Securities Litigation in Germany: Volkswagen and The Fall-out of Dieselgate

Landgericht BraunschweigOn the blog, we have tracked the jurisdictional journey of securities litigation brought against Porsche in relation to its failed attempt to take over Volkswagen (see here and here, for example). Now, Volkswagen itself is at the centre of the most recent wave of big-time securities litigation. Investors are suing VW for failure to inform markets on time about the diesel emissions scandal, also known as Dieselgate. Jurisdictionally, things are pretty straightforward this time. The competent court, the Braunschweig District Court (Landgericht) issued a press release earlier this week on the current scope of the litigation.

Claims Filed Sofar

On September 19, 2016 alone, approximately 750 damages claims were filed against Volkswagen AG. Two actions in the combined value of about EUR 2 billion were brought by institutional investors. the other actions stem primarily from private and retail investors.

This is in addition to claims that bundle claims brought by institutional claimants, such as an action by 60 investors in the amount of EUR 30 million, an action by 160 investors for a total of EUR 1.5 billion and one on behalf of 565 investors for EUR 550 million. The court’s press release names three plaintiffs, namely three pension funds of German Federal states. The Bavarian state pension funds seeks damages in the mount of EUR 700,000, Baden-Württemberg is claiming EUR 1.1 Million and Hessen sues VW for EUR 4 million. All in all, some 1,400 actions have been brought against Volkswagen AG in the Braunschweig District Court (Landgericht), with a total value of EUR 8.2 billion. To put this into perspective: 1,400 cases are the equivalent of 50% of the Braunschweig court’s normal annual case load in civil matters.

Limitation Period

There was a rush to have claims filed, as a matter of precaution, prior to September 19, 2016, namely one year after the news broke on the Diesel scandal. Here’s the background: claims based on failure to disclose revelant information pursuant to Sec. 37 b, c Securities Trading Act (Wertpapierhandelsgesetz, WpHG) were originally subject to a one year limitation period. The limitation period starts from the date that the investor had knowledge of the underlying facts giving rise to the claim (Kenntnis von den anspruchsbegründenden Umständen).

The law was revised as of July 10, 2015, and since then, the standard three year limitation period of the German Civil Code (BGB) applies to such claims as well. However, there is uncertainty as to the application of the longer limitation period to claims that already existed on July 10, 2015. Should the courts find that the longer period applies also to claims existing at the time, then investors would have until the end of 2018 to file additional actions.

Next Steps

The Braunschweig District Court expects that it will take another four weeks to duly register and process all actions. The civil chamber where these cases are pending will then have to rule on the suspension of the individual actions before it, and the transfer of the matter to the Braunschweig Court of Appeals (Oberlandesgericht) under the Capital Market Investors’ Model Proceeding Act (Kapitalanlegermusterverfahrensgesetz, KapMuG), the closest approximation in German procedural law to a class action. The court expects that the model plaintiff will not be determined before the last quarter 2016 (see the court’s earlier press release dated August 8, 2016. no. 14/16).

Capital Market Investors’ Model Proceeding Act

I have described the basic mechanics of the procedure in more detail in a previous post. To recap very briefly: KapMuG is designed to bundle identical or similar securities law suits in a streamlined process – securities law suits are capital market related actions, in German legal parlance. On the one hand, the model proceeding is designed to make sure that identical issues of law or fact are decided swiftly and coherently by a higher court, but on the other hand, it avoids the creation of a real class action by keeping the cases brought be individual claimants separate. Once the joint issues have been decided upon in a model order (Musterentscheid), the courts first seized decide the individual matters on the basis of model order, which is binding them. The main difference to a US style class action is of course that each plaintiff must file an action, either individually or by assigning his or her claims to an SPV bringing the claims. Investors who remain passive will not benefit from a KapMuG judgment in favour of the “class”.

The Brauschweig court’s order setting out the legal and factual issues on which a model order is being sought can be found here. Item XXVII, for example, refers to the applicable limitation period.

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