Opinion ID: 6323342
Heading Depth: 2
Heading Rank: 1

Heading: Misstatements or Omissions of Material Fact

Text: The district court’s determination that Plaintiffs-Appellants failed to state a claim for securities fraud rests principally on its conclusion that the Amended Complaint does not adequately allege that Volkswagen engaged in the unlawful conduct that supposedly rendered its statements misleading. See Mucha, 540 F. Supp. 3d at 295. Specifically, the district court concluded that the Amended Complaint fell short of Rule 9(b) and the PSLRA’s heightened pleading standards because it did not identify “any specific laws Defendants violated or explain[] how Volkswagen’s conduct ran afoul of those laws.” Id. On appeal, Plaintiffs-Appellants argue that the district court erred in holding that they were required to plead that Volkswagen’s 4 conduct was unlawful, rather than anticompetitive, and that they pled with particularity Volkswagen’s underlying anticompetitive conduct. We disagree. 2 “[W]hen a complaint claims that statements were rendered false or misleading through the non-disclosure of illegal activity, the facts of the underlying illegal acts must also be pleaded with particularity, in accordance with the heightened pleading requirement of Rule 9(b) and the PSLRA.” Gamm v. Sanderson Farms, Inc., 944 F.3d 455, 465 (2d Cir. 2019). “In other words, the plaintiff must specify what law or standard the defendant violated and how the alleged violation occurred.” Plumber & Steamfitters Loc. 773 Pension Fund v. Danske Bank A/S, 11 F.4th 90, 99 (2d Cir. 2021). Here, the Amended Complaint repeatedly alleges that Volkswagen’s “illegal collusive activities” rendered the challenged statements false or misleading. See, e.g., App’x 37, 42, 48, 53. But the Amended Complaint does not set forth how Defendants-Appellees’ collusive conduct was unlawful, nor the manner in which this supposedly unlawful conduct occurred. Assuming arguendo that the Amended Complaint alleges that the challenged statements were false or misleading because Volkswagen was engaged in anticompetitive, as opposed to unlawful, conduct, the Amended Complaint still fails to meet Rule 9(b) and the PSLRA’s heightened standards. When plaintiffs bring securities fraud claims based on allegedly 2 Plaintiffs-Appellants separately contend that Volkswagen was required to disclose its anticompetitive conduct under International Accounting Standard I (“IAS1”), which PlaintiffsAppellants read to require disclosure of unlawful conduct before the initiation of an investigation. Plaintiffs-Appellants cite no precedent holding that IAS1 requires pre-investigation disclosure, and there is some authority suggesting the opposite. Cf. In re Lions Gate Ent. Corp. Sec. Litig., 165 F. Supp. 3d 1, 20 (S.D.N.Y. 2016) (holding that Item 303 of Regulation S-K, which contains similar language to IAS1, does not require disclosure of an SEC staff investigation and Wells Notices where the complaint does not suggest that the investigation would have a material effect on the defendant company’s liquidity). We need not resolve the question, however, in light of the Amended Complaint’s overall failure adequately to set forth the nature of the unlawful or anticompetitive conduct supposedly required to be disclosed. 5 anticompetitive conduct, they must plead “sufficient — though not exhaustive — facts describing the essential elements of that underlying conduct.” See Gamm, 944 F.3d at 464; see also Maric v. St. Agnes Hosp. Corp., 65 F.3d 310, 313 (2d Cir. 1995) (stating that the basic elements of an antitrust conspiracy are “(1) a contract, combination, or conspiracy; (2) in restraint of trade; (3) affecting interstate commerce”). Plaintiffs-Appellants point to investigations by European authorities, the use of working groups, and agreements regarding certain technical standards. But they fail to allege with sufficient particularity how the working groups facilitated the larger cartel that they assert to have existed, nor do they allege what was agreed to in the working groups, and “whether and how [Volkswagen’s allegedly collusive conduct] affected trade.” Gamm, 944 F.3d at 465. Accordingly, the district court did not err in holding that the Amended Complaint failed to state a claim because it did not plead with particularity how Volkswagen’s alleged coordinated conduct was unlawful or anticompetitive. 3