one of the defendants in the case. The case took seven years to get to trial and involved numerous sophisticated accounting, financial reporting and securities law issues.
The plaintiff class in In re Vivendi Universal, S.A. Securities Litigation consisted of all non-insider purchasers of shares in Vivendi Universal—the giant media and communications company that includes Universal Music Group (the world’s largest music company)—from Oct. 30, 2000 through Aug. 14, 2002, in the United States, France, the United Kingdom and the Netherlands. The defendants were Vivendi itself, its former CEO Jean-Marie Messier and SRZ’s client, Guillaume Hannezo, Vivendi’s former CFO.
In the mammoth and complex trial, which lasted almost four months, the plaintiffs claimed that the defendants violated Section 10(b) of the Securities Exchange Act (the “Act”) by making false and misleading statements for the purpose of concealing the company’s true liquidity condition, resulting in a substantial decline in the value of Vivendi’s shares when the “truth” allegedly was revealed to the market. In addition, Mr. Hannezo and Mr. Messier were charged with violating Section 20(a) of the Act, for purported “controlling person” liability for Vivendi’s alleged Section 10(b) violations. Although Vivendi was found to be liable, the SRZ trial team, led by litigation partners Marty Perschetz and Michael Swartz, persuaded the jury that Mr. Hannezo was not liable for any of the alleged violations and committed no wrongdoing whatsoever. The jury also found Mr. Messier not liable.
Prior to the verdict, SRZ won an important interim victory by prevailing on a motion for judgment as a matter of law dismissing all claims against Mr. Hannezo that were based on Vivendi public statements that Mr. Hannezo himself did not actually make for public attribution. The ruling, which we had contended was controlled by the Supreme Court decision in Central Bank of Denver v. First Interstate Bank of Denver, limited the scope of Mr. Hannezo’s potential liability, even though there was evidence that he had participated in drafting, reviewing or approving several of these statements as the company’s CFO.
The jury’s verdict in favor of SRZ’s client in the Vivendi trial represents a unique and important victory for the SRZ trial team in a landmark case.