Prge&j Ret. Sys. Admin. v. Volkswagen
20-15564
| 9th Cir. | Jun 25, 2021Background
- Plaintiff (Puerto Rico Government Employees & Judiciary Retirement Systems) bought bonds issued in private placements by Volkswagen Group of America Finance, LLC (VWGoAF) via adviser Santander.
- In Sept. 2015 regulators disclosed VW’s use of defeat devices in diesel vehicles; bond prices dipped and this litigation followed under §10(b)/Rule 10b-5.
- Plaintiff’s Second Amended Complaint alleges both a long-running omission (failure to disclose defeat devices) and extensive affirmative misrepresentations in Offering Memoranda and reports about emissions compliance, technology, and financials.
- Volkswagen moved for summary judgment solely on the reliance element; the district court denied summary judgment, applying the Affiliated Ute presumption.
- Ninth Circuit granted interlocutory appeal and held that because the complaint pleads numerous specific affirmative misstatements and alleges direct reliance on them, the Affiliated Ute presumption does not apply to this “mixed” case.
- Result: Ninth Circuit reversed the denial of summary judgment and remanded for further proceedings to determine if any triable reliance issue remains.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Affiliated Ute presumption of reliance applies to a "mixed" case alleging omissions and affirmative misrepresentations | Affiliated Ute applies because the omission (defeat devices) is the primary wrong and omissions rendered VW’s statements misleading | Affiliated Ute does not apply because the complaint pleads extensive affirmative misrepresentations and plaintiff expressly pleaded reliance on them | Affiliated Ute does not apply; presumption limited to cases that primarily allege omissions and where reliance would require proving a speculative negative |
| Whether pleading and proof of reliance can be satisfied by invoking the presumption when plaintiff also pleads direct reliance on affirmative statements | Plaintiff may invoke the presumption despite alleging direct reliance on statements because the omission is central | Volkswagen: plaintiff pleaded direct reliance on affirmative statements, so reliance can be proven (or disproven) by ordinary proof and presumption is inappropriate | Court: pleading direct, specific reliance on affirmative statements bars applying the presumption; plaintiff must prove reliance by ordinary means |
| Whether Affiliated Ute would swallow the reliance requirement if applied broadly to all misrepresentations rendered misleading by omissions | N/A (implicit) | Broad application would effectively eliminate reliance element because misstatements can always be recast as omissions | Court rejects broad application to preserve the reliance requirement and Affiliated Ute’s limited scope |
Key Cases Cited
- Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972) (creates presumption of reliance for primarily omission-based securities claims)
- Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975) (applied Affiliated Ute where omissions rendered company statements misleading)
- Binder v. Gillespie, 184 F.3d 1059 (9th Cir. 1999) (held Affiliated Ute inapplicable to mixed cases unless they primarily allege omissions)
- Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (sets elements of a Rule 10b-5 claim, including reliance burden)
- Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir. 2004) (mixed claims primarily based on affirmative misrepresentations fall outside Affiliated Ute)
- Desai v. Deutsche Bank Sec. Ltd., 573 F.3d 931 (9th Cir. 2009) (distinguishes manipulative schemes from omission-based claims; Affiliated Ute not available for manipulation cases)
- Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017) (held Affiliated Ute unavailable where complaint alleged numerous affirmative misstatements whose only omission is the truth they misrepresent)