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IN RE VIVENDI UNIVERSAL

April 21, 2004.

IN RE VIVENDI UNIVERSAL, S.A. SECURITIES LITIGATION, This Opinion relates to, LIBERTY MEDIA CORPORATION, LMC CAPITAL LLC, LIBERTY PROGRAMMING COMPANY LLC, LMC USA VI, INC, LMC USAVII, INC, LMC USA VIIII, INC, LMC USA X, INC, and LIBERTY HSN LLC HOLDINGS, INC., and LIBERTY MEDIA INTERNATIONAL, INC, Plaintiffs; -against- VIVENDI UNIVERSAL S.A., JEAN — MARIE MESSIER, GUILLAUME HANNEZO, and UNIVERSAL STUDIOS, INC., Defendants


The opinion of the court was delivered by: RICHARD HOLWELL, District Judge

OPINION

Defendants Vivendi Universal S.A. ("Vivendi"), Jean — Marie Messier ("Messier"), Guillaume Hannezo ("Hannezo"), and Universal Studios, Inc. moved this Court in three separately — filed motions to dismiss the claims asserted in the action brought by plaintiffs Liberty Media Corporation and certain of its subsidiaries ("plaintiffs" or "Liberty Media"). Their motions are granted in part and denied in part, for the reasons set forth below and stated on the record in open court following oral argument on the motions held on April 1, 2004. INTRODUCTION

Plaintiffs commenced this action on March 28, 2003 against Vivendi, a corporation organized under the laws of France; Messier, formerly the CEO and Chairman of Vivendi; and Hannezo, formerly the CFO of Vivendi; and Universal Studios, Inc., a subsidiary of Vivendi during the period relevant to this action. Plaintiffs assert federal and state law claims against defendants arising from a merger agreement entered into by the corporate parties in December 2001, pursuant to which Liberty Media exchanged shares of one of its subsidiaries for Vivendi shares. Plaintiffs allege that that Vivendi, Messier, Hannezo, and Universal Studios, Inc. (collectively "defendants") knew Vivendi faced a looming liquidity crisis in 2001, and that defendants concealed that crisis from plaintiffs during and following the negotiation of the merger agreement in order to keep the price of Vivendi stock artificially high and induce Liberty Media to consummate the deal. Plaintiffs further allege that, as a result of the transaction, they suffered economic losses following the inevitable decline in Vivendi's market value, and they seek damages and equitable relief against defendants. Defendants move to dismiss all of plaintiffs' claims pursuant to the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4, and under Rules 8, 9(b), 12(b)(1), and 12(b)(6) of the Federal Rules of Civil Procedure.

  STANDARD OF REVIEW

  In deciding a motion to dismiss, the court is required to accept as true the complaint's factual allegations and draw all inferences in the plaintiff's favor. "The court may not dismiss a complaint unless it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts which would entitle him to relief." DeMuria v. Hawkes, 328 F.3d 704, 706 (2d Cir. 2003) (citing Scutti Enters. v. Park Place Entm't Corp., 322 F.3d 211, 214 (2d Cir. 2003) and Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997) (internal punctuation omitted)).

  PLEADING STANDARDS

  Plaintiffs bring federal securities fraud claims against all defendants pursuant to Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j ("Exchange Act"), and Rule 10b-5 promulgated thereunder; claims against the individual defendants under Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t; common — law fraud claims; and other state — law claims. Each of these categories of claims is governed by a distinct pleading standard. Section 10(b) claims based on allegations of defendants' fraudulent misstatements or omissions invoke the heightened pleading standard imposed by the PSLRA, which requires, first, that the complaint "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Second, the PSLRA requires that a complaint alleging such claims state with particularity, "with respect to each act or omission, . . . facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). See In re Initial Public Offering Sec. Litig., 241 F. Supp.2d 281, 329-34 (S.D.N.Y. 2003) (holding that both paragraphs(b)(1) and (b)(2) of the PSLRA apply to Section 10(b) claims alleging misstatements or omissions, and PSLRA supersedes Fed.R.Civ.P. 9(b)'s pleading standards).

  Section 20(a) claims based on allegations that Messier and Hannezo were liable as controlling persons for violations of the Exchange Act are not subject to the PSLRA's heightened pleading standards, because scienter is not an essential element of a Section 20(a) claim. Nor are Section 20(a) claims subject to the pleading requirements of Fed.R.Civ.P. 9(b), since fraud is not an essential element of a Section 20(a) violation. Therefore, plaintiffs need only satisfy the notice pleading requirements of Fed.R.Civ.P. 8(a). See In re IPO Sec. Litig., 241 F. Supp.2d at 396-97.

  Plaintiffs' common — law claims, which are not based on violations of the Exchange Act, are not subject to the PSLRA's pleading standards. Allegations of fraud and fraudulent concealment must meet the standards of Rule 9(b); allegations of breach of contract, breach of warranty, unjust enrichment, and negligent misrepresentation need only meet the standards of Rule 8(a).

  FACTUAL ALLEGATIONS

  The essential facts alleged by plaintiffs forming the basis for its complaint are straightforward. In late 2001, Vivendi sought to acquire USA Networks' entertainment assets, in which Liberty Media held an equity interest. In November and December 2001, Vivendi and Liberty Media discussed the proposed transaction, which took the form of a share exchange between the two entities. The discussions culminated in a comprehensive "Agreement and Plan of Merger and Exchange" executed on December 16, 2001 ("the Merger Agreement"). Plaintiffs allege that before and during the course of the negotiations, and after the execution of the Merger Agreement through June 2002, defendants actively concealed from plaintiffs a "massive and crippling liquidity crisis" at Vivendi, which only began to come to light when Vivendi's board of directors forced Messier to resign in July 2002. The resulting decline in Vivendi's stock value allegedly caused Liberty Media significant losses. On the basis of these facts and related allegations, plaintiffs allege violations of Section 10(b) and Rule 10b-5 against Vivendi, Messier, and Hannezo; violations of Section 20(a) against Messier and Hannezo; breach of contract and breach of warranty against Vivendi and Universal; common — law fraud and fraudulent concealment against Vivendi, Messier, and Hannezo; and unjust enrichment and negligent misrepresentation against all defendants.

  DISCUSSION

  Defendants contend (hat plaintiffs have failed to plead facts sufficient to make out any of the claims alleged in their complaint. I address each claim in turn.

 I. SECTION 10(b)

  Defendants contend that plaintiffs have failed adequately to allege the essential elements of reasonable reliance, scienter, and loss causation necessary to make out a Section 10(b) claim against Vivendi, and that the complaint does not plead scienter or actionable misrepresentations or omissions against the individual defendants.

 A. Reliance — Vivendi*fn1

  Defendants argue that plaintiffs' Section 10(b) claim must be dismissed because (1) plaintiffs cannot establish reasonable reliance on any statement outside the warranties and representations contained in the Merger Agreement; (2) plaintiffs may not claim reliance on any representations or omissions made after the agreement was signed; and (3) plaintiffs have failed properly to plead Section ...


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