Attorney Robert Giuffra told U.S. District Judge Charles Breyer that claims that VW defrauded investors should be litigated in Volkswagen’s home country of Germany
“We believe this case does not belong in a U.S. court,” Giuffra said. “While the consumer case clearly belongs here, the security case does not.”
Volkswagen this year struck a $14.7 billion deal to settle claims that it installed defeat devices in nearly half a million diesel-engine vehicles in the United States.
The defeat device software kicked in only during emissions tests; on the road, the vehicles spewed as much as 40 times more pollutants than allowed.
In May, court-appointed lead plaintiff Arkansas State Highway Employees’ Retirement System filed a 155-page securities class action against Volkswagen, its subsidiaries and chief executives.
The U.S. investors claim Volkswagen’s failure to disclose the extent of its emissions cheating and the billions of dollars in liability it must pay inflated its stock price from November 2010 to January 2016.
The investors purchased American Depository Receipts, or ADRs, which are U.S. securities representing ownership in a foreign company.
Giuffra said the types of ADRs purchased, which he called “level 1 ADRs” are “entirely exempt” from U.S. securities reporting requirements and subject only to German laws and standards.
Trying the case in the United States would require the court to interpret German law, translate German documents and involve witnesses from a foreign country, he told the judge.
Class counsel James Harrod rejected Volkswagen’s position on jurisdiction.
“We’re not saying German law was violated,” Harrod said. “We’re saying United States law was violated.”
Harrod said Volkswagen issued securities to U.S. investors as ADRs, and that though the company released disclosures in Germany, its statements were translated into English and made available to U.S. investors to influence their purchasing decisions.
“Isn’t it a little bit splitting hairs to say we can come here, offer ADRs to foreign investors, but shouldn’t be subject to securities litigation in the United States?” Harrod asked.
Giuffra, however, ticked off a long list of reasons why Breyer should dismiss the case and surrender jurisdiction to a German court.
He said all the witnesses are in Germany and speak German.
The documents are German and would require translation.
Lawsuits against Volkswagen are pending in German court, and keeping this case in the United States would create a multiplicity of litigation, increasing costs, confusion and possibly inconsistent results.
Finally, he said, Germany “clearly has a stronger interest” in making sure its companies comply with German law.
“I don’t doubt that Germany has a much bigger interest in enforcing its own securities laws, but is that the question?” Breyer asked.
He said the real question is to what extent U.S. securities laws apply to the transactions.
“The United States has a great interest in enforcing its own securities law,” Breyer said.
After about an hour of debate, Breyer took the arguments under submission.
The investors’ 155-page complaint cites nine instances in which Volkswagen’s stock price dipped, from 3 percent to 18 percent, from Sept. 18, 2014 to Jan. 4, 2016.
Giuffra is with Sullivan and Cromwell; Harrod with Bernstein Litowitz Berger & Grossmann, both of New York City.