BERLIN -- Volkswagen received mixed messages as German judges signaled their initial thoughts on a 9 billion-euro ($10.4 billion) lawsuit by thousands of investors who claim the automaker misinformed them on the diesel scandal.
On the first day of hearings, the court indicated that some of the claims may be too old to be considered. But in a less positive opening gambit, judges said they must review whether VW should have disclosed the scandal as early as May 2014.
Investors who claim VW should have disclosed that it used a so-called defeat device as early as 2007 or until July 2012 may not have a case because of time-bar rules and because they can’t prove the required recklessness of the non-disclosure, Presiding Judge Christian Jaede said after opening the hearing on Monday.
But the court may conclude that VW should have told markets about a U.S. study it learned about in May 2014 that showed its cars emitted way too much pollution, Jaede said. The study was done by the International Council on Clean Transportation.
VW would then have to prove its executives hadn’t acted in a “grossly negligent” way by not disclosing it at the time, he said. The judges will also look at whether VW was allowed to hold the information back to avoiding hurting talks with the authorities.
The judges will also review whether VW had to disclose that it used rigged diesel engines between July 2012 and May 2014 before the report was published, Jaede said. For that period, VW couldn’t argue that it needed to hold back the information because of talks with regulators as these only started after the ICCT study was published, Jaede said.
Critical to the case, Jaede said, was the period from early 2014, when he said VW employees had learned that U.S. tests showed its diesel cars emitted far more toxic nitrogen oxide on the road than under laboratory conditions. There is also the question of who within VW knew what, and when, whether the information would actually have had an impact on the share price had it been made public, and if so, how damages should be calculated, the court added.
The view of the three judges hearing the case is preliminary and may still change, he said. "We have to look at a lot of crucial issues on this case and we can’t give you a conclusive answer to all of them today," said Jaede. "It’s also not clear at this point whether and when we will hear witnesses."
Investors argue VW failed to give an early warning about its failure to comply with U.S. emission standards and the resulting American regulators’ probe, which triggered a collapse in VW’s stock after it was disclosed. VW shares lost up to 37 percent of their value in the days after authorities exposed illegal levels of pollution emitted from VW diesel cars.
Shareholders representing 1,670 claims are seeking damages over the scandal, which has cost Volkswagen 27.4 billion euros in penalties and fines so far. That includes payouts to U.S. customers, states and regulators and a 1 billion-euro settlement with German prosecutors.
Andreas Tilp, a lawyer for some of the plaintiffs, said he believes that claims worth 2 billion euros of the roughly 5 billion euros he represents have a chance. "We are very confident that there will be money at the end of the day," he said.
The plaintiffs say VW failed in its duty to inform investors about the financial impact of the scandal, which became public only after the U.S. Environmental Protection Agency (EPA) issued a "notice of violation" on Sept. 18, 2015. Had investors known about VW's criminal activities in rigging emissions tests, they may have sold shares earlier or not made purchases, thereby avoiding losses on their holdings, the plaintiffs argue.
"VW should have told the market that they cheated and generated risk worth billions," Tilp said. "VW should have told the market no later than June 2008 that they could not make the technology that they needed in the United States."
Jaede said VW's decision between 2005 and 2007 to install cheating software in diesel vehicles was illegal, but it is not clear that it was taken to keep investors in the dark.
VW defends actions
VW admitted in late 2015 that it rigged diesel vehicles to cheat emissions tests in the U.S. and that about 11 million vehicles worldwide could be affected. The automaker denies wrongdoing in matters of regulatory disclosure.
VW's board did not see the need to brief investors before September 2015 because other carmakers had reached a settlement for emissions cheating without an EPA notice of violation and because VW was in talks about reaching a settlement, the automaker said in a court filing. It said board members at the time, including current CEO Herbert Diess and Chairman Hans Dieter Poetsch, did not violate disclosure rules.
"This case is mainly about whether Volkswagen complied with its disclosure obligations to shareholders and the capital markets," VW lawyer Markus Pfueller told the court. "We are convinced that this is the case."
Plaintiffs, including fund management firm Deka, allege that managers below management board level, including divisional heads, knew early on about deliberate and systematic cheating. The company was therefore aware of criminal activity and so investors should have been warned earlier, the plaintiffs say.
Enraged shareholders filed the first cases in October 2015. A year later, a wave of institutional investors followed, among them BlackRock, the California Public Employees’ Retirement System and Allianz Global Investors. The U.S. is also a plaintiff in the case.
VW and Porsche Automobil Holding SE, which is also a defendant in the case, both said they informed investors correctly at each stage.
Reuters contributed to this report