RESPONSIBILITY OF FINANCIAL ANALYSTS
LexInter | July 14, 2017 | 0 Comments

RESPONSIBILITY OF FINANCIAL ANALYSTS

Investment banks, financial analysts and conflicts of interest, JCP G n ° 6/2004, act 78 /  A. Couret ; D. n ° 5/2004, Chron p. 335.

Liability for gross negligence of an international investment bank for damage to the image of a company: TC Paris 12/01/04, JCP E n ° 5/2004, 117.

When the courts question the independence of financial analyzes, Small posters n ° 43/2004, p. 4 / X. Boucobza.

Damage to the image of a company by a financial analyst. TC Paris 12/01/04, BRDA n ° 4/2004, p. 4.

FINANCIAL ANALYSTS FINANCIAL   ANALYSIS

PARIS COMMERCIAL COURT

JUDGMENT DELIVERED ON MONDAY 12/01/2004

st ROOM EXTRA

RG 2002093985

01/21/2003

BETWEEN: SA LVMH MOET HENNESSY LOUIS VUITTON –LVMH whose head office is located at 30 avenue Hoche 75 008 PARIS

REQUESTED PART

AND

1 / MORGAN STANLEY & C ° INTERNATIONAL LIMITED whose registered office is 25 Cabot Square – Canary Wharf LONDON E144Q4- UNITED KINGDOM

2 / MORGAN STANLEY DEAN WITTER INC . headquartered at Corporation Trust Center, 1209 Orange Street, Wilmington, DELAWARE 19801 and headquartered at 1585 Broadway NEW YORK NY 10036

DEFENDANTS

CASE JOINED AND JUDGED A:

RG 2003015834

05/12/2003

BETWEEN ; SA LVMH MOET HENNESSY LOUIS VUITTON whose registered office is 22 avenue Montaigne, 75 008 PARIS

APPLICANT
AND: SOCIETE MORGAN STANLEY DEW
 Inc. Whose registered office is at Corporation Trust Center, 1209 Orange Street, Wilmington, DELAWARE 19801 and whose registered office is 1585 Broadway, NEW YORK – NEW YORK 10 036

– Mr LECUE, deputy for the Public Prosecutor

AFTER HAVING DELIBERATED

Facts

MORGAN STANLEY is a large international investment bank with two head companies, one in NEW YORK (MORGAN STANLEY DEAN WITTER Inc.) and the other in LONDON (MORGAN STANLEY & C ° INTERNATIONAL Ltd.), hereinafter referred to as MORGAN STANLEY.

MORGAN STANLEY, like most international investment banks, carries out a triple activity of underwriting and placement of financial instruments, financial advice in mergers and acquisitions and financial analysis.

MORGAN STANLEY has been since 1995 the investment bank of GUCCI, a company registered in the NETHERLANDS, listed in AMSTERDAM and NEW YORK, carrying out its activity in the luxury sector. She acted on behalf of GUCCI when it was taken over by PINAULT-PRINTEMPS-REDOUTE (PPR) in February March 1995 and then in August-September 2001. MORGAN STANLEY also acted with GUCCI as advisor for the acquisition of SANOFI BEAUTE (1999), YVES SAINT LAURENT and BOUCHERON (2000), BOTTEGA VENETA and BALENCIAGA (2001), thus transforming GUCCI from a single brand into a multi-brand group, in the luxury sector.

The companies assigned will hereinafter be referred to as “MORGAN STANLEY”.

Following the summons, conclusions of the incident were exchanged between the parties; a judgment of this Court dated April 28, 2003 dismissed MORGAN STANLEY of his findings of incident and ordered MORGAN STANLEY to conclude on the merits.

By submissions in response of May 26, 2003, MORGAN STANLEY asked the Court to dismiss LVMH’s claims and to order it to pay MORGAN STANLEY 10,000,000 euros in damages; order the publication of the judgment in 20 magazines and newspapers in FRANCE, ENGLAND and the USA and on LVMH’s own website for a period of thirty days at LVMH’s expense; order LVMH to pay MORGAN STANLEY and MORGAN STANLEY DW 75,000 euros each on the basis of Article 700 of the NCPC with costs; order the provisional execution of this judgment.

By pleadings in reply of September 15, 2003, LVMH asks the Court to dismiss MORGAN STANLEY’s counterclaims and confirms its previous pleadings, adding the publication of the decision to intervene in three mainstream dailies with international distribution at the expense of the companies sued and bringing the sum requested under article 700 of the NCPC to 100,000 euros.

By submissions filed at the pleadings hearing on November 17, 2003 at 2:30 p.m., MORGAN STANLEY asks the Court to dismiss LVMH’s claims and confirms its previous pleadings, bringing its claim under article 700 of the NCPC to 100,000 euros.

At the pleadings hearing on November 17, 2003, the Tribunal, after hearing counsel for the parties in their respective pleadings, ordered them to provide notes for advisement limited strictly to the following points:

  1. The links that may exist between GUCCI and MORGAN STANLEY during the period from 1999 to 2002.
  2. The positive and negative information given by MORGAN STANLEY on LVMH and GUCCI with a   benchmarking to determine if the analysis process is comparable for the two companies.
  3. What were the criteria used to carry out a maturity discount and a holding discount?
  4. Provide the Court with a table of variations in the stock market prices of LVMH and GUCCI from 1999 to 2002

These notes must be submitted to the Court and the Public Prosecutor’s Office and sent within fifteen days to the opponent who must respond within eight days from the date of receipt of said notes.

Mr. LECUE, Substitute for the Public Prosecutor, indicated that:

“-The offense of disseminating false or misleading information likely to act on stock market prices as mentioned in article L465-1 of the Monetary and Financial Code would not be constituted, the faults criminal matters not being characterized.

  Indeed, to fall within the scope of this article, the information should be criminally reprehensible, which is not the case; moreover, it should be such as to act on prices, which is not demonstrated in a precise and certain manner.

  -It is moreover alleged the neutrality of MORGAN and GUCCI whereas however, a certain number of errors could characterize a faulty behavior of the bank, in particular the interview of Mr. ZAOUI at FINANCIAL TIMES falsely claiming that the rate of LVMH’s indebtedness amounts to 37%, and the lack of correction on the part of the interested party.

In conclusion, it emerges that there is no criminal prosecution in this case or investigation on the initiative of the Public Prosecutor’s Office.

LVMH has chosen the civil route.

The Court therefore has full discretion to assess on the basis of article 1382 of the Civil Code whether the behavior of MORGAN STANLEY is faulty, whether the fault has resulted in damage, whether there is a causal link between the fault and the damage. “.

The Tribunal declared the proceedings closed at the end of the hearing on November 17, 2003, with deliberation on that date for judgment to be pronounced at the special hearing of the 1st Chamber on January 12, 2004 at 2 p.m.

The four advisement Notes requested by the Tribunal have been addressed to the Court   on 1 st December 2003 by MORGAN STANLEY and December 8, 2003 by LVMH.

By letters of December 9 and 12, 2003, counsel for MORGAN STANLEY indicated that LVMH included in its notes documents which were not submitted to an adversarial debate. LVMH’s counsel replied to these letters by letters of December 10 and 15, 2003.

The Court will only retain the elements responding to the respect of the contradictory.

The notes under advisement and the aforementioned letters and letters will be annexed to the procedure.

The Court will rule by a contradictory judgment rendered in first instance by joining the proceedings because of their connection.

DISCUSSION

MORGAN STANLEY’s structure

LVMH sees MORGAN STANLEY as a large international bank, but notes that it is subject to serious dysfunctions resulting from its structure: MORGAN STANLEY performs both a financial advisory mission and a financial analysis mission. Conflicts of interest may exist between the analysis services of the Bank and other departments of the latter, more particularly the investment services. A “Chinese wall” must be put in place between these two categories of service that can ensure the independence and objectivity of the Bank’s financial analyzes for investors.

However, LVMH believes that this Chinese wall does not exist at MORGAN STANLEY. This was revealed by an investigation conducted simultaneously in 2001 and 2002 by the SECURITY EXCHANGE COMMISSION (SEC) and the New York State Attorney General, Eliot SPITZER. The banks, including MORGAN STANLEY, have encouraged companies to give them assignments by suggesting that they would benefit from the support of the Bank’s analysis, thus betraying the confidence of investors, the market and the public.

The SEC thus revealed that “MORGAN STANLEY’s financial analysts have been subjected to inappropriate pressure from the group’s investment bank – that it paid its own analysts in part according to their degree of contribution. to obtaining new business by the Investment Bank  ”   ( SEC press release no. 18 117 of April 28, 2003   ).

The procedure ended with a transaction for a $ 50M fine and $ 75M for the creation of an analysis service independent of its clients.

LVMH maintains that MORGAN STANLEY used “as a marketing tool the help of Claire KENT, the luxury industry analyst”, head of the luxury industries sector within the financial analysis department by MORGAN STANLEY.

 LVMH reports that the Bank refused to communicate the rules and procedures applied by them in the luxury sector, thus implicitly acknowledging that the general system denounced by the SEC was used in the same way within the luxury sector.

MORGAN STANLEY opposes LVMH that it distorts the content and consequences of the American proceedings initiated by Mr. SPITZER and the SEC, on the basis – erroneous – that fraud has been committed in the UNITED STATES by MORGAN STANLEY and that such frauds would also have been in Great Britain and France. However, it has not been established that MORGAN STANLEY committed fraud, nor that a financial analysis would have been false because it would not have been in accordance with the opinion of the analysts, whereas the analyzes sincerely reflected the opinion of analysts. If the American procedure ended in a settlement, this can be explained by MORGAN STANLEY’s concern to avoid a public trial.

Be that as it may, there is no legal or factual relationship between the US proceedings and the litigation pending before this Tribunal. French law applies. No regulator has ever claimed that an investment bank should not have a financial analysis department. The code of professional ethics of the SFAF (the SOCIETE FRANCAISE DES ANALYSTES FINANCIERS) specifies the obligations of financial analysts:

 ”  The member of the SFAF must refrain from disseminating to the public by any means, false or misleading information on the prospects or the situation of an issuer of a financial instrument or on the prospects for the development of a financial instrument ”.

It is not alleged by LVMH that these obligations were disregarded by MORGAN STANLEY.

II. Grievances

LVMH retains 6 complaints against MORGAN STANLEY which will be taken up by the Court with the respective positions of the parties:

A.      False statements and concealment of conflicts of interest

LVMH notes false mentions made by MORGAN STANLEY in its weekly financial analysis reports LUXURY GOODS WEEKLY

–           95 times for more than three years the fact that one of its employees or directors was a director of LVMH

–           37 times the fact that during the last three years she would have been the leader or member of the placement syndicate of a public offering of LVMH securities

–           on two occasions that she expected remuneration for merchant banking services, with an indication of this fact on her website

On the other hand MORGAN STANLEY did not reveal his links with GUCCI.

MORGAN STANLEY opposes that if it could have made errors, LVMH does not present any document in which it complains of these errors, that moreover MORGAN STANLEY made a correction in its reports of August 30, September 6 and 15, 2002 in connection with of the administrator indicated as common; for the indication relating to the participation of MORGAN STANLEY in a syndicate of placement of a public offer of LVMH shares, this revelation (“  disclosure ”) Was correct until November 7, 1999; the entry was deleted, then reinstated by mistake in March / May 2000, without protest from LVMH; It is by application of American regulations that MORGAN STANLEY indicated the perception of possible remuneration from LVMH; finally, an error did occur on the MORGAN STANLEY website, but was removed before it could appear in a financial analysis report.

As for the revelation of her links with GUCCI, MORGAN STANLEY maintains that she complied with American regulations.

B.       The loss to LVMH’s credit

LVMH reports an interview in FINANCIAL TIMES of March 16, 2002 with Michael ZAOUI, director responsible for investment banking activities of MORGAN STANLEY for EUROPE, declaring “  LVMH has a net debt ratio in relation to its capitalization estimated at 37%, whereas GUCCI, in October 2001, had available net cash of 1.5 billion euros  ”.

In this interview Mr. ZAOUI fails to mention that MORGAN STANLEY is GUCCI’s advisory bank and that GUCCI’s net cash does not come from the profits it generates but from a capital increase of $ 3 billion to enable PINAULT , PRINTEMPS, REDOUTE (PPR) to take control of GUCCI. In addition, the indebtedness figures shown are 9 months old (28% and not 37%) at the date of publication. This interview was not followed by a correction from the person concerned.

LVMH also refers to two e-mails (“  e-mail alert  ”) of July 17, 2002 sent to its customers by MORGAN STANLEY:

“  MORGAN STANLEY credit analysts cannot rule out the possibility that LVMH’s credit rating (currently BBB + negative outlook) may change. In this case the rating would probably change to BBB + under surveillance. We believe that while this is not imminent, it cannot be ruled out over the next few months. We also think that this could be damaging to the title ”. 

These indications are included in the report of July 19, 2002.

In reality, MORGAN STANLEY was only repeating a communication from STANDARD & POOR’S published three months earlier, while the results for the first half of 2002 confirmed the improvement in the financial profit of the LVMH group. MORGAN STANLEY thus communicated false information to the market.

MORGAN STANLEY opposes about the interview with Mr. ZAOUI that the figures given were exact when he gave them and that if a criticism had to be formulated it could only be formulated against the FINANCIAL TIMES which published an article three weeks after the interview of the journalist with Mr. ZAOUI.
As for the ratings concerning LVMH, MORGAN STANLEY only repeats the information from STANDARD & POOR’s and is surprised that he is prohibited from mentioning the rating assigned to LVMH’s long-term debt.

C.        The infringement of the LOUIS VUITTON brand

LVMH notes in the report of August 1, 2002: “We believe that the LVMH share should be traded at a discount of 10% to take into account the fact that management has destroyed value (the return on invested capital is 19% in 1990 compared to 9.5% in 2001), and is based on a brand which is very successful, but which has reached maturity, LOUIS VUITTON ”suggesting that having reached a peak, the LOUIS VUITTON brand can only experience a decline , while on the contrary it offers tremendous growth prospects, as evidenced by the increase in sales (15% per year from 1990 to 2000), the construction and opening of new factories and stores.

MORGAN STANLEY argues that the use of the term “mature” does not mean doomed to failure. LVMH ignores any positive comments from MORGAN STANLEY on the LOUIS VUITTON brand; every society has its strengths and weaknesses, MORGAN STANLEY like all the other analysts has noted both; it did so for LVMH as for all the other companies in the sector. Moreover, the qualification of “maturity” for brands is a concept frequently used by other more authorized financial analysts, at ABN AMRO and LEHMAN BROTHERS in particular, and by the economic press.

D . Damage to the management and value of LVMH

For LVMH, the principle of a 10% discount is all the more unjustified since it is accompanied by praise from GUCCI to which MORGAN STANLEY applies a 10% premium ”  to reflect the fact that GUCCI has proved that it does not present a ‘fashion risk’ and that management appears to be the only one capable of creating a second strong brand with YVES SAINT LAURENT ” (report of November 7, 2002).

MORGAN STANLEY notes that LVMH does not dispute the figures used by it, for the return on capital employed reduced from 19% in 1990 to 9.5% in 2000, nor the reasons for this fall which are to be found in the investments made by LVMH ( PHILIPS, DFS, SAPHORA, FENDI, DONNA KARAN etc.) justifying a 10% discount for LVMH, while a premium for GUCCI is not arbitrary.

E .      Exposure to the yen

LVMH is aware that it is exposed to a fall in the Japanese yen, but it criticizes MORGAN STANLEY for its lack of objectivity on this subject, given that the LVMH group’s share of sales is 15% compared to that of GUCCI which is 23%, and that the share of LVMH sales to Japanese tourists is 17% compared to that of GUCCI which is 20%. LVMH emphasizes that it has currency hedging and that it has the possibility of increasing its prices in order to compensate for the fall in the yen.

MORGAN STANLEY argues that hedging the exchange rate cannot protect LVMH against a fall in sales of LOUIS VUITTON and against the fall in sales of LOUIS VUITTON to Japanese tourists and against the collapse of profits made by DFS. This is also what other banks such as BNP have been able to note.

E.       Comparative strengths and weaknesses of LVMH and GUCCI

LVMH gives a series of examples of praise for GUCCI by MORGAN STANLEY and of the bank’s reservations with regard to LVMH. This is particularly the case with the interview with Ms. Claire KENT given to the daily CORRIERE DELLA SERRA on April 30, 2001:

“  Above all, you need strong management and the creation of a team of capable designers. At FENDU (LVMH group) for example, there is a lack of strong management. To create value and have a winning brand, you need to have a unique vision. As happened at GUCCI when Domenico DE SOLE (managing director of the group) and TOM FORD arrived ”.  MORGAN STANLEY, so hard with the management of LVMH and so confident in that of GUCCI, does not speak of the possibility for the latter of seeing her management leave her in the near future, which is mentioned by the press and analysts other than Claire KENT since the beginning of 2003.

MORGAN STANLEY opposes that her comments on LVMH are often laudatory and that it would be wrong to say that she is always positive about GUCCI, whose difficulties she noted. As for the article in CORRIERE DELLA SERA of April 20, 2001, which moreover does not mention the name of LVMH as a shareholder of FENDU, it was not the subject of any critical comment at the time of its publication by LVMH which Suddenly rediscovered it on May 31, 2002, when analysts other than MORGAN STANLEY criticized FENDI’s organization.

III. Summary of the reciprocal position of the parties

From the examination of these grievances, LVMH concludes that the reports of MORGAN STANLEY are still systematic in favor of LVMH and in favor of GUCCI, while MORGAN STANLY notes that the information it has published on LVMH and GUCCI is shared by d other commentators, and that comments are often favorable to LVMH and unfavorable to GUCCI.

LVMH considers that MORGAN STANLEY has failed in its duties of independence, objectivity and rigor, that it has deceived the confidence of LVMH and investors, that it has harmed LVMH and favored its client GUCCI, that it has thus incurred its tort liability under article 1382 of the Civil Code, that the   behavior of MORGAN STANLEY results in considerable damage and asks for damages of 100 million euros, which represents only a small proportion of the damage caused to the image, credit and stock market price of the LVMH group, with publication of the decision in the financial press and in the general public press.

MORGAN STANLEY rejects any idea of ​​denigration and the existence of any damage allegedly suffered by LVMH. In reality LVMH seeks to obtain compensation for a single ”  damage  “, it is the role of MORGAN STANLEY in the failure of LVMH in the takeover of GUCCI, LVMH wants to obtain a conviction of MORGAN STANLEY ”  to finally find a consolation to its bitter failure in the GUCCI affair  ”(MORGAN STANLEY’s conclusions filed at the pleadings hearing).

ON THIS THE COURT

Whereas LVMH requests the conviction of MORGAN STANLEY on the basis of article 1382 of the Civil Code;

That the bringing into play of the tort liability of MORGAN STANLEY supposes the existence of a fault, of a prejudice and of a causal link between the fault and the prejudice;

That it is for the Tribunal to determine whether these elements are present in the present case.

On the fault

Whereas it is common ground that the structure of MORGAN STANLEY did not include a strict separation between investment services and financial analysis services

That this situation was noted in the UNITED STATES by the SEC and by the Attorney General of the State of NEW YORK who specified that the absence of a separation between the services thus concerned clearly created a lack of objectivity of Bank analyzes, necessarily detrimental to investors;

That a   transaction was concluded between MORGAN STANLEY and the SEC under the terms of which the Bank undertook in particular to pay $ 75 million in contribution for the creation of an independent analysis service for its clients;

That after signing this transaction the Chairman of MORGAN STANLEY minimized the responsibility of his bank in an interview with NEW YORK TIMES of April 30, 2003, which earned him a severe reprimand from the Chairman of the SEC;

That it follows from these acts and facts that the structure of MORGAN STANLEY was a source of prejudice for its clients and for investors;

Whereas it is also common ground that business links existed between MORGAN STANLEY and GUCCI; that the latter, specialized as LVMH in the luxury sector, was coveted by LVMH;

That the help provided by MORGAN STANLEY to PPR in particular contributed to the failure of any merger between LVMH and GUCCI;

That there is no evidence that the procedure initiated by LVMH against MORGAN STANLEY had the sole purpose of seeking compensation for the failure of LVMH in its attempt to take control of GUCCI;

Whereas on the other hand it results from a multiplicity of faults noted by LVMH, retained by the Court, and sometimes recurring, committed by MORGAN STANLEY, that this one has in this way valued GUCCI to the detriment of LVMH;

That, for example, MORGAN STANLEY’s LUXURY GOODS WEEKLY weekly financial analysis report reports 95 times for more than 3 years that one of its employees or directors was a director of LVMH;

That this fact cannot be attributed to a simple error concerning a professional of the world-renowned luxury sector;

That this erroneous mention could mislead an investor led to think that everything that MORGAN STANLEY could say about LVMH, in particular about its faults and weaknesses, could only be true, because of the existence of alleged links between the two companies;

That MORGAN STANLEY cannot exonerate himself by claiming that LVMH waited for this procedure to react to these errors;

That by not denouncing these errors LVMH was able to show patience, but not approval;

That the accumulation of these facts has led LVMH to question itself and to react;

Whereas in his interview with FINANCIAL TIMES, the Director responsible for MORGAN STANLEY’s investment banking activities in EUROPE indicated debt ratios which no longer corresponded to current events and   thus cast additional discredit on LVMH, and all the more so since this obsolete declaration was accompanied by a brilliant mention for GUCCI, as no corrigendum was reported to the declaration of this Director;

That in the same way the reference to old notations veiled results in progress;

That the reference to  LVMH’s “  maturity ” suggested that this group had reached its peak and could only decline, and justified a 10% discount, especially since it was accompanied by praise of GUCCI who was awarded by MORGAN STANLEY a bonus of 10%;

Whereas incomplete information on LVMH’s activities in JAPAN and on sales to Japanese people cast doubt on the group’s future, given the importance of the “ JAPAN  ” market  for LVMH;

Whereas in his statements MORGAN STANLEY valued GUCCI and expressed doubts about the dynamism of the management of LVMH, in particular in an interview given to CORRIERE DELLA SERRA on April 30, 2001 by Ms. Claire KENT, head of the luxury sector and star analyst at MORGAN STANLEY, in close liaison with the bank MORGAN STANLEY, an opinion which the facts do not seem to have confirmed;

That it thus appears that MORGAN STANLEY has repeatedly and seriously failed in his duties of independence, impartiality and rigor and is guilty of a denigration of LVMH;

That such behavior is not admissible of a professional financial analyst of world reputation, who must control his information and verify it constantly, having regard to the stakes for the investors and the companies concerned;

It is therefore necessary to assess and assess the damage suffered by LVMH as a result of the faults of MORGAN STANLEY.

On the damage and the causal link between fault and damage

Whereas MORGAN STANLEY is a leading international bank;

That the opinion of such an establishment is necessarily considered with care by investors;

Whereas LVMH is a leading company, but it operates in a sensitive sector, that of luxury;

That the opinion and financial analyzes of a large international bank such as MORGAN STANLEY necessarily have an impact on companies of global importance in this sector and on specialist analysts;

What to say good about GUCCI values ​​GUCCI;

Whether to say bad things about LVMH or to express reservations about its situation enhances GUCCI because of the two companies belonging to the same sector;

That MORGAN STANLEY did not content himself with analyzing LVMH in isolation, but compared LVMH and GUCCI, praising the qualities of GUCCI and denigrating LVMH;

That the brand image for a company in the luxury sector is essential to its development and its notoriety;

That this image is built year by year and requires very heavy advertising, technical and marketing investments;

Whereas the damage to the brand image of LVMH has repercussions on both customers and investors;

Whereas a damage to the image of LVMH was caused by the faulty behavior of MORGAN STANLEY,

That indeed the multiplicity of statements, innuendos and errors emanating from MORGAN STANLEY necessarily seriously damaged the brand image and the financial image of LVMH;

Whereas the Court must estimate the damage caused to LVMH,

That the Court retained elements which were given to it that the market value of LVMH was of 27 billion euros, that the discount of 10% recommended by MORGAN STANLEY represents 2.7 billion euros;

That the Court noted that the appreciation of Mrs. Claire KENT was oriented against LVMH to favor GUCCI and that, given the notoriety of this analyst, that could only influence the market to the detriment of LVMH;

Whereas the amount of damages must compensate for the damage caused by the fault of MORGAN STANLEY.

That the faulty actions of MORGAN STANLEY clearly damaged the image of LVMH, which consequently had to implement costly defense and communication to compensate for the damage to its image and reputation financial;

That for this purpose LVMH necessarily had to make significant investments to maintain its financial reputation distorted by false information from MORGAN STANLEY;

That in these conditions the Court will find that LVMH suffered both material and moral damage which should be repaired;

That the Court, using its sovereign power to determine the moral damage by LVMH, will set the amount of this damage at 30 million euros and order in solidum MORGAN STANLEY & Co. INTERNATIONAL Ltd and MORGAN STANLEY DW Inc. to pay LVMH this last amount upon service of this judgment;

Whereas the material damage suffered by LVMH results on the one hand from the discount recommended by MORGAN STANLEY and its impact on the market, and on the other hand from the specific measures that LVMH had to take to fight against the denigration of which it was the ” subject to additional costs for which LVMH requests compensation;

That it is for each party to prove in accordance with the law the facts necessary for the success of its claim (Article 9 of the NCPC)

That it appears that the information provided to the Court is insufficient to enable it to rule on these additional costs;

That investigative measures can be ordered, in any case, if the judge does not have sufficient elements to rule (articles 143 and 144 of the NCPC),

The Court will appoint Mr. Didier KLING, residing at PARIS 75 008 – 41 avenue de Friedland, as expert with the mission which will be specified below.

The Court will order the publication of this judgment under the conditions indicated in the operative part.

On MORGAN STANLEY’s counterclaim 

Whereas no fault was noted by the Court which would have been committed by LVMH in the initiation and conduct of the proceedings;

That LVMH has asserted its rights,

The Court will dismiss MORGAN STANLEY’s counterclaim.

On article 700 of the NCPC

Solicited by LVMH 

Whereas the plaintiff had to make recognize its rights expose costs not included in the costs, which it would be unfair to leave to its load;

That it is justified to allocate him by application of article 700 of the NCPC an indemnity, in the state, of 80,000 euros The Tribunal reserving itself for the remainder of the request;

Solicited by MORGAN STANLEY

 On provisional execution 

It will be ordered without constitution of guarantee, but will not apply to the publications of this decision.

FOR THESE REASONS 

The Court, ruling at first instance by contradictory judgment,

Attached the instances (ref. 2002093985 and 2003015834 °.

Finds that the facts noted constitute gross negligence committed by the COMPANY MORGAN STANLEY & Co INTERNATIONAL LIMITED and the COMPANY MORGAN STANLEY DEAN WITTER INC. to the detriment of SA LVMH MOET HENNESSY LOUIS VUITTON-LVMH

Notes that this fault caused considerable moral and material damage to SA LVMH MOET HENNESSY LOUIS VUITTON – LVMH in its image, justifying compensation;

Condemns in solidum the SOCIETE MORGAN STANLEY & Co INTERNATIONAL   LIMITED and   the SOCIETE MORGAN STANLEY DEAN WITTER INC. to pay to SA LVMH   MOET HENNESSY LOUIS VUITTON – LVMH, as soon as this judgment is served, the sum of 30,000,000 euros as damages for the non-pecuniary damage suffered by SA LVMH MOET HENNESSY LOUIS VUITTON – LVMH,

Reserves the right to complete this sentence to compensate for material damage suffered by NVMH MOET HENNESSY LOUIS VUITTON –LVMH SA, which will include:

-on the one hand, the damage caused by the discount recommended by the company MORGAN STANLEY

– on the other hand the damage resulting from the various costs incurred by SA LVMH MOET HENNESSY LOUIS VUITTON LVMH for the defense of its image, the Court, to enlighten it only on these costs, designates Mr. Didier KLING, residing in PARIS 75 008 , 41 avenue de Friedland, as an expert, with the following mission:

  •  Collect all data enabling the Commercial Court to know during the period from 1999 to 2002

Ø        direct advertising expenses of NVMH MOET HENNESSY LOUIS VUITTON –LVMH and all of its subsidiaries

Ø        indirect communication costs caused by the organization of press conferences, the missions of communication officers

Ø        the costs and fees of all proceedings initiated to defend the infringements of NVMH MOET HENNESSY LOUIS VUITTON (counterfeiting, unfair competition, etc.)

Ø        marketing-packaging costs,

Ø        the costs incurred for the registration of trademarks, their international monitoring and their renewal

Ø        the cost of debt

  •     Determine, after collecting these numbers, what could be the part that may have been supported by the SA LVMH MOET HENNESSY LOUIS VUITTON – LVMH and its subsidiaries during the period from 1999 to 2002 to maintain its image and counter the vilification which it was victimized by the COMPANY MORGAN STANLEY & Co INTERNATIONAL LIMITED and the COMPANY MORGAN STANLEY DEAN WITTER INC.

Fixes at 10,000 euros the amount to be deposited by SA LVMH MOET HENNESSY LOUIS VUITTON -LVMH before   January 30, 2004 at the registry of this Court, by application of the provisions of article 269 amended of the NCPC;

In the absence of consignment within the prescribed period, the appointment of the expert will lapse (amended article 271 of the NCPC)   and the proceedings will be continued;

States that within two months of his appointment, the expert will indicate the amount of his foreseeable final remuneration so that an additional provision may be ordered under the conditions of article 280 of the New Code of Civil Procedure and that in the absence of such indication, the amount of the initial deposit will constitute the final remuneration of the expert,

Holds that, if the parties do not come to terms with one another, the expert’s report must be filed with the Registry within three months from the deposit of the deposit and, pending this filing, recorded the cause to the role of investigative measures;

Holds that the magistrate in charge of the control of the investigative measures will follow the execution of this expertise;

Disputes MORGAN STANLEY & Co INTERNATIONAL LIMITED and MORGAN STANLEY DEAN WITTER INC. their counterclaim;

Orders the publication of this judgment in three dailies of the financial press with international distribution and in three mainstream dailies with international distribution as well as in a forthcoming edition of the weekly report on the luxury sector (LUXURY GOODS WEEKLY) from the analysis service of MORGAN STANLEY & Co INTERNATIONAL LIMITED and MORGAN STANLEY DEAN WITTER INC. , all at the expense of these two companies;

Condemns in solidum the SOCIETE MORGAN STANLEY & Co   INTERNATIONAL LIMITED and the SOCIETE MORGAN STANLEY DEAN WITTER INC. to pay LVMH MOET HENNESSY LOUIS VUITTON – LVM SA the sum of 80,000 euros under article 700 of the NCPC;

Reserves for the surplus of the demand for this last title

Orders the provisional execution of this decision, except for publications

Disputes the parties for their further or contrary requests

Condemns in solidum the SOCIETE MORGAN STANLEY & Co INTERNATIONAL LIMITED and the SOCIETE MORGAN STANLEY DEAN WITTER INC. at the costs, including those to be recovered by the Registry

Retained and pleaded at the public hearing of November 17, 2003 where they were sitting;

Messrs COSTES, ECK, GERONIMI, Ladies MESNIL, MAEGHT

Deliberated by the same magistrates and pronounced at the public hearing where sat

Mr ECK, President, Mr GERONIMI, Mrs MESINIL, Mr IRLES, Mrs MAEGHT, Judges, assisted by Miss DANCHOT Registrar

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