Volkswagen wins ruling in U.S. bondholder litigation over emissions

A divided U.S. appeals court ruled in favor of Volkswagen on Friday by giving the automaker another chance to put an end to a lawsuit claiming it defrauded bondholders by concealing how it cheated pollution tests for its automobiles.

The 9th U.S. Circuit Court of Appeals in San Francisco said a lower court judge misapplied the law in declining to dismiss the proposed class action by holders of $8.3 billion of bonds the automaker sold in 2014 and 2015, and ordered he look at the case again.

The automaker had said the plaintiff, Puerto Rico Government Employees and Judiciary Retirement System Administration, could not have been decieved by marketing materials for the bonds as it had not shown it relied on them.

U.S. District Judge Charles Breyer had ruled in September 2019 that reliance on the German automaker’s silence regarding the cheating was presumed, making mention of the 1972 U.S. Supreme Court case Affiliated Ute Citizens of Utah v. United States.

However, in Friday’s 2-1 decision, Circuit Judge Milan Smith said the presumption did not apply as the plaintiff also claimed to have relied on nine pages of Volkswagen’s affirmative misrepresentations.

“Plaintiff can prove reliance through ordinary means by showing a connection between the alleged misstatements and its injury,” Smith wrote. “Otherwise, the exception would swallow the rule.”

Volkswagen’s lawyer Robert Giuffra, vice chair at Sullivan & Cromwell, welcomed the decision, saying the plaintiff was attempting to make Affiliated Ute “an open-ended presumption that would apply in every case”.

Mitchell Twersky, a lawyer at Abraham Fruchter & Twersky representing the plaintiff, said there were “adequate grounds” to challenge the decision, which he said has overly burdened securities fraud plaintiffs.