S&C Knocks Out $500 Million Fraud Suit Against Philips

, The Litigation Daily

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Garrard Beeney
Garrard Beeney

A Delaware Chancery Court judge on Tuesday dismissed a 91-year-old Italian mogul's $500 million fraud case against Koninklijke Philips Electronics NV, bringing a likely close to a court fight that has spanned seven years and implicated the laws of at least four nations. The ruling is a win for lawyers at Sullivan & Cromwell against a team from Cravath, Swaine & Moore.

In a sprawling 182-page decision, Vice Chancellor Donald Parsons ruled that Italian businessman Carlo Vichi couldn't back up his core claim in the long-running case—namely, that Philips fraudulently induced him into loaning about $275 million to LG Philips Displays International Ltd (LPD), a joint venture between Philips and LG Electronics Inc. that manufactured cathode ray tubes for televisions and computers before going bankrupt a decade ago. Parsons ruled that Vichi unreasonably delayed in making most of his allegations, and what remained of his fraud case was lacking.

Garrard Beeney and John Hardiman of Sullivan & Cromwell represented Philips, along with Raymond DiCamillo of the Delaware firm Richards, Layton & Finger. Cravath partners David Marriott and David Greenwald represented Vichi, along with Rolin Bissell of Young Conaway Stargatt & Taylor.

Way back in 1945, Vichi founded a company called Mivar di Carlo Vichi E.C. s.a.s., which is now one of Italy's largest manufacturers of televisions. Vichi frequently collaborated with Netherlands-based Philips over the decades, and he has publicly credited that partnership for his company's success. Employees of LPD, the Philips-LG joint venture, asked Vichi for a $275 million loan in 2002, when the company was in serious need of a cash infusion.

LPD ended up declaring bankruptcy in 2004. Vichi brought suit in Delaware in 2006, alleging that Philips fraudulently induced him into loaning the money by downplaying LPD's financial problems. And, Vichi claimed, Philips falsely asserted that it was  "standing behind" the venture when, in fact, Philips shareholders weren't on the hook for LPD's losses.

After depositions around the world and complex pretrial procedural rulings, the case culminated in a bench trial held over five days in mid-2012. Vichi sought repayment of the €200 million ($275 million) loan, plus substantial interest.

Shortly before trial, the European Commission determined in an unrelated investigation that LPD was part of an illegal cartel that fixed cathode ray tube prices. Vichi's lawyers at Cravath asked permission to include a new claim that Philips committed fraud because it knew about LPD's price-fixing but didn't tell Vichi. Parsons not only allowed Vichi to add the claim, but he deferred to the EC's finding of liability for price-fixing.

Despite the eleventh-hour setback, Philips' lawyers at Sullivan & Cromwell ultimately prevailed. In Tuesday's lengthy decision, Parsons ruled that Vichi could reasonably have brought most of his fraud allegations as early as 2002 or 2003, so they're barred by the doctrine of laches—an affirmative defense that the defendant would be unfairly prejudiced by a plaintiff's delay in filing suit. Philips's laches defense didn't work with regard to the claim that the company should have disclosed LPD's price-fixing, but it didn't matter because Parsons dismissed that claim on the merits. Vichi couldn't show an intent to defraud or reliance on the alleged misrepresentations, the judge ruled.

S&C's Beeney, who represented Philips, said in an interview that Vichi's fraud claims were implausible. "This was a sophisticated investor, who was given accurate information, and who was advised by a financial adviser and a relatively well-known investment bank," he said.

We didn't immediately hear back from Cravath's Greenberg, who represented Vichi.

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