Court Opinion

ID: 4698743
Source: CourtListenerOpinion
Date Created: 2021-06-25 17:01:34.132119+00
Date Added: 2024-06-11T08:05:57.462292
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

IN RE VOLKSWAGEN “CLEAN DIESEL”          No. 20-15564
MARKETING, SALES PRACTICES, AND
PRODUCTS LIABILITY LITIGATION,             D.C. No.
                                        3:15-md-02672-
                                             CRB
PUERTO RICO GOVERNMENT
EMPLOYEES AND JUDICIARY
RETIREMENT SYSTEMS                         OPINION
ADMINISTRATION,
                Plaintiff-Appellee,

                 v.

VOLKSWAGEN AG; VOLKSWAGEN
GROUP OF AMERICA, INC.;
VOLKSWAGEN GROUP OF AMERICA
FINANCE LLC; MICHAEL HORN;
MARTIN WINTERKORN,
           Defendants-Appellants.

      Appeal from the United States District Court
        for the Northern District of California
      Charles R. Breyer, District Judge, Presiding

        Argued and Submitted January 12, 2021
              San Francisco, California

                  Filed June 25, 2021
2               IN RE VOLKSWAGEN LITIGATION

     Before: J. CLIFFORD WALLACE and MILAN D.
    SMITH, JR., Circuit Judges, and JANE A. RESTANI, *
                           Judge.

            Opinion by Judge Milan D. Smith, Jr.;
            Dissent by Judge J. Clifford Wallace

                          SUMMARY **

                         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.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
               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

                        COUNSEL

Robert J. Giuffra Jr. (argued), Sharon L. Nelles, Suhana S.
Han, William H. Wagener, and Elizabeth N. Olsen, Sullivan
& Cromwell LLP, New York, New York, for Defendants-
Appellants.

Ian D. Berg (argued) and Takeo A. Kellar, Abraham
Fruchter & Twersky LLP, San Diego, California; Mitchell
M.Z. Twersky, Abraham Fruchter & Twersky LLP, New
York, New York; for Plaintiff-Appellee.

Douglas Wilens, Robbins Geller Rudman & Dowd LLP,
Boca Raton, Florida; Thomas C. Michaud, Vanoverbeke
Michaud & Timmony P.C., Detroit, Michigan; for Amicus
Curiae Michigan Association of Public Employees
Retirement Systems.

Gideon A. Schor, Wilson Sonsini Goodrich & Rosati PC,
New York, New York; Joseph A. Grundfest, The William A.
Franke Professor of Law and Business, Stanford Law
School, Stanford, California; for Amici Curiae Law
Professors and Former SEC Officials.

Deanne E. Maynard and Adam L. Sorensen, Morrison &
Foerster LLP, Washington, D.C.; Jordan Eth, Mark R. S.
Foster, and James R. Sigel, Morrison & Foerster LLP, San
Francisco, California; Daryl Joseffer and Janet Galeria, U.S.
Chamber Litigation Center, Washington, D.C.; for Amici
Curiae Chamber of Commerce of the United States of
America, Securities Industry and Financial Markets
Association, and Alliance for Automotive Innovation.
              IN RE VOLKSWAGEN LITIGATION                   5

                         OPINION

M. SMITH, Circuit Judge:

    This case arises on interlocutory appeal to address the
scope of the Affiliated Ute presumption of reliance in
“mixed” securities-fraud cases that allege both omissions
and affirmative misrepresentations. Because we conclude
the allegations in this case cannot be characterized primarily
as claims of omission, we hold that the Affiliated Ute
presumption of reliance does not apply. See Affiliated Ute
Citizens of Utah v. United States, 406 U.S. 128 (1972).
Accordingly, we reverse the order denying summary
judgment to Volkswagen, and remand for the district court
to further consider whether a triable issue of material fact
exists.

  FACTUAL AND PROCEDURAL BACKGROUND

                              I.

    Plaintiff-Appellee Puerto Rico Government Employees
& Judiciary Retirement Systems Administration (Plaintiff)
is a public pension fund that purchased bonds issued by
Defendant-Appellant Volkswagen Group of America
Finance, LLC (VWGoAF). Non-party Santander Asset
Management LLC (Santander) served as Plaintiff’s
investment advisor.

    Defendant-Appellant Volkswagen AG (VWAG) is an
international manufacturer of automobiles. Defendant-
Appellant Volkswagen Group of America, Inc. (VWGoA) is
a wholly owned subsidiary of VWAG that markets and sells
Volkswagen brand vehicles in the United States. Defendant-
6               IN RE VOLKSWAGEN LITIGATION

Appellant VWGoAF is a wholly owned subsidiary of
VWGoA that issues debt securities. 1, 2

    VWGoAF issued the bonds at issue in this case in three
private placements that closed on May 23, 2014, November
20, 2014, and May 19, 2015. WGoAF issued an Offering
Memorandum for each bond offering on May 15, 2014,
November 12, 2014, and May 19, 2015, respectively
(collectively, Offering Memoranda). Plaintiff alleges that on
May 15, 2014, the same day VWGoAF issued its Offering
Memorandum for the first bond offering, Santander placed
orders to buy approximately $4 million worth of bonds on
Plaintiff’s behalf.

    On September 18, 2015, the United States
Environmental Protection Agency and California Air
Resources Board issued notices of violation to VWGoA
relating to the use of defeat devices in certain Volkswagen
diesel vehicles. As has been widely publicized by the media,
congressional hearings, and scores of lawsuits, Volkswagen
was secretly installing defeat devices in millions of its diesel
cars worldwide to mask unlawfully high emissions from
regulators and cheat on emissions tests. Following the
announcement, market prices of some Volkswagen bonds,
including those purchased by Plaintiff, temporarily dipped
below par value.

    1
      Defendant-Appellant Martin Winterkorn served as VWAG’s Chief
Executive Officer and Chairman of the Board of Management from 2007
until his resignation in 2015. Between January 2014 and March 9, 2016,
Defendant-Appellant Michael Horn was the President and Chief
Executive Officer of VWGoA.
    2
      All Defendants-Appellants are collectively referred to as
Volkswagen.
              IN RE VOLKSWAGEN LITIGATION                     7

                              II.

    Seeking to recover for losses relating to the bonds,
Plaintiff filed this putative securities-fraud class action
against Volkswagen alleging violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C.
§§ 78j(b) and 78t(a), and Securities and Exchange
Commission (SEC) Rule 10b-5, 17 C.F.R. § 240.10b-5.
Although this case involves a long procedural history, both
in our court and in the district court, the scope of this appeal
is narrow. We focus only on the issue certified for
interlocutory appeal from the district court’s order denying
Volkswagen’s motion for summary judgment.

    Volkswagen moved for summary judgment exclusively
on the element of reliance in Rule 10b-5. Volkswagen
argued that Plaintiff, despite its allegations, had no evidence
that it or Santander relied on the Offering Memoranda, that
the Affiliated Ute presumption of reliance did not apply, and
that, if did it apply, Volkswagen had rebutted the Affiliated
Ute presumption.

    The district court denied Volkswagen’s motion for
summary judgment. The district court did not rule on the
issue of direct reliance, instead reasoning that although
Plaintiff bases its claims on certain affirmative statements,
“Volkswagen’s failure to disclose [the defeat device issue]
is ultimately what drives Plaintiff’s claims” and “[t]he case
is best characterized as a nondisclosure case” such that
“[u]nder [Binder v. Gillespie, 184 F.3d 1059 (9th Cir. 1999)]
and [Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975)] . . .
Affiliated Ute’s presumption of reliance applies.”

    Volkswagen moved the district court to reconsider or to
certify the decision for interlocutory appeal. The district
court certified the decision and ruled that the order denying
8             IN RE VOLKSWAGEN LITIGATION

Volkswagen’s motion for summary judgment “‘involves a
controlling question of law as to which there is substantial
ground for difference of opinion’ and that ‘an immediate
appeal from the order may materially advance the ultimate
termination of the litigation.’” See Reese v. BP Expl. (Ala.)
Inc., 643 F.3d 681, 687–88 (9th Cir. 2011). We then granted
Volkswagen’s petition for permission to appeal pursuant to
28 U.S.C. § 1292(b).

    JURISDICTION AND STANDARD OF REVIEW

   We have jurisdiction pursuant to 28 U.S.C. § 1292(b).
We review an order denying summary judgment de novo.
Alaska v. United States, 754 F.2d 851, 853 (9th Cir. 1985).

                         ANALYSIS

                               I.

    “Rule 10b–5(b), enacted under section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), makes
it unlawful ‘[t]o make any untrue statement of a material fact
or to omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under
which they were made, not misleading.’” Paracor Fin., Inc.
v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1157 (9th Cir.
1996) (quoting 17 C.F.R. § 240.10b–5(b)). The elements of
a Rule 10b-5 claim are: “(1) a material misrepresentation or
omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase
or sale of a security; (4) reliance upon the misrepresentation
or omission; (5) economic loss; and (6) loss causation.”
Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258,
267 (2014) (citations and internal quotation marks omitted).
If one of these elements is missing, the claim fails. See, e.g.,
Loos v. Immersion Corp., 762 F.3d 880, 883 (9th Cir. 2014)
               IN RE VOLKSWAGEN LITIGATION                     9

(affirming district court’s dismissal where plaintiff failed to
show loss calculation).

    The Supreme Court in Affiliated Ute Citizens of Utah v.
United States, 406 U.S. 128 (1972), removed affirmative
proof of reliance as a condition of recovery under certain
limited circumstances. In Affiliated Ute, the Court
considered whether members of the Ute Indian Tribe needed
to prove actual reliance when they alleged “primarily a
failure to disclose.” See id. at 153. Specifically, the tribal
members alleged that bank officers bought their restricted
stock without disclosing that the bank created a secondary
market in which that stock could be resold for profit. Id. at
133–39. This allowed the bank officers to purchase the tribal
members’ stock below market value and then sell it on the
secondary market for a profit. Id. If required to affirmatively
prove reliance under these circumstances, the tribal members
would have been forced to prove a speculative negative: that
they would have relied on information about the secondary
market before selling their stock had the bank disclosed it.
Id. The Court held that in such cases, “involving primarily a
failure to disclose, positive proof of reliance is not a
prerequisite to recovery. All that is necessary is that the facts
withheld be material in the sense that a reasonable investor
might have considered them important in the making of this
decision.” Id. at 153–54. The Court presumed reliance
because “[t]his obligation to disclose and this withholding of
a material fact establish the requisite element of causation in
fact.” Id. at 154.

   Since the Supreme Court’s decision in Affiliated Ute, we
have recognized the presumption of reliance is “generally
available to plaintiffs alleging violations of section 10(b)
based on omissions of material fact.” See Binder v. Gillespie,
184 F.3d 1059, 1063 (9th Cir. 1999) (citing Kramas v. Sec.
10            IN RE VOLKSWAGEN LITIGATION

Gas & Oil Inc., 672 F.2d 766, 769 (9th Cir. 1982)). We
“embraced the [Affiliated Ute] presumption because of the
difficulty of proving a ‘speculative negative’—that the
plaintiff relied on what was not said.” Id. at 1064 (citing
Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975)).
Accordingly, we have “applied the Affiliated Ute
presumption to cases that ‘are, or can be, cast in omission or
non-disclosure terms.’” Id. at 1063 (quoting Blackie,
524 F.2d at 905; citing Arthur Young & Co. v. U. S. Dist.
Court, 549 F.2d 686, 694 (9th Cir. 1977)).

    In Blackie, we afforded the plaintiffs a presumption of
reliance where they alleged that defendants omitted certain
material facts from annual and interim financial reports,
press releases, and SEC filings in violation Rule 10b-5(b).
524 F.2d at 894, 905–06. We recognized the rationale behind
the presumption was that direct proof of reliance in omission
cases would require “proof of a speculative negative”—that
“I would not have bought had I known” or “I would not have
sold had I known.” Id. at 908. And because “[t]he class
members’ substantive claims either [were], or [could] be,
cast in omission or non-disclosure terms,” we excused this
“difficult evidentiary burden” and afforded plaintiffs the
Affiliated Ute presumption of reliance. Id. at 905–07.

    The Dissent contends that Blackie was a “mixed” case,
while other members of our court have characterized Blackie
as a “pure omissions case.” See Binder, 184 F.3d at 1068
(Reinhardt, J., dissenting). However one interprets the facts
in Blackie, our subsequent binding circuit precedent makes
clear that the Affiliated Ute presumption is limited to cases
that primarily allege omissions and present plaintiffs with
the difficult task of proving a speculative negative. See id.
at 1064 (citing Blackie, 524 F.2d at 908).
                IN RE VOLKSWAGEN LITIGATION                         11

    In Binder, we distinguished “pure omissions” cases from
“mixed” cases that allege both omissions and affirmative
misrepresentations. Id. Seeking to “squarely decide[]” the
scope of Affiliated Ute after Blackie, we held that the
“presumption should not be applied to cases that allege both
misstatements and omissions unless the case can be
characterized as one that primarily alleges omissions.” Id.
at 1063–64. We instructed that this requires courts to
“analytically characterize [the] action as either primarily a
nondisclosure case (which would make the presumption
applicable), or a positive misrepresentation case” (where the
presumption would be unavailable). Id. at 1064 (quoting
Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 (5th Cir.
1987); citing Austin v. Loftsgaarden, 675 F.2d 168, 178 n.21
(8th Cir. 1982)).

    With respect to characterizing Binder’s allegations, the
district court’s order revealed that Binder alleged reliance on
affirmatively false financial statements. See id. at 1063. As
a result, we agreed with the district court’s characterization
of Binder’s action as “not primarily an omissions case,” and
affirmed summary judgment because the district court’s
“decision not to apply the presumption was sound and
supported by the weight of authority.” Id. at 1064.

    Since Binder, we continued conducting the requisite
analytical inquiry to determine whether claims primarily
allege omissions sufficient to trigger the Affiliated Ute
presumption. 3

    3
      District courts within this circuit have done the same. See, e.g.,
ScripsAmerica, Inc. v. Ironridge Global LLC, 119 F.Supp.3d 1213,
1250–51 (C.D. Cal. 2015); McPhail v. First Command, 247 F.R.D. 598,
613–14 (S.D. Cal. 2007); Negrete v. Allianz Life Ins. Co. of N. Am.,
238 F.R.D. 482, 490–91 (C.D. Cal. 2006).
12            IN RE VOLKSWAGEN LITIGATION

    In Poulos v. Caesars World, Inc., we concluded the
Affiliate Ute presumption did not apply because the
plaintiffs, a putative class of gamblers, primarily alleged
affirmative misrepresentations. 379 F.3d 654, 666–67 (9th
Cir. 2004). The gamblers alleged that the trade dress of the
electronic slot machines was misleading because the casinos
“affirmatively mislabeled the video poker machines with
statements like ‘52–card deck,’ ‘shuffle,’ and ‘draw.’” Id.
at 667. We noted the alleged omission—that the machines
neglected to specify that they operated differently than their
older mechanical counterparts—was but one part of a much
broader claim. Id. “Simply put, the Class Representatives’
claims are based as much on what is there as what is
purportedly missing.” Id. This, we concluded, “pushe[d] the
claims outside Binder’s presumption of reliance.” Id.

     In Desai v. Deutsche Bank Securities Ltd., we again
conducted the requisite analytical characterization and
concluded the Affiliate Ute presumption did not apply.
573 F.3d 931, 940–41 (9th Cir. 2009). The investors alleged
that banking entities engaged in a market-manipulation
scheme to use securities loans to profit from a company’s
artificially inflated stock price. Id. at 934. While engaging in
a “sophisticated scheme to manipulate the price of the
company’s stock,” defendants allegedly used loans to avoid
selling the stock after the price rose because selling would
have depressed the stock price and reduced their fraudulent
profit. Id. at 933–35. We reasoned that while this type of
market manipulative conduct necessarily involves some
nondisclosure, it primarily related to a misrepresentation or
manipulation because it involved “activities designed to
affect the price of a security artificially by simulating market
activity that does not reflect genuine investor demand.” Id.
at 941.
              IN RE VOLKSWAGEN LITIGATION                 13

    In declining to apply the Affiliated Ute presumption, we
recognized that “[a]ny fraudulent scheme requires some
degree of concealment, both of the truth and of the scheme
itself.” Id. (quoting Joseph v. Wiles, 223 F.3d 1155, 1163
(10th Cir. 2000), abrogated on other grounds by Cal. Pub.
Emps. Ret. Sys. v. ANZ Sec., Inc., 137 S. Ct. 2042 (2017)).
But we explained the mere fact of concealment cannot
transform affirmative conduct into omissions. See id. “To do
otherwise would permit the Affiliated Ute presumption to
swallow the reliance requirement almost completely . . .
[and] fail to serve the Affiliated Ute presumption’s purpose
since this is not a case where reliance would be difficult to
prove because it was based on a negative.” Id. (quoting
Joseph, 223 F.3d at 1163). Therefore, we held the Affiliated
Ute presumption of reliance did not apply and “carefully
maintained the well-established distinction, for purposes of
the Affiliated Ute presumption, between omission claims, on
the one hand, and misrepresentation and manipulation
claims, on the other.” Id.

                             II.

    We now turn to Plaintiff’s allegations against
Volkswagen. We acknowledge at the outset that Plaintiff
alleges an omission, and that omission looms large over
Plaintiff’s claims. As the district court found, Volkswagen
failed to disclose—for years—it was secretly installing
defeat devices in its “clean diesel” line of cars to mask
unlawfully high emissions from regulators and cheat on
emissions tests. However, Plaintiff also alleges more than
nine pages of affirmative misrepresentations that were made
by Volkswagen and relied upon by Plaintiff and its
investment advisor. These affirmative misrepresentations,
which Plaintiff alleges it relied upon when purchasing the
14            IN RE VOLKSWAGEN LITIGATION

bonds, push this case outside Affiliated Ute’s narrow
presumption. See Poulos, 379 F.3d at 666–67.

     To reach this conclusion, we look to the justification
underlying the Supreme Court’s decision in Affiliated Ute:
reliance is impossible or impractical to prove when no
positive statements were made. See Blackie, 524 F.2d
at 907–08. This, as well as our post-Blackie circuit
precedent, instructs that the Affiliated Ute presumption
should be limited to situations in which a plaintiff would be
forced to prove a speculative negative: “that the plaintiff
relied on what was not said.” See Binder, 184 F.3d at 1064
(citing Blackie, 524 F.2d at 908). Plaintiff does not allege
that narrow circumstance in this case. Plaintiff alleges much
was said, and importantly, that it relied on what was said.

    Under the bolded heading “FALSE AND
MISLEADING STATEMENTS AND OMISSIONS” in
its Second Amended Complaint, Plaintiff alleges that
Volkswagen “made numerous materially false and
misleading statements and omissions, including to
Bondholders, regarding the Company’s operations and
financial results, NOx emissions, emissions-control
technology, its business and financial results, outlook, and
compliance with U.S. and European regulatory standards.”
Plaintiff alleges that these false and misleading statements
were contained in the three Offering Memoranda, and that
each Offering Memorandum “contained substantively
identical false and misleading statements.” Some of the
alleged affirmative misrepresentations in the Offering
Memoranda include:

       Volkswagen is subject to laws and
       regulations that require it to control
       automotive emissions, including exhaust
       emissions standards, vehicle evaporation
      IN RE VOLKSWAGEN LITIGATION               15

standards and onboard diagnostic system
requirements.

Automobile manufacturers must reduce the
CO2 emissions of their new passenger car
fleet in the European Union according [to]
the EU average of 130g CO2/km from 2012
onward with a phase-in until 2015. The target
to be achieved from 2020 onward is 95g
CO2/km.

                 *   *    *

Currently, Volkswagen offers in Europe
[438/532] models or model variants with
CO2 emissions below 130g CO2/km;
[324/416] models emit less than 120g
CO2/km and [54/85] models are currently
already below 100g CO2/km.

                 *   *    *

Volkswagen’s top priority for research &
development [in past years] was to develop
engines and drivetrain concepts to reduce
emissions, and to develop and expand the
modular longitudinal toolkit platforms and
the modular transverse toolkit platforms.

                 *   *    *

A focal point of Volkswagen’s current and
future development activities is and will be
innovative mobility concepts and the
16            IN RE VOLKSWAGEN LITIGATION

       reduction of fuel consumption and emissions
       of the fleet.

    Plaintiff alleges that these statements were “materially
false” because Volkswagen “did not intend to . . . reduce
emissions” and “misleading because they implied that
Volkswagen had already reduced vehicle emissions when in
truth Volkswagen’s diesel engines emitted more pollutants
than [it] represented.” Plaintiff also alleges that these
statements were “misleading because they implied that
Volkswagen’s vehicles were compliant with emissions
regulations” when they were not.

   Plaintiff also alleges, again in bold, that Volkswagen
“Made False And Misleading Statements And Omissions
In Interim and Annual Reports Referenced In The
Offering Memoranda.” Some of these alleged affirmative
misrepresentations include:

       Volkswagen is . . . continuing to focus in
       depth on developing efficient drive
       technologies, thus extending its position as an
       innovation leader in the area of
       environmentally friendly mobility, and that
       [Volkswagen] offer[s] an extensive range of
       environmentally friendly, cutting-edge, high-
       quality vehicles for all markets and customer
       groups that is unparalleled in the industry. . . .

       The Volkswagen Group closely coordinates
       technology and product planning with its
       brands so as to avoid breaches of emission
       limits, which would entail severe sanctions.
               IN RE VOLKSWAGEN LITIGATION                      17

    Plaintiff alleges these statements were “materially false
and misleading because rather than actually being
‘environmentally friendly,’ [Volkswagen] diesel vehicles
were equipped with secret defeat devices that allowed them
to be sold under the pretense that their NOx emissions were
within the legal limits when they actually exceeded such
limits by as much as 40 times.” In addition, the statements
concerning Volkswagen’s efforts to avoid breaches of
emission limits and its environmentally friendly vehicles
“were misleading because they failed to disclose that its
basis for avoiding breaches of emissions limits . . . and
offering environmentally friendly emissions standards was
an unlawful scheme to meet regulatory emissions standards;
and, that but for the illegal scheme, Volkswagen would not
have been able to sell a substantial portion of its vehicles.”

    Plaintiff also alleges that Volkswagen “Made False And
Misleading Statements And Omissions About
[Volkswagen’s] Financial Results And Condition.” In this
regard, Plaintiff alleges that Volkswagen failed to “properly
recognize provisions relating to its use of unlawful defeat
devices in its ‘clean diesel’ vehicles, [so] its ‘total liabilities
were materially understated and its operating profit, total
assets, and shareholders’ equity were materially overstated
in each of [Volkswagen’s] periodic reports during the Class
Period.’”

    Not only does Plaintiff allege Volkswagen made
numerous affirmative misrepresentations, Plaintiff expressly
alleges that it relied on them. In relevant part, Plaintiff
alleges:

        Plaintiff, through its authorized investment
        advisor with complete investment discretion,
        reviewed and relied upon the information
        contained in the Offering Memorandum that
18            IN RE VOLKSWAGEN LITIGATION

       corresponds to Plaintiff’s Bond purchases,
       including the alleged omissions and
       misrepresentations.

                          *    *   *

       Accordingly, each purchaser of Bonds in the
       Offerings can demonstrate that it (1) was
       aware of the alleged misrepresentations and
       omissions in the Offering Document, and
       (2) purchased the Offering securities based
       on those misrepresentations and omissions.

    This is not, as the Dissent contends, a case where “some
‘positive statement’ or affirmative misrepresentation was
also made and relied upon.” Instead, as we held in Poulos,
“the [Plaintiff’s] claims are based as much on what is there
as what is purportedly missing.” 379 F.3d at 666. As the
district court correctly reasoned in earlier proceedings in this
case, either Plaintiff relied on these affirmative
misrepresentations in purchasing the bonds or it did not. If it
did not, it cannot overcome this shortfall by invoking
Affiliated Ute’s narrow presumption and characterizing its
claims as primarily alleging omissions. See In re
Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prod.
Liab. Litig., No. MDL 2672 CRB (JSC), 2018 WL 1142884,
at *6 (N.D. Cal. Mar. 2, 2018).

    This does not, as the Dissent suggests, add a “new
evidentiary hurdle” for the Plaintiff. Instead, Plaintiff bears
the burden to prove all elements of its Rule 10b-5 claim,
including reliance, see Halliburton Co., 573 U.S. at 267, and
Plaintiff placed that evidentiary burden on itself by explicitly
                 IN RE VOLKSWAGEN LITIGATION                           19

pleading reliance on extensive, detailed, and specific
affirmative misrepresentations. 4

    There is no question that Plaintiff alleges an omission
regarding Volkswagen’s use of defeat devices, but that
omission is simply the inverse of the affirmative
misrepresentations described above: Volkswagen made
certain affirmative statements about environmental
compliance and financial liabilities and those statements
were materially false or misleading. See Waggoner v.
Barclays PLC, 875 F.3d 79, 96 (2d Cir. 2017) (concluding
that investors were not entitled to the Affiliated Ute
presumption because the complaint alleged numerous
affirmative misstatements, the “omission” was “simply the
inverse” of the misrepresentation allegations, and the
presumption does not apply to “misstatements whose only
omission is the truth that the statement misrepresents”). The
Dissent criticizes our favorable citation to Waggoner, but
offers no authority for its opposing position that, in practice,
“would swallow the reliance requirement almost
completely” because affirmative misrepresentations are
almost always rendered misleading by an omission. 5 See
Desai, 573 F.3d at 941 (citation omitted).

    4
       This case does not, as the Dissent argues, “defeat recovery by those
whose reliance was indirect.” Plaintiff does not allege indirect reliance;
it alleges that “Plaintiff, through its authorized investment advisor with
complete investment discretion [(Santander)], reviewed and relied upon
the information contained in the Offering Memorandum that corresponds
to Plaintiff’s Bond purchases, including the alleged omissions and
misrepresentations.
    5
      Under our reading of Affiliated Ute, the presumption would have
been unavailable, for example, if members of the Ute Indian Tribe
pleaded reliance on affirmative statements from bank officers
20               IN RE VOLKSWAGEN LITIGATION

    As we noted before, “[a]ll misrepresentations are also
nondisclosures, at least to the extent that there is a failure to
disclose which facts in the representation are not true.” Little
v. First Cal. Co., 532 F.2d 1302, 1304 n.4 (9th Cir. 1976).
But while fraud necessarily involves concealing the truth, we
cannot allow such concealment to transform affirmative
misstatements into implied omissions. To do so would stray
from Affiliated Ute’s purpose of excusing the difficult or
impossible evidentiary burden of proving a “speculative
possibility in an area where motivations are complex and
difficult to determine.” See Blackie, 524 F.2d at 908.
Plaintiff does not face that burden here. It either relied on the
alleged affirmative misrepresentations in purchasing the
bonds or it did not. Therefore, the Affiliate Ute presumption
of reliance does not apply because Plaintiff can prove
reliance through ordinary means by demonstrating a
connection between the alleged misstatements and its
injury. 6 Otherwise, the exception would swallow the rule.

                          CONCLUSION

     Plaintiff does not face the difficult or impossible task of
proving a speculative negative. Instead, Plaintiff alleges over
nine pages of affirmative misrepresentations that it and its
investment advisor relied upon when purchasing the bonds
from Volkswagen. Therefore, while this is a “mixed” case
that     alleges     both     omissions      and    affirmative

representing that the bank did not create a secondary market for their
restricted stock. But under the Dissent’s reading, failing to disclose that
the bank had created a secondary market would have rendered the bank
officers’ affirmative statements misleading, thus entitling them to the
presumption despite explicit and provable reliance allegations.
     6
       We offer no opinions on the other issues and presumptions raised
in the parties’ briefing.
              IN RE VOLKSWAGEN LITIGATION                   21

misrepresentations, Plaintiff’s allegations cannot be
characterized primarily as claims of omission, so the
Affiliated Ute presumption of reliance does not apply. If the
Dissent’s interpretation were adopted, Affiliated Ute would
become available for all securities fraud claims because all
misrepresentations can be cast as omissions, at least to the
extent they fail to disclose which facts are not true.
Accordingly, we reverse the order denying summary
judgment to Volkswagen, and remand for the district court
to further consider whether a triable issue of material fact
exists.

   REVERSED AND REMANDED.

WALLACE, Circuit Judge, dissenting:

    I agree with the majority that this interlocutory appeal
presents a mixed case of both omissions and affirmative
misrepresentations. However, I maintain that our opinions
in Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975), and
Binder v. Gillespie, 184 F.3d 1059 (9th Cir. 1999), dictate
that the Affiliated Ute presumption can be available here
because the plaintiff alleges a case primarily based on
Volkswagen’s omission. Based upon my understanding of
our binding precedent, the nine pages of affirmative
misrepresentations in the second amended complaint do not
alter the primary focus of the plaintiff’s claims, particularly
when the affirmative misrepresentations all relate back to the
key omission: Volkswagen’s installation of defeat devices to
cheat on emissions tests and deceive government regulators.

   The majority’s attempt to reframe Affiliated Ute’s
underlying justification as focused only on reaching cases
where “reliance is impossible or impractical to prove when
22              IN RE VOLKSWAGEN LITIGATION

no positive statements were made,” Maj. Op. at 14 (emphasis
added), is, in my view, a tortured reading of the Supreme
Court’s opinion to justify the conclusion the majority wishes
to reach. The majority’s unfortunate reading also effectively
removes the availability of the Affiliated Ute presumption of
reliance for plaintiffs alleging mixed cases primarily based
on omissions if some “positive statement” or affirmative
misrepresentation was also made and relied upon. This
incorrect reading effectively overrules our reasoning and
holdings in Blackie and Binder, which remain good law that
bind this panel and our court until an en banc court overrules
these cases. Even if our subsequent precedent diverges from
aspects of our decision in Blackie, we are nonetheless bound
to apply Blackie until it is expressly overruled. I agree that
we face a dilemma in determining what set of facts may
qualify as a case primarily based on omissions because “the
categories of omission and misrepresentation are not
mutually exclusive[,]” Little v. First Cal. Co., 532 F.2d
1302, 1304 n.4 (9th Cir. 1976) (quotation marks omitted),
but I disagree with the majority’s conclusion and analysis.
In the end, the crucial fact in the plaintiff’s case is that
Volkswagen’s affirmative misrepresentations were rendered
misleading because of its omission.1

                                   I.

    I disagree with the majority’s analysis regarding whether
the plaintiff has alleged a mixed case primarily based on
omissions or one primarily predicated on affirmative

     1
      I address only the threshold question of whether the plaintiff’s
claims rest primarily on Volkswagen’s omission regarding the defeat
devices so that the Affiliated Ute presumption may be available. I do not
address whether Volkswagen had a duty to disclose or rebutted the
presumption if there was a duty to disclose.
              IN RE VOLKSWAGEN LITIGATION                    23

misrepresentations. My disagreement begins with how the
majority portrays the Supreme Court’s decision in Affiliated
Ute Citizens of Utah v. United States, 406 U.S. 128 (1972),
and our court’s subsequent application of the precedent in
intervening years.

    The Supreme Court in Affiliated Ute held that there is a
presumption of reliance where a defendant had a duty to
disclose and the information withheld is material. 406 U.S.
at 153–54. In Affiliated Ute, the plaintiffs alleged that a bank
and the bank’s employees violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 by
concealing the lucrative resale market for the plaintiffs’
shares of capital stock, as well as the bank employees’ role
in creating that market. Id. at 153. The Supreme Court held
that the bank and its employees omitted material facts
regarding the resale market and that they had a duty to
disclose that information to the plaintiffs. Id. The Supreme
Court reasoned that “positive proof of reliance [was] not a
prerequisite to recovery” for the failure to disclose under the
circumstances of the case. Id. The Supreme Court held that
“[a]ll that is necessary is that the facts withheld be material
in the sense that a reasonable investor might have considered
them important in the making of this decision.” Id. at 153–
54. The duty to disclose and the omission of the material
facts, therefore, established causation in fact. Id. at 154.

    We have adopted the Affiliated Ute presumption of
reliance and confirmed its availability to plaintiffs alleging
violations of Section 10(b) and Rule 10b-5 based on
“omissions of material fact.” Binder, 184 F.3d at 1063. We
have applied the Affiliated Ute presumption where the
plaintiffs’ claims were “cast in omission or non-disclosure
terms,” and the defendants’ material omissions rendered
affirmative statements misleading. Blackie, 524 F.2d
24               IN RE VOLKSWAGEN LITIGATION

at 905–06; see also Little, 532 F.2d at 1304 (stating that
defendants in Blackie omitted certain material facts “from
annual and interim reports, press releases and SEC filings,”
and “[t]hese documents contained representations rendered
inaccurate by the omissions”). We have also held that the
presumption is available when plaintiffs allege both
omissions and misrepresentations if the case “primarily
alleges omissions,” also known as a mixed case. Binder,
184 F.3d at 1064. As mentioned above, I maintain that this
is a mixed case primarily based on the omission, which
tracks the scenario in Blackie, so that the presumption may
be available. 2

    We reasoned in Blackie that the theory behind the
Affiliated Ute presumption is that proof of direct reliance in
an omission case would impose on a plaintiff the difficult
evidentiary burden to offer “proof of a speculative negative,”
— i.e., I would not have bought had I known — which
“threatens to defeat valid claims . . . and threatens the
enforcement of the securities laws.” Blackie, 524 F.2d at
908. In my opinion, that theory and concern are implicated
in this case, regardless of the majority’s insistence to the
contrary. The majority’s discussion of Blackie is limited

     2
       The majority’s assertion that Blackie has been understood to be a
“pure omissions” case confuses our precedent. See Maj. Op. at 11. In
Binder, the majority, speaking for our court, did not hold that Blackie
was a pure omissions case; the dissent in Binder made that distinction,
which I believe was incorrect. See id. at 1068 (Reinhardt, J. dissenting).
We also observed in Little that Blackie was not a pure omissions case.
Little, 532 F.2d at 1304 (stating that in Blackie, the defendants’
“documents contained representations rendered inaccurate by the
omissions” . . . but determining that “we need not go so far” because the
case before it was “the purest case of an omission”). I, therefore, believe
Blackie shares more in common with our later distinction of mixed cases
because Blackie involved affirmative misrepresentations rendered
misleading by the defendants’ omissions, as occurred here.
                 IN RE VOLKSWAGEN LITIGATION                            25

and, instead, focuses on Binder’s discussion regarding
mixed cases predicated on affirmative misrepresentations.
See Maj. Op. at 10–11. Despite the majority’s attempts to
avoid Blackie and our holding there, I believe our decision
in Blackie controls here. Ultimately, Blackie remains good
law and is controlling precedent until an en banc court
overrules it. Importantly, this case shares similarities with
Blackie that makes the majority’s attempt to gloss over it
disingenuous at best.

    First, the plaintiffs in Blackie alleged omissions that
rendered affirmative statements throughout various
company materials and press releases misleading. Blackie,
542 F.3d at 894. We held these facts sufficient to make the
Affiliated Ute presumption of reliance available. Id. at 906.
Second, we expressed a concern that I echo here:
“[r]equiring direct proof from each purchaser that he relied
on a particular representation when purchasing would defeat
recovery by those whose reliance was indirect, despite the
fact that the causational chain is broken only if the purchaser
would have purchased the stock even had he known of the
misrepresentation.” Id. at 907. 3 In Blackie, we observed that
such a purchaser may acquire a stock due to a “favorable
price trend, price earnings ratio, or some other factor,” so
that their reliance is indirect because they rely “generally on
the supposition that the market price is validly set and that

     3
       I do not argue that Blackie controls here because the plaintiff
alleges indirect reliance, as the majority claims. See Maj. Op. at 19 n. 4.
I agree with the majority that the plaintiff alleges direct reliance as well
as requests a presumption of reliance in relation to Volkswagen’s critical
and material omission because it would not have purchased the bonds
had it known of Volkswagen’s fraudulent conduct regarding the defeat
devices. As a result, the majority’s reference to my discussion of
“indirect reliance” mischaracterizes my point and ignores that I quote
our concern in Blackie in its full context.
26            IN RE VOLKSWAGEN LITIGATION

no unsuspected manipulation has artificially inflated the
price, and thus indirectly on the truth of the representations
underlying the stock price.” Id. As a result, we recognized
that regardless of whether a purchaser is aware of it or not,
the price they pay “reflects material misrepresentations.” Id.
We refused to “leave such open market purchasers
unprotected” because the law is designed “to foster an
expectation that securities markets are free from fraud[;] an
expectation on which purchasers should be able to rely.” Id.

     While the bond purchases here did not occur on the open
market but during a Rule 144A private placement, I
nonetheless believe that Blackie’s rationale rings true to this
case and the omission alleged. As in Blackie, Volkswagen’s
omission regarding its deceptive practices was clearly
material, and it is common sense that a bond purchaser
would not take on the significant risk of purchasing
corporate debt from a business that is deceiving government
regulators worldwide and would be penalized when
discovered. See id. at 908 (recognizing as “common sense
that a stock purchaser does not ordinarily seek to purchase a
loss in the form of artificially inflated stock”). The
majority’s argument that proving a speculative negative
would not be “impossible” here due to the numerous
affirmative misrepresentations downplays both the severity
of Volkswagen’s omission and its role in the alleged fraud,
as well as adds a new evidentiary hurdle for plaintiffs, i.e., a
plaintiff may only call upon the Affiliated Ute presumption
if it is “impossible” to prove direct reliance or “positive
prove of reliance.” Neither the Supreme Court nor our court
has set such a bar. Cf. Affiliated Ute, 406 U.S. at 151–52
(discussing Congress’s intent for section 10 of the Securities
Exchange Act of 1934 and Rule 10b-5 to not be construed
“technically and restrictively, but flexibly to effectuate its
remedial purpose”) (citation and quotation marks omitted).
              IN RE VOLKSWAGEN LITIGATION                  27

As I see it, the plaintiff has alleged primarily an omissions
case predicated on Volkswagen’s material omission because
the omission rendered those affirmative misstatements
misleading.

    Finally, I believe the majority’s reliance on Desai v.
Deutsche Bank Securities Ltd., 573 F.3d 931 (9th Cir. 2009),
Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir. 2004),
and Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017),
is misplaced.      As an initial matter, Desai involved
manipulative conduct rather than an omission, Poulos
involved civil Racketeer Influenced and Corrupt
Organizations Act (RICO) claims rather than securities
fraud, and Waggoner is Second Circuit precedent that does
not bind our court.

    In Desai, we expressly recognized “that manipulative
conduct has always been distinct from actionable
omissions,” and emphasized that the plaintiffs alleged
manipulative conduct rather than omissions because the
alleged conduct was “designed to affect the price of a
security artificially by simulating market activity that [did]
not reflect genuine investor demand.” Desai, 573 F.3d
at 940–41; see also id. at 942 (declining to “recognize a new
presumption for manipulative conduct cases” due to the
Supreme Court’s “restrictive view of private suits under
§ 10(b)”).

    In Poulos, we declined to determine whether the
Affiliated Ute presumption of reliance could be available in
the civil RICO action because the plaintiffs’ other claims
would preclude such a presumption. Poulos, 379 F.3d
at 666. In addition, the class representatives in Poulos
conceded that some of their claims “are not primarily claims
of omission.” Id. at 666–67. With respect to another claim,
we held that the plaintiffs’ allegations were not primarily
28            IN RE VOLKSWAGEN LITIGATION

predicated on omissions but were rather based on an
approximately even mix of affirmative misrepresentations
and omissions. Id. at 667 (“Simply put, the Class
Representatives’ claims are based as much on what is there
as what is purportedly missing”) (emphasis added). Here,
the plaintiff makes no concession that its claims are not
primarily based on Volkswagen’s omission. Moreover,
from my point of view, the plaintiff’s allegations here are
focused on Volkswagen’s crucial omission regarding the
installation of defeat devices, and the affirmative
misrepresentations rendered misleading by that omission are
further evidence of Volkswagen’s attempts to disguise its
fraud.

    As for Waggoner, our sister circuit relied on precedent
that is not binding on our court to hold that the plaintiffs’
“claims [were] primarily based on misstatements not
omissions.” Although the Second Circuit recognized that
the omissions in Waggoner “exacerbated the misleading
nature of the affirmative statements,” it determined that the
Affiliated Ute presumption did not apply “to earlier
misrepresentations made more misleading by subsequent
omissions . . . nor [did] it apply to misstatements whose only
omission is the truth that the statement misrepresents.”
Waggoner, 875 F.3d at 96 (quotation marks omitted), citing
Starr ex rel. Estate of Sampson v. Georgeson S’holder, Inc.,
412 F.3d 103 (2d Cir. 2005); Joseph v. Wiles, 223 F.3d 1155,
1162 (10th Cir. 2000). This reasoning in Waggoner cuts
directly against our holding in Blackie, and Blackie is
binding precedent in our circuit that the majority and I must
follow. See Blackie, 542 F.3d at 903–04. Yet the majority
fails to do so here. My concern is that the majority’s holding
will result in future mixed cases being characterized as cases
primarily based on affirmative misrepresentations so that the
Affiliated Ute presumption will no longer be available.
              IN RE VOLKSWAGEN LITIGATION                 29

                             II.

    For these reasons, I dissent from the majority’s
determination that the plaintiff has alleged primarily an
affirmative misrepresentation case, rather than primarily an
omission case. I also dissent from the majority’s decision to
narrow drastically the availability of the Affiliated Ute
presumption of reliance, in direct contravention of our
decisions in Blackie and Binder.