GAMCO Investors, Inc. v. Vivendi Universal, S.A.
838 F.3d 214
2d Cir.2016Background
- GAMCO (value investors) purchased Vivendi securities between 2000–2002 and later sued under §10(b)/Rule 10b‑5 after Vivendi’s liquidity problems and alleged fraud became public and the stock fell.
- At trial the presumption of reliance under the fraud‑on‑the‑market doctrine (Basic) was assumed to apply; the sole issue tried was whether Vivendi rebutted that presumption.
- Vivendi argued it rebutted the presumption by proving GAMCO would have bought the same securities even if it had known of the fraud (one recognized means of rebuttal after Halliburton).
- GAMCO’s investment process used a Private Market Value (PMV) and sought a material spread plus a catalyst; GAMCO acknowledged it often buys when market price is below its PMV.
- The district court found (and the Second Circuit accepted on appeal as not clearly erroneous) that GAMCO’s PMV and view of catalysts would not have changed materially had it known of Vivendi’s liquidity problems, so GAMCO still would have purchased.
- The Second Circuit affirmed the district court judgment for Vivendi and declined to reach Vivendi’s cross‑appeal issues as unnecessary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fraud‑on‑the‑market presumption was rebutted | GAMCO: value‑investor status alone cannot rebut the presumption; knowledge of fraud would have caused GAMCO to wait or not buy at the same price | Vivendi: evidence shows GAMCO would have bought even knowing of the fraud (so presumption rebutted) | Held: Rebutted—district court’s factual finding that GAMCO would still have purchased was not clearly erroneous |
| Proper counterfactual for determining reliance rebuttal | GAMCO: inquiry should ask whether it would have bought at the same price had it known of the fraud | Vivendi: defendant’s counterfactual (that full disclosure would have lowered market price and increased spread) supports that GAMCO would still buy | Held: Court accepts GAMCO’s formulation arguendo but finds record supports conclusion GAMCO would have purchased regardless |
| Sufficiency of testimony (e.g., Rittenberry, Gabelli) to support rebuttal | GAMCO: key testimony shows they would wait to buy if disclosure would lower price | Vivendi: testimony is equivocal and other record evidence shows GAMCO sometimes buys even if suspecting fraud | Held: Court holds testimonial record reasonably supports district court’s credibility and factual inferences favoring Vivendi |
| Reviewability of certain summary‑judgment arguments | GAMCO: challenges district court’s denial of summary judgment on some grounds | Vivendi: some denial grounds were factual, not pure law | Held: Appealability limited; certain summary‑judgment grounds were factual and not reviewable here |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (fraud‑on‑the‑market presumption rationale)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (defendant may rebut presumption, including by showing plaintiff would have traded even if aware of fraud)
- Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 133 S. Ct. 1184 (elements of a §10(b) claim and reliance concepts)
- Kline v. Wolf, 702 F.2d 400 (2d Cir.) (presumption rebutted if plaintiffs did not significantly rely on market integrity or would have transacted anyway)
- Teamsters Loc. 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196 (2d Cir.) (description of fraud‑on‑the‑market theory)
- Hevesi v. Citigroup Inc., 366 F.3d 70 (2d Cir.) (discussion of reliance on market price as measure of intrinsic value)