Plaintiffs seeking more than 4 billion euros ($5 billion) in damages from Porsche SE may find it difficult to make their case in a German court system that offers them only a limited view of the company’s inner workings.
Five cases claiming the 911 sports-car maker manipulated stock prices in its failed bid to take over Volkswagen AG are pending at a Braunschweig court, with the first hearings to be held tomorrow. While the plaintiffs have the full burden of proving wrongdoing, they have few tools, according to Thomas Moellers, civil law professor at Augsburg University.
“Different from the U.S., plaintiffs here have no pre-trial discovery, so they practically have no access to Porsche’s files,” Moellers said. “Only prosecutors have the weapons to seize papers, question witnesses and find out what actually happened.”
While Stuttgart prosecutors said last year their probe “solidified” suspicions Porsche didn’t properly inform the market between 2007 and 2009 about its plan to take control of VW, the investigation isn’t finished so the plaintiffs haven’t yet been granted access to the evidence collected.
The Braunschweig suits are part of a series of litigation Porsche has faced since it disclosed in October 2008 it controlled 74.1 percent of VW, partly through options, and was seeking to acquire 75 percent and eventually a takeover. It was a plan the company had previously denied. The announcement caused VW’s stock to surge as short sellers raced to buy shares borrowed in a bet that VW would fall.
“Porsche strongly rejects the claim it misled the markets,” the Stuttgart, Germany-based company said in a statement. “The plaintiffs are professional investors who knowingly took enormous risks. The suits are an attempt to make up for their own misjudgment.”
The investors claim Porsche lied in a March 2008 statement denying it planned to take over VW, because at that time it had already begun buying options to secure control.
Seven months later, the option plan risked backfiring when VW shares fell. Porsche then issued an October 2008 press release in an effort to push VW’s share price up, the plaintiffs claim. That was also false, according to the lawsuits, because the company then was no longer able to finance a takeover as a result of the credit crunch.
A series of lawsuits in the U.S. and Germany resulted when the options strategy, the brainchild of then-Chief Executive Officer Wendelin Wiedeking and Holger Haerter, chief financial officer at the time, faltered in 2009 and nearly bankrupted the car maker. Stuttgart prosecutors have been investigating the executives since.
As part of the probe, Haerter was charged in March with loan fraud over statements made to a bank when refinancing a 10 billion-euro loan in 2009. A Stuttgart court today ruled the case can go to trial. Haerter and Wiedeking, who both continue to be investigated over the market-manipulation allegations, have denied wrongdoing.
For tactical reasons, the Braunschweig plaintiffs should have waited for the criminal probe’s results, which may help their case, Moellers said. While a statute of limitation forced them to sue by the end of last year, they can still seek access to the investigators’ findings when the probe ends.
“We are very optimistic we will succeed even without access to the prosecutor’s files,” said Franz Braun, who represents plaintiffs in three of the five suits. “More and more details have by now come to light backing our case.”
Braun said files of the Lower Saxony state government, which holds 20 percent of VW voting rights, back the argument that Porsche sought a takeover in early March 2008. There is also evidence that, at that time, Porsche had instructed a bank to gradually build up options to get 75 percent control of VW, he said.
The judges will only be looking into the merits of the two smallest cases -- seeking 3.1 million euros and 1.6 million euros respectively -- at tomorrow’s hearing, though their comments may indicate the outlook for all five.
A third hearing tomorrow, concerning two suits seeking 1.8 billion euros and 351 million euros, respectively, will only cover whether a company that bought claims of U.S. and German investors must post collateral covering legal fees. The fifth case, seeking 1.96 billion euros, will be heard later.
Prosecutors are investigating under market-manipulation rules, which aren’t available to individuals pursuing civil claims in German courts, according to Gregor Bachmann, a capital markets law professor at Berlin’s Free University. Instead, they must rely on general tort law that grants damages if someone viciously harms another person.
“The basic rule is you’re liable if you use any means to reach your goal, regardless of the consequences for others,” said Bachmann. “If you lie in a press release just because you want to boost a stock price, that’s certainly covered.”
In cases from the dot-com bubble era, courts have awarded damages when “pretty blatant lies” were used, Bachmann said. Porsche may try to argue the decision to seek a takeover was only made when it was actually disclosed, he said, and that everything before was the company mulling its options.
Porsche has argued it that its press releases were in line with the decisions of the company’s leadership at the time, the court said in a June 11 statement.
The plaintiffs’ biggest challenge is to prove that defense wrong, according to Moellers. They have asked the court to call Wiedeking, Haerter and Ferdinand Piech, VW’s chairman and a Porsche supervisory board member, as witnesses in their case.
“It’s always a bit unfavorable if your key witnesses are mostly people from the other side,” said Moellers. “It seems unlikely that they will back the plaintiff’s reading of the events.”
Insider-trading rules, also invoked by the plaintiffs, generally only apply to the stock issuer -- that’s VW, not Porsche, both Bachmann and Moellers said.
One of the lawsuits also targets VW, arguing the Wolfsburg-based company should have disclosed Porsche’s intentions. VW knew about it because Wiedeking and Haerter were serving on its supervisory board, the plaintiffs claim.
Michael Brendel, a VW spokesman, said in an e-mail the claim is unfounded.
“At first glance, that argument seems a bit wild, but the law accepts some sort of ‘knowledge attribution,’” Bachmann said. “A company knows what its executives know. How much this applies to supervisory board members, who aren’t managers, is an open issue.”
Porsche’s adversaries may also bet on their “nuisance power,” as the suits, counting in potential appeals, could drag on for five to seven years, Moellers said.
“We know from other cases that some plaintiffs are well aware that a complicated and time-consuming suit is something most companies try to get rid of,” Moellers said. “In many cases that means paying a nice amount of money to settle.”
The cases are LG Braunschweig, 5 O 1110/11, 5 O 2894/11, 5 O3086/11, 5 O 2077/11 and 5 O 552/12.