Gamco Investors v. Vivendi Universal
Filing
117
OPINION AND ORDER: re: (21 in 1:09-cv-07962-SAS, 105 in 1:03-cv-05911-SAS) MOTION for Summary Judgment Notice of Plaintiff's Motion for Summary Judgment Against Defendant Vivendi, S.A.. filed by The Gabelli Equity Trust Inc., Gamco Global Series Funds, Inc., The Gamco Mathers Fund, The Gabelli Asset Fund, The Gabelli Global Multimedia Trust Inc., Gamco Investors, Inc., Gabelli Capital Asset Fund, The Gabelli Value Fund, Inc., The Gabelli Convertible and Income Securities Fund, Inc., Gamco International Growth Fund, Inc. that for the reasons that are set forth in this Order, GAMCO's motion for summary judgmentis denied. The Clerk of Court is directed to close this motion (Docket No. 105). (Signed by Judge Shira A. Scheindlin on 1/10/13) Filed In Associated Cases: 1:03-cv-05911-SAS, 1:09-cv-07962-SAS(pl)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------- )(
GAMCO INVESTORS, INC.,
OPINION AND ORDER
Plaintiff,
03 Civ. 5911 (SAS)
v.
VIVENDI, S.A. (sued as VIVENDI
UNIVERSAL, S.A.),
Defendant.
GAMCO GLOBAL SERIES FUNDS,
INC., GABELLI CAPITAL ASSET
FUND, THE GABELLI VALUE FUND,
INC., THE GABELLI ASSET FUND,
THE GAMCO MATHERS FUND, THE
GABELLI GLOBAL MULTIMEDIA
TRUST, INC., THE GABELLI EQUITY
TRUST, INC., THE GABELLI
CONVERTIBLE AND INCOME
SECURITIES FUND, INC., AND
GAMCO INTERNATIONAL GROWTH
FUND, INC.,
09 Civ. 7962 (SAS)
Plaintiffs,
v.
VIVENDI, S.A.,
Defendant.
----------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
-1
I.
INTRODUCTION 1
This Court’s prior holdings establish that: (1) Vivendi Universal, S.A.
(“Vivendi”) is precluded from contesting the elements of a Section 10(b) claim,
save for reliance; (2) GAMCO Investors, Inc. (“GAMCO”) is entitled to the fraud
on the market presumption, which shifts the burden to Vivendi to disprove
reliance; and (3) Vivendi is precluded from raising the truth on the market defense
to rebut the presumption of reliance. Based on these holdings, plaintiff GAMCO
moves for summary judgment on its Section 10(b) claim against Vivendi on the
grounds that discovery is complete, and no facts exist which disprove reliance.2
Vivendi opposes the motion. For the following reasons, the motion is denied.
II.
FACTS 3
1
Familiarity with the extensive factual and legal background of this
litigation is presumed. See In re Vivendi Universal, S.A. Sec. Litig. (“Feb. 17
Op.”), 765 F. Supp. 2d 512 (S.D.N.Y. 2011). Only facts pertinent to this motion
will be recited.
2
See Memorandum of Law in Support of Plaintiff’s Motion for
Summary Judgment Against Defendant Vivendi, S.A. at 1-2.
3
The following facts are drawn from GAMCO’s Statement Under Rule
56.1 in Support of Plaintiff’s Motion for Summary Judgment Against Defendant
Vivendi, S.A. (“56.1 Statement”) and Defendant Vivendi, S.A.’s Response to
Plaintiff GAMCO Investors, Inc.’s Statement Under Rule 56.1 in Support of Its
Motion for Summary Judgment Against Defendant Vivendi, S.A. and Statement of
Additional Facts Pursuant to Local Rule 56.1 (“56.1 Counter-statement”). The
material facts are not in dispute for the purposes of this motion. Both the 56.1
Statement and the 56.1 Counter-statement are supported by citations to evidence
-2-
On July 15, 2009, GAMCO filed an Amended Complaint alleging that
Vivendi had violated Section 10(b) of the Securities Exchange Act of 1934 (the
“Exchange Act”) with respect to GAMCO’s transaction in Vivendi’s American
Depositary Receipts (“ADRs”), which traded on the New York Stock Exchange
during the period October 30, 2000 through August 14, 2002 (the “Class Period”).4
On January 29, 2012, the jury in the class action In re Vivendi
Universal S.A. Securities Litigation5 (the “Class Action”) returned its verdict,
finding that Vivendi acted recklessly with respect to fifty-seven misstatements that
“misstated or omitted Vivendi’s true liquidity risk.”6 On February 17, 2011, the
Court entered a Memorandum Opinion and Order denying Vivendi’s post-trial
motion for judgment as a matter of law as well as class plaintiffs’ motion for entry
of final judgment.7 The Court stated that “Vivendi is entitled to rebut the
presumption of reliance on an individual basis[,]” and that “any attempt to rebut
the presumption of reliance on such grounds would call for separate inquiries into
admissible at trial. These citations are omitted.
4
See 56.1 Statement ¶ 1.
5
No. 02 Civ. 5771 (S.D.N.Y).
6
56.1 Counter-statement at 2. See 56.1 Statement ¶ 3.
7
See Feb. 17. Op., 765 F. Supp. 2d 512. However, the Court granted
Vivendi’s motion for judgment as a matter of law as to one of the fifty-seven
statements, statement number fifty-five. See id. at 544.
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the individual circumstances of the class members.”8 Finally, on August 10, 2012,
the Court entered an Opinion and Order collaterally estopping Vivendi from
contesting, as to GAMCO, the Section 10(b) elements of falsity, materiality,
scienter, and loss causation, and from raising the truth on the market defense to the
presumption of reliance.9
Vivendi sets forth the following additional facts relevant to its
opposition. GAMCO, a wholly owned subsidiary of Gabelli Asset Management,
Inc. (“GBL”), is an investment advisor with a broad spectrum of clients.10 The
research arm of GBL, Gabelli & Company, performs research for GAMCO and
other parts of GBL.11 GBL’s chairman and CEO is Mario Gabelli.12
GBL held daily morning meetings during which Gabelli & Company
securities analysts presented research on the companies they covered to portfolio
managers, client salesmen and client service representatives from GAMCO and
8
Id. at 584-85.
9
See 56.1 Statement ¶ 5 (citing In re Vivendi Universal, S.A. Securities
Litigation, No. 02 Civ. 5571, — F. Supp. 2d —, 2012 WL 3264382, at *3
(S.D.N.Y. Aug. 10, 2012)). See In re Vivendi Universal, S.A. Secs. Litig., 2012
WL 3264382, at *4 (“Accordingly, collateral estoppel is granted for GAMCO
Investors, Inc. to the same extent as granted to the Individual Plaintiffs.”).
10
See 56.1 Counter-statement ¶ 1.
11
See id. ¶ 3.
12
See id. ¶ 4.
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other fund subsidiaries.13 During these meetings, GBL employees discussed
investment ideas.14 GBL’s portfolio managers decided which securities to buy and
sell on the basis of research provided by Gabelli & Company analysts.15
Vivendi presents evidence that GBL’s portfolio managers
corresponded and/or met with Vivendi management, including Vivendi’s CEO
Jean-Marie Messier, on multiple occasions during the relevant period.16
Specifically, Vivendi cites to the December 26, 2006 deposition of Caesar Bryan, a
portfolio manager at GBL, and to the June 8, 2007 deposition of Mario Gabelli.
Bryan states in his deposition that: “I’ve met with management of Vivendi on a
number of occasions in which [sic] – over the past years.”17 When asked whom
he meant by “management,” Bryan responded: “I mean, I have no recollection, but
I visited Vivendi and I’ve heard presentations made by Vivendi management over
13
See id. ¶ 5.
14
See id. ¶ 6.
15
See id. ¶ 7.
16
See id. ¶ 10 (citing 12/26/06 Deposition of Caesar Bryan (portfolio
manager at GBL) (“Bryan Dep.”), Ex. 8 to Declaration of Daniel Slifkin in Support
of Defendant Vivendi, S.A’s Memorandum of Law in Opposition to Plaintiff’s
Motion for Summary Judgment Against Defendant Vivendi, S.A. (“Slifkin Decl.”),
at 88:3-10; 6/8/7 Deposition of Mario Gabelli (GBL Chairman and CEO) (“6/8/07
Gabelli Dep.”), Ex. 2 to Slifkin Decl., at 106:5-13).
17
Bryan Dep. at 88-8:10.
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the years.”18 The relevant portion of Gabelli’s deposition is quoted below:
Q. Have you ever met or corresponded with Jean-Marie Messier?
A. Yes.
Q. Did you meet with Jean Marie Messier during the relevant time
period?
A. Maybe.
Q. Did you correspond with Messier during the relevant time
period?
A. Maybe.
Q. Do you have any recollection of a specific conversation you
had with Jean-Marie Messier during the relevant time period?
A. No.19
Furthermore, GAMCO employees occasionally participated in public
Vivendi conference calls.20 Andrew Rittenberry was the Gabelli & Company
analyst responsible for following Vivendi during the Class Period.21 In addition to
following Vivendi, Rittenberry followed “all cable, media, and leisure
companies.”22
Vivendi presents evidence that the only valuation metric used by
GAMCO in connection with trading Vivendi was “private market value”
18
Id. at 88:14-16.
19
6/8/7 Gabelli Dep. at 106:5-17.
20
See 56.1 Counter-statement ¶ 11.
21
See id. ¶ 8.
22
Id. ¶ 9.
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(“PMV”).23 PMV is the amount that an informed industrialist would pay for a
company’s assets in a private-market transaction.24 To determine the PMV of a
company, Gabelli & Company used a spreadsheet to value each segment of the
company as if it were an independent operation, and then added the value of the
various segments to arrive at a total.25 Vivendi contends that the market price of a
security is not one of the factors used in calculating PMV, but this is contested by
GAMCO.26 In deciding whether to recommend a trade, the analysts’ main
consideration is the difference between the PMV of the stock and its market
price.27 GAMCO’s investment strategy was to purchase securities trading at a
price below their PMV, in the expectation that the market price of the securities
would eventually rise.28
III.
SUMMARY JUDGMENT STANDARD
“Summary judgment is designed to pierce the pleadings to flush out
23
See id. ¶ 12.
24
See id. ¶ 13.
25
See id. ¶ 14.
26
Compare id. ¶ 15 with Reply Memorandum of Law in Further Support
of Plaintiff’s Motion for Summary Judgment Against Defendant Vivendi, S.A.
(“Reply Mem.”) at 10.
27
See 56.1 Counter-statement ¶ 16.
28
See id. ¶ 17.
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those cases that are predestined to result in a directed verdict.”29 Thus, summary
judgment is only appropriate “if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.”30 “For
summary judgment purposes, a ‘genuine issue’ exists where the evidence is such
that a reasonable jury could decide in the non-moving party’s favor.”31 “‘A fact is
material when it might affect the outcome of the suit under governing law.’”32
“[T]he burden of demonstrating that no material fact exists lies with the moving
party . . . .”33
In a summary judgment setting, “[t]he burden is on the moving party
to demonstrate that no genuine issue respecting any material fact exists.”34 “When
29
Lightfoot v. Union Carbide Corp., 110 F.3d 898, 907 (2d Cir. 1997).
30
Fed. R. Civ. P. 56(c).
31
Sanchez v. Connecticut Natural Gas Co., 421 Fed. App’x 33, 34 (2d
Cir. 2011) (quoting Nabisco, Inc. v. Warner–Lambert Co., 220 F.3d 43, 45 (2d Cir.
2000)).
32
Carter v. Incorporated Vill. of Ocean Beach, 415 Fed. App’x 290, 292
(2d Cir. 2011) (quoting McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202
(2d Cir. 2007)).
33
Miner v. Clinton County, N.Y., 541 F.3d 464, 471 (2d Cir. 2008)
(citation omitted).
34
Mavrommatis v. Carey Limousine Westchester, Inc., No. 10 Civ.
3404, 2011 WL 3903429, at *1 (2d Cir. Sept. 7, 2011) (citing Gallo v. Prudential
-8-
the burden of proof at trial would fall on the nonmoving party, it ordinarily is
sufficient for the movant to point to a lack of evidence . . . on an essential element
of the nonmovant’s claim.”35 In turn, to defeat a motion for summary judgment,
the non-moving party must raise a genuine issue of material fact.36 The
non-moving party “‘must do more than simply show that there is some
metaphysical doubt as to the material facts,’”37 and cannot “‘rely on conclusory
allegations or unsubstantiated speculation.’”38
In deciding a motion for summary judgment, a court must “‘construe
the facts in the light most favorable to the non-moving party and must resolve all
ambiguities and draw all reasonable inferences against the movant.’”39 However,
“‘[c]redibility determinations, the weighing of the evidence, and the drawing of
Residential Servs., L.P., 22 F.3d 1219, 1223 (2d Cir. 1994)).
35
Cordiano v. Metacon Gun Club, Inc., 575 F.3d 199, 204 (2d Cir.
2009).
36
See id.
37
Brown v. Eli Lilly & Co., 654 F.3d 347, 358 (2d Cir. 2011) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
38
Id. (quoting Federal Deposit Ins. Corp. v. Great Am. Ins. Co., 607
F.3d 288, 292 (2d Cir. 2010)).
39
Brod v. Omya, Inc., 653 F.3d 156, 164 (2d Cir. 2011) (quoting
Williams v. R.H. Donnelley Corp., 368 F.3d 123, 126 (2d Cir. 2004)).
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legitimate inferences from the facts are jury functions, not those of a judge.’”40
“‘The role of the court is not to resolve disputed issues of fact but to assess
whether there are any factual issues to be tried.’”41
IV.
APPLICABLE LAW
A.
Section 10(b) of the Securities Exchange Act and Rule 10b-5
Section 10(b) of the Exchange Act makes it illegal to “use or employ,
in connection with the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as
the Commission may prescribe . . . .”42 Under Rule 10b-5, promulgated under
Section 10(b), one may not “make any untrue statement of a material fact or [] omit
to state a material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading . . . in
connection with the purchase or sale of any security.”43 “To sustain a private claim
for securities fraud under Section 10(b), ‘a plaintiff must prove (1) a material
40
Kaytor v. Electric Boat Corp., 609 F.3d 537, 545 (2d Cir. 2010)
(quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000))
(emphasis removed).
41
Brod, 653 F.3d at 164 (quoting Wilson v. Northwestern Mut. Ins. Co.,
625 F.3d 54, 60 (2d Cir. 2010)).
42
15 U.S.C. § 78j(b).
43
17 C.F.R. § 240.10b-5.
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misrepresentation or omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase or sale of a security;
(4) reliance upon the misrepresentation or omission; (5) economic loss; and (6)
loss causation.’”44
1.
Reliance
The reliance and loss causation elements of a securities fraud claim
are analogous to but-for and proximate causation, respectively.45 To prove
reliance, the plaintiff must show that but for the material misleading statement or
omission, he would not have transacted in the security. “The traditional (and most
direct) way a plaintiff can demonstrate reliance is by showing that he was aware of
a company’s statement and engaged in a relevant transaction— e.g., purchasing
common stock—based on that specific misrepresentation.”46
Additionally, the plaintiff must show that his reliance was
44
Ashland Inc. v. Morgan Stanley & Co., Inc., 652 F.3d 333, 337 (2d
Cir. 2011) (quoting Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552
U.S. 148, 157 (2008)). Accord Erica P. John Fund, Inc. v. Halliburton Co., —
U.S. — , 131 S.Ct. 2179, 2184 (2011).
45
See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 106 (2d
Cir. 2007).
46
Erica P. John Fund, Inc., 131 S.Ct. at 2185.
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reasonable.47 “An investor may not justifiably rely on a misrepresentation if,
through minimal diligence, the investor should have discovered the truth. Under
this standard, § 10(b) liability will not be imposed when an investor’s conduct rises
to the level of recklessness.”48 The Second Circuit has not issued a definitive list
of factors that weigh on the reasonableness of reliance, but it has provided the
following list of relevant factors (the “Brown factors”):
(1) The sophistication and expertise of the plaintiff in financial
and securities matters; (2) the existence of longstanding business
or personal relationships; (3) access to the relevant information;
(4) the existence of a fiduciary relationship; (5) concealment of
the fraud; (6) the opportunity to detect the fraud; (7) whether the
plaintiff initiated the stock transaction or sought to expedite the
transaction; and (8) the generality or specificity of the
misrepresentations.49
a.
The Fraud on the Market Presumption
In Basic v. Levinson, the Supreme Court held that, under certain
circumstances, a plaintiff is entitled to a rebuttable presumption (the “fraud on the
market presumption”) that she relied on the integrity of the market price of a
47
See Starr ex rel. Estate of Sampson v. Georgeson Shareholder, Inc.,
412 F.3d 103, 109-10 (2d Cir. 2005) (affirming dismissal of Rule 10b-5 claim
where reliance on the alleged material misstatements was unreasonable given that
corrective information was available to a minimally diligent investor).
48
Brown v. E.F. Hutton Group, Inc., 991 F.2d 1020, 1031-32 (2d Cir.
1993) (internal citation omitted).
49
Id. (citations omitted).
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security.50 Specifically, the Court held that an investor who bought stock at market
price may avail herself of the presumption that she “relied on the integrity of the
price set by the market” if the market is efficient.51 The Court reasoned that
“[b]ecause most publicly available information is reflected in [the] market price, an
investor’s reliance on any public material misrepresentations, therefore, may be
presumed for purposes of a Rule 10b-5 action.”52 As long as the “plaintiffs can
show that the alleged misrepresentation was material and publicly transmitted into
a well-developed market, then reliance will be presumed . . . .”53 Basic’s holding
obviated the need for a securities fraud plaintiff to show that she personally was
aware of, and relied on, the alleged material misrepresentation.54
In short, “[t]he . . . fraud-on-the-market theory involves two rebuttable
presumptions that permit a finding of . . . reliance . . .: ‘that (1) misrepresentations
50
485 U.S. 224, 247 (1988).
51
Id. at 227.
52
Id. at 247. Accord Hevesi v. Citigroup Inc., 366 F.3d 70, 77 (2d Cir.
2004).
53
In re Salomon Analyst Metromedia Litig., 544 F.3d 474, 483 (2d Cir.
2008) (emphasis added).
54
See Erica P. John Fund, Inc., 131 S.Ct. at 2185 (noting that the
holding of Basic was made in response to the evidentiary issues posed by modern
impersonal markets, as well as the difficulty of class certification where direct
proof of reliance was required).
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by an issuer affect the price of securities traded in the open market, and (2)
investors rely on the market price of securities as an accurate measure of their
intrinsic value.’”55 As such, “[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.”56
One way to “sever the link” is to demonstrate that the alleged
misrepresentation did not impact the market price. For example, a defendant could
show that the misstatement was known to be false by market makers,57 or that a
statement correcting the misrepresentation was made to, and digested by, the
market.58 Another way to sever the link is to show that the investor did not “rely
on the market price of [the] securit[y] as an accurate measure of [its] intrinsic
value.”59 For example, a plaintiff who transacts in a security despite having
55
Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc.,
546 F.3d 196, 200 n.4 (2d Cir. 2008) (quoting Hevesi, 366 F.3d at 77).
56
Basic, 485 U.S. at 248-49.
57
See id. at 248.
58
See id.
59
Teamsters Local 445 Freight Div. Pension Fund, 546 F.3d at 200 n.4
(quotation marks omitted). Accord In re Harcourt Brace Jovanovich, Inc. Secs.
Litig., 838 F. Supp. 109, 114 (S.D.N.Y. 1993) (stating “[i]t is axiomatic under
Basic that non-reliance on the integrity of the market is critical in rebutting the
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knowledge of the fraud cannot prove reliance.60
V.
DISCUSSION
In opposing summary judgment, Vivendi argues that a reasonable jury
could find that it has rebutted the fraud on the market presumption by finding that:
(1) GAMCO’s reliance was unreasonable because it either had, or should have had,
reason to doubt Vivendi’s public statements;61 (2) GAMCO would have purchased
Vivendi securities even if it had known of the fraud;62 or (3) GAMCO did not rely
presumption of reliance in a fraud on the market case[,]” and holding that
defendants were entitled to discovery of plaintiff’s investment history, despite
plaintiff’s reliance on fraud on the market theory of reliance).
60
See Basic, 485 U.S. at 249 (“Petitioners also could rebut the
presumption of reliance as to plaintiffs who would have divested themselves of
their Basic shares without relying on the integrity of the market.”). See also Stark
Trading v. Falconbridge Ltd., 552 F.3d 568, 572 (7th Cir. 2009) (holding that
sophisticated minority shareholders who tendered their shares in merger, despite
knowing of fraud perpetrated by majority shareholder to artificially depress the
share price, could not establish reliance).
61
See Memorandum of Law in Opposition to Plaintiff’s Motion for
Summary Judgment Against Defendant Vivendi, S.A. (“Opp. Mem.”) at 15 (“A
jury could find that GAMCO’s reliance was unreasonable either because GAMCO
learned information during meetings or conference calls or from its own research
that undermined Vivendi’s public statements, or because given what GAMCO
knew from its research and experience, it should have asked questions that would
have led to the truth.”).
62
See id. at 10 (“[I]f Vivendi presents evidence that creates a genuine
issue of material fact regarding whether GAMCO would have nonetheless
purchased Vivendi stock even if it had known of the alleged fraud, summary
judgment must be denied.”).
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on the integrity of the market.63 I will address each argument in turn.
A.
Vivendi Has Raised a Material Question of Fact With Respect to
the Reasonableness of GAMCO’s Reliance
In this Circuit, “a plaintiff’s reliance on the defendant’s
misrepresentation must have been reasonable in order for the claim to proceed.” 64
The reasonableness inquiry is straightforward when the plaintiff seeks to establish
reliance directly.65 When a securities fraud claim is defeated for lack of reasonable
reliance, the typical pattern is that the plaintiff had access to information which
rendered reliance on the allegedly material misstatement unreasonable. In essence,
then, the “reasonableness” prong of reliance merely recognizes that a plaintiff
cannot willfully blind herself to a known risk.
When the plaintiff seeks to prove reliance through fraud on the
market, this reasonableness inquiry applies only to the extent that corrective
63
See id. at 14 (“Given GAMCO’s investment philosophy, a reasonable
jury could find that GAMCO did not rely on the integrity of the market in making
its purchase decisions, which would rebut the presumption of reliance and allow
the jury to find in favor of Vivendi.”).
64
Ashland Inc. v. Morgan Stanley & Co., Inc., 652 F.3d 333, 337-38
(2d Cir. 2011) (citing Harsco Corp. v. Segui, 91 F.3d 337, 342 (2d Cir. 1996)).
65
See, e.g., Hunt v. Alliance North Am. Gov’t Income Trust, Inc., 159
F.3d 723, 730 (2d Cir. 1998) (affirming dismissal of securities fraud claim when
minimal diligence would have revealed to plaintiffs that total reliance on
challenged brochures was unreasonable).
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information was known either to the plaintiff or to the market.66 Fraud on the
market entails reliance on the market price of a security, which fluctuates as the
market incorporates the material misstatement or omission. Excepting cases of
non-public information, it is hard to picture a circumstance where it would be
unreasonable for a plaintiff to rely on the price of a security traded in an efficient
market.67
A condition precedent to the fraud on the market presumption is that
the misrepresentation was material, i.e., that it would be expected to alter the price
of the security. Defendants can therefore rebut this presumption by showing that
the price was not affected by the misstatement or omission.68 One way of doing
66
Cf. Maverick Fund, L.D.C. v. Comverse Tech., Inc., 801 F. Supp. 2d
41, 56 (E.D.N.Y. 2011) (“Purchasing at the price set by an efficient market not
only establishes reliance, but also that the reliance was reasonable.”).
67
See Basic, 485 U.S. at 246-47 (“‘[I]t is hard to imagine that there ever
is a buyer or seller who does not rely on market integrity. Who would knowingly
roll the dice in a crooked crap game?’”) (quoting Schlanger v. Four-Phase Sys.
Inc., 555 F. Supp. 535, 538 (S.D.N.Y. 1982)). See also In re Oxford Health Plans,
Inc., Sec. Litig., 191 F.R.D. 369, 376 (S.D.N.Y. 2000) (“No purchaser of securities
regardless of trading methodology or strategy would knowingly trade where
material information has been misstated or withheld by an issuer.”).
68
See In re Salomon Analyst Metromedia Litig., 544 F.3d at 483
(“[P]laintiffs do not bear the burden of showing an impact on price. The point of
Basic is that an effect on market price is presumed based on the materiality of the
information and a well-developed market’s ability to readily incorporate that
information into the price of securities.”).
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this is by showing that the falsity of the misrepresentation was already known to
market makers, and, as such, the misrepresentation could not have been material.69
This is known as the “truth on the market” corollary to fraud on the market,70 and it
is one form in which the “reasonable reliance” test survives under the fraud on the
market presumption. The reasonable reliance test holds that the plaintiff cannot
blind herself to a known risk, while the truth on the market defense assumes that
known risks are priced into the market.
Vivendi is precluded from contesting the materiality of its
misstatements by using the truth on the market defense to rebut the fraud on the
market presumption.71 And, not surprisingly, Vivendi cites no case holding that a
plaintiff who does not possess non-public information acted unreasonably in
relying on the price of a security in an efficient market. Instead, Vivendi relies on
the following three cases, all of which are inapposite: Jones v. Intelli-Check, Inc.;72
69
See Basic, 485 U.S. at 248.
70
See, e.g., Ganino v. Citizens Utilities Co., 228 F.3d 154, 167 (2d Cir.
2000) (“Under [the truth on the market] corollary, a misrepresentation is
immaterial if the information is already known to the market because the
misrepresentation cannot then defraud the market.”).
71
See Opp. Mem. at 1 (acknowledging that Vivendi is collaterally
estopped from contesting materiality or introducing the truth on the market
defense).
72
274 F. Supp. 2d 615 (D.N.J. 2003).
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Cromer Financial Ltd. v. Berger;73 and In re ML-Lee Acquisition Fund II, L.P. &
ML-Lee Acquisition Fund (Ret. Account) II, L.P. Securities Litigation.74
In Jones, the district court held that, under Third Circuit precedent, the
plaintiff short-sellers were not entitled to the fraud on the market presumption, but
could directly prove reliance by establishing the elements of fraud on the market.75
The Third Circuit, in a pre-Basic opinion, identified “the reasonableness of the
reliance [on market price]” as one of the presumptions created by fraud on the
market.76 Jones ultimately held that the plaintiffs could not prove reliance because,
by their own admission, their awareness of the fraud – based on conflicting public
statements – is what induced them to transact in the security.77 Jones, then, merely
73
205 F.R.D. 113 (S.D.N.Y. 2001).
74
149 F.R.D. 506 (D. Del. 1993).
75
See Jones, 274 F. Supp. 2d at 632-33 (discussing Zlotnick v. TIE
Commc’ns, 836 F.2d 818, 821 (3d Cir. 1988)). The continued soundness of the
exception to fraud on the market that Zlotnick created for short-sellers is dubious.
See generally In re Initial Public Offering Secs. Litig., 227 F.R.D. 65, 109 n.334
(S.D.N.Y. 2004), vacated on other grounds by 471 F.3d 24 (2d Cir. 2006).
76
Jones, 274 F. Supp. 2d at 632 (“That theory creates a three-fold
rebuttable presumption of reliance: first, the court presumes that the
misrepresentation or fraudulent act affected the market price; second, it presumes
that plaintiff did in fact rely on the price of the stock as indicative of its value at the
time plaintiff purchased the stock; third, it presumes the reasonableness of that
reliance.”) (emphasis added) (discussing Zlotnick, 836 F.2d at 821).
77
See id. at 633 (“Plaintiffs were certainly not fooled by this tactic, for
they themselves explain that they perceived it as misleading when they noticed it in
-19-
stands for the proposition that materiality cannot be shown when the plaintiffs have
already digested corrective information. It is inapplicable here, however, because
Vivendi is precluded from offering a truth on the market defense.78
In Cromer, a putative class brought an action against, among others,
Deloitte & Touche Bermuda (“Deloitte”), the auditor of an offshore investment
fund, alleging that Deloitte had issued clean audit reports for the fund despite
having information that the fund’s net asset value statements (“NAV’s”) were
fraudulent.79 The court in Cromer ultimately applied a presumption akin to the
fraud on the market presumption, despite the fact that the market in question was
not open or developed, because the auditors’ alleged misstatements ineluctably
affected the price of the securities.80
Deloitte opposed class certification on the ground that information
IDN’s previous filings and press releases—indeed, that is precisely why plaintiffs
allege they began to short sell IDN’s stock in the first place.”).
78
See Opp. Mem. at 1.
79
See Cromer Fin. Ltd., 205 F.R.D. at 118.
80
See id. at 130 (“In some ways this is an even stronger case for
applying a presumption than those that have embraced the [fraud on the market
theory] since it would not be based on the assumption that the representations from
either Ernst & Young or Deloitte affected the price. Instead, the Ernst & Young
calculations and NAV statements were the price per share, and Deloitte’s audits
were an explicit confirmation of the process for calculating that price.”) (emphasis
in original).
-20-
calling the reliability of the NAV’s into question had begun to circulate prior to the
Class Period.81 Citing to the “reasonable reliance” line of cases cited above, the
court in Cromer stated that: “the admitted sophistication of the investors weighs in
favor of a heightened burden of diligence. While a jury will determine whether any
failure by Hackl or Meijer–Werner [the putative class representatives] to engage in
further inquiry was reckless or unjustified, nothing presented by Deloitte suffices
to undermine the soundness of a presumption of reliance in this case.”82 Cromer,
then, stands for the proposition that sophisticated investors cannot maintain an
action for securities fraud in private-market transactions when they could have
discovered the truth with minimal diligence. Here, GAMCO purchased Vivendi’s
securities on the open market,83 and Vivendi is foreclosed from offering a truth on
the market defense. Cromer is therefore inapposite.
Finally, M-L Lee, a District of Delaware case, holds that sophisticated
plaintiffs in private-market transactions are held to a higher standard of due
81
See id. at 132.
82
Id. at 132-33 (footnote omitted).
83
See GAMCO’s 9/15/9 Amended Complaint for Violations of the
Federal Securities Laws ¶ 214(c); Opp. Mem. at 5 (stating that “GAMCO
purchased Vivendi stock throughout the relevant period”) (citation omitted); Reply
Mem. at 6 (“In the present case, it is clear that GAMCO executed each Vivendi
ADR transaction on the New York Stock Exchange and never in the face-to-face
context.”).
-21-
diligence and that, because the putative lead plaintiffs might be subject to unique
defenses which would destroy the typicality requirement for class certification,
defendants were entitled to discovery of the plaintiffs’ investment history.84 In ML Lee, the court stated that “[p]laintiffs’ sophistication may preclude a finding that
the Plaintiffs relied on the alleged fraud in purchasing the securities.”85 In other
words, the “unique defense” that might be deployed against the lead plaintiffs
relates to their actual reliance, not to whether it would be unreasonable to rely on
the market price of a security.
Moreover, “almost all of the cases in which courts have found that a
sophisticated investor had an enhanced duty to investigate involved face-to-face
transactions, not purchases on an open securities market.”86 This is the case
because a rule requiring investors to independently investigate securities sold on
84
See In re ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition
Fund (Retirement Accounts) II, L.P. Secs. Litig., 149 F.R.D. at 508.
85
Id.
86
Maverick Fund, L.D.C., 801 F. Supp. 2d at 57 (collecting cases). An
illustration of this Circuit’s typical application of the “unreasonable reliance” test
is provided by Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343
F.3d 189 (2d Cir. 2003). In that case, the court applied the Brown factors to a faceto-face transaction, and concluded that: “[g]iven the sophistication of this financial
transaction and of the parties, and absent any allegation of a fiduciary relationship,
the personal friendship between Waldron and Hansen does not make appellant’s
reliance on the alleged extra-contractual representations reasonable.” Id. at 196.
-22-
the open market would vitiate the disclosure requirements of the Exchange Act.87
Such a rule would also be inefficient, as it would require buyers of securities to
investigate matters known to the seller. The Seventh Circuit has drawn a useful
analogy to the law of torts:
This is just another way to state the common law rule that
contributory negligence is not a defense to an intentional or
reckless tort. The best solution is for people not to harm others
intentionally, not for potential victims to take elaborate
precautions against such depradations. If the victims’ failure to
take precautions were a defense, they would incur costs to take
more precautions (and these costs are a form of loss victims would
feel in every case, even if the tort does not occur), while would-be
tortfeasors would commit additional torts because they would not
fear the need to pay up in cases where the victims do not protect
themselves. Common law courts have balked at such an outcome
in ordinary tort cases, and securities law has followed the same
path.88
In sum, sophisticated investors are not held to a higher standard of due
diligence than ordinary investors when they purchase securities on the open
market, as GAMCO did.89 Vivendi acknowledges that it is precluded from
87
See Maverick Fund, L.D.C., 801 F. Supp. 2d at 57 (“Such a
requirement would undermine the purpose of the Exchange Act, which relies on a
philosophy of full disclosure to insure honest securities markets and thereby
promote investor confidence.”) (quotation marks and citations omitted).
88
Teamsters Local 282 Pension Trust Fund v. Angelos, 762 F.2d 522,
528 (7th Cir. 1985) (citations omitted).
89
See GAMCO’s 9/15/9 Amended Complaint for Violations of the
Federal Securities Laws ¶ 214(c); Opp. Mem. at 5 (stating that “GAMCO
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contesting materiality or introducing a truth on the market defense.90 However,
Vivendi presents evidence that GAMCO’s analysts were experts in Vivendi’s
industry and that they participated in, or read transcripts of, a number of meetings
and conference calls with Vivendi’s management.91 On this basis, Vivendi argues
that “[a] jury could find that GAMCO’s reliance was unreasonable either because
GAMCO learned information during meetings or conference calls or from its own
research that undermined Vivendi’s public statements, or because given what
GAMCO knew from its research and experience, it should have asked questions
that would have led to the truth.”92
To the extent that Vivendi’s argument is that GAMCO should have
unearthed information that would have led it to discount Vivendi’s
misrepresentations, such arguments fails because contributory negligence is not a
defense to securities fraud. The argument that GAMCO could have unearthed such
information, though, presents a fact issue for trial. GAMCO insists that the “fact
purchased Vivendi stock throughout the relevant period”) (citation omitted); Reply
Mem. at 6 (“In the present case, it is clear that GAMCO executed each Vivendi
ADR transaction on the New York Stock Exchange and never in the face-to-face
context.”).
90
See Opp. Mem. at 1.
91
See id. at 14-15.
92
Id. at 15.
-24-
that GAMCO did not trade while in possession of non-public information” is
“undisputed.”93 However, Vivendi has presented evidence establishing that GBL
employees privately corresponded and/or met with Vivendi management during
the relevant time period.94 These employees went on to disavow any specific
knowledge of the correspondences and meetings, but the credibility of such denials
is a fact best determined at trial.
If GAMCO learned corrective non-public information from these
meetings or correspondences, it would serve to rebut the fraud on the market
presumption of reliance by demonstrating that GAMCO did not rely on the
misstatements incorporated into the market price of Vivendi securities. Stated
differently, GAMCO cannot claim that it reasonably relied on the market price of
Vivendi securities if it knew that the securities’ price was inflated by fraud, but
purchased them anyway.
In sum, Vivendi has presented enough evidence that GAMCO “‘had
access to and knowledge of’” corrective information to withstand summary
judgment.95 I therefore conclude that there is a material question of fact with
93
Reply Mem at 1.
94
See 56.1 Counter-statement ¶ 10 (citations omitted).
95
Feb. 17 Op., 765 F. Supp. 2d at 585 (“‘[D]efendants may seek to rebut
a presumption of reliance by demonstrating that individual debenture holders [of
-25-
respect to the reasonableness of GAMCO’s reliance.
B.
Vivendi Has Raised Material Question of Fact as to Whether
GAMCO Purchased Vivendi Securities Regardless of Their
Market Price
Vivendi’s two remaining arguments opposing summary judgment are
closely related. Vivendi argues that there is a material issue of fact with respect to
reliance because: first, the brand of value-based investing that GAMCO applied to
Vivendi did not take into account the price of Vivendi’s shares;96 and second,
GAMCO in fact continued to purchase Vivendi shares after Vivendi’s fraud was
exposed. Because these arguments are related, I will address them together.
It is somewhat ironic that GAMCO, a value-based investor, is relying
on the fraud on the market presumption, which is grounded on the reliability of the
market price that value-based investors spend their lives second-guessing. In
support of its argument that GAMCO’s investment in Vivendi was not induced by
the market price of Vivendi’s securities, Vivendi presents the statements of a
publicly traded securities publicly] had access to and knowledge of the omitted
information, and therefore placed no reliance on the tender documents’”) (quoting
Fisher v. The Plessey Co., Ltd., 103 F.R.D. 150, 156 (S.D.N.Y. 1984)) (alterations
in original).
96
See Opp. Mem. at 13 (“GAMCO does not rely on the integrity of the
market to value shares accurately, because its entire strategy for purchasing shares
depends on the assumption that the market price does not reflect a company’s true
value.”).
-26-
number of GBL employees stating that PMV does not take market price into
account.97 In support of its argument that GAMCO continued to invest in Vivendi
after its fraud was revealed, Vivendi states that “[a]ccording to Dr. Blaine Nye
[plaintiffs’ expert in the Class Action], Vivendi’s true liquidity condition began to
be revealed on January 7, 2002, when it announced that it would sell some of its
treasury shares[,]”98 but GAMCO increased its holdings in Vivendi after that date.
In fact, “GAMCO made its largest one-day purchase of Vivendi
shares on July 2, 2002, a day on which Dr. Nye testified that Vivendi’s true
liquidity condition was revealed by credit rating downgrades to junk status.”99
Citing to statements made by various GBL employees, Vivendi contends that
GAMCO continued to invest in Vivendi after its liquidity condition had been
revealed because its view of Vivendi’s underlying assets had not changed.100 As
such, Vivendi argues that there is a material issue of fact with respect to whether
GAMCO relied on the market price of Vivendi’s shares.
In response, GAMCO argues that Vivendi’s “subjective belief that a
97
See id. at 13-14.
98
Id. at 10. (citation omitted).
99
Id. (citations omitted).
100
See id. at 11-12.
-27-
security’s market price is undervalued is [in]sufficient to destroy [GAMCO]’s
reliance on the integrity of the market[,]” because every investor thinks the
securities they transact in are over- or under-valued.101 Relatedly, GAMCO alleges
that it did, in fact, rely on the market price of Vivendi’s securities, insofar as it
thought that Vivendi’s securities were undervalued.102 Building on this point,
GAMCO cites a District of Rhode Island case for the proposition that “[t]he mere
fact that different ‘traders have divergent motivations in purchasing shares should
not defeat the fraud-on-the-market presumption absent convincing proof that price
played no part whatsoever in their decision making.’”103
According to GAMCO, the relevant inquiry is whether it would have
entered the same transactions at the same prices absent Vivendi’s fraud; whether
GAMCO would have entered into different transactions at different prices is of no
moment.104 And because Vivendi “merely speculates that, had the market known
the truth of the fraud[,] . . . GAMCO would have likely entered into different
transactions (at lower prices) for the same Vivendi securities[,]” GAMCO
101
Reply Mem. at 2.
102
See id. at 7.
103
Id. (quoting Rosen v. Texatron, Inc., 369 F. Supp. 2d 204, 212 (D.R.I.
2005) (emphasis in original) (further citations omitted)).
104
See id. at 8-9 (citations omitted).
-28-
concludes that there is not a material dispute of fact with respect to GAMCO’s
reliance on the market price.105
GAMCO further argues that it did not rely solely on PMV when it
decided to invest in Vivendi and that, in any case, PMV is not insensitive to
accounting fraud. In support of the first point, GAMCO quotes the June 25, 2007
deposition of Mario Gabelli, in which Gabelli states that GAMCO “[would
determine if Vivendi securities were undervalued] . . . using a variety of stock
specific dynamics . . . [including] [e]arnings per share, PMV, EBITDA [(earnings
before income, tax, depreciation, and amortization)] . . . a whole mosiac.”106 In
support of the second point, GAMCO quotes the October 20, 2006 deposition of
one of its portfolio managers, who stated that “‘[PMV] relies very heavily on the
integrity of the financial statements of the companies [a portfolio manager] . . . is
looking at. . . . [I]f anybody is cooking the books . . . the methodology doesn’t
work very well.’”107
105
Id. at 8 (emphasis removed).
106
Id. at 9-10 (quoting 6/25/07 Deposition of Mario Gabelli, Ex. E to
Declaration of Vincent R. Cappucci in Support of Plaintiff’s Motion for Summary
Judgment against Defendant Vivendi, S.A. (“Cappucci Decl.”), at 163:11-21)
(emphasis removed).
107
Id. at 10 (quoting 10/20/06 Deposition of Henry Van der Eb, portfolio
manager at GAMCO, Ex. H to Cappucci Decl., at 36:21-37:3).
-29-
Finally, GAMCO contends that its post-disclosure purchases of
Vivendi securities do not rebut the presumption of reliance because “the Class
Action jury necessarily determined that the market price of Vivendi [securities]
decreased following each material partial disclosure[,]”108 meaning that GAMCO
still relied on the market price following each disclosure. In support of this
position, GAMCO cites to three cases that state that “averaging down” – i.e.,
purchasing additional shares of a security that has decreased in value – does not
create an atypical defense, defeating class certification when reliance is based on a
fraud on the market theory.109 GAMCO concedes that the first corrective
disclosure was on January 7, 2002, but points out that less than one-third of
GAMCO’s Vivendi purchases were made after January 7, 2002.110
As an initial point, it bears repeating that class certification and the
class jury trial have passed, and that the current posture of the instant case involves
Vivendi’s challenge to GAMCO’s reliance. The February 17 Opinion notes that
questions of individual reliance will not defeat class certification when a trial on
108
Id. at 11.
109
See id. at 11-12 (citing In re Moody’s Corp. Sec. Litig., 274 F.R.D.
480, 488 (S.D.N.Y. 2011); Cosmas v. Delgiorno, No. 94 Civ. 1974, 1995 WL
62598, at *4 (E.D.N.Y. Feb. 8, 1995); and Malone v. Microdyne Corp., 148 F.R.D.
153, 159 (E.D. Va. 1993)).
110
See id. at 12-13 (citations omitted).
-30-
common issues is possible, but rather will “call for separate inquiries into the
individual circumstances of particular class members.”111 This is one such
“separate inquir[y].” As such, the cases cited by GAMCO that relate to whether to
certify a securities fraud class are inapposite at this stage in the litigation,112
because they stand only for the proposition that “‘the extent of any non-reliance . . .
[is] a fact question to be decided at trial . . . .’”113 In other words, an investor’s lack
of reliance on the market price and/or post-disclosure purchases may not defeat the
typicality requirement for class certification. But that does not imply that nonclass plaintiffs may assert res judicata on the reliance issue as soon as a class has
been certified.
111
Feb. 17 Op., 765 F. Supp. 2d at 584 (collecting cases where securities
fraud classes were certified despite the existence of questions of individual
reliance).
112
See, e.g., Reply Mem. at 3 (citing the following class-action
certification cases: In re Pfizer Inc. Sec. Litig., 282 F.R.D. 38, 45 (S.D.N.Y. 2012);
In re IMAX Sec. Litig, No. 06 Civ. 6128, 2011 WL 1487090, at *7 (S.D.N.Y. Apr.
15, 2011); In re Worldcom Sec. Litig., 219 F.R.D. 267, 281-82 (S.D.N.Y. 2003);
and Rosen, 369 F. Supp. 2d at 212).
113
City of Livonia Employees’ Retirement Sys. v. Wyeth, 284 F.R.D. 173,
179 (S.D.N.Y. 2012) (quoting In re Indep. Energy Holdings PLC Sec. Litig., 210
F.R.D. 476, 484 (S.D.N.Y. 2002)). In its reply brief GAMCO quotes the previous
sentence of City of Livonia, which states that “courts in this district have found that
where plaintiff’s theory of liability is premised on the fraud on the market
presumption, Defendants’ allegations that the lead plaintiffs investments were not
made in reliance on alleged misstatements are largely irrelevant[,]” but GAMCO
omits the sentence quoted in the body text. Reply Mem. at 8.
-31-
Equally inapposite are GAMCO’s citations to a line of cases that stand
for the proposition that short-sellers are entitled to the fraud on the market
presumption, despite the fact that short-sellers buy securities that they think are
undervalued.114 At best, these cases establish only that plaintiffs who trade in
securities that they believe are undervalued may, as a matter of law, invoke the
fraud on the market presumption. They do not speak to how that presumption may
be rebutted.115 And they do not imply that, absent insider information, the fraud on
the market presumption is irrebuttable as against any investor who purchased a
security at market value, as GAMCO at times appears to argue.116
At its core, GAMCO’s argument is that Vivendi has not raised a
material issue of fact because it has not shown that: (1) GAMCO would have
114
See, e.g., Reply Mem. at 2-3 (citing Argent Classic Convertible
Arbitrage Fund L.P. v. Rite Aid Corp, 315 F. Supp. 2d 666, 676 n.13 (E.D. Pa.
2004); In re REMEC Inc. Sec. Litig., 702 F. Supp. 2d 1202, 1263 (S.D. Cal.
2010)).
115
See, e.g., Argent Classic Convertible Arbitrage Fund L.P., 315 F.
Supp. 2d at 676-77 (“we hold that Zlotnick does not require us to withhold from
the Argent Companies the benefit of the fraud on the market presumption of
reliance. They have adequately pled that Rite Aid securities traded in efficient
markets, so they are, for now, entitled to that presumption. Thus, we shall not
dismiss the Section 10(b) claim for failure to plead presumptive reliance. The
defendants will have ample opportunity to rebut the presumption of reliance”)
(emphasis added).
116
See Reply Mem. at 2-3.
-32-
entered the same transactions, at the same prices, absent the material
misstatements; or that (2) GAMCO’s post-disclosure transactions in Vivendi
securities were not made in reliance on the integrity of the market price. As to the
first point, it is true that courts at times use the formulation that the fraud on the
market presumption can be rebutted if “defendant can show that plaintiff would
have purchased the stock at the same price even if [s]he had [] known the nondisclosed information . . . .”117 However, Vivendi has presented evidence – from
the analyst charged by GBL with following Vivendi during the Class Period – that
“the impact of Vivendi’s liquidity crisis on GAMCO’s PMV calculation would be
‘minor.’”118 This is enough to raise a material question of fact as to whether
GAMCO would have transacted in Vivendi securities even if it had known its true
liquidity condition. As discussed above, GAMCO disputes whether it actually
relied solely on PMV as well as the extent to which PMV is insensitive to
accounting fraud. But this just supports my conclusion that reliance is an issue for
trial.
117
Lawrence v. Phillip Morris Cos., Inc., No. 94 Civ. 1494, 1999 WL
51845, at *4 (E.D.N.Y. Jan. 9, 1997).
118
See Opp. Mem. at 12 (quoting 8/31/06 Deposition of Andrew
Rittenberry, Ex. 1 to Slifkin Decl., at 133:11-134:16).
-33-
All of the cases cited by GAMCO in support of the second point119
reflect the rule that “that post-disclosure purchases will not prevent an investor
from relying on the integrity of the market for pre-disclosure purchases[,] . . .
[because] [a]n investor who purchases a security after the disclosure of adverse
information still relies on the fact that the newly released information will be
absorbed by the market and therefore reflected in the post-disclosure price.”120
Specifically, these cases hold that post-disclosure purchases of securities do not
necessarily rebut the fraud on the market presumption as a matter of law, meaning
that classes can be certified despite the presence of members who made postdisclosure purchases.121 The cases do not imply that post-disclosure purchases are
never relevant to the plaintiff’s reliance.
GAMCO acknowledges that post-disclosure purchases can defeat the
typicality requirement for class certification when “plaintiffs made a
119
See Reply Mem. at 10-12.
120
In re DVI Inc. Sec. Litig., 249 F.R.D. 196, 204 (E.D. Pa. 2008).
121
See, e.g., Feder v. Electronic Data Sys. Corp., 429 F.3d 125, 138 (5th
Cir. 2005) (holding that “the purchase of a company’s stock after disclosure of
alleged fraud [does not] necessarily present[] a unique defense against that
purchaser such that Rule 23(a)(3) typicality is categorically precluded”) (emphasis
added).
-34-
‘disproportionately large percentage’ of their purchases post-disclosure . . . .”122
And the same result obtains “when a disclosure is so forceful that it becomes
unreasonable for an investor, or the market, to continue to be misled by the
defendants’ alleged misrepresentation.”123 By the same logic, it stands to reason
that GAMCO’s post-disclosure purchases of Vivendi securities are probative of
whether GAMCO’s investment strategy took market price into account. GAMCO
alleges that it “executed less than one-third of its total Class Period Vivendi ADR
purchases, measured by volume, after the date of the first partial corrective
disclosure . . . .”124 Once more, this merely strengthens the point that a material
issue of fact exists.
In sum, Vivendi has raised a material question of fact as to whether
GAMCO actually relied on the market price of Vivendi’s securities when it
invested in Vivendi. GAMCO’s post-disclosure purchases are probative of that
reliance, or the lack thereof. Therefore, GAMCO’s motion for summary judgment
is denied.
VI.
CONCLUSION
122
Reply Mem. at 12-13 (quoting City of Livonia, 284 F.R.D. at 178).
123
In re DVI Inc. Sec. Litig., 249 F.R.D. at 204 (quotation marks and
citations omitted).
124
Reply Mem. at 12.
-35-
For the foregoing reasons, GAMCO's motion for summary judgment
is denied. The Clerk of Court is directed to close this motion (Docket No. 105).
Dated:
New York, New York
January 10,2013
-36
- Appearances -
For Plaintiff GAMCO:
Vincent R. Cappucci, Esq.
Evan T. Raciti, Esq.
Entwistle & Cappucci LLP
280 Park Avenue, 26th Floor West
New York, New York 10017
(212) 894-7200
For Defendant Vivendi, S.A.:
Daniel Slifkin, Esq.
Paul C. Saunders, Esq.
Timothy G. Cameron, Esq.
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
Penny P. Reid, Esq.
James W. Quinn, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue, 25th Fl.
New York, New York 10153
(212) 310-8000
-37-
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