S&C Wins Dismissal of Putative Securities-Fraud Class Action Against Volkswagen

March 2, 2018

In its continuing representation of Volkswagen AG as national coordinating counsel in all its “clean-diesel”-related actions, S&C obtained the dismissal of a putative securities-fraud class action brought against Volkswagen and various of its subsidiaries and employees by bondholders for failure to plead reliance. The plaintiffs alleged Volkswagen of violating Section 10(b) of the Securities Exchange Act of 1934 by making misstatements and omissions in Offering Memoranda for more than $8 billion in 144A bonds. 

In July 2017, Judge Charles Breyer of the U.S. District Court for the Northern District of California narrowed but declined to dismiss the case, holding that the plaintiffs could not reasonably rely on statements outside of the bonds' Offering Memorandum but that the plaintiff could invoke the Affiliated Ute presumption of reliance.

Judge Breyer reconsidered his ruling in March and dismissed the case without prejudice. Citing new Second Circuit precedent, the court reasoned that Affiliated Ute does not apply to claims based on misleadingly incomplete statements. Judge Breyer also held that the Basic presumption of reliance did not apply to these 144A offerings, and that the plaintiff had not adequately pled its own direct reliance. The opinion is significant because this is the first decision to hold, at the motion to dismiss stage, that primary bond offerings do not qualify for the Basic presumption.

The S&C team was led by Robert Giuffra, who argued the motion, Suhana Han and William Wagener.