Puerto Rico Government Employees and Judiciary Retirement Systems Admin. v. Volkswagen AG, No. 20-15564 (9th Cir. 2021)
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The Ninth Circuit reversed the district court's denial of summary judgment to defendant in a putative securities fraud class action brought by a public pension fund that purchased bonds issued by defendant. This case arose on interlocutory appeal to address the scope of the presumption of reliance in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), in "mixed" securities-fraud cases that allege both omissions and affirmative misrepresentations.
Because the panel concluded that the allegations in this case cannot be characterized primarily as claims of omission, the panel held that the Affiliated Ute presumption of reliance does not apply. In this case, plaintiff alleges over nine pages of affirmative misrepresentations that it and its investment advisor relied upon when purchasing the bonds from Volkswagen. The panel explained that, while this is a mixed case that alleges both omissions and affirmative misrepresentations, plaintiff's allegations cannot be characterized primarily as claims of omission, so the Affiliated Ute presumption of reliance does not apply. The panel remanded for the district court to further consider whether a triable issue of fact exists.
Court Description: Securities Fraud The panel reversed the district court’s order denying summary judgment to defendants in a putative securities fraud class action and remanded for the district court to further consider whether a triable issue of material fact existed. Puerto Rico Government Employees & Judiciary Retirement Systems Administration, a public pension fund, sought to recover for losses relating to bonds issued by Volkswagen Group of America Finance, LLC. The market prices of the bonds dipped below par value after the United States Environmental Protection Agency and the California Air Resources Board issued notices of violation relating to the installation of defeat devices in certain Volkswagen diesel vehicles. In this “mixed” securities fraud case, * The Honorable Jane A. Restani, Judge for the United States Court of International Trade, sitting by designation. IN RE VOLKSWAGEN LITIGATION 3 plaintiff alleged both omissions and affirmative misrepresentations. The elements of a claim under SEC Rule 10b-5 include reliance upon the defendant’s misrepresentation or omission. The panel concluded that plaintiff’s allegations could not be characterized primarily as claims of omission. Accordingly, the Affiliated Ute presumption of reliance did not apply. The panel held that this presumption is limited to cases that primarily allege omissions and present plaintiffs with the difficult task of proving the speculative negative that they would have relied on information had it been disclosed. Here, plaintiff alleged an omission in Volkswagen’s failure to disclose that it was secretly installing defeat devices in its “clean diesel” line of cars, but plaintiff also alleged multiple affirmative misrepresentations about environmental compliance and financial liabilities in its offering documents. Dissenting, Judge Wallace wrote that the Affiliated Ute presumption could be available because the primary focus of plaintiff’s claims was the key omission of Volkswagen’s installation of defeat devices. Judge Wallace emphasized that the court’s prior decisions in Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975), and Binder v. Gillespie, 184 F.3d 1059 (9th Cir. 1999), controlled the panel’s decision despite the majority’s refusal to apply those rulings, which only an en banc court can do. 4 IN RE VOLKSWAGEN LITIGATION
The court issued a subsequent related opinion or order on September 23, 2021.
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