540 F.Supp.3d 269
E.D.N.Y.2021Background
- Plaintiffs Wayne and Linda Mucha filed a putative class action alleging securities fraud under §10(b) and §20(a) on behalf of purchasers of Volkswagen-sponsored ADRs (Aug. 30, 2012–July 21, 2017), claiming Volkswagen and certain officers hid unlawful coordination among German automakers (the "Group of Five").
- Plaintiffs allege the Group coordinated across many working groups (pricing, inputs, design), which caused misleading public statements about competition, corporate culture, commodity pricing, and IFRS compliance.
- Volkswagen voluntarily self‑reported "suspected cartel infringements" to European authorities on July 4, 2016; a Der Spiegel article on July 21, 2017 publicized regulatory investigations and coincided with stock declines.
- Defendants moved to dismiss for lack of personal jurisdiction (individuals), on forum non conveniens grounds, and for failure to state a claim (Rule 12(b)(6)), invoking heightened pleading rules (Rule 9(b) and the PSLRA).
- The court denied Individual Defendants' personal jurisdiction and denied forum non conveniens; it dismissed the action as to non‑appearing Winterkorn for lack of service; but granted dismissal on the merits under Rule 12(b)(6), concluding plaintiffs failed to plead underlying illegality and other elements with required particularity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Individual Defendants | Individual Ds approved and signed English annual reports targeting U.S. ADR investors, thus purposely availed themselves of U.S. markets | Individual Ds argued absence of sufficient U.S. contacts to satisfy due process | Court: Minimum contacts satisfied (reports targeted U.S. ADR market); jurisdiction reasonable; motion denied (Winterkorn dismissed for lack of service) |
| Forum non conveniens | Plaintiffs preferred U.S. forum for class actions, discovery, fraud-on-the-market presumptions | Defendants argued Germany is adequate, most witnesses/evidence located there, plaintiffs forum‑shopped | Court: Plaintiffs' forum choice entitled to little deference; Germany is adequate, but private factors neutral and U.S. interest in protecting ADR investors is strong; motion denied |
| Material misstatements / duty to disclose (competition statements) | Statements touting Volkswagen's competitive position and describing "fierce competition" were misleading because VW allegedly conspired to suppress competition | Defendants: statements are puffery or true; no duty to disclose uncharged/undemonstrated illegality; plaintiffs must plead underlying illegality with particularity | Court: Some competition‑specific statements could be actionable if paired with other elements, but plaintiffs did not plead underlying illegality with required particularity; claims fail |
| IFRS / accounting statements (duty to disclose) | IFRS (IAS1, IAS37) required disclosure of contingent liabilities and a "fair presentation" — nondisclosure of cartel rendered IFRS statements false | Defendants: accounting standards do not obligate disclosure of speculative or uninvestigated alleged wrongdoing; no applicable standard required earlier disclosure | Court: Plaintiffs failed to show any accounting standard required disclosure before an investigation; IFRS statements do not create liability here |
| Scienter and control person liability | Widespread cooperation and internal communications (Der Spiegel excerpts) imply senior management knowledge; thus scienter and control liability exist | Defendants: alleged motive is generic; alleged communications are vague/subordinate; no strong inference of conscious misbehavior before VW's July 2016 self‑reporting | Court: Plaintiffs raised a strong inference of scienter only as to one 2016 statement published after VW's self‑reporting; for 2012–2015 statements scienter insufficient; because primary §10(b) claim fails, §20(a) derivative claims fail |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must show more than conclusory allegations)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (strong‑inference standard for scienter)
- Basic Inc. v. Levinson, 485 U.S. 224 (materiality and fraud‑on‑the‑market doctrine guidance)
- Kalnit v. Eichler, 264 F.3d 131 (circumstantial proof of scienter; reckless conduct standard)
- Novak v. Kasaks, 216 F.3d 300 (specifying misstatement pleading requirements and motive standard)
- Norex Petroleum Ltd. v. Access Indus., Inc., 416 F.3d 146 (forum non conveniens framework in 2d Cir.)
- Iragorri v. United Technologies Corp., 274 F.3d 65 (en banc forum non conveniens factors and deference analysis)
- J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (attributing purposeful availment in jurisdictional analysis)
- International Shoe Co. v. Washington, 326 U.S. 310 (minimum contacts / due process foundation)
- Unifund SAL v. S.E.C., 910 F.2d 1028 (statutory worldwide service and due process limits)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (PSLRA/pleading loss causation and specificity)