BERLIN -- Volkswagen Group was dealt a series of blows on the second day of hearings in a $10.4 billion investor lawsuit tied to the diesel emissions scandal as judges questioned some of the automaker's key arguments.
Presiding Judge Christian Jaede in Brunswick, Germany, took issue with VW’s longstanding claim that it put off disclosure of the U.S. diesel probe because its lawyers had said fines were unlikely to affect the share price. The judge cited an August 2015 letter by law firm Kirkland & Ellis, and said the lawyers tried to be vague but discussed the potential penalties.
"By no means could you infer from that memo that VW could except leniency," Jaede said on Tuesday. "The court leans to the view that you couldn’t expect a fine that’s not material to the stock price, given that VW had concealed the manipulations for more than a year in the talks with the authorities."
Investors are claiming VW should have released information about its use of a so-called defeat device that rigged emissions tests as early as 2007. The scam first became public on Sept. 18, 2015, when U.S. authorities disclosed their probe and VW issued formal notification to the markets four days later.
VW has calculated the scandal’s overall financial impact at 27.4 billion euros ($31.74 billion).
VW has also failed to convince the court that it kept the issue secret in order to not jeopardize the talks with the U.S. authorities, according to the judge. Such a defense is only convincing if the company had fully and swiftly cooperated with the U.S. once the leadership learned about it. When exactly top executives were first informed, isn’t yet clear and VW must prove it was as late as September 2015, he said.
The investors’ argument that former CEO Martin Winterkorn may have known as early as 2008 about the rigging, isn’t simply made up or only fishing for more facts, Jaede said. He cited a speech Winterkorn made in Vienna in April of 2008 about the prospects of the diesel technology in the U.S. market, saying that suggests that Winterkorn had at least looked into the details of the engines.
VW can submit more filings and convince the court about its reading of the facts, Jaede said. The court’s views are preliminary and may still change in further proceedings, he said.
Jaede also referred to a legal filing by Quinn Emanuel, a law firm representing a group of investors in the case, which cites a 2007 campaign by German environmental group Deutsche Umwelthilfe DUH. The group back then had already criticized the emissions of diesel cars. Winterkorn at the time replied to the group's concerns, suggesting that the then CEO also took a deeper look into the matter at the time, according to the judge.
Another issue for judges concerns a crucial event in July 2015, when Winterkorn and Herbert Diess, now VW’s CEO, attended a meeting that discussed technological problems. Plaintiffs claim that both were informed about the widening diesel problems at the session, a regularly scheduled event that was known as the "damage table."
While VW has said the discussions can’t be reconstructed due to conflicting accounts of what happened, Jaede complained that the company failed to explain in detail who said what. The judge asked the company to provide more information on the meeting.
The court on Monday had said that claims based on VW actions before July 2012 are likely to be dismissed because of the statute of limitations. Some of the events after July 10, 2012, may be crucial, though, and investors may be able to invoke them for the suit, the judges said.