Antitrust Law Daily Wrap Up, ANTITRUST—Del. Ch. Ct.: Television manufacturer’s fraud claims against CRT manufacturer dismissed, (Feb 20, 2014)

By Linda O’Brien, J.D., LL.M.

In an action against a cathode ray tube manufacturer for fraud and misrepresentation in relation to a defaulted loan made to its subsidiary, a television manufacturer failed to establish his reliance and the proximate causation of damages due to the parent’s failure to disclose the subsidiary’s participation in an alleged international price fixing conspiracy, according to the Delaware Court of Chancery in Dover (Vichi v. Koninklijke Philips Electronics, N.V., February 18, 2014, Parsons, D.).

Carlo Vichi, an Italian citizen, founded Mivar di Carlo Vichi S.a.p.a (Mivar), a television manufacturing and sales company. Koninklijke Philips Electronics, N.V. (Philips), an international business entity, is the parent of numerous companies in a diverse group of industries. In 2001, Philips and LG.Philips Displays Holdings formed the joint venture, LG.Philips Displays Holdings (LPD), to market and sell cathode ray tube (CRT) products, including color picture tubes used in televisions and color display tubes used in computer monitors. Philips informed Mivar that it would be conducting its CRT business through LPD. In 2002, LPD was experiencing financial difficulty and approached Vichi for needed additional capital in the form of a substantial loan of €200 million. Vichi agreed to make the loan based on his longstanding business relationship with Philips. LPD eventually went into bankruptcy and defaulted on its financial obligations, including the loan from Vichi.

Vichi filed suit against Philips alleging that Philips procured his investment in LPD through fraud and negligent misrepresentation of the joint venture’s financial condition and falsely stating that Philips would ensure that LPD would meet its financial obligations. A trial was conducted in the action. Shortly before trial, the European Union (EU)imposed fines on Philips and its subsidiaries, including LPD, for participation in an international cartel that conspired to fix the prices of CRTs. Subsequently, Vichi moved for leave to supplement his complaint post-trial to claim that Philips committed fraud by failing to disclose LPD’s involvement in the illegal price fixing conspiracy which predated the negotiation of the loan and persisted throughout its duration.

Proximate cause. Although Vichi was allowed to supplement his complaint to reflect the EU decision, the court determined that Vichi failed to establish reliance or proximate causation of damages. To prove a claim for fraud, a plaintiff must show that (1) the defendant knew that the statement made was untrue; (2) the defendant intended for the plaintiff to rely on the representation; (3) the plaintiff relied on the representation; and (4) the plaintiff suffered causally related damages. Vichi’s fraud allegations of misrepresentations and omissions relating to LPD’s involvement in the illegal price fixing cartel were based on statements by Philips.

The court observed that Philip’s statements from its press releases and annual report regarding the competition in the CRT market were arguably misleading and created a duty to disclose LPD’s involvement in illegal price fixing. However, Vichi failed to show that Philips made the representations with an intent to induce him to make the loan to LPD.

Moreover, there was no evidence that, in making the loan to LPD, Vichi actually relied upon the alleged representations by Philips; rather Vichi asserted that he principally relied on representations by LPD and financial documents in deciding whether or not to make the loan. Finally, Vichi presented no evidence that the undisclosed information – LPD’s involvement in an illegal price fixing conspiracy – actually led or contributed to LPD’s bankruptcy or inability to repay the loan which caused his losses. Since Vichi failed to show the loss causation component of proximate causation, Philips was not liable for fraud or negligent misrepresentation and the claims were dismissed, the court concluded.

The case is No. 2578-VCP.

Attorneys: Rolin P. Bissell (Young Conaway Stargatt & Taylor, LLP) and David R. Marriott (Cravath, Swaine & Moore, LLP) for Carlo Vichi. Raymond J. DiCamillo (Richards, Layton & Finger, P.A.) and Garrard R. Beeney (Sullivan & Cromwell) for Koninklijke Philips Electronics, N.V.

Companies: Koninklijke Philips Electronics, N.V.; LG.Philips Displays Finance LLC; LG.Philips Displays International Ltd.

Cases: Antitrust DelawareNews