PARIS – LVMH Moet Hennessy Louis Vuitton claimed another victory today when the appeals court here upheld a 2004 decision finding Morgan Stanley guilty of “gross misconduct” for a biased portrayal of the French luxury group’s fortunes versus its archrival Gucci Group.

But the investment bank also found cause for celebration, proclaiming that the court vindicated analyst Claire Kent of unfair equity research, save for errors in the disclosure section of her reports and erroneous remarks by one bank executive in a newspaper interview.

The appeals court judge delivered a quick synopsis of the 37-page decision in a standing-room only courtroom, with opposing teams of robed lawyers exiting quickly to huddle over the document and learn the details.

“This represents an important victory for freedom of expression, analyst independence and the industry as a whole,” Patrick Ponsolle, chairman of Morgan Stanley in France, said in a statement.

He added that the judgment “sends a clear message to companies who try to use the threat of legal action to influence analysts’ opinions.”

Interviewed outside the courtroom, Morgan Stanley attorney Jean-Michel Darrois said a new appeal was “unlikely,” pointing to key passages in the ruling. “The claims made by LVMH regarding Morgan Stanley’s deliberate intentions to denigrate it were not sufficiently proven,” one said.

Still, LVMH characterized today’s decision as an unqualified triumph, in so far as the appeals court confirmed the presence of moral and material prejudice.

The judgment “showed that LVMH was the victim of a civil fault,” said LVMH lawyer Patrick Ouart. “We are very pleased with the confirmation by the Paris appeals court [that upholds the commercial court’s decision] which proves that LVMH had reason to consider that it had been victim of a civil fault by Morgan Stanley.”

Morgan Stanley was ordered by the Paris commercial court in 2004 to pay a 30 million euro, or $37.5 million, penalty to LVMH.

The appeals court said today the court-appointed expert already assigned to assess material damages should also revisit the initial penalty for “moral prejudice.” The expert, Didier Kling, has until July 2007 to table his findings.

Morgan Stanley said it would demand the return of amounts paid to LVMH, plus interest, and asserted that the penalty for moral prejudice would likely be reduced. Meanwhile, its opponent is confident of receiving a hefty sum.

In a statement, LVMH said it is seeking more than 100 million euros, the amount it claimed when it first lodged the complaint in November 2002, casting a chill throughout the analyst community.

LVMH noted it’s the first time the Paris appeals court has delivered a verdict on the professional responsibilities of financial analysts, setting an important precedent.

The bias suit against Kent came against the backdrop of corporate corruption scandals in the United States and lingering acrimony between two warring luxury giants, which stemmed from LVMH’s failed bid in 1999 to do a hostile takeover of Gucci.

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