1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6

7 MDL No. 2672 CRB (JSC)

IN RE: VOLKSWAGEN “CLEAN DIESEL”

8 MARKETING, SALES PRACTICES, AND

PRODUCTS LIABILITY LITIGATION

ORDER GRANTING MOTIONS TO

9 _____________________________________/

DISMISS

10 This Order Relates To: Dkt. Nos. 6330, 6332, 6333, 6334 11 _____________________________________/ 12 13 Volkswagen salespersons, in a proposed class action, contend that they were harmed by the 14 company’s diesel scandal. Volkswagen and other defendants (who are alleged to have conspired 15 with the company) have moved to dismiss the complaint. Because each claim in the complaint 16 contains one or more pleading deficiencies, the Court GRANTS the motions. 17 I. BACKGROUND1 18 Plaintiffs are three car salespersons who, at various times from 2010 to the present, have 19 worked at Volkswagen dealerships in California. Their pay is almost entirely commission based: 20 when they sell a car, they get a percentage of the dealer’s profits on the sale. An additional 21 commission on each sale comes directly from Volkswagen. The remainder of their pay is bonus 22 based. If they sell a target number of cars in a given month, for example, the dealer pays them a 23 bonus. If their customer service ratings meet a certain threshold, Volkswagen will award them a 24 separate bonus. 25 After the public learned in 2015 that Volkswagen, for the better half of a decade, had 26 installed defeat devices in its “clean diesel” line of cars to mask unlawfully high emissions, there 27 1 was a measurable drop in the sale of new Volkswagen cars. Consumers were shocked by the 2 blatancy and scale of the fraud and became less interested in the brand. The decline in demand for 3 Volkswagen cars in turn meant that Plaintiffs made less money. 4 Seeking to recover that lost income, Plaintiffs filed this action. Styled as a proposed class 5 action, they seek to represent Volkswagen salespersons nationwide. They have named as 6 defendants Volkswagen AG (VWAG), Volkswagen Group of America, Inc. (VWGoA), Audi AG, 7 Martin Winterkorn and Matthias Müller (former CEOs of VWAG), Rupert Stadler (former CEO 8 of Audi AG), Bosch GmbH and Bosch LLC (electronics companies that partnered with 9 Volkswagen), and Volkmar Denner (Bosch GmbH’s CEO). They also named Porsche AG as a 10 defendant but later agreed to dismiss all claims against Porsche AG. (See Dkt. No. 6549.) 11 The causes of action are for breach of contract, negligent interference with prospective 12 economic advantage, fraud, and violation of RICO. Four motions to dismiss have been filed: one 13 by VWAG, VWGoA and Audi AG (together “VW”), one by Bosch GmbH and Bosch LLC 14 (together “Bosch”), one by Martin Winterkorn, and one by Rupert Stadler. (Defendants Müller 15 and Denner have not appeared in the case.) The arguments raised in the motions are considered 16 below. 17 II. DEALER CLASS SETTLEMENT RELEASE 18 VW first argues that the claims against it should be dismissed because those claims were 19 released as part of the class settlement that the company reached with its authorized franchise 20 dealers. (See Dkt. No. 2807 (settlement approval order).) VW contends that under the plain terms 21 of that agreement, Plaintiffs are among the “Releasing Parties” and their claims fall within the 22 scope of the “Released Claims.” 23 The settlement defined the Releasing Parties as “Dealer Settlement Class Members, for and 24 on behalf of themselves and their agents, heirs, executors, and administrators, successors, assigns, 25 insurers, attorneys, representatives, shareholders, owners, owner associations, and any other legal 26 or natural persons who may claim by, through or under them . . . .” (Dkt. No. 2802 ¶ 9.3.) The 27 Releasing Parties agreed in the settlement to release VWAG, VWGoA, and other “Released 1 claims related in any way to the TDI Matter,” i.e., to the diesel scandal. (Dkt. No. 2802 ¶ 9.3; Dkt. 2 No. 1970 ¶ 2.27.) 3 VW maintains that Plaintiffs were among the “Releasing Parties” because they were 4 “agents” and “representatives” of Dealer Settlement Class Members. Plaintiffs object, arguing 5 that as rank-and-file salespersons, they lacked the level of authority that would have given rise to 6 an agency relationship with the dealerships at which they worked. 7 Putting aside the question of whether Plaintiffs were the dealers’ agents or representatives, 8 the Court concludes that Plaintiffs are not Releasing Parties because they are not pursing claims 9 “by, through or under” Dealer Settlement Class Members. As the Court previously explained in 10 resolving a motion to enforce the settlement, the “by, through, or under” phrase modifies not just 11 the catch-all phrase that precedes it (“any other legal or natural persons who may claim by, 12 through or under” Dealer Settlement Class Members), but also each category of persons listed in 13 the release (e.g., the dealers’ agents, heirs, representatives, owners, and shareholders). See In re 14 Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prod. Liab. Litig. (VW Altomare), No. 15 MDL 2672 CRB, 2018 WL 1588012, at *6 (N.D. Cal. Mar. 30, 2018). Given this prior 16 interpretation, the release only applies to the claims of a VW franchise dealer’s agents and 17 representatives if those claims are made “by, through or under” a Dealer Settlement Class 18 Member. Plaintiffs’ claims are not of this kind. 19 Plaintiffs are not attempting to step into the shoes of franchise dealers and assert claims on 20 their behalf. Instead they are alleging (i) that VW breached contracts that it had with its 21 salespersons, (ii) that VW negligently interfered with its salespersons’ business relations, (iii) that 22 VW committed fraud by making misrepresentations to (and concealing material facts from) its 23 salespersons, and (iv) that VW committed wire fraud (and violated RICO) by participating in an 24 enterprise whose purpose was to deceive regulators, VW salespersons, and the public. (See 25 Compl. ¶¶ 80, 87, 99–100, 103–04, 118.) These claims are not based on VW’s dealings with its 26 franchise dealers; they are based on VW’s dealings with its salespersons, regulators, and 27 consumers. The claims, then, are not brought “by, through or under” Dealer Settlement Class 1 This conclusion is consistent with VW Altomare, where the Court held that the fraud claims 2 of the sole owner of a VW dealership were brought “by, through, or under” a Dealer Settlement 3 Class Member and were thus released. See 2018 WL 1588012, at *6–7. In VW Altomare, there 4 was no real distinction between the claims of the dealership and the claims of the dealer’s owner, 5 the latter of which were asserted in a separate, post-settlement complaint. The claims were all 6 based on a single person’s interactions with VW, and that person received compensation in the 7 dealer class settlement. Here, there is a distinction between Plaintiffs and the dealerships at which 8 they worked. Plaintiffs’ claims are based in part on the relationships that they had with VW as 9 VW salespersons. Those relationships are separate and apart from the relationships that VW had 10 with its franchise dealers. Unlike the claims in VW Altomare, then, Plaintiffs are not bringing their 11 claims “by, through, or under” Dealer Settlement Class Members. This means Plaintiffs are not 12 Releasing Parties and that the settlement does not foreclose their claims. 13 III. BREACH OF CONTRACT 14 Turning to the claims themselves, the first cause of action is for breach of contract and is 15 against VWAG and VWGoA. A breach of contract claim has four elements: (1) the existence of a 16 contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) 17 damages to plaintiff as a result of the breach. See CDF Firefighters v. Maldonado, 158 Cal. App. 18 4th 1226, 1239 (2008). The contract claim against VWAG does not satisfy the first of these 19 elements, and the contract claim against VWGoA does not satisfy the third of these elements. 20 With respect to VWAG, the complaint makes no mention of any agreements between 21 Plaintiffs and VWAG. With no allegations supporting the existence of a contract, a necessary 22 element of the claim is missing. Plaintiffs have thus failed to state a breach of contract claim 23 against VWAG. 24 As for the contract claim against VWGoA, Plaintiffs have identified agreements that they 25 entered into with VWGoA, but they have not adequately alleged that VWGoA breached those 26 agreements. As alleged, VWGoA agreed to do two things: (i) to pay Plaintiffs a commission for 27 each Volkswagen car that they sold, and (ii) to compensate Plaintiffs based on their customer 1 VWGoA did not honor these obligations. Plaintiffs do argue that VWGoA’s diesel scandal 2 interfered with their ability to sell more VW cars and to obtain more compensation from VWGoA; 3 but there is no contention that VWGoA promised Plaintiffs that they would sell a specific number 4 of cars. Even if the diesel scandal caused Plaintiffs to sell fewer cars, that result did not breach the 5 express terms of the agreements that are identified. 6 In their opposition brief, Plaintiffs cite to six paragraphs from their complaint which they 7 maintain include allegations that VWGoA also agreed to provide them with “marketable, legally- 8 compliant vehicles,” which they assert VWGoA did not do. (Opp’n to VW, Dkt. No. 6441 at 31.) 9 The cited paragraphs do not include any allegations supporting that VWGoA made such a promise 10 to Plaintiffs, and Plaintiffs cannot use their opposition brief to amend their complaint. See Broam 11 v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003) (district court cannot consider facts in 12 opposition brief in considering Rule 12(b)(6) motion to dismiss). 13 Even if VWGoA did not breach an express contractual term, Plaintiffs alternatively assert 14 that VWGoA, through its diesel scandal, breached the covenant of good faith and fair dealing. 15 (See Compl. ¶¶ 88–92.) Under California law, a covenant of good faith and fair dealing is an 16 “implied term in every contract.” Chodos v. W. Publ’g Co., 292 F.3d 992, 996 (9th Cir. 2002). In 17 general, the covenant “imposes upon each contracting party the duty to refrain from doing 18 anything which would render performance of the contract impossible by any act of his own, [and] 19 also the duty to do everything that the contract presupposes that he will do to accomplish its 20 propose.” Pasadena Live v. City of Pasadena, 114 Cal. App. 4th 1089, 1093 (2004) (citation 21 omitted). 22 As an example of its application, in construction contracts the covenant of good faith and 23 fair dealing obligates the property owner to “furnish the selected site of operations to the 24 contractor in order to enable him to adequately carry on the construction and complete the work 25 agreed upon.” Hensler v. City of L.A., 124 Cal. App. 2d 71, 82–83 (1954) (internal quotation 26 marks omitted). If the property owner does not make the property available, performance of the 27 contract would be impossible. As another example, when benefits are due under an insurance 1 covenant [by] . . . frustrat[ing] the insured’s right to receive the benefits of the contract in ‘prompt 2 compensation for losses.’” Waller v. Truck Ins. Exchange, Inc., 900 P.2d 619, 639 (Cal. 1995) 3 (citation omitted). 4 While the covenant will “prevent a contracting party from engaging in conduct that 5 frustrates the other party’s rights to the benefit of the agreement,” id., it “cannot impose 6 substantive duties or limits on the contracting parties beyond those incorporated in the specific 7 terms of their agreement,” Agosta v. Astor, 120 Cal. App. 4th 596, 607 (2004) (citation omitted). 8 So, for example, if an individual and a company enter into an at-will employment agreement, the 9 covenant cannot be used by the individual to impose a requirement that termination only be for 10 good cause. See Foley v. Interactive Data Corp., 765 P.2d 373, 400 n.39 (Cal. 1988). 11 Plaintiffs’ implied covenant claim falls into this latter category, as one that attempts to 12 impose substantive duties beyond those incorporated in the specific terms of the agreement. The 13 injury asserted by Plaintiffs is that they were not able to sell more cars (and earn more 14 commissions) because of VWGoA’s diesel scandal. But as noted above, there is no suggestion 15 that the agreements in question contained sales volume terms (e.g., that Plaintiffs could expect to 16 sell 100 cars per year). VWGoA did what the agreements presupposed it would do to accomplish 17 their purpose: it provided Plaintiffs with cars to sell and compensated Plaintiffs when they sold 18 those cars. VWGoA did not “render performance of the contract impossible” or fail to take steps 19 “to accomplish [the agreements’] purpose.” Pasadena Live, 114 Cal. App. 4th at 1093. 20 It was in VWGoA’s best interests that Plaintiffs would sell more Volkswagen cars; and 21 from the allegations there is no reason to believe that VWGoA sought to (or did) interfere with 22 Plaintiffs ability to sell those cars. That consumer demand for Volkswagen cars dropped after the 23 diesel scandal does not mean that VWGoA breached the implied covenant of good faith and fair 24 dealing in the commission agreements that it had with Plaintiffs. 25 The allegations do not support Plaintiffs’ breach of contract claims against VWAG and 26 VWGoA. VW’s motion to dismiss these claims is GRANTED and the claims are dismissed with 27 leave to amend.

IV. NEGLIGENT INTERFERENCE WITH PROSPECTIVE ECONOMIC

1

ADVANTAGE

2 Plaintiffs’ second cause of action, which they bring against all Defendants, is for negligent 3 interference with prospective economic advantage. To support this claim, Plaintiffs must allege 4 that Defendants interfered with one or more existing relationships that Plaintiffs stood to benefit 5 from. See Venhaus v. Shultz, 155 Cal. App. 4th 1072, 1077–78 (2007). They must also identify 6 those relationships with particularity. See UMG Recordings, Inc. v. Glob. Eagle Entm’t, Inc., 117 7 F. Supp. 3d 1092, 1118 (C.D. Cal. 2015). 8 Defendants argue that Plaintiffs have not satisfied the particularity requirement, and the 9 Court agrees. Plaintiffs allege that Defendants, through the diesel scandal, interfered with 10 economic relationships that Plaintiffs had “with third parties.” (Compl. ¶ 94.) Not until their 11 opposition brief do Plaintiffs identify who those third parties were: (i) repeat Volkswagen 12 customers, and (ii) the franchise dealers that employed Plaintiffs. (See Opp’n to VW, Dkt. No. 13 6441 at 22–23.) For their negligent interference claim against Bosch, Plaintiffs add a third 14 relationship: stating in their opposition brief that Bosch also interfered with Plaintiffs’ 15 relationships with Volkswagen. (See Opp’n to Bosch, Dkt. No. 6451 at 15–16.) These three 16 relationships are not readily apparent from the general allegation that Defendants interfered with 17 economic relationships that Plaintiffs had with third parties. 18 Citing to the factual background section of their complaint, Plaintiffs argue that, in fact, 19 they have identified these relationships with the necessary particularity. (See Opp’n to VW, Dkt. 20 No. 6441 at 23 (citing Compl. ¶¶ 46–49, 60–62).) The Court disagrees, because as currently 21 structured the complaint leaves significant guesswork for Defendants and the Court. At no point 22 in the complaint do Plaintiffs explicitly identify the relationships on which their negligent 23 interference claim is predicated. The result is that Defendants, in their motions to dismiss, were 24 forced to guess about the relevant relationships; and only after Plaintiffs filed their opposition 25 were Defendants, in reply, able to fully address the claim. 26 Because the complaint does not identify with particularity the relationships that Defendants 27 interfered with, Plaintiffs’ negligent interference claim is inadequately pled. Defendants’ motions 1 to dismiss the claim are GRANTED and the claim is dismissed with leave to amend.2 2 V. FRAUD 3 Plaintiffs’ third cause of action, which is brought against all Defendants, is for common law 4 fraud. As alleged “Volkswagen,” a term Plaintiffs use to refer to all Defendants, “affirmatively 5 misrepresented to Plaintiffs . . . in advertising and other forms of communication . . . that [its 6 diesel cars] had no significant defects, complied with EPA regulations and would perform and 7 operate properly when driven in normal usage.” (Compl. ¶ 104.) Plaintiffs maintain that these 8 representations were false, and that Defendants knew so, because they had installed illegal defeat 9 devices in the cars, and they knew that the cars were “defective, non-EPA compliant, unsafe, and 10 unreliable because [they] contained faulty and defective Clean Diesel engine systems.” (Id. 11 ¶¶ 105-06.) 12 Plaintiffs also allege that “Volkswagen intentionally concealed that the Clean Diesel 13 engine systems [in its diesel cars] were not EPA-compliant and used a ‘defeat device.’” (Id. 14 ¶ 103.) They assert that this concealed information was “highly relevant to their business 15 decisions to sell VW vehicles” and that Defendants had a duty to disclose this information because 16 Plaintiffs “relied on Volkswagen’s material representations that the Defective Vehicles they were 17 selling for commission were environmentally clean, efficient and free from defects.” (Id. ¶¶ 103, 18 107.) 19 Defendants argue that Plaintiffs’ fraud allegations do not satisfy Rule 9(b). The Court 20 agrees. Two Rule 9(b) requirements are relevant. First, the rule requires the pleader of fraud to 21 “state the time, place, and specific content of the false representations as well as the identities of 22 the parties to the misrepresentation.” Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) 23 (en banc) (citation omitted). For example, if a plaintiff alleges that false or misleading 24 advertisements were directed at him, he must specify “what the . . . advertisements . . . specifically 25 stated, . . . when he was exposed to them[,] [and] which ones he found material.” Kearns v. Ford 26

27 2 The Court will not consider Defendants’ other arguments for dismissal of the negligent 1 Motor Company, 567 F.3d 1120, 1126 (9th Cir. 2009). Second, under Rule 9(b), a complaint 2 cannot “merely lump multiple defendants together,” but must instead “identify the role of each 3 defendant in the alleged fraudulent scheme.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 4 2007) (citation omitted). 5 The allegations fall short of Rule 9(b) in several ways. First, Plaintiffs have not identified 6 the time and place of Volkswagen’s representations to them. In arguing to the contrary—as to 7 time—Plaintiffs point to allegations that the fraud began “in at least 2009” and ended when 8 Volkswagen publicly admitted to the fraud in September 2015. (See Opp’n to VW, Dkt. No. 6441 9 at 26 (citing Compl. ¶¶ 28, 40).) That representations were made at some point during a seven 10 year window is not specific enough to put Defendants on notice of the representations on which 11 Plaintiffs intend to rely. 12 As to the “place” where the representations were made, Plaintiffs point to allegations that 13 representations were made “in the various media through which Volkswagen disseminated its 14 advertising materials and sold its vehicles.” (Id. (citing Compl. ¶¶ 32-39).) From context it 15 appears that the referenced advertisements were directed at consumers, not VW salespersons. 16 (See, e.g., Compl. ¶ 35 (discussing Volkswagen television advertisements).) In any event, 17 Plaintiffs have not identified which of the advertisements they were exposed to and found 18 material. See Kearns, 567 F.3d at 1126. General allegations about Volkswagen’s media 19 campaign are not sufficient to support Plaintiffs’ misrepresentation claims. See, e.g., In re 20 Chrysler-Dodge-Jeep Ecodiesel Mktg., Sales Practices, & Prod. Liab. Litig., 295 F. Supp. 3d 927, 21 987 (N.D. Cal. 2018) (“While the [complaint] does refer to [Fiat’s] website and some blogs 22 operated by a [Fiat] entity, there is no allegation that any named plaintiff actually saw the website 23 or blogs, or any promises contained therein, regarding fuel economy and performance.”) (citations 24 omitted). 25 Second, Plaintiffs have not adequately identified the parties to the representations. See 26 Odom, 486 F.3d at 553. Alleging, as they do, that the representations were made by 27 “Volkswagen” is insufficient under the circumstances. Without more detailed allegations, it is 1 example, would Bosch GmbH’s CEO, Volkmar Denner, have made representations about 2 Volkswagen’s diesel cars in Volkswagen television advertisements?) 3 Third, Plaintiffs have not sufficiently alleged that the individual defendants knew that 4 Volkswagen’s diesel cars were “defective, non-EPA-compliant, unsafe, and unreliable.” (Compl. 5 ¶¶ 105-06.) Although Rule 9(b) permits knowledge to be alleged generally, allegations of 6 knowledge must still be factual, not conclusory. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 680–81 7 (2009). The allegations of knowledge here fall into this latter category. Without any supporting 8 facts, Plaintiffs simply allege that Winterkorn, Stadler, Müller, and Denner “approved, authorized, 9 directed, ratified, and/or participated in the acts complained of herein.” (Compl. ¶¶ 16-18, 21.) 10 Plaintiffs respond by noting that they used the umbrella term “Volkswagen” to refer to all 11 Defendants. They argue that when considering the allegations against the individual defendants, 12 the Court should thus look not only to the paragraphs where they are named, but also to any 13 paragraph that makes reference to “Volkswagen’s” conduct. This form of group pleading is not 14 permitted by Rule 9(b), which “does not allow a complaint to merely lump multiple defendants 15 together.” Swartz, 476 F.3d at 764. The group pleading is particularly inapt as to Stadler, who 16 notes in his motion to dismiss that it cannot possibly be true that all references to “Volkswagen” 17 are to him. The “Volkswagen” misconduct began “in at least 2009, if not sooner,” which is one 18 year before Stadler became CEO of Audi AG. (See Compl. ¶¶ 18, 28.) Even if Stadler worked at 19 Audi AG prior to 2010, an allegation that is not explicitly made, there is no reason to believe that 20 prior to 2010 he was in a position to “authorize[] . . . the acts complained of” in the complaint. 21 (Id. ¶ 18.) Plaintiffs’ group pleading does not satisfy Rule 9(b). 22 Finally, Plaintiffs’ fraud-by-omission theory also falls short of the Rule 9(b) standard. For 23 fraud by omission, Plaintiffs must establish that Defendants had a duty to disclose the information 24 that was omitted. See LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 (1997). In their complaint, 25 the only duty that Plaintiffs identify is the duty to disclose information that is necessary to avoid 26 making partial representations misleading. (See Compl. ¶ 107 (“Volkswagen had a duty to be 27 truthful and to disclose that these Defective Vehicles were defective, non-EPA compliant and 1 Defective Vehicles they were selling for commission were environmentally clean, efficient and 2 free from defects.”).) Plaintiffs have not identified “the who, what, when, where, and how” of 3 these partial representations. Kearns, 567 F.3d at 1126. As a result, the partial representations do 4 not give rise to a duty to disclose. See Espineli v. Toyota Motor Sales, U.S.A., Inc., No. 2:17-CV- 5 0698-KJM-CKD, 2019 WL 2249605, at *4–5 (E.D. Cal. May 24, 2019) (explaining that 6 allegations of partial representations by the defendant must satisfy Rule 9(b) if they are to support 7 that the defendant had a duty to disclose additional facts).3 8 Plaintiffs’ fraud cause of action is not adequately pled. Defendants’ motions to dismiss the 9 fraud claim are GRANTED and the claim is dismissed with leave to amend. 10 VI. RICO 11 Plaintiffs’ final cause of action is for violation of RICO, 18 U.S.C. § 1962(c), (d). They 12 bring this claim against each defendant except VWGoA, referring to Defendants minus VWGoA 13 as the “RICO Defendants.” (See Compl. ¶ 114.) In moving to dismiss the RICO claim, 14 Defendants argue that the allegations fail to satisfy Rule 9(b), do not meet RICO’s proximate 15 cause standard, and do not support an injury to “business or property,” as needed for RICO 16 standing. 17 A. The RICO Allegations and Rule 9(b) 18 Rule 9(b) applies to the RICO claim because it is predicated on allegations of wire fraud. 19 See Odom, 486 F.3d at 553–54. In some respects the wire fraud allegations are more detailed than 20 the allegations supporting the common law fraud count. The theory of fraud is also somewhat 21 different. While Plaintiffs’ common law fraud claim is based on the theory that Defendants 22 directly deceived VW salespersons, their wire fraud claim is based on a broader fraudulent 23 scheme: that the RICO Defendants committed wire fraud by making material misrepresentations 24 (and by failing to disclose material facts) to “government regulators, consumers, and Plaintiffs[.]” 25 (Compl. ¶ 149.) 26

27 3 Plaintiffs have used their opposition brief to argue that a duty to disclose is supported on other 1 While not overlapping entirely with the common law fraud claim, the wire fraud claim also 2 does not satisfy Rule 9(b). To the extent that Plaintiffs seek to base the claim on representations 3 that were made to them, those representations are not described with any specificity. At no point 4 in the complaint do Plaintiffs identify any particular representations that the RICO Defendants 5 made to them or to other VW salespersons. The pleading of this theory falls far short Rule 9(b), 6 which requires Plaintiffs to identify “the time, place, and specific content of the false 7 representations as well as the identities of the parties to the misrepresentation.” Odom, 486 F.3d at 8 553 (citation omitted). 9 To the extent that Plaintiffs seek to base their wire fraud claim on representations that were 10 made to regulators, the allegations are more precise but are still lacking required detail. Plaintiffs 11 allege that the RICO Defendants used the wires to send fraudulent applications for certificates of 12 conformity to the EPA. (See Compl. ¶ 141.) Elsewhere, they allege that the RICO Defendants 13 used VWGoA and Porsche Cars North America to make these submissions to the EPA. (See id. 14 ¶ 122.) These allegations identify the “who,” “where,” and “how” of the representations, but they 15 do not cover “when” the representations were made, or “what” the submissions stated that was 16 false or misleading. See Kearns, 567 F.3d at 1124. Other complaints in this MDL have answered 17 those questions, but the same level of detail is missing here. 18 To the extent that Plaintiffs seek to base their wire fraud claim on representations to 19 consumers, the allegations come the closest to satisfying Rule 9(b), but are still lacking. Plaintiffs 20 generally allege that “Volkswagen made misrepresentations about the Defective Vehicles on their 21 websites, YouTube, and through advertisements made on various platforms, including on the 22 internet and on television, all of which were intended to mislead regulators4 and the public about 23 the [vehicles’] fuel efficiency, emissions standards, and other performance metrics.” (Compl. 24 ¶ 142.) Plaintiffs then offer specific examples of these misrepresentations: 25 For example: (1) Volkswagen caused a commercial to be aired during the Super Bowl, and thereafter over the internet, on February 7, 2010 26 27 touting the “Audi A3 TDI clean diesel” as the “Green Car of the 1 Year”; and (2) Volkswagen caused a commercial to be aired via 2 television and/or the internet in or around early 2015 advertising the Volkswagen Golf TDI clean diesel to disprove the “old wives tale” 3 that “diesel is dirty” by holding a white scarf to the exhaust pipe. 4 (Id.) 5 These allegations include the “time, place, and specific content of the false 6 representations,” as required by Rule 9(b). See Odom, 486 F.3d at 553. But the allegations still 7 fall short because they do not identify “the parties to the misrepresentation.” Id. Plaintiffs allege 8 that “Volkswagen” made these representations, which is the umbrella term used to refer to all 9 Defendants. As noted above, this type of group pleading is not permitted; especially here when 10 there is no reason to believe that certain defendants (e.g., Bosch and Volkmar Denner) were 11 responsible for a Super Bowl advertisement about the Audi A3. For fraud-based claims, “there is 12 no absolute requirement that . . . the complaint must identify false statements made by each and 13 every defendant.” Swartz, 476 F.3d at 764 (emphasis omitted). But if Plaintiffs are going to 14 claim—as they currently do—that all Defendants made these statements, more specifics are 15 needed. 16 The above discussion focuses on the misrepresentations that are alleged. Plaintiffs also 17 seek to base their wire fraud claim on allegations that Defendants failed to disclose material facts 18 to regulators, consumers, and VW salespersons. (See Compl. ¶ 139.) To prevail on this theory, 19 Plaintiffs need to identify a duty to disclose. They have not done so. No duty to disclose is 20 identified under their RICO count. 21 The RICO cause of action does not satisfy Rule 9(b). 22 B. RICO Proximate Cause 23 Defendants argue that Plaintiffs’ RICO claim also falls short on proximate cause grounds. 24 Below, the Court reviews the relevant proximate cause standard and then considers whether the 25 allegations satisfy that standard. 26 1. Legal Standard 27 The requirement of proximate cause has taken “many shapes” at common law—e.g., 1 268 (1992) (citing Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519, 532–33 2 (1983)). For civil RICO claims, directness is the most important of these: “When a court 3 evaluates a RICO claim for proximate causation, the central question it must ask is whether the 4 alleged violation led directly to the plaintiff’s injuries.” Anza v. Ideal Steel Supply Corp., 547 5 U.S. 451, 461 (2006); see also Hemi Grp., LLC v. City of N.Y., 559 U.S. 1, 12 (2010) (plurality) 6 (“The concepts of direct relationship and foreseeability are of course two of the many shapes 7 proximate cause took at common law. Our precedents make clear that in the RICO context, the 8 focus is on the directness of the relationship between the conduct and the harm.”). 9 The directness requirement reflects that while unlawful conduct may cause “ripples of 10 harm,” the remediation of more distant ripples often poses administrative problems that can be 11 avoided in suits by the directly injured. Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296, 12 1306 (2017) (citation omitted). For example, “the less direct an injury is, the more difficult it 13 becomes to ascertain the amount of a plaintiff’s damages attributable to the violation, as distinct 14 from other, independent, factors.” Holmes, 503 U.S. at 269. Also, if the claims of the indirectly 15 injured are recognized, courts may be forced “to adopt complicated rules apportioning damages 16 among plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of 17 multiple recoveries.” Id. As Holmes explained: “The need to grapple with these problems is 18 simply unjustified by the general interest in deterring injurious conduct, since directly injured 19 victims can generally be counted on to vindicate the law as private attorneys general, without any 20 of the problems attendant upon suits by plaintiffs injured more remotely.” Id. at 269-70; see also 21 id. at 271 (noting that the “general tendency of the law, in regard to damages at least, is not to go 22 beyond the first step” (quoting Associated General, 459 U.S. at 534)). 23 2. Application 24 Defendants’ conduct was several steps removed from Plaintiffs’ lost income. As alleged, 25 Defendants initially duped regulators into certifying—and consumers into buying—Volkswagen’s 26 diesel cars (step one). When the veil was lifted on Volkswagen’s defeat device scheme, 27 consumers who had bought the cars—and the public at large—became less inclined to buy other 1 revenues and profits declined as they sold fewer cars (step three). In turn, VW salespersons made 2 less money because their income was commission based and thus tied to the number of cars that 3 they sold (step four). 4 The just laid out effects of Volkswagen’s diesel scandal are illustrative of the ripples of 5 harm that fraudulent conduct may cause. But as noted above, the “general tendency” of the law 6 with respect to damages under RICO is “not to go beyond the first step.” Holmes, 503 U.S. at 7 271; see also Pillsbury, Madison & Sutro v. Lerner, 31 F.3d 924, 929–31 (9th Cir. 1994) (holding 8 that sublessee lacked RICO standing when the alleged injury was derivative of the master tenant’s 9 direct injury). 10 Moving several steps down the causal chain would cause the same problems here that 11 Holmes identified. First, it would be necessary to isolate the decline in Plaintiffs’ commissions 12 that was due to Defendants’ conduct as opposed to other causes. Plaintiffs’ commissions could 13 have dropped for a variety of reasons (e.g., economic downturn, dealership-specific changes, 14 salesperson-specific personal circumstances) and only the decline due to the diesel scandal would 15 potentially be recoverable. 16 Second, it would likely be necessary to apportion damages among VW dealers (who have 17 already sued and settled with Volkswagen) and VW salespersons. As alleged, the salespersons 18 received a percentage of the dealers’ profits on each car sale. To the extent that VW dealers have 19 already recovered their lost profits due to the diesel scandal, a recovery by VW salespersons could 20 amount to a double recovery. 21 Third, as Bosch notes, if VW salespersons could recover for their injuries under these 22 circumstances, it would be difficult to find a limiting principle. Any third party who claimed that 23 their income turned on the sale of cars at a VW dealership, “ranging from automobile workers to 24 advertising employees to the food truck parked outside the dealership,” could bring RICO claims 25 for lost income, and those claims would be hard to distinguish from Plaintiffs’. (Bosch Mot., Dkt. 26 No. 6333 at 15.) 27 The doctrine of proximate cause is designed to avoid these types of cascading claims of 1 (explaining that proximate cause “reflects the reality that ‘the judicial remedy cannot encompass 2 every conceivable harm that can be traced to alleged wrongdoing’” (quoting Associated General, 3 459 U.S. at 536)). And given that more direct victims of Volkswagen’s conduct have already sued 4 and recovered from the company, “[t]he need to grapple with the[] problems” generated by 5 Plaintiffs’ more remote RICO claim is “simply unjustified.” Holmes, 503 U.S. at 269. 6 Plaintiffs, in arguing that they have sufficiently alleged proximate cause, rely heavily on 7 Diaz v. Gates, 420 F.3d 897 (9th Cir. 2005) (en banc). The court held there that a man who 8 claimed that he was falsely imprisoned had sufficiently alleged a RICO injury to “business or 9 property” based on his assertion that the imprisonment caused him to lose employment and 10 employment opportunities. See id. at 898, 901. Much of Diaz focused on what qualifies as an 11 injury to “business or property” under RICO, but the court also touched on proximate cause. In 12 doing so the court rejected an argument that, because the lost wages were not the “direct target” of 13 the false imprisonment, but were merely a “secondary effect,” the plaintiff’s loss of wages was not 14 proximately caused by his false imprisonment. Id. at 901. The court explained that RICO does 15 not impose a “direct target” limitation, and that proximate cause is “generous enough to include 16 the unintended, though foreseeable, consequences of RICO predicate acts.” Id. (citing Holmes, 17 503 U.S. at 265–68; Palsgraf v. Long Island R.R. Co., 248 N.Y. 339 (1928)). 18 Plaintiffs argue that Diaz endorsed a foreseeability standard for RICO proximate cause. 19 And they contend that under that standard, their lost commissions are recoverable. (See Opp’n to 20 VW, Dkt. No. 6441 at 21 (“Volkswagen cannot seriously argue that a substantial impact on 21 Plaintiffs’ employment and economic opportunities, even if unintended, was [not] a foreseeable 22 consequence of the RICO predicate acts.”) (internal quotation marks omitted).) 23 As noted above, the Supreme Court has stated that the “central question” in analyzing 24 proximate cause under RICO is not foreseeability, but whether the violation “led directly to the 25 plaintiff’s injuries.” Anza, 547 U.S. at 461; see also Hemi, 559 U.S. at 12. Diaz, although 26 focusing on foreseeability, did not hold otherwise. Diaz rejected a “direct target” standard, but 27 that is not the same as the directness standard that was endorsed in Anza. “Direct target” suggests 1 would have needed to show that the police falsely arrested him with the intent that he would lose 2 employment as a result. Diaz held that RICO did not impose such a requirement. Under Anza’s 3 directness standard, in contrast, the same intentionality is not needed. Anza requires a showing 4 that the violation “led directly to the plaintiff’s injuries.” 547 U.S. at 461. That standard was 5 satisfied in Diaz: the plaintiff obviously could not pursue employment if he was in jail; his false 6 imprisonment led directly to his loss of employment and employment opportunities. See Diaz, 7 420 F.3d at 900 (“[Plaintiff’s] claimed financial loss? He could not fulfill his employment 8 contract or pursue valuable employment opportunities because he was in jail.”). 9 That proximate cause was found in Diaz also carriers little weight in analyzing proximate 10 cause here. Unlike here, Diaz did not involve multiple ripples of injury from a RICO violation. A 11 man asserted that he was falsely imprisoned by the defendants and that he lost employment as a 12 result. The injury was direct and there were no intervening parties in the causal chain. The Diaz 13 plaintiff’s RICO claim, then, did not pose the kinds of difficulties that arise when the indirectly 14 injured seek recovery. 15 Plaintiffs’ alleged injuries from the diesel scandal are well beyond the first step in the 16 causal chain. As a result, the Court concludes that proximate cause is lacking. 17 Having identified two reasons for dismissal of Plaintiffs’ RICO claim, the Court declines 18 to consider if there are any others. Defendants’ motions to dismiss the RICO claim are 19 GRANTED. Like the other claims in the complaint, the RICO claim is dismissed with leave to 20 amend. To cure the identified deficiencies, Plaintiffs need to plead their RICO claim with more 21 particularity and identify a more direct theory of causation. 22 VII. SERVICE OF PROCESS 23 Stadler has also moved to dismiss the claims against him under Rule 12(b)(5), based on 24 insufficient service of process. There is no dispute that Plaintiffs did not serve Stadler with the 25 operative, consolidated complaint. The Court therefore GRANTS Stadler’s motion. 26 VIII. PERSONAL JURISDICTION 27 Stadler and Winterkorn have also moved to dismiss the claims against them under Rule 1 support any specific conduct by either of these individual defendants. As a result, it cannot be 2 determined if either of them “(1) committed an intentional act, (2) expressly aimed at the forum 3 state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Dole 4 Food Co. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002). Specific personal jurisdiction is therefore 5 lacking. Also, because Stadler and Winterkorn are German residents, and because Plaintiffs have 6 not demonstrated that either of them have “continuous and systematic” contacts with the forum 7 state (whether that be California or the United States), general personal jurisdiction also has not 8 been established. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 9 (2011). As neither form of personal jurisdiction has been demonstrated, the Court GRANTS 10 Stadler’s and Winterkorn’s Rule 12(b)(2) motions to dismiss for lack of personal jurisdiction. 11 Contemplating that the Court might grant the Rule 12(b)(2) motions, Plaintiffs have asked 12 for leave to conduct jurisdictional discovery. Prior to discovery, other plaintiffs in this MDL have 13 managed to provide more detail about Winterkorn’s involvement in the diesel scandal. And 14 indeed, on more than one occasion the Court has held that it has personal jurisdiction over 15 Winterkorn. (See Dkt. No. 2636 at 33–40 (ADR securities action); Dkt. No. 3470 at 29–30 16 (bondholder’s action).) Because other plaintiffs were able to establish personal jurisdiction over 17 Winterkorn without jurisdictional discovery, Plaintiffs should be able to do so too. 18 As for Stadler, Plaintiffs’ claims against him are based only on generalities. More is 19 needed to support jurisdictional discovery. See, e.g., Miller v. Peter Thomas Roth, LLC, No. C 19- 20 0698 WHA, 2019 WL 1507767, at *5 (N.D. Cal. Apr. 5, 2019) (denying request for jurisdictional 21 discovery because plaintiffs’ “[c]onclusory allegations [were] unsupported and fail[ed] to make a 22 prima facie showing that the exercise of jurisdiction [was] proper”); Karabu Corp. v. Gitner, 16 F. 23 Supp. 2d 319, 325 (S.D.N.Y. 1998) (Sotomayor, J.) (explaining that “it would . . . raise grave due 24 process concerns” if plaintiffs could sue corporate officers based only on their title and “subject 25 [them] to depositions and discovery” without identifying a good faith basis for the claims against 26 them). 27 Plaintiffs’ request for jurisdictional discovery is DENIED. 1 IX. CONCLUSION 2 Defendants’ motions to dismiss the complaint are GRANTED. If Plaintiffs choose to amend 3 their complaint, they must do so within 45 days of this Order. 4 IT IS SO ORDERED. 5 || Dated: September 20, 2019 a kK 6

CHARLES R. BREYER

7 United States District Judge 8 9 10 11 a 12

15 16

= 17

Z 18

19 20 21 22 23 24 25 26 27 28