A potential multibillion-dollar judgment against Vivendi SA for misleading shareholders hung in the balance as a Manhattan judge weighed whether a recent U.S. Supreme Court ruling limited damages.

At a hearing before U.S. District Judge Richard Holwell, the French media company said it should benefit from the June 24 ruling that limited the ability of non-U.S. investors to sue non-U.S. companies for alleged misconduct.

In that case, Morrison v. National Australia Bank Ltd , a unanimous Supreme Court said investors could not invoke a widely used federal securities law when they buy and sell shares of those companies on non-U.S. exchanges.

Last January, a Manhattan federal jury found that Vivendi made 57 statements from October 2000 to August 2002 that were too rosy or hid liquidity problems. Shares of the company fell nearly 90 percent in that time. Damages have yet to be set.

The case arose from Vivendi's three-way, $46 billion merger in 2000 with Seagram Co and Canal Plus which transformed the French water utility into a global music and television giant.

Vivendi has estimated U.S. investors held just one-fourth of its shares in the period covered by the U.S. lawsuit.

At Monday's hearing, its lawyers urged that the verdict covering purchasers of ordinary shares be thrown out, and that the case be limited to a smaller pool of investors.

Morrison in our view clearly intended to exclude purchases and sales of shares on a foreign exchange, said Paul Saunders, a partner at Cravath, Swaine & Moore LLP representing Vivendi. The language throughout Morrison is clear.

Lawyers for Vivendi shareholders, in contrast, argued that Morrison has no impact because both types of Vivendi securities covered by the jury verdict -- ordinary shares and American depositary receipts -- were listed on a U.S. exchange.

When you register a class of security, you register the entire class, said Matthew Gluck, a partner at Milberg LLP representing the plaintiffs.

NEW TRIAL?

Holwell also asked Saunders about alternative grounds for recovery for the plaintiffs, that Vivendi violated New York state law by committing common law fraud.

Can I grant a new trial on that issue? Holwell asked.

I don't think you can, Saunders replied. There are probably 20 reasons, including a higher burden of proof and the requirement that investors prove claims individually rather than as a class, he added.

Saunders added that there was a total failure of proof that anyone at Vivendi intended to defraud shareholders.

The jury had found former Chief Executive Jean-Marie Messier and former Chief Financial Officer Guillaume Hannezo not liable for the period covered by the lawsuit.

Messier had testified that while some of his management decisions went sour, he did not conceal liquidity problems, overstate earnings or seek to enrich himself at Vivendi's expense. He said he never, never, never committed fraud.

Vivendi forced out Messier in 2002 after a merger spree that saddled the company with large sums of debt. His successor Jean-Rene Fourtou later sold billions of dollars of assets.

The case is In re Vivendi Universal SA Securities Litigation, U.S. District Court, Southern District of New York, No. 02-05571.

(Reporting by Jonathan Stempel in New York, editing by Matthew Lewis)