Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-md-02672/USCOURTS-cand-3_15-md-02672-267/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 15:2301 Magnuson-Moss Warranty Act

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

IN RE: VOLKSWAGEN “CLEAN DIESEL” 

MARKETING, SALES PRACTICES, AND 

PRODUCTS LIABILITY LITIGATION

_____________________________________/

This Order Relates To:

MDL Dkt. Nos. 6970 & 6971

_____________________________________/

MDL No. 2672 CRB (JSC)

ORDER GRANTING MOTIONS TO 

DISMISS

Plaintiffs represent a putative class of Volkswagen salespeople. They allege they were 

fooled into taking and keeping that job by the diesel emissions fraud and harmed by the drop in 

sales that followed when the fraud was revealed. This Court dismissed Plaintiffs’ initial 

Complaint with leave to amend. The First Amended Complaint brings the same claims and a 

number of new ones against Volkswagen Group of America and Volkswagen AG (together, 

“Volkswagen”) and Robert Bosch GmbH and Robert Bosch LLC (together, “Bosch”). For the 

most part, Plaintiffs fail to cure the deficiencies identified in the Court’s previous order. The 

claims they have salvaged (or which they raise for the first time in the FAC) suffer from other fatal 

flaws. Volkswagen and Bosch’s motions to dismiss are therefore granted.

I. BACKGROUND

This Court has previously described the events that are the basis for Plaintiffs’ claims:

Over the course of six years, Volkswagen sold nearly 500,000 

Volkswagen- and Audi-branded TDI “clean diesel” vehicles, which 

they marketed as being environmentally friendly, fuel efficient, and 

high performing. Consumers were unaware, however, that 

Volkswagen had secretly equipped these vehicles with a defeat 

device that allowed Volkswagen to evade United States 

Environmental Protection Agency (“EPA”) and California Air 

Resources Board (“CARB”) emissions test procedures. Specifically, 

the defeat device produces regulation-compliant results when it 

senses the vehicle is undergoing testing, but operates a less effective 

emissions control system when the vehicle is driven under normal 

circumstances. It was only by using the defeat device that 

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Volkswagen was able to obtain Certificates of Conformity from 

EPA and Executive Orders from CARB for its TDI diesel engine 

vehicles. In reality, these vehicles emit nitrogen oxides (“NOx”) at 

a factor of up to 40 times over the permitted limit.

In re: Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prod. Liab. Litig., No. 15-md-02672-

CRB (JSC), 2016 WL 6248426, at *1 (N.D. Cal. Oct. 25, 2016). Plaintiffs allege that Bosch was 

involved “in the creation, development, marketing, and sale of [the] illegal defeat devices.” FAC 

(dkt. 6865) ¶ 57.

Plaintiffs are three salespeople who sell Volkswagen vehicles at dealerships in California. 

Id. ¶¶ 13–15. Plaintiffs allege that they relied on Volkswagen and Bosch’s fraudulent 

representations in advertisements, mandatory trainings, and other materials when they decided to 

begin and continue working as Volkswagen salespeople. Id. ¶¶ 16, 123.

Plaintiffs’ compensation was tied to the number of Volkswagen cars they sold in two ways. 

First, the dealerships paid each Plaintiff based mainly on commissions. Id. ¶¶ 148–51. Second, 

Volkswagen directly paid Plaintiffs “incentive compensation” based on the number of 

Volkswagen vehicles sold and metrics designed to measure customer satisfaction. Id. ¶¶ 153–54, 

156–59. When the emissions fraud was revealed and Volkswagen’s sales dropped, so did 

Plaintiffs’ compensation. Id. ¶¶ 163–66. Plaintiffs allege part the decline was partly attributable 

to Volkswagen’s “stop sales order,” which halted sales of certain TDI vehicles when the scandal 

broke. Id. ¶ 241.

Plaintiffs brought this lawsuit on behalf of themselves and all others similarly situated, 

hoping to recover the losses they attribute to the emissions scandal. See id. at 1. Their first 

Complaint alleged claims for breach of contract, negligent interference with prospective economic 

advantage, fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act 

against Volkswagen, Bosch, and various officers of those companies. Order Granting MTD 

(dkt. 6717) at 2. This Court dismissed the Complaint in its entirety, with leave to amend. Id. at 

19.

Plaintiffs have now filed a First Amended Complaint against Volkswagen and Bosch only. 

See FAC at 1. They once again assert claims for breach of contract, negligent interference with 

prospective economic advantage, fraud, and violations of RICO. Id. ¶¶ 217–306. They have also 

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added claims against Volkswagen for violations of the California Labor Code and the California 

Unfair Competition Law. Id. ¶¶ 307–95. Volkswagen and Bosch filed the instant motions to 

dismiss. See VW MTD (dkt. 6970); Bosch MTD (dkt. 6971).

II. LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for 

failure to state a claim upon which relief may be granted. Dismissal may be based on either “the 

lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal 

theory.” Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019). A complaint 

must plead “enough facts to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 

556 U.S. 662, 697 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 

claim is plausible “when the plaintiff pleads factual content that allows the court to draw the 

reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. When 

evaluating a motion to dismiss, the Court “must presume all factual allegations of the complaint to 

be true and draw all reasonable inferences in favor of the nonmoving party.” Usher v. City of Los 

Angeles, 828 F.2d 556, 561 (9th Cir. 1987). “[C]ourts must consider the complaint in its entirety, 

as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to 

dismiss, in particular, documents incorporated into the complaint by reference, and matters of 

which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 

308, 322 (2007).

Claims for fraud must meet the pleading standard of Federal Rule of Civil Procedure 9(b), 

which requires a party “alleging fraud or mistake [to] state with particularity the circumstances 

constituting fraud or mistake.” Rule 9(b) “requires . . . an account of the time, place, and specific 

content of the false representations as well as the identities of the parties to the 

misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (internal quotation 

marks omitted).

If a court does dismiss a complaint for failure to state a claim, it should “freely give leave 

[to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). A court nevertheless has 

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discretion to deny leave to amend due to “undue delay, bad faith or dilatory motive on the part of 

the movant, repeated failure to cure deficiencies by amendments previously allowed, undue 

prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of 

amendment.” Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir. 2008) (citing 

Foman v. Davis, 371 U.S. 178, 182 (1962)).

III. DISCUSSION

Each of Plaintiffs’ new and amended claims suffers at least one fatal defect. Many claims 

still suffer from the flaws that required dismissing Plaintiffs’ initial Complaint. This Order

addresses the deficiencies of each claim in turn.

a. Breach of Contract

Plaintiffs concede that their breach of contract claim is not viable in light of the actual 

terms of the agreements they allege were violated.1 Opp’n to VW MTD (dkt 7015) at 29. But 

they argue dismissal should be without prejudice, in case “they uncover in discovery evidence of 

other contractual obligations between Volkswagen and the Plaintiffs.” Id. This proposal is 

contrary to the purpose of Rule 12(b)(6), which prevents unwarranted fishing expeditions 

premised on baseless claims. See Iqbal, 556 U.S. at 678–79. The breach of contract claim is 

dismissed with prejudice. See Leadsinger, 512 F.3d at 532.

b. RICO Claims

The RICO claims are dismissed with prejudice because Plaintiffs once again fail to 

adequately allege proximate cause. The proximate cause requirement has taken “many shapes” at 

common law, including foreseeability, directness, and certainty of damages. Holmes v. Sec. Inv’r 

Prot. Corp., 503 U.S. 258, 268 (1992) (citing Associated Gen. Contractors of Cal., Inc. v. 

Carpenters, 459 U.S. 519, 532–33 (1983)). For civil RICO claims, directness is most important. 

Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006) (“When a court evaluates a RICO 

1

 Plaintiffs do not—and could not—argue that those terms should not be considered by the Court 

at the pleading stage. Because they form the basis of the breach of contract claims, the terms of 

the agreements are properly subject to incorporation by reference. Khoja v. Orexigen 

Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018).

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claim for proximate causation, the central question it must ask is whether the alleged violation led 

directly to the plaintiff’s injuries.”); see also Hemi Grp., LLC v. City of N.Y., 559 U.S. 1, 12 

(2010) (plurality) (“Our precedents make clear that in the RICO context, the focus is on the 

directness of the relationship between the conduct and the harm.”). 

The directness requirement reflects that while unlawful conduct may cause “ripples of 

harm,” the remediation of more distant ripples poses administrative problems that can be avoided 

in suits by the directly injured. Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296, 1306 (2017) 

(citation omitted). For example, “the less direct an injury is, the more difficult it becomes to 

ascertain the amount of a plaintiff’s damages attributable to the violation, as distinct from other, 

independent, factors.” Holmes, 503 U.S. at 269. Also, if the claims of the indirectly injured are 

recognized, courts may be forced “to adopt complicated rules apportioning damages among 

plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of 

multiple recoveries.” Id. As Holmes explained: “[T]he need to grapple with these problems is 

simply unjustified by the general interest in deterring injurious conduct, since directly injured 

victims can generally be counted on to vindicate the law as private attorneys general, without any 

of the problems attendant upon suits by plaintiffs injured more remotely.” Id. at 269–70; see also

id. at 271 (noting that the “general tendency of the law, in regard to damages at least, is not to go 

beyond the first step” (quoting Assoc. Gen., 459 U.S. at 534)).

This Court previously concluded that Plaintiffs’ RICO claims failed to satisfy this standard 

because “Plaintiffs’ alleged injuries from the diesel scandal are well beyond the first step in the 

causal chain.” Order Dismissing Complaint at 17. 

As alleged, Defendants initially duped regulators into certifying—and 

consumers into buying—Volkswagen’s diesel cars (step one). When 

the veil was lifted on Volkswagen’s defeat device scheme, consumers 

who had bought the cars—and the public at large—became less 

inclined to buy other Volkswagen cars that were still available for sale 

(step two). This meant that VW dealers’ revenues and profits 

declined as they sold fewer cars (step three). In turn, VW 

salespersons made less money because their income was commission 

based and thus tied to the number of cars that they sold (step four). 

Id. at 14–15. This four-step causal chain implicated the very policy concerns the Supreme Court 

has articulated regarding suits brought by the indirectly injured. Id. at 15.

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Plaintiffs attempt to avoid the same result this time around by relying on Volkswagen’s 

stop sales order. They argue that the stop sales order led Volkswagen to “stop[ ] its direct 

payments to Plaintiffs for their sales,” which constitutes “more direct harm.” Opp’n to VW MTD 

at 12. But even Plaintiffs’ account posits the stop sale order as just one of three steps on the path 

from the alleged RICO violation to their injury. At the first step, Volkswagen and Bosch 

conspired to deceive regulators and consumers into believing their diesel vehicles complied with 

applicable emissions standards. Id. “As a direct consequence of its scheme, Volkswagen issued a 

stop sales order” (step two). Id. And as a result of the stop sales order, Volkswagen “stopped its

direct payments to Plaintiffs for their sales” (step three). Id. This theory of causation goes beyond 

the “first step,” and thus implicates the same concerns identified in the Court’s previous order. 

See Order Dismissing Complaint at 15.

Plaintiffs also argue “that they were harmed the moment they made the employment 

decision to sell Volkswagen vehicles, because it was foreseeable that they would ultimately lose 

income.” Opp’n to VW MTD at 12. This argument is nonsensical—that harm is foreseeable does

not make it instantaneous.2 And in any event this Court has already rejected Plaintiffs’ arguments 

that foreseeability, rather than directness, should be the “‘central question’ in analyzing proximate 

cause under RICO.” Order Dismissing Complaint at 16 (citing Anza, 547 U.S. at 461 (2006)). 

Nor is the problem, as Plaintiffs suggest, that they were not the “target of the scheme.” Opp’n to 

VW MTD at 12. The problem is that they have failed to allege a sufficiently direct injury from the 

misconduct they complain of.

Plaintiffs’ failure to adequately allege proximate cause is fatal to the RICO claims. Failing 

to adequately allege proximate cause twice, despite the Court’s previous order laying out the 

deficiencies in this claim, is incurably fatal. The RICO claims are dismissed with prejudice. See

Leadsinger, 512 F.3d at 532. It is therefore unnecessary to address Volkswagen and Bosch’s other 

arguments against the RICO claims.

2

 Plaintiffs’ analogy to a Ponzi scheme is inapt. See Opp’n to VW MTD at 13. In a Ponzi 

scheme, the victim’s money is taken on false pretenses, so there is a financial injury before the 

scam is uncovered. No money was taken from these Plaintiffs; their claimed harm is losing 

expected revenue once the fraud was revealed.

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c. Fraud

Plaintiffs’ common law fraud claims fail for the same reason as their RICO claims: they do 

not adequately allege that Volkswagen and Bosch’s ostensible fraud proximately caused their 

harm. Most of Plaintiffs’ fraud allegations also suffer additional defects previously identified by 

this Court.

i. Proximate cause.

California tort plaintiffs must allege “detriment proximately caused” by the defendant’s 

misconduct. Cal. Civ. Code § 3333. The FAC fails to satisfy this requirement. As Volkswagen 

suggests, this Court’s recent order granting summary judgment against a putative class of 

Volkswagen dealerships provides an instructive analogy.3 See Order Granting MSJ (dkt. 6956) 

at 2–3. The dealerships argued that they suffered damages because, absent Volkswagen and 

Bosch’s fraud, they could have continued to sell Volkswagen TDI vehicles. Id. This Court 

rejected the contention that the dealer’s loss of future sales was attributable to the fraud. In fact, 

while the fraud was ongoing, the dealers sold TDI vehicles to unsuspecting consumers and 

therefore benefited (albeit unwittingly) from the scheme. Id. at 3. Those sales ceased only when 

the fraud was revealed; the dealers’ claimed injury was “not ‘by reason’ of the emissions fraud” 

but instead the result of its discovery. Id. The Court also rejected the notion that if Volkswagen 

had not manufactured noncompliant TDIs it would have designed legal vehicles that the 

dealerships could have continued to sell. Id. at 4. That claim was unsupported and contrary to 

record evidence, which showed that Volkswagen had never considered a legally compliant TDI 

vehicle economically viable. Id. at 4–5.

Plaintiffs’ theory of damages from the alleged fraudulent scheme is essentially identical to 

the dealerships’. They allege that as a result of Volkswagen’s fraud, sales of Volkswagen vehicles 

3

 Volkswagen’s argument that Plaintiffs fail to adequately allege “detrimental reliance,” appears 

to basically restate the related contention that Plaintiffs fail to show proximate cause. See VW 

MTD at 17. Fraud claims must allege reliance and detriment proximately caused by that reliance. 

See Gomez v. Bayview Loan Servicing, LLC, No. 3:14-cv-04004-CRB, 2015 WL 433669, at *6 

(N.D. Cal. Feb. 2, 2015). Volkswagen’s arguments regarding detrimental reliance are therefore 

relevant to proximate cause.

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declined, and “such losses directly resulted in decreased commissions for Plaintiffs.” FAC 

¶¶ 163–66. But as Plaintiffs’ own allegations acknowledge, the drop in sales occurred only after 

the fraud was revealed. Id. ¶ 163. Before that, Plaintiffs (like the dealerships) unwittingly 

benefited from the fraud, which helped them sell cars. Like the dealerships, then, the harm 

Plaintiffs complain of was caused by the revelation of the scheme, not the scheme itself. 

Plaintiffs’ briefing simply proves the point. They describe their harm as “the consequences of lost 

sales when the fraud was exposed.” Opp’n to VW MTD at 22.

Plaintiffs’ attempts to distinguish the Court’s order on the dealerships’ RICO claims are 

unavailing. First, they argue that “RICO proximate cause and common law proximate cause are 

not identical concepts,” and that under California law proximate cause requires only that the 

plaintiff’s harm was “not inevitable or due to unrelated causes.” Opp’n to Bosch MTD (dkt. 7016) 

at 21. This misstates California’s proximate cause standard, which not only requires “simple 

causality” (the requirement Plaintiffs seem to describe) but also considers “the degree of 

connection between the conduct and the injury.” PPG Indus., Inc. v. Transamerica Ins. Co., 975 

P.2d 652, 655–56 (Cal. 1999). 

And even assuming California’s proximate cause standard is not identical to RICO’s, 

California cases illustrate that Plaintiffs’ allegations cannot satisfy either standard. Service by 

Medallion, Inc. v. Clorox Co., 52 Cal. Rptr. 2d 650 (Cal. Ct. App. 1996), is instructive. Medallion 

alleged that Clorox had made false statements that fraudulently induced Medallion to enter a 

contract to provide janitorial services, which Clorox initially performed but terminated sooner than 

anticipated. Id. at 653, 656. Medallion’s alleged injury included, inter alia, expenses in preparing 

to perform. Id. at 656. 

The Court of Appeals held that Medallion failed to adequately plead that this “‘detriment 

[was] proximately caused’ by the defendant’s tortious conduct.” Id. (quoting Cal. Civ. Code 

§ 3333). It concluded that because “[t]he expenses Medallion incurred in preparing to perform its 

contractual duty . . . were essential to its subsequent performance of the service agreement,” they 

could not have been “detrimental.” Id. “It was only when Clorox terminated the parties’ 

contractual relationship that Medallion could have perceived its reliance expenses as ‘losses.’” Id. 

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Because “it was the termination, not the misrepresentation, that resulted in the alleged harm . . . 

Medallion’s reliance on [the fraudulent] promise by entering into the contract and preparing to 

perform did not constitute ‘detriment proximately caused’ by Clorox’s conduct.” Id. at 656–57 

(quoting Cal. Civ. Code § 3333). Medallion is analogous to our case: because it was the 

revelation of the fraudulent scheme, rather than the fraud itself, that caused Plaintiffs’ alleged 

harm, their “detriment [was not] proximately caused” by Volkswagen and Bosch’s 

misrepresentations.

Plaintiffs also point out that the dealerships’ claims were dismissed on summary judgment. 

Opp’n to VW MTD at 13.4 Relatedly, they suggest that whether Plaintiffs detrimentally relied on 

Volkswagen and Bosch’s misrepresentations is necessarily a jury question that cannot be resolved 

at the pleading stage. Id. at 21. Even assuming the latter argument is relevant to proximate cause, 

courts, including this one, dismiss fraud claims that fail to plausibly allege reliance or proximate 

cause. See Gomez, 2015 WL 433669, at *6; see also Medallion, 52 Cal. Rptr. 2d at 657. And 

although the previous order granted summary judgment, not a Rule 12 motion, it demonstrates that 

Plaintiffs’ theory of proximate cause is legally deficient.

Third, Plaintiffs attempt to distinguish the facts of the cases this Court relied on in its order 

granting summary judgment against the dealerships. Opp’n to VW MTD at 13. But this is beside 

the point; that order dealt with a basically identical theory of proximate cause and found that the 

general principles announced by those cases rendered it deficient. Finally, to the extent Plaintiffs 

argue that the prior order was wrong because it relied on cases from outside the Ninth Circuit and 

has been appealed, see id. at 14, those are not sufficient reasons for the Court to reconsider its 

holding.

The fraud claims are dismissed for failure to adequately allege proximate cause.5 Because 

4

 This argument, like several others addressed in this section, was made in response to 

Volkswagen’s argument that the order granting summary judgment on the dealerships’ claims 

necessitated dismissal of Plaintiffs’ RICO claims. See Opp’n to VW MTD at 12–13. It is 

unnecessary to address arguments regarding the applicability of the summary judgment order to 

Plaintiffs’ RICO claims, since the RICO claims fail for other reasons. But for the sake of 

completeness, the Court addresses those arguments insofar as they might be relevant to the state 

law claims.

5

 Failure to adequately allege proximate cause is fatal to the negligent interference claims as well. 

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the previous order dismissing Plaintiffs’ fraud claims did not reach this issue, see Order Granting 

MTD at 8–11, Plaintiffs are granted leave to amend fraud claims not subject to dismissal with 

prejudice on other grounds. The rest of this section discusses which of Plaintiffs’ fraud claims

must be dismissed with prejudice, and why.

ii. Affirmative misrepresentations.

Plaintiffs allege two theories of fraud, one based on affirmative misrepresentations and the 

other on fraudulent nondisclosure. FAC ¶¶ 252–53. The allegations based on affirmative 

misrepresentations once again fail to meet Rule 9(b)’s heightened pleading standard. See Order 

Granting MTD at 8–10. To adequately “state with particularity the circumstances constituting 

fraud,” Plaintiffs would have to “specify when” they were exposed to the defendant’s 

misrepresentations and “which ones [they] found material.” Kearns v. Ford Motor Co., 567 F.3d 

1120, 1126 (9th Cir. 2009). Plaintiffs fail to do so. Although they now plead the specific contents 

of various and sundry false statements made in advertisements, training, and other materials, see

FAC ¶¶ 97–110, the closest they come to specifying when they encountered those misstatements is 

an allegation that at some point before starting work as a Volkswagen salesperson “in or about 

2011,” Gaines saw fraudulent claims in unspecified Volkswagen ads “on television and in print 

media,” id. ¶¶ 15–16, and that he was exposed to additional false claims in training materials 

provided by Volkswagen, id. ¶ 16. This does not adequately specify when Gaines (or any other 

plaintiff) was exposed to the false claims or which ones he found material, and thus fails to allege 

the “who, what, when, where, and how of the misconduct alleged.” See Kearns, 567 F.3d at 1126. 

Because Plaintiffs have failed to cure this deficiency in their affirmative misrepresentation theory 

of fraud, even after an opportunity to amend, see Order Granting MTD at 9, the fraud claims based 

on affirmative misrepresentations are dismissed with prejudice. See Leadsinger, 512 F.3d at 532. 

iii. Fraudulent concealment.

To plead a claim for fraudulent concealment under California law, a plaintiff must allege 

See Redfearn v. Trader Joe’s Co., 230 Cal. Rptr. 3d 98, 111 (Cal. Ct. App. 2018) (negligent 

interference claims require showing of proximate cause). But since these claims may be dismissed 

with prejudice on other grounds, it is unnecessary to consider the issue in depth.

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“knowing concealment or non-disclosure by a defendant with the intent to defraud, which induces 

justifiable reliance and causes injury to the plaintiff.” Tsai v. Wang, No. 17-cv-00614-DMR, 2017 

WL 2587929, at *3 (N.D. Cal. June 14, 2017) (internal quotation marks and citations omitted). 

The plaintiff must also allege “that the defendant was under a legal duty to disclose [the 

concealed] facts.” Los Angeles Mem’l Coliseum Comm’n v. Insomniac, Inc., 233 Cal. App. 4th 

803, 831 (Cal. Ct. App. 2015). California courts recognize four circumstances giving rise to such 

a duty: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the 

defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the 

defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes 

partial representations but also suppresses some material facts.” LiMandri v. Judkins, 60 Cal. 

Rptr. 2d 539, 543 (Cal. Ct. App. 1997). Plaintiffs argue that active concealment and partial 

representations are adequately alleged. Opp’n to VW MTD at 21.

Both claims necessarily fail against Bosch and Volkswagen AG. California courts have 

held that “[e]ach of the [latter] three circumstances in which nondisclosure may be actionable 

presupposes the existence of some other relationship between the plaintiff and defendant in which 

a duty to disclose can arise.” LiMandri, 60 Cal. Rptr. 2d at 543. That relationship must be 

transactional. Id. For instance, “a duty to disclose may arise from the relationship between seller 

and buyer, employers and prospective employee, doctor and patient, or parties entering into any 

kind of contractual agreement.” Id. Plaintiffs allege no such relationship between themselves and 

Bosch or Volkswagen AG. Because Plaintiffs have twice failed to adequately allege fraud claims 

against Bosch and Volkswagen AG, and those claims suffer from multiple deficiencies, the Court 

concludes that leave to amend would be futile. Dismissal of the fraud claims against Bosch and 

Volkswagen AG is with prejudice. See Leadsinger, 512 F.3d at 532. In contrast, Plaintiffs allege 

that they entered a contractual agreement with Volkswagen Group of America, so this requirement 

is met as to that defendant. FAC ¶ 218.

Plaintiffs have also once again failed to adequately allege a duty to disclose based on 

partial representations. Contrary to Plaintiffs’ position, and as this Court has previously held, 

Rule 9(b)’s heightened pleading standard applies to claims based on fraudulent omissions. See

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Order Granting MTD at 11; see also Espineli v. Toyota Motor Sales, U.S.A., Inc., No. 2:17-cv00698-KJM-CKD, 2019 WL 2249605, at *4 (E.D. Cal. May 24, 2019). While courts in this 

district have recognized that plaintiffs cannot identify the contents and circumstances of an 

omission as specifically they would an affirmative misrepresentation, see MacDonald v. Ford

Motor Co., 37 F. Supp. 3d 1087, 1096 (N.D. Cal. 2014), that does not excuse their obligation to 

plead with particularity the circumstances surrounding any partial representations giving rise to a 

duty to disclose, see Espineli, 2019 WL 2249605, at *4–5. Because Plaintiffs’ partial 

representations theory previously failed for the same reason, this fraud theory is dismissed with 

prejudice.

Plaintiffs also argue they have adequately alleged that the defendants’ active concealment 

of the emissions fraud gave rise to a duty to disclose. The FAC does sufficiently allege this theory 

of fraudulent omission. To plead a duty to disclose based on active concealment, a plaintiff must 

plead more than “mere nondisclosure.” Espineli, 2019 WL 2249605, at *8 (internal citations and 

quotation marks omitted). The complaint must allege “affirmative acts on the part of the

defendants in hiding, concealing or covering up the alleged defect.” Id. (internal citations and 

quotation marks omitted). In analogous cases involving product defects, courts in this district 

have found this standard satisfied by allegations that the defendant had knowledge of the defect 

and failed to appropriately address the problem. See, e.g. Mui Ho v. Toyota Motor Corp., 931 F. 

Supp. 2d 987, 998–99 (N.D. Cal. 2013). The FAC alleges a good deal more: it contains detailed 

allegations of a long-running conspiracy to hide the emissions fraud from regulators and 

consumers. FAC ¶¶ 28–54. Because Plaintiffs have adequately alleged a duty to disclose based 

on active concealment, they may file a Second Amended Complaint which addresses the deficient 

theory of proximate cause underlying the fraudulent concealment claim against Volkswagen 

Group of America.

d. Negligent Interference

To state a claim for negligent interference with prospective economic advantage, Plaintiffs 

must allege, inter alia, “that . . . an economic relationship existed between the plaintiff and a third 

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party which contained a reasonably probable future economic benefit or advantage to plaintiff.” 

N. Am. Chem. Co. v. Superior Court, 69 Cal. Rptr. 2d 466, 479 (Cal. Ct. App. 1997). This Court 

previously dismissed Plaintiffs’ negligent interference claims for failure to identify any such 

economic relationship “with particularity.” Order Granting MTD at 7–8. Plaintiffs now identify 

three third parties with whom they enjoyed economic relationships: customers who, but for the 

fraud, might have purchased Volkswagen vehicles from them, the dealerships who otherwise 

would have paid them more in commissions, and Volkswagen who, but for Bosch’s role in the 

scheme, would have paid Plaintiffs additional direct payments. Opp’n to VW MTD at 15–17; 

Opp’n to Bosch MTD at 13–15. 

However, the negligent interference claims are still inadequately pled, because Plaintiffs 

fail to adequately allege that those relationships “contained a reasonably probably future economic 

benefit or advantage.” See N. Am. Chem. Co., 69 Cal. Rptr. 2d at 479. Plaintiffs cannot rely on 

hypothetical future sales to unspecified customers because the alleged economic relationship must 

be “with a particular individual.” Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. CV 10-

5696 CRB, 2013 WL 3460707, at *7 (N.D. Cal. July 9, 2013). Since Plaintiffs cannot identify a 

particular customer who would have bought a car from them but for the fraud, they cannot satisfy 

this requirement. 

The cases Plaintiffs cite are not to the contrary. See Opp’n to VW MTD at 15–16. Those 

decisions either involved plaintiffs who did provide examples of economic relationships whose 

benefits they were denied, see Cheverez v. Plains All Am. Pipeline, LP, No. CV15-4113 PSG 

(JEMx), 2016 WL 4771883, at *8 (Mar. 4, 2016 C.D. Cal.) (plaintiffs identified specific cancelled 

reservations resulting from oil spill), or who identified a relationship with a specific, albeit 

unidentified, individual, see Ramona Manor Convalescent Hosp. v. Care Enters., 225 Cal. Rptr. 

120, 125–26 (Cal. Ct. App. 1986) (plaintiff need not allege the “injured party’s specific identity or 

name”). Plaintiffs allege neither specific examples nor that they enjoyed an economic relationship 

with a specific but unidentified customer. And Plaintiffs’ argument that repeat customers are 

important in their trade has been rejected by another decision of this district. Google Inc. v. Am.

Blind & Wallpaper Factory, Inc., No. C 03-05340 JF, 2005 WL 832398, at *9 (N.D. Cal. Mar. 30, 

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2005) (allegations that “repeat customers” were likely to purchase plaintiffs’ goods in the future 

were “too speculative to support” a negligent interference claim, and represented “merely a hope

and a desire for unspecified future sales to unspecified returning customers” (internal quotation 

marks and alterations omitted)). Finally, statistics showing a global drop in sales of Volkswagen 

vehicles after the fraud was revealed are no help, see FAC ¶¶ 163–65, because aggregated data 

does not identify a particular economic relationship or benefit.

That sales to hypothetical future customers were “at most a hope for an economic 

relationship and a desire for future benefit” is fatal to Plaintiffs’ other alleged economic 

relationships as well. See Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 49 Cal.Rptr.2d 793, 

804, 806 (Cal. Ct. App. 1996). The ostensible lost economic benefit from both relationships was 

derivative of sales to customers: commissions from the dealerships and direct payments from 

Volkswagen. If the sales are too speculative to support a negligent interference claim, the 

commissions and direct payments necessarily are as well. 

Because this was Plaintiffs’ second chance to plead a sufficiently particular economic 

relationship “which contained a reasonably probable future economic benefit or advantage,” N. 

Am. Chem. Co., 69 Cal. Rptr. 2d at 479, and they have once again failed to do so, dismissal is

with prejudice. See Leadsinger, 512 F.3d at 532. It is therefore unnecessary to address other 

arguments against these claims.

e. Employment Claims

Plaintiffs assert various California employment law claims against Volkswagen. To 

successfully plead these claims and other state-law claims derivative of the ostensible employment 

violations Plaintiffs must adequately allege that Volkswagen was their employer. Ochoa v. 

McDonald’s Corp., 133 F. Supp. 3d 1228, 1232 (N.D. Cal. 2015).

Plaintiffs’ position is that Volkswagen is their joint employer along with their respective 

dealerships. Opp’n to VW MTD at 23. “[T]he California Supreme Court has provided three 

alternative definitions for what it means for a person or entity to ‘employ[ ]’ someone: ‘(a) to 

exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or

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(c) to engage, thereby creating a common law relationship.” Salazar v. McDonald’s Corp., 944 

F.3d 1024, 1029 (9th Cir. 2019) (quoting Martinez v. Combs, 231 P.3d 259, 277–79 (Cal. 2010)). 

Plaintiffs rely on three allegations to argue that one or more of these definitions is met: that 

Volkswagen paid them directly, required certain trainings, and could order the dealerships they 

worked for to stop selling its vehicles. Opp’n to VW MTD at 23–24. These allegations satisfy 

none of the three definitions of employment utilized by California courts.

iv. Control.

Plaintiffs argue that Volkswagen controls their wages because it directly pays them 

incentive compensation tied to metrics such as the number of vehicles they sell. Id. at 23. But 

California courts have concluded that “‘control over wages’ means that a person or entity has the 

power or authority to negotiate and set an employee’s rate of pay.” Futrell v. Payday Cal., Inc., 

119 Cal. Rptr. 3d 513, 524 (Cal. Ct. App. 2010). Volkswagen’s payment of additional 

compensation on top of the rate negotiated and set by the dealerships cannot meet this standard. 

Another Northern District of California decision has previously rejected an analogous argument. 

Johnson v. Serenity Transportation, Inc., 141 F. Supp. 3d 974, 998 (N.D. Cal. 2015) (“While . . .

the Customer Defendants’ initial fee contributes to the ultimate determination of how much 

drivers receive, Serenity Transportation alone is alleged to have responsibility for determining the 

rate at which drivers were ultimately paid.”).

Plaintiffs also argue that Volkswagen’s training constitutes control over their working 

conditions. Opp’n to VW MTD at 24. But courts have repeatedly rejected arguments that 

mandatory training demonstrates the level of control necessary to show employer status. Johnson, 

141 F. Supp. 3d at 998. 

Finally, Plaintiffs argue that because Volkswagen could stop sales of its vehicles, it could 

prevent them from working, and thus controlled both their wages and their working conditions. 

Opp’n to VW MTD at 24. But the power to stop a retailer from selling one’s wares is not the 

same as the power to fire its employees or set their wages, as demonstrated by cases holding that 

franchisors were not joint employers with franchisees who sold their products. See, e.g. Salazar, 

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944 F.3d at 1027 (McDonalds was not joint employer with its franchisee, even though franchisee 

was required to sell McDonald’s products).

v. Suffer or permit.

The “suffer or permit” definition of employment refers to a “defendant’s knowledge of and 

failure to prevent the work from occurring.” Id. at 1030 (internal quotation marks and citations 

omitted). It requires the power to hire and fire. Id. at 1031. Plaintiffs suggest Volkswagen had 

this power because it required certain training and “through the stop sales order it halted much of 

their work.” Opp’n to VW MTD at 25. These arguments are self-evidently deficient. Requiring 

training is not tantamount to the power to fire. If the requirement was met, Volkswagen had no 

authority to remove the salesperson in question. And it is even more obviously not tantamount to 

the power to hire. As for the stop sales order, Plaintiffs’ own briefing acknowledges that it “halted 

much”—but not all—“of their work.” Id. That does not reveal the power to fire, much less to 

hire. And, as noted above, similar arguments have been rejected by the Ninth Circuit and previous 

Northern District of California decisions.

vi. Common law relationship.

“According to California common law, the principal test of an employment relationship is 

whether the person to whom service is rendered has the right to control the manner and means of 

accomplishing the result desired.” Salazar, 944 F.3d at 1032 (internal quotation marks and 

citations omitted). Volkswagen’s direct payments to salespeople and authority to stop sales of its 

own vehicles do not implicate the “manner and means” by which Plaintiffs sold Volkswagen cars. 

And, as previously noted, mandatory training has previously been found insufficient to 

demonstrate an employment relationship. Indeed, far greater control over the manner and means 

of work has been rejected as inadequate to allege an employment relationship. See id. at 1027–28, 

1032 (although McDonalds required franchisee to sell its products, use certain computer systems, 

employ Hamburger University-educated managers, and have employees wear standardized 

uniforms, these requirements merely constituted “quality control and maintenance of brand 

standards” and did not demonstrate a common law employment relationship).

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Plaintiffs point out that “[a]t this stage [they] must only establish the plausibility of their joint 

employer claims.” Opp’n to VW MTD at 27. But they have failed to do even that. The 

employment claims are dismissed. Both sides agree that that result also requires dismissing 

Plaintiffs’ waiting time penalties, wage statement, and UCL claims because those claims are 

derivative of the Labor Code claims. VW MTD at 25 n.22; Opp’n to VW MTD at 29. Those 

claims are dismissed as well. Because Plaintiffs have not previously had a chance to amend these 

claims, dismissal is without prejudice.

IV. CONCLUSION

For the forgoing reasons, the motions to dismiss are granted. Plaintiffs are granted leave to 

amend only the Labor Code claims, claims derivative of the Labor Code claims, and claims based 

on fraudulent omissions by Volkswagen Group of America. Any amended complaint must be 

filed within forty-five days of the filing of this Order.

IT IS SO ORDERED.

Dated: June 18, 2020 __________________________

CHARLES R. BREYER

United States District Judge

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