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Fraud Action Against Deutsche Bank, Barclays Bank and Commerzbank Stayed on Forum Non Conveniens Grounds

Global law firm Weil, Gotshal & Manges LLP achieved a significant victory on February 27, 2012, when a California federal court ruled that a $429 million fraud action against clients Deutsche Bank, Barclays Bank and Commerzbank AG, and other banks, should be stayed so that the plaintiff could pursue its claims in France.

The action arose out of MGA Entertainment Inc.’s acquisition of a controlling interest in distressed French toymaker Smoby SA in May 2007. MGA alleged that, shortly after the transaction, it learned that Smoby's financial problems were worse than previously disclosed and that its CEO was embezzling company assets. The French court ordered Smoby's liquidation within one year of MGA's acquisition. In July 2008, Deutsche Bank, Barclays Bank, Commerzbank AG, Credit Agricole Corporate & Investment Bank, and Societe Generale sued MGA in France, seeking repayment of more than $360 million in debt and a bridge loan they had been extended to Smoby. The action in France is still ongoing.

MGA, maker of the Bratz line of dolls, filed suit in California state court in March 2011, accusing the banks of common law fraud for failing to disclose what they knew about the CEO’s alleged embezzlement and violations of California securities laws, and claiming damages of approximately $429 million. (The suit was later removed to the U.S. District Court for the Central District of California.) The banks moved to dismiss or stay the action under several legal theories, including forum non conveniens, arguing that MGA should be required to pursue its claims in the pending French action.

US District Judge George B. Wu granted the banks’ motion to stay and ordered MGA to pursue its claims in France, holding that "this is not a U.S.-centric case. This is a French case.”

The Weil Litigation team includes partners Christopher Cox, T. Ray Guy, and associates Margaret Allen and Bambo Obaro.

The case is MGA Entertainment Inc. v. Deutsche Bank AG, et al., case number 2:11-cv-04932, in the U.S. District Court for the Central District of California.