Judge refuses to dismiss consumers’ RICO claims against Volkswagen

Plaintiffs excluded from the Volkswagen diesel emissions scandal settlement, because they no longer owned their cars after the fraud was discovered, have survived a motion to dismiss.

U.S. District Judge Charles Breyer of San Francisco ruled Wednesday that former owners of the emission-cheating cars have standing to seek damages by "relying on a well-accepted theory of injury [overpayment] but with a novel twist."

Plaintiffs alleged they were injured by Volkswagen's emissions fraud by overpaying for a nonexistent "premium" feature, paying for financing and leasing fees they would not have had to pay if they knew about the cars' actual emission levels when purchasing the vehicles, which they claim they would not have had they known about the fraud.

Plaintiff's attorneys argued the price of the cars was inflated not only when owners purchased them, but also when they resold the vehicles. They contended owners could not recover all of their overpayment because a portion of the premium they paid for a low-emission vehicle depreciated.

The clean diesel premium increased total depreciation. Even though some class members sold their cars before the emissions fraud came to light, they were not able to recover their overpayment because the premium increased the amount by which the cars depreciated due to the higher cost of the car, plaintiffs argue.

Class members who leased their cars did not recover any of the overpayment, Breyer wrote. In re: Volkswagen "Clean Diesel" Marketing, Sales Practices and Products Liability Litigation, 15-MD02672 (N.D. Cal., filed Dec. 8, 2015).

Plaintiffs, represented by Steve Berman of Hagens Berman Sobol Shapiro LLP, alleged violations of the Racketeer Influenced and Corrupt Organizations Act against Volkswagen and Bosch, among other entities.

William B. Monahan of Sullivan and Cromwell LLP represents the defense.

Breyer agreed former owners were injured because they paid inflated financing fees but disagreed that former lessees sustained those damages.

The judge took issue with plaintiffs not alleging leasing fees increased in proportion to the cost of the lease and instead choosing to argue they would not have paid for these fees altogether because they would have chosen not to lease the car.

"Plaintiffs plausibly would have paid similar lease acquisition and termination fees even if they had known of VW's fraud," Breyer wrote.

Class members also contended they would not have bought or leased the cars had they known about the fraud, regardless of whether they had the premium feature. Breyer ruled lessees were injured by that but not owners.

Owners without the feature would have fully recovered the money they paid for the cars because they sold them before the fraud was learned, the judge ruled. Owners "might have escaped the additional injury of lost resale value," the judge wrote.

But lessees did not have the same opportunity as former owners to recoup their money, he added.

Breyer also gave plaintiffs' attorneys leave to amend their state law misrepresentation claims with more particularity on the "who, what, when, where, and how of the [fraud] charged."