​​​Hughes Hubbard Wins Dismissal of MGA's $429M Fraud Suit

Hughes Hubbard & Reed won a major victory for Societe Generale in a longstanding legal fight over MGA Entertainment Inc.'s $429 million lawsuit alleging that fraud by Societe and other banks caused its failed investment in French toymaker Smoby SA.
 
On Jan. 29, 2015, after several rounds of briefing and two hearings, U.S. District Judge George H. Wu of California granted defendants' motion to dismiss the case on forum non conveniens and res judicata grounds.
 
The legal fight began shortly after MGA acquired a controlling interest in Smoby in May 2007. MGA alleged that, after the transaction, it learned that Smoby's financial problems were worse than previously disclosed, and that its chief executive was embezzling company assets. A French court ordered Smoby's liquidation within one year of MGA's acquisition.
 
In March 2011, MGA, the maker of the Bratz line of dolls, sued the banks in California, accusing them of common law fraud for failing to disclose what they knew about the CEO's alleged embezzlement and violations of California securities laws. MGA sought damages of $429 million.
 
The case had been pending since 2012, when defendants successfully argued that France was the proper forum for the case to be litigated. During that time, MGA continued to ask the court to lift a stay and let the action concurrently proceed in the US, requests which the defendants kept opposing and the court kept denying. In June 2013, MGA asserted fraud-based counterclaims against the banks in France but did not attempt to revive its California securities claims there.
 
In July 2014, the court overseeing the French case dismissed the banks' claims and MGA's counterclaims in their entirety. MGA then sought to lift the stay and proceed with the case in California; the defendants moved the court to dismiss the case.
 
The banks argued that Judge Wu should dismiss the lawsuit on forum non conveniens grounds because MGA had an opportunity to obtain some relief for the banks' alleged misconduct, which is all that forum non conveniens requires. But MGA contended that Judge Wu stayed the case in 2012 pending the French court's decision so that it could try those of MGA's claims that were not barred or precluded by the French judgment.
 
Judge Wu agreed with the defendants, saying "allowing MGA to proceed on its securities-fraud claims, after already having a chance to pursue similar, though not identical claims in France, arguably guts the court's forum non conveniens ruling. In that sense, this approach (wrongly) gives MGA two bites at the apple."
 
Since the case began, Societe Generale has been represented by Rita Haeusler, Hughes Hubbard alum Michael Luskin, Alex Spjute and Charles Huberty.