United States District Court, N.D. California
IN RE VOLKSWAGEN “CLEAN DIESEL” MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION This Relates To Dkt. No. 6423 BONDHOLDER ACTION
ORDER DENYING MOTION FOR SUMMARY JUDGMENT
CHARLES R. BREYER UNITED STATES DISTRICT JUDGE
a public pension fund, purchased Volkswagen bonds in 2014. In
October 2015, one month after Volkswagen’s diesel
scandal became front-page news, Plaintiff sold those bonds
for a loss. Plaintiff then filed a proposed class action
against Volkswagen for violations of the federal securities
laws. In that action, Plaintiff maintains that Volkswagen was
required (but failed) to disclose in its 2014 bond offering
memorandum that the company was using defeat devices in
millions of diesel cars worldwide to cheat on emissions tests
and was at risk of losing billions of dollars as a result.
Without that information, Plaintiff asserts that the offering
memorandum was misleading and led investors to purchase the
company’s bonds at artificially inflated prices.
has moved for summary judgment. The company argues that
summary judgment is warranted because Plaintiff lacks the
evidence needed to prove reliance, which is one of the
elements of its claims. Specifically, Volkswagen urges that
the evidence is insufficient to support that
Plaintiff’s investment manager, who bought the bonds on
Plaintiff’s behalf and had complete discretion to do
so, read the offering memorandum before executing the trade.
And without such proof, Volkswagen insists that Plaintiff
cannot prove that its investment manager would have acted
differently and foregone purchasing the bonds if additional
disclosures had been made in the offering memorandum.
reviewed the record and-once more-the relevant caselaw, the
Court concludes that this case is best characterized as
“primarily a nondisclosure case, ” as opposed to
a “positive misrepresentation case.” Binder
v. Gillespie, 184 F.3d 1059, 1064 (9th Cir. 1999). As a
result, Plaintiff is entitled to a presumption of reliance
under Affiliated Ute Citizens v. United States, 406
U.S. 128, 153–54 (1972), and need not prove that it or
its investment manager actually relied on the statements made
in the bond offering memorandum. See Binder, 184
F.3d at 1063–64.
case is best characterized as a nondisclosure case because,
as the Court noted in Bondholders I, the
“heart of the case” is an omission. In re
Volkswagen “Clean Diesel” Mktg., Sales Practices,
& Prod. Liab. Litig. (Bondholders I), No. MDL 2672
CRB (JSC), 2017 WL 3058563, at *14 (N.D. Cal. July 19, 2017).
Volkswagen failed to disclose that, for years, it had been
secretly installing defeat devices in its “clean
diesel” line of cars to mask unlawfully high emissions,
and that it was at risk of losing billions of dollars in
fines and penalties if it was caught. Volkswagen’s
failure to disclose this information is ultimately what
drives Plaintiff’s claims.
sure, Plaintiff does also base its claims on certain
affirmative statements in the bond offering memorandum.
(See Dkt. No. 4956, SAC ¶ 227 (detailing
disclosures about Volkswagen’s focus on
emission-reducing technologies and its need to comply with
increasingly stringent emission laws).) As the Court noted in
Bondholders I, though, “none of these
statements were necessarily false, ” and the reason
they are relevant is that they may have been rendered
misleading by Volkswagen’s failure to disclose its
emissions fraud. See 2017 WL 3058563, at *6–7.
Even these affirmative statements, in other words, are
tethered to the omission that is at the heart of the case.
reaching this holding, the Court backtracks from
Bondholders II, where it relied on Waggoner v.
Barclays PLC, 875 F.3d 79 (2d Cir. 2017), in reasoning
that Affiliated Ute’s presumption of reliance
did not apply. See In re Volkswagen “Clean
Diesel” Mktg., Sales Practices, & Prod. Liab.
Litig. (Bondholders II), No. MDL 2672 CRB (JSC), 2018 WL
1142884, at *1–6 (N.D. Cal. Mar. 2, 2018). For the
reasons brought to the Court’s attention by Plaintiff
and discussed in Bondholders III, the Court
concludes that its interpretation of Affiliated Ute
in Bondholders II was inconsistent with
Binder, 184 F.3d at 1063–64 and with
Blackie v. Barrack, 524 F.2d 891, 905–06 (9th
Cir. 1975). See In re Volkswagen “Clean
Diesel” Mktg., Sales Practices, & Prod. Liab.
Litig. (Bondholders III), 328 F.Supp. 3d 963,
973–78 (N.D. Cal. 2018) (considering but not ruling on
Plaintiff’s request for reconsideration of
Bondholders II). Binder and
Blackie are binding on this Court; Waggoner
is not. Under Binder and Blackie, the Court
concludes that Affiliated Ute’s presumption of
determined that a presumption of reliance applies, the Court
turns to whether Volkswagen has sufficiently rebutted that
presumption. To do so on summary judgment, Volkswagen must
offer evidence that establishes “beyond
controversy” that Plaintiff’s investment manager
“would not have attached significance to the omitted
facts, and therefore would have acted as he did if he had
known the truth.” S. Cal. Gas Co. v. City of Santa
Ana, 336 F.3d 885, 888 (9th Cir. 2003); Keirnan v.
Homeland, Inc., 611 F.2d 785, 789 (9th Cir. 1980).
to the deposition of Plaintiff’s investment manager,
Volkswagen contends that the evidence in the record would not
permit a jury to reasonably conclude that the investment
manager read the bond offering memorandum before purchasing
the bonds. Based on that interpretation of the record,
Volkswagen insists that it has rebutted the presumption of
reliance; for if Plaintiff’s investment manager did not
read the offering memorandum, then, the theory goes,
Plaintiff cannot prove that its investment manager would have
attached significance to the emissions fraud (and foregone
the investment in Volkswagen bonds) if Volkswagen had
disclosed the fraud in the offering memorandum.
run-of-the-mill omissions case, an investor’s failure
to read the relevant disclosure documents could indeed be
fatal. Having not read those documents, any additional
disclosures in them would have been unlikely to come to the
investor’s attention. As a result, it would be
difficult for the investor to prove that he would have acted
differently-and avoided the investment-if additional
disclosures were made in those documents.
not a run-of-the-mill omissions case, however. The omitted
facts detailed Volkswagen’s large-scale and
long-running defeat-device scheme. When that scheme was
disclosed to the public, in September 2015, it was front-page
news and prompted congressional hearings, video apologies by
Volkswagen executives, and hundreds of lawsuits. The
disclosure also prompted Plaintiffs investment manager to
reevaluate Plaintiffs investment in Volkswagen bonds and to
sell those bonds for a loss within a month’s time.
(See Dkt. No. 6580-1, Berg. Decl., Exs. 8-12.)
Volkswagen had disclosed its defeat-device scheme in its 2014
bond offering memorandum, instead of waiting until September
2015, the same publicity, and the same response by Plaintiffs
investment manager, would likely have followed. The scheme
was so substantial and blatant that it is hard to fathom that
its disclosure would have gone unnoticed by the investing
public, and that Plaintiffs investment manager would not have
been made aware of it.
then, that Volkswagen’s evidence demonstrates that
Plaintiffs investment manager did not read the offering
memorandum prior to purchasing the bonds, that evidence alone
is insufficient to establish beyond controversy that
Plaintiffs investment manager would not have attached
significance to the omitted facts about Volkswagen’s
emissions fraud if those facts had been disclosed in the
offering memorandum. As a result, Volkswagen has not
rebutted Affiliated Ute’s presumption of
moved for summary judgment exclusively on the element of
reliance. Because it has failed to rebut Affiliated
Ute’s presumption of reliance, summary judgment is