A U.S. District Court judge in San Francisco refused Wednesday to dismiss a securities class-action lawsuit against Volkswagen AG brought by some U.S. pension funds and other investors after its emissions testing improprieties became public.
“Despite its knowledge that the vehicles did not comply with U.S. and European emissions regulations, Volkswagen and its executives misled the investing public before and during the class period,” Judge Charles R. Breyer said in his ruling denying motions by Volkswagen and several executives to dismiss the case.
The class-action suit brought by pension funds led by the $1.4 billion Arkansas State Highway Employees' Retirement System, Little Rock, and the Miami Police Relief and Pension Fund, centers on purchases of American depository receipts, a type of equity ownership in a non-U.S. company that is held by a bank in the company's home country. The asset size of the Miami pension fund couldn't be learned by press time.
Mr. Breyer rejected the company's central argument that the shares were beyond the territorial reach of U.S. securities law and would be more properly litigated in Germany, where there are several related cases pending. “Because Volkswagen sponsored the ADRs in the United States and plaintiffs purchased the ADRs here, and because the United States has an interest in protecting domestic investors against securities fraud, the court concludes that Section 10(b) applies to the Volkswagen ADRs and that plaintiffs' claims are properly before this court,” Mr. Breyer said in his order.
Jeannine Ginivan, Volkswagen Group of America, spokeswoman said in an e-mailed statement: “Volkswagen believes that the claims of purchasers of its American depository receipts are without merit, which we intend to demonstrate as this case proceeds.”
Investors have been forced to pursue or join lawsuits against foreign issuers in their home courts because of the U.S. Supreme Court's 2010 landmark decision in Morrison vs. National Australia Bank Ltd., which prohibits actions against foreign issuers of securities in U.S. courts. Mr. Breyer said the current case satisfies one of a two-prong test that U.S. courts use to decide whether to allow such cases.