EUROPE - A US federal judge has ruled institutional investors in France, the Netherlands and UK should be wholly or partially excluded from a US class action against French transportation manufacturer Alstom SA.

The securities class action has been brought by a number of US pension funds and institutional investors which alleges Alstom and its former chairman/chief executive and chief financial officer issued a number of "false and misleading statements" that caused its share price to fall more than 93% over four years.

At the end of August, US' Judge Marrero approved the class action - allowing it to go to trial - and named the State Universities Retirement System of Illinois, the Louisiana State Employees' Retirement System, the West Virginia Investment Management Board, and the International Brotherhood of Electrical Workers Local 269 as lead plaintiffs in the case.

However, the judge ruled the proposed class definition - investors with shares during the specified period eligible to share in any compensation - should be modified to "delete the inclusion of French persons or entities as to all defendants, English persons or entities as to Alstom, and Dutch persons or entities as to Alstom".

This means any French institutional investors who wish to claim compensation or bring a case against Alstom and/or the CEO and CFO must do so through the French courts.

In addition, although English and Dutch investors are still included in the class action against the individual defendants - the CEO and CFO - and the company's US subsidiaries, if they wish to claim against the company they also have to bring a separate action through their domestic legal system, or the European courts.

The court ruled as Alstom is a French company and its articles of association states any disputes should be referred to the French courts, this would fall under article 23 of the European Council Regulation 44/2001,which grants "exclusive jurisdiction" to French courts.

Judge Marrero ruled the French courts are likely to refuse to recognise the judgement of a US class action, meaning the defendants may have to "relitigate the same issues against French class members in a French court", so any claims from French investors have been excluded. 

In addition, because Article 23 of the European Council regulations grants "exclusive jurisdiction" to a French court, the federal judge said both English and Dutch courts would dismiss any domestic claims against Alstom in favour of the judgement of the French court.

It therefore excluded English and Dutch investors from the class against Alstom, but allowed them to remain part of the case against the remaining defendants, including the US subsidiaries, as in this instance it is unlikely the EU council regulations would be a reason to defer to a French ruling, so the judgement of a US court may be recognised.

That said, the court documents revealed only European investors were partially or wholly excluded from the class action, as Canadian investors were found to be eligible for the class against Alstom and all other defendants.

The decision to exclude European investors from the class action comes as more UK and European pension funds are initiating legal action and taking on the role of lead plaintiff, in particular Edinburgh City Council, on behalf of Lothian Pension Fund, has been appointed co-lead in actions against BP and Lehman Brothers. (See earlier IPE articles: UK pension funds co-lead in Lehman Bros action and Lothian takes co-lead against BP)

Most class actions have been filed in the US until now, however there are a number of high profile cases being heard in European courts - partly as a result of previous exclusions by US courts - which include Royal Dutch Shell and Parmalat. (See earlier IPE articles: Parmalat investors launch new European legal action and Shell class action set for November hearing)

In May the law firm DRRT warned non-US investors had failed to claim €2.4bn in settlements from US class actions between 2003 and 2007, despite 80% of cases involving European companies. (See earlier IPE article: EU investors miss out on €2.4bn in legal settlements)

Alstom, originally owned by the European companies Marconi and Alcatel, is accused of artificially inflating its share price by making false and misleading statements concerning the demand and revenue earned from the sale of cruise ships and the profitability of its subsidiary Alstom Transportation, which manufactured trains for the London Underground.

The complaint also claims these two alleged frauds were part of a wider scheme to present Alstom as a robust business, so when the alleged accounting frauds were revealed in a statement on profitability, the share price fell to $3.41, from a high during the class period of $34.98.

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