United States: Second Circuit Affirms Exclusion Of Certain Foreign Purchasers And Purchases From Securities Class Action

The U.S. Court of Appeals for the Second Circuit issued a lengthy opinion today in the long-running In re Vivendi, S.A. Securities Litigation, affirming the jury's verdict on liability and addressing issues about loss causation and expert-witness testimony. But the tail on the proverbial dog also dealt with another set of issues that this blog has frequently discussed: the extent to which the U.S. securities laws apply to foreign purchasers and foreign purchases.

The Second Circuit held that the District Court had not abused its discretion in excluding certain foreign shareholders from the certified class because of a concern that courts in some foreign countries might not give preclusive effect to a U.S. class-action judgment. In addition, the Second Circuit affirmed the District Court's dismissal of claims by U.S. purchasers who had obtained Vivendi's non-U.S. ordinary shares through a three-way merger between Vivendi and two other companies.

The court's ruling on the first point reaffirms prior precedent that the "superiority" analysis conducted as part of the class-certification inquiry may properly consider whether foreign class members would or would not be bound by a U.S. class-action judgment if they were to sue in their home courts. The court's ruling on the second point continues the Second Circuit's effort to explicate the Supreme Court's standard for determining whether the U.S. securities laws apply to transactions with transnational elements.

Factual Background

The securities litigation against Vivendi – a French company – began in 2003 as a putative worldwide class action on behalf of all purchasers of Vivendi stock. At that time, decades' worth of precedent in the Second Circuit had established that the federal securities laws' applicability to securities transactions with transnational elements depended on the so-called "conduct or effects" test: whether U.S.-based conduct had a sufficiently significant impact on non-U.S. shareholders, or whether non-U.S. conduct had a sufficiently significant effect on U.S. investors. The Vivendi litigation proceeded under that familiar standard for the first seven years of its life.

In 2010, the Supreme Court threw out the "conduct or effects" test. The Court's ruling in Morrison v. National Australia Bank announced a transactional test for determining the federal securities laws' reach and held that those laws apply only to alleged misstatements or omissions made "in connection with the purchase or sale of [i] a security listed on an American stock exchange, and [ii] the purchase or sale of any other security in the United States."

Morrison caused the District Court to revise its views about the extent to which the putative worldwide class of Vivendi purchasers could sue under the federal securities laws. The court had originally applied the "conduct or effects" test and had held that Vivendi had engaged in sufficient U.S.-based conduct to allow the entire putative class to sue. After Morrison, however, the court limited the case only to U.S. purchasers: those who had bought Vivendi's U.S.-listed American Depositary Receipts, and anyone else who had purchased non-U.S.-listed Vivendi shares in U.S. transactions. The court also rejected the contention that American purchasers of Vivendi's French ordinary shares – and particularly those persons and entities who had acquired their ordinary shares through the three-way merger of Vivendi and two other companies – could participate in the case, because the court did not deem the merger to be a U.S. transaction.

Along the way, the District Court also held that class members from certain countries could not participate in the U.S. litigation because of concerns about whether their home courts would recognize and grant preclusive effect to a judgment entered in a U.S. class action.

The case went to trial, and the jury found against Vivendi. When Vivendi appealed the jury verdict, the plaintiffs cross-appealed the District Court's rulings on class membership. The Second Circuit affirmed the District Court's rulings on the cross-appeal.

Second Circuit's Decision

Judgment Recognition as a Permissible Consideration for Class Certification

The Second Circuit first held that the District Court had not abused its discretion in viewing judgment recognition as a relevant consideration under the rules governing class certification. Federal Rule of Civil Procedure 23(b)(3) requires a court to consider various factors when deciding whether to certify a putative class, including whether a class action would be "superior to other available methods for fairly and efficiently adjudicating the controversy."

The Second Circuit ruled that "[c]oncerns about foreign recognition of our judgments are reasonably related to superiority" because, if a foreign court would not grant preclusive effect to the judgment, the parties and the court would waste their time and resources litigating and adjudicating the claim. In so holding, the Second Circuit reinforced its 1975 decision on the same point and repeated that, "if defendants prevail against a class[,] they are entitled to a victory no less broad than a defeat would have been." (The same logic applies to a class-action settlement.)

But the Second Circuit declined to "opine on how likely it must be that a foreign court will recognize a class judgment in order for Rule 23's superiority requirement to be met" (emphasis added). The court saw no need to reach that issue because the plaintiffs – who bore the burden of satisfying Rule 23 – had "not identif[ied] any evidence that they presented to the district court which suggested that foreign courts in the countries at issue would grant preclusive effect to a class judgment." The requisite level of proof of recognition (or lack thereof) thus appears to remain an open issue.

Stock Mergers as Non-U.S. Transactions

The Second Circuit also affirmed the District Court's ruling excluding from the class those Americans who had obtained Vivendi's non-U.S. shares through Vivendi's stock merger with two other companies. Those shareholders did not fall within Morrison's first prong, because they had not obtained U.S.-listed securities. And they did not come within Morrison's second prong, because they had not obtained their unlisted foreign shares through a U.S. transaction.

In earlier post-Morrison decisions, the Second Circuit had held that plaintiffs can satisfy Morrison's second prong by showing either that they incurred irrevocable liability in the United States for their securities transactions or that title passed in the United States. The court had propounded a nonexclusive list of factors to assess whether an off-exchange transaction was a domestic transaction under Morrison: where the contract was formed; where the purchase order was placed; where title passed; and where money was exchanged.

In Vivendi, the Second Circuit held that the shareholders at issue had not incurred irrevocable liability for or obtained title to the French ordinary shares in the United States. The binding contract through which the shareholders had obtained their Vivendi shares was the merger agreement, but the class members were not parties to the merger agreement, and the merger contract had not been made in the United States. Moreover, the District Court had found that the ordinary shares had been maintained in book-entry form in France and that title to those shares had passed in France.


The Second Circuit's ruling on judgment recognition might breathe new life into an issue that has received somewhat less attention since the Supreme Court's Morrison decision. The Vivendi case confirms that, in applying Rule 23's superiority element, district courts are entitled to require foreign plaintiffs to show that their home courts would recognize a U.S. class-action judgment. Such a showing might trigger a battle of experts on foreign law (as occurred in the Vivendi case), but the class representative should bear the burden of proof on the issue. If the class cannot meet its burden, the court may exclude the foreign shareholders – on a country-by-country basis – from the class.

Second Circuit Affirms Exclusion Of Certain Foreign Purchasers And Purchases From Securities Class Action

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.