In re Vivendi, S.A. Sec. Litig.

• Decision Date: 27 September 2016
• Docket Number: 15-208-cv(XAP) August Term 2015.,Nos. 15-180-cv(L),s. 15-180-cv(L)
• Citation: 838 F.3d 223
• Parties: In re Vivendi, S.A. Securities Litigation
• Court: U.S. Court of Appeals — Second Circuit

838 F.3d 223

In re Vivendi, S.A. Securities Litigation¹

Nos. 15-180-cv(L)

15-208-cv(XAP) August Term 2015.

United States Court of Appeals, Second Circuit.

Argued: March 3, 2016

Decided: September 27, 2016

Jeffrey A. Lamken , MoloLamken LLP, Washington, D.C. (Robert K. Kry, Lauren M. Weinstein, MoloLamken LLP, Washington, D.C.; Arthur N. Abbey, Stephen T. Rodd, Jeremy Nash, Abbey, Spanier, LLP, New York, N.Y.; Matthew Gluck, Michael C. Spencer, Milberg LLP, New York, N.Y.; Brian C. Kerr, Brower, Piven, P.C., New York, N.Y., on the brief), for Plaintiffs–Appellees–Cross–Appellants Miguel A. Estrada , Gibson, Dunn & Crutcher, LLP, (Mark A. Perry, Lucas C. Townsend, Gibson, Dunn &, Crutcher LLP, Washington, D.C.; Caitlin J. Halligan, Gibson, Dunn & Crutcher LLP, New York, N.Y.; Daniel, Slifkin, Timothy G. Cameron, Cravath, Swaine & Moore, LLP, New York, N.Y.; James W. Quinn, Gregory Silbert, Weil, Gotshal & Manges LLP, New York, N.Y., on the, brief), for Defendant–Appellant–Cross–Appellee.

Before: Cabranes, Livingston, and Lynch, Circuit Judges.

Debra Ann Livingston, Circuit Judge:

Prior to 1998, Compagnie Générale des Eaux was a French utilities company, best known for supplying water to households across France. By the close of 2000, that same company, now touting the name Vivendi Universal, S.A. (“Vivendi”), was a global media conglomerate with extensive dealings in the film, music, telecommunications, publishing, and Internet industries, among related others. What followed on the heels of Defendant–Appellant–Cross–Appellee Vivendi's seemingly overnight transformation gives rise to the securities-fraud allegations now at issue.

To pull off its transformation and buttress its position as a mover-and-shaker in the global media-and-telecommunications market, Vivendi spent much of 2000 and 2001 acquiring a diverse array of media and communications businesses in the United States and abroad. Naturally, these acquisitions required money, and Vivendi did not have an unlimited supply. By 2001 and especially by 2002, Vivendi was running critically low. Indeed, Vivendi was in danger of not being able to meet all of its various payment obligations, including payments on loans it had taken out for the very purpose of financing its buying spree. In the worst case scenario, which inquiries later revealed was not an altogether unlikely one, Vivendi was months away from bankruptcy or insolvency. Yet, up until approximately July 2002, Vivendi made numerous representations to the market suggesting that the course ahead for the company was smooth sailing. That all came to a halt when Vivendi's stock price came tumbling down in the middle of 2002, after a series of credit downgrades and revelations that Vivendi was strapped for cash.

In a class-action suit they initiated against Vivendi in 2002, Plaintiffs–Appellees and Plaintiffs–Appellees–Cross–Appellants (collectively, “Plaintiffs”), investors in Vivendi's stock during the relevant time period, alleged that Vivendi's persistently optimistic representations during the period from October 30, 2000 to August 14, 2002, constituted securities fraud under § 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), as well as the Securities Exchange Commission's (“SEC”) Rule 10b–5 (“Rule 10b–5”) promulgated thereunder, 17 C.F.R. § 240.10b–5. Vivendi now appeals from a December 22, 2014 partial final judgment of the United States District Court for the Southern District of New York (Scheindlin, J. ),² following a three-month jury trial that started in late 2009 and resulted in a jury verdict finding Vivendi liable for securities fraud under § 10(b) and Rule 10b–5.

We affirm as to Vivendi's claims on appeal, concluding as follows:

(1) Plaintiffs relied on specifically identified false or misleading statements at trial and thus, contrary to Vivendi's argument on appeal, did not fail to present an actionable claim of securities fraud by “eliminat [ing] the foundational element of ... a specific false or misleading statement,” Vivendi Br. 41;

(2) Vivendi's claim that certain statements constituted non-actionable statements of opinion is not preserved for appellate review;

(3) Vivendi's claims that certain statements constituted non-actionable puffery and that others fall under the Private Securities Law Reform Act's (“PSLRA”) safe harbor provision for “forward-looking statements,” see 15 U.S.C. § 78u–5(c), is without merit;

(4) the evidence was sufficient to support the jury's determination that the fifty-six statements at issue here were materially false or misleading with respect to Vivendi's liquidity risk;

(5) the district court did not abuse its discretion in admitting the testimony of Plaintiffs' expert, Dr. Blaine Nye (“Nye”); and

(6) the evidence was sufficient to support the jury's finding as to loss causation.

As to the Plaintiffs' cross-appeal, we likewise affirm, concluding that the district court:

(1) did not abuse its discretion in excluding certain foreign shareholders from the class at the class certification stage; and

(2) did not err in dismissing claims by American purchasers of ordinary shares under Morrison v. Nat'l Austl. Bank Ltd ., 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010).

I. Background

At the helm of Vivendi's transition from a centuries-old French utilities conglomerate into a modern global media powerhouse was a man named Jean–Marie Messier, who had been the chief executive and chairman of the executive committee since 1994, and chairman of the company since 1996. Messier was not, by trade, an expert in French utilities, but rather a former investment-banker at the firm Lazard Frères & Co. LLC. Soon after becoming chairman of the company's executive committee, Messier formulated an ambitious plan to transform the company completely. In broad strokes, Messier's plan was to merge the company with two other large companies that had significant media dealings; steadily supplement this new company's core media operations with various additional media acquisitions; and gradually divest the new company of its utilities and environment divisions.

The plan largely got underway in May 1998, when the shareholders of Compagnie Générale des Eaux approved the company's name change to Vivendi, S.A. Over the course of the following year, Vivendi, S.A., contributed or sold its interests in certain water-related holdings to a subsidiary, Vivendi Environnement, and acquired scattered interests in various media and telecommunications firms.

The most aggressive foray in Messier's plan came on June 20, 2000, when Vivendi, S.A., formally announced its intent to enter into a three-way merger with Canal Plus, S.A. (“Canal+”), a French film and television production company; and The Seagram Company Ltd. (“Seagram”), a Canadian entertainment and beverage company that owned, among other things, Universal Studios and Universal Music Group. Shortly after the announcement of the merger, credit-rating agencies Moody's and Standard & Poor's (“S&P”) undertook to reevaluate the creditworthiness of Vivendi, S.A. On July 4, 2000, Moody's noted a “possible downgrade” of a particular senior class of Vivendi, S.A.'s debt might be on the horizon, on account of, inter alia , concerns about the considerable amount of debt Vivendi, S.A., would carry after the merger (including extensive prior debts already incurred). S&P also expressed some concern, but tempered its forecast with the expectation that the company would be able to dispose of several assets and thereby alleviate its debt. Neither Moody's nor S&P downgraded Vivendi, S.A., at the time. The three-way merger was complete on December 8, 2000, with the surviving entity being Vivendi, formerly a subsidiary of Vivendi, S.A. With the three-way merger, Vivendi became one of the world's leading media and communications companies, second only to AOL–Time Warner. Among Vivendi's assets were the world's largest recorded music company, one of the world's largest motion picture studios, and businesses in the global telecommunications, television, theme park, publishing, and Internet industries.

Still, Vivendi pressed forth with additional acquisitions. Over the course of the next eighteen months, Vivendi acquired significant stakes, or added to its existing interests, in a number of media and telecommunications companies across the world. To start, within just a few days of the three-way merger's completion in December 2000, Vivendi announced its acquisition of a 35% interest in Maroc Telecom, the Kingdom of Morocco's state-owned telecommunications company, for approximately €2.3 billion. In Summer 2001, Vivendi acquired publishing company Houghton Mifflin Company (“Houghton Mifflin”), along with its $500 million in net debt, for approximately $2.2 billion. Several months later, on December 17, 2001, Vivendi announced that it would acquire full control of television company USA Networks Corporation (“USA Networks”) for $10.3 billion, approximately $1.6 billion of which Vivendi would finance in cash. That same day, Vivendi announced that it would invest $1.5 billion in satellite television company EchoStar Communications Corporation (“EchoStar”), which was expected to gain access to approximately 15 million homes in the United States when EchoStar acquired DirecTV.

These multi-billion-dollar transactions merely scratched the surface of Vivendi's buying frenzy. Vivendi also acquired, in whole or in part, MP3.com, GetMusic LLC, RMM Records & Video, MUSIDISC, Koch Group Recorded Music, Uproar Inc. and EMusic.com Inc., among other media or telecommunications companies. In total, Vivendi reportedly spent approximately $77 billion on its acquisition spree, with Seagram alone costing roughly $34 billion. According to Plaintiffs, Vivendi's debts associated with its media and communications operations ballooned from approximately €3 billion in early 2000 to over €21 billion in 2002.

Meanwhile, Vivendi repeatedly expressed its aggressive growth...