We speculated in September that a decision to grant summary judgment against a class member in the long-running In re Vivendi Universal, S.A. Securities Litigation, 02 Civ. 5571 (SAS) (S.D.N.Y.) “could have implications for class members, but more likely for opt-outs.” Now Judge Shira Scheindlin, in what may be one of the well-known judge’s final decisions before stepping down from the bench, has granted summary judgment against another class member while relying heavily on her prior decision. The Court determined that, because the evidence established that the investment analyst had anticipated Vivendi’s liquidity issues (the subject of the fraud) and established that the class member continued to buy Vivendi shares after the end of the class period, Vivendi had successfully rebutted the presumption of reliance and established that the class member “was indifferent to the fraud.”

As background, after the 2009 trial in this class action litigation, a jury found Vivendi liable for violation of securities laws in regard to transactions in Vivendi American Depositary Shares (“ADSs”). Since then, the class composition was complicated by the Supreme Court’s decision in Morrison v. National Australia Bank, 561 U.S. 247 (2010). In addition, the Court has allowed Vivendi to take discovery of class members and their advisors This decision arises out of that discovery.

The Vivendi litigation now appears to be nearing its conclusion. On April 25, 2016, Judge Scheindlin 1292 (“Op.”) on what she labeled “[t]he only core dispute remaining in this fourteen-year old securities fraud class action.” (Op. at 1.) Specifically, this opinion addressed “Vivendi’s motion for summary judgment with respect to all claims for which” the Capital Guardian Trust Company (“Capital” or “Capital Guardian”) “made the decision to invest in Vivendi common shares and ADRs.” (Op. at 2.) “As of August 2002, near the end of the Class Period, Capital’s investment funds held approximately one billion dollars of Vivendi common shares and ADRs. By that time, Capital Guardian was the single largest institutional investor in Vivendi.” (Op. at 6.) As with the Court’s previous decision involving Southeastern Asset Management (“Southeastern” or “SAM”), covered earlier on this blog, here the question is whether Capital Guardian, another class member, “actually relied on defendant Vivendi Universal, S.A.’s (‘Vivendi’ or the ‘Company’) misstatements in trading … in Vivendi’s ordinary shares, or American Depositary Receipts.” (Op. at 1.)

The issues in regard to Vivendi’s motion against Capital Guardian are strikingly similar to those in Vivendi’s motion against Southeastern. “Plaintiffs do not dispute that Vivendi’s Capital Guardian motion raises substantially the same issues as its prior motion challenging SAM’s individual reliance. Nor do plaintiffs dispute that most of their arguments have been previously considered and rejected by this Court.” (Op. at 18.) The Southeastern decision, issued on August 11, 2015 (“SAM Op.”), granted Vivendi’s motion for summary judgment against Southeastern. Although Southeastern attempted to establish the elements of fraud for its “fraud on the market” theory, the Court held that Vivendi had successfully rebutted the so-called Basic presumption. Named for the holding in Basic v. Levinson, 485 U.S. 224 (1988), the Basic presumption holds that “an investor who bought stock at the market price may, at the class certification stage, avail herself of the presumption that she ‘relied on the integrity of the price set by the market’ if the market is efficient.” (SAM Op. at 14 (quoting Basic, 485 U.S. at 227).) According to the Court, instead of relying on the market price of Vivendi’s ADSs, Southeastern

relied on [its] own careful assessments of Vivendi’s assets and liquidity position” in determining its valuation of the ADSs, to the point where “even had [Southeastern] known about the fraud, it would have not mattered.”

(SAM Op. at 27-28.) Thus, the Court held that Southeastern was essentially indifferent to the effect of Vivendi’s misstatements on the market price of the securities and could not be said to have relied upon it. Since Southeastern could not show reliance as an element of fraud, Southeastern could not participate in the class members’ recovery.

In its most recent opinion, the Court granted Vivendi’s motion for summary judgment against Capital Guardian, focusing on the similarities in the investment approaches between Southeastern and Capital Guardian. In particular, the Court emphasized that with both firms, the market price of Vivendi securities was “not important”:

As was the case for SAM, the market price of Vivendi common shares and ADRs was not important to Capital Guardian’s assessment of their value. Rather, [Capital Guardian analyst John] Longhurst … pursued an investment strategy that relied on his own, carefully researched evaluation of Vivendi’s assets and liquidity — which drew largely from his familiarity with the Company’s assets and tapped into resources unavailable to the average investor. In fact, Capital Guardian arguably presents an even stronger instance of an indifferent value investor … : Longhurst had regular meetings and telephone conversations with Vivendi’s senior management throughout the Class Period — a level of access that SAM apparently did not have.

(Op. at 18-19 (internal quotations omitted).) As a result, Capital Guardian’s investment strategy was based on factors aside from the integrity of the market price:

Accordingly, like SAM’s, Capital Guardian’s “sum-of-the-parts” investment strategy was based on Longhurst’s understanding and acceptance of Vivendi’s liquidity risks. For example, as early as March 2001 — prior to any of the identified corrective disclosures — Longhurst projected that Vivendi’s debt would increase from approximately 23 billion Euros to 29.8 billion Euros by 2003-2004. Likewise, Longhurst predicted that Vivendi would need to sell assets in order to address its liquidity needs. And relying on Longhurst’s assessment, Capital chose to increase its already-substantial Vivendi position even beyond the end of the Class Period.

(Op. at 19.) The Court then concluded that Capital Guardian was indifferent to Vivendi’s fraud, thus rebutting the Basic presumption that investors rely on an accurate market price:

Basic holds that “[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or [her] decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance.” For Capital Guardian’s Vivendi investments, this link is unquestionably severed. Because the undisputed facts demonstrate that Capital Guardian was indifferent to the fraud, I conclude that Vivendi has rebutted the Basic presumption of reliance with respect to the Capital Guardian claims.

(Op. at 20.) Because Vivendi had rebutted Capital Guardian’s presumption of reliance, the Court held that Capital Guardian could not prove the elements of fraud and thus granted summary judgment in favor of Vivendi.