PARIS — It’s getting ugly already.

The commercial court here said Tuesday that Morgan Stanley has until March 3 to officially respond to a string of charges in the $100 million bias and conflict of interest suit lodged by LVMH Moët Hennessy Louis Vuitton.

This story first appeared in the January 22, 2003 issue of WWD. Subscribe Today.

But Morgan Stanley wasted no time lashing back, saying Tuesday it plans to launch a counter claim against LVMH for damage done by the proceedings.

In a statement, the investment bank said the original suit, which alleges biased equity research because Morgan Stanley advises LVMH rival Gucci Group, “should never have been brought.” It went on to describe the proceedings as “vexatious, without merit and an abuse of the French Court system.”

It also reiterated its intention to defend the action vigorously, which commenced Tuesday and could ensue for months, or even years.

A spokeswoman for Morgan Stanley declined further comment. An LVMH spokesman declined comment on the specter of a Morgan Stanley counter suit.

As expected, Tuesday’s hearing was a swift affair, with the judges fixing the date for the next hearing and designating the court’s largest and most prestigious courtroom, with vaulted ceilings displaying elaborate gilt Empire plasterwork.

But even from the first day in court, it was clear the combatants are ready to debate every letter. In a brief exchange before the judges, Morgan Stanley’s counsel argued that the writ labeled the investment bank’s U.S. operations improperly. The LVMH lawyer disagreed, insisting there was no mistake.

Morgan Stanley is represented in Paris by the law firm Gide Loyrette Novel. LVMH is represented by Jeantet Associates.

Documents filed at the court by LVMH cited 41 pieces of evidence, including scores of articles in American, Italian and French newspapers, correspondence between LVMH and Morgan Stanley, numerous Morgan Stanley reports and e-mail records.

The 20-page document portrayed Morgan Stanley, and its chief luxury analyst Claire Kent, as deliberately waging an anti-LVMH, pro-Gucci campaign in the media and in its advice to investors. The wording of the writ, punctuated with exclamation points, is charged and often drips with incredulity.

Referring to some of Kent’s comments in the media that were critical of Fendi, one of LVMH’s fashion and leather goods companies, the suit contended that she “continued her destructive work…, totally strange in her role as a financial analyst, spreading as widely as possible her commentaries and negative opinions about LVMH.”

By contrast, Kent always “finds all the right excuses” for Gucci and offers a gentler interpretation of even disappointing financial results, it added.

Much of the information LVMH deems damaging, and indicative of bias, is contained in newspaper articles. For example, LVMH said in the suit that Morgan Stanley’s managing director and head of mergers and acquisitions, Michael Zaoui, exaggerated LVMH’s debt situation in a published interview in March 2002, pegging its gearing at 37 percent instead of 28 percent. The comment dovetailed on Kent’s warnings in one of her reports of a potential LVMH credit downgrade, which the suit characterized as “fantasy.” The suit suggested such information could influence the public and sway investors waffling between buying LVMH or Gucci stock.

As reported, among the most contentious points in the suit are boilerplate statements in Morgan Stanley reports stating it had a director in common with LVMH and that it would be seeking compensation from the French group for investment banking advice. LVMH contends both are erroneous statements that were only removed by Morgan Stanley under the threat of legal action.

“The deliberate will to deceive the public and discredit LVMH is clear,” the suit claimed.

Two internal Morgan Stanley e-mails, one sent at 11:07 a.m., and another at 8:41 p.m., are listed as evidence. It’s not clear how they were obtained. Both concern the possible quest for LVMH business.

The writ further detailed that the $100 million LVMH seeks is for damages, as well as to mount advertising campaigns “in several countries” to help boost its image “which has been tarnished by the declarations and writings of Morgan Stanley.” LVMH is also seeking to recoup some $30,000 in legal costs. Also, if Morgan Stanley loses the case, LVMH wants the court to order it to publish an announcement in “three daily financial papers with international scope.”

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