It appears that Volkswagen AG’s attempt to get a proposed class action – brought by bondholders alleging the automaker knowingly misled investors about its emissions-cheating scandal – dismissed will likely fail. U.S. District Judge Charles R. Breyer said during a hearing last month that Volkswagen had made a “misstatement by omission” in an offering memo to the investors. The judge said Volkswagen’s May 2014 offering memo to bondholders “goes on, line-after-line” discussing the government’s standards for emissions controls and what systems monitor emissions. Judge Breyer added that the memo failed to disclose the fact that Volkswagen had developed and installed a device in its vehicles to cheat the system. Judge Breyer said he felt there was “a misstatement by omission.” The judge’s assessment can’t be considered good news for Volkswagen.
Judge Breyer’s comments came during a hearing on Volkswagen’s motion to dismiss a Puerto Rican employee pension fund’s proposed class action against the automaker and its former CEOs Martin Winterkorn and Michael Horn. The suit followed Volkswagen’s 2015 announcement that the company deliberately installed software designed to cheat federal and state emissions tests in nearly 600,000 2009-2015 vehicles.
The bondholders’ putative class action filed in June 2016 claims that the company and its executives intentionally failed to disclose it had a systemic practice of cheating emissions tests by software trickery and misled investors in the offering memo and public statements by implying that Volkswagen vehicles were compliant with emissions regulations.
Judge Breyer did not rule on the motion and during the hearing he suggested that the bondholders might want to get another lead Plaintiff. This was because Volkswagen’s lawyer argued that the pension fund never alleged it relied on the statements in the memo to purchase bonds.
The Puerto Rican employee pension fund was represented by Ian David Berg of Abraham Fruchter & Twersky LLP. The case is BRS v. Volkswagen AG et al., (case number 3:16-cv-03435) in the U.S. District Court for the Northern District of California. The MDL is In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, (case number 3:15-md-02672) in the same venue.
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