Shareholders seeking damages worth €9.2 billion (U.S. $10.6 billion) have taken German car giant Volkswagen to court in Germany for failing to inform them fully of the financial impact that the emissions cheating scandal would have on the company’s share price.

Investors representing nearly 3,500 claimants are seeking compensation amounting to around a third of the €27.4 billion (U.S. $32 million) that the company has already paid in penalties and fines so far over “Dieselgate.” Investors who are not yet part of the claim have until the end of the year to join.

It is one of the most significant German investor actions against a company in more than a decade and involves one of Germany’s largest asset managers, Deka Investment.

The court has not yet set a detailed timetable for proceedings. Lawyers, however, expect that the case could go into 2019 and end up in a higher court.

The scandal broke on 18 September 2015, when the U.S. Environmental Protection Agency (EPA) issued a “notice of violation” for non-compliance with the Clean Air Act. The notice alleged that Volkswagen installed software in certain models of its diesel cars between 2009 and 2015 to circumvent EPA emissions standards. The regulator found that these “defeat devices” hid the fact that these vehicles could emit up to 40 times more pollution than emissions standards allowed.

Plaintiffs say that VW failed in its duty to inform investors about the financial impact of the scandal. They argue that 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 shareholdings.

“VW should have told the market that they cheated and generated risk worth billions,” said Andreas Tilp, a lawyer for the plaintiffs.

“VW should have told the market that they cheated and generated risk worth billions.”
Andreas Tilp, plaintiffs’ attorney

VW shares lost up to 37 percent of their value in the days after U.S. authorities exposed what the company was doing.

The carmaker has admitted systematic emissions cheating but denies wrongdoing in matters of regulatory disclosure, adding that board members at the time, including current chief executive Herbert Diess and Chairman Hans Dieter Poetsch, did not violate disclosure rules.

A spokesperson for VW said that the lawsuit is “solely and exclusively” about whether Volkswagen complied with its disclosure obligations toward shareholders and the capital markets. He added: “We are confident that this is the case.”

VW has long held that an “exculpatory” principle in Germany’s capital markets legislation, which says that “overriding interests” can allow an issuer to keep otherwise disclosable information private, means that it was not legally obliged to disclose more than it did.

In a court filing, VW said the board did not see the need to brief investors before September 2015 about the potential fallout from the scandal because other carmakers had already reached a settlement for emissions cheating without an EPA notice of violation and also because VW was in talks about reaching such a settlement.

On the first day of the hearing on 10 September, however, the presiding judge Christian Jaede told the Braunschweig higher regional court that VW’s argument had “failed to convince” that it was allowable to keep the diesel emission risks private in order not to jeopardise negotiations with U.S. authorities.

Another issue critical to the case is the question of who at VW knew about the diesel emissions cheating—particularly at senior management and board level—and when, and what impact such disclosure would have had on the share price then (and potential awards now).

The plaintiffs allege 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, they say.

The court has already given an indication that determining executive knowledge and involvement may only require a low threshold. Judge Jaede said that former CEO Martin Winterkorn’s involvement in the technological developments at VW could be sufficient to place a burden of proof on the car company to prove that its board or top executives were not grossly negligent for not being aware of the risks associated with the implementation of the cheat device.

Despite the volume of claimants, the court has indicated that it will proceed with only some of the claims and that most of them are likely to be dismissed. Judge Jaede added, however, that he did not want to “pin himself down” to the number of claims that may be heard, given the complex nature of the case.

The fact that only a small proportion of the claims is likely to be heard is due to the statute of limitations, which effectively time-bars them. Many stretch back to 2005, but the court has already said in a summary of proceedings that claims before 9 July 2012 are potentially invalid.