PARIS — It’s up to the judges now — but LVMH Moët Hennessy Louis Vuitton appeared to come out ahead Monday in its $118 million legal battle with investment bank Morgan Stanley, which it claims was pro-Gucci and anti-LVMH in its reports.
Lawyers for LVMH were all smiles Monday at the conclusion of the trial in its bias suit against Morgan Stanley. At the end of a marathon hearing at the commercial court here, French prosecutor Jean-Louis Lécué said he detected fault and prejudice under French tort law. The case is considered a first in France, and the judgment will be closely followed by the entire luxury sector and Wall Street watchdogs.
This story first appeared in the November 18, 2003 issue of WWD. Subscribe Today.
Lécué’s opinion isn’t binding, and Morgan Stanley said it felt confident in the robustness of its defense. Its lawyers said LVMH didn’t produce any evidence of harm or wrongdoing and characterized its suit as opportunistic, capitalizing on New York Attorney General Eliot Spitzer’s investigations into improprieties on Wall Street.
Five judges, who listened to more than six hours of testimony, are slated to deliver their decision — and award any damages — when they reconvene Jan. 12 in the same courtroom. In the interim, counsel for each side will meet with judges in private in the coming weeks to answer additional questions.
The judges also will rule on Morgan Stanley’s counterclaim for $11.8 million for procedures it considers abusive.
LVMH accuses Claire Kent, Morgan Stanley’s chief luxury goods analyst, of waging a pro-Gucci, anti-LVMH campaign in her reports and in the media over a period covering 1999 through 2002. The investment bank is a longtime adviser to Gucci Group, LVMH’s arch rival.
The prosecutor, in his fur-trimmed robe, sat apart from the five judges at his own bench and explained the law and the background of the case to them. It was unclear before the trial whether Lécué would offer an opinion on the evidence, but some considered authoritative his view of fault and prejudice on the part of Morgan Stanley.
LVMH declined all comment on Monday’s hearing and Lécué’s declaration, but the French group was visibly contented upon hearing his opinion, and also encouraged by the judges’ line of questioning, which suggested they found merit in some of LVMH’s arguments.
While Lécué suggested LVMH didn’t provide enough evidence to show exactly how much Morgan Stanley’s opinions dented its stock price, he did say he understood how its image, vital in the luxury goods sector, could have been damaged.
Asked about the prosecutor’s opinion, Morgan Stanley lawyer Bruno Quentin shrugged it off, noting that Lécué did not find evidence of penal conduct and dismissed the idea that, simply “because LVMH is such a big company, they can’t possibly be wrong.”
LVMH was the first to enter its plea. Lawyer Georges Terrier, of Jeantet & Associates, reiterated arguments and cited familiar evidence from the original writ, filed last fall. But he amplified them. In speeches dripping with incredulity, Terrier characterized Morgan Stanley’s campaign to denigrate LVMH as “premeditated,” “systematic” and even “perverse.”
He first set out to establish Kent as an analyst with enormous stature in the industry — and Morgan Stanley as a key ally of Gucci that took it public in 1995, helped it fend off a hostile takeover by LVMH by allying with French titan François Pinault and then advised it on acquisitions to create a multibrand group to rival LVMH.
Much of LVMH’s case hinged on what it alleged were false declarations in boilerplate statements attached to Kent’s reports. LVMH said Morgan Stanley mentioned that it had a director in common with the French group 95 times and that the investment bank was seeking business from LVMH some 37 times.
Terrier told the judges that Morgan Stanley failed to mention its business relations with Gucci until the French group tabled its lawsuit last fall. During the question-and-answer session, one of the judges demanded to see a copy of a boilerplate — an operation that was closely scrutinized by large teams of black-robed lawyers for each side.
LVMH’s case extends beyond Kent’s writings into the media. A case in point was a declaration by Michael Zaoui, Morgan Stanley’s managing director and head of mergers and acquisitions, in a Financial Times article that LVMH’s gearing was 37 percent, compared with a net cash pile of some 1.5 billion euros for Gucci.
LVMH said its gearing was actually 28 percent, a fact Morgan Stanley attributed to a delay before the Financial Times published Zaoui’s comments, in which time LVMH’s gearing had changed.
The French group also took issue with a Kent e-mail alert warning that Standard & Poor’s could change its rating on LVMH’s debt — which never came to pass. “It’s inexcusable,” Terrier hissed.
LVMH also lambasted Morgan Stanley for characterizing its cash-cow Louis Vuitton brand as “reaching maturity,” for asserting that LVMH was more susceptible than Gucci to yen weakness and for praising Gucci Group management’s ability to create a second star brand in Yves Saint Laurent, despite delaying profitability targets. On the latter point, Terrier gushed that he could almost “feel the love” when Kent wrote about Gucci management.
Bringing its grievance up to date in the wake of Domenico De Sole’s and Tom Ford’s decisions to step down as Gucci Group’s chief executive and creative director, respectively, next April, LVMH took Kent to task for remaining silent on the risk of their departure until mid-October.
Terrier ended his arguments by describing the damages LVMH seeks as paltry compared with the loss of 2.7 billion euros ($3.19 billion at today’s exchange rate) in the group’s market capitalization. Kent, Terrier said, once urged in one of her reports that LVMH’s market cap should be cut by 10 percent.
Meanwhile, Morgan Stanley waged a tag-team defense between Quentin and Philippe Nouel, both with the Paris firm, Gide Loyrette Nouel. The crux of their argument was that LVMH had nary a shred of evidence to demonstrate that it suffered a loss and that the firm only launched the suit to grab headlines and seek vengeance against an ally of its rival.
Nouel, demonstrating healthy incredulity in his own right, told the court that LVMH constructed its case based on a few sentences out of a handful of reports. Furthermore, Nouel reiterated that LVMH truncated and manipulated Kent’s writings to construct a false impression of bias.
“I am astonished by LVMH’s imagination, and if they really believe what they are claiming, I would strongly advise them to change professions,” Nouel said, describing the court battle as an offshoot of the personal war between Pinault and LVMH chairman Bernard Arnault. “This is the principle reason why I stand before you today,” he said.
Taking a page out of LVMH’s legal handbook, Nouel also cited media reports and other investment firms to underline that Kent’s opinions on LVMH were hardly conspicuous. For example, he said many equity analysts also shared Kent’s optimism about Ford’s and De Sole’s turnaround efforts at YSL.
“LVMH was not able to provide any evidence, not one factual element to justify the 100 million euros,” Quentin said during his remarks to outline the reasons for Morgan Stanley’s counterclaim. “They had to prove that Morgan Stanley really wished to soil LVMH’s reputation, which they did not do.”
Quentin stressed that LVMH never contacted Morgan Stanley to contest any of its reports for more than three years. For example, he noted that LVMH never demanded a correction for Zaoui’s comments about its debt situation.
“LVMH didn’t go directly to the commercial court because they knew they didn’t have a chance,” Quentin said. “It was only after the Spitzer case that they made up their artificial case.” He accused LVMH of “manipulating the court,” adding that “I don’t know of any victims that are as consenting as LVMH.”