Porsche wins dismissal of New York hedge fund lawsuit over VW

PanARMENIAN.Net - Porsche Automobil Holding SE on Thursday, Dec 27, won the dismissal of a New York lawsuit by 26 hedge funds that accused the German automaker of causing more than $1 billion of losses by cornering the market in Volkswagen AG shares, Reuters reported.

A five-justice panel of the New York State appeals court in Manhattan unanimously found that Porsche had met its "heavy burden" to establish that the state was the wrong place in which to bring the lawsuit.

That panel reversed an August 6 ruling by New York State Supreme Court Justice Charles Ramos that let the case by hedge funds including Glenhill Capital LP, David Einhorn's Greenlight Capital LP and Chase Coleman's Tiger Global LP proceed.

The funds accused Porsche of engineering a "massive short squeeze" in October 2008 by quietly buying nearly all freely traded ordinary VW shares in a bid to take over the company, despite publicly stating it had no plans to take a 75 percent stake.

When Porsche revealed it had amassed control of roughly three-quarters of VW, shares of VW soared, briefly making the Wolfsburg-based carmaker the world's biggest company by market value. The surge caused losses for hedge funds that had bet on a decline in the stock price.

Thursday's decision is a defeat for sophisticated and ordinary investors, who may have hoped they could use U.S. state courts to bring fraud claims against foreign companies over alleged misconduct taking place outside the United States.

In 2010, the U.S. Supreme Court made it significantly harder for investors to pursue such claims in federal courts, in the case Morrison vs. National Australia Bank Lt.

In its unsigned decision, the New York appeals court said the case was more appropriate for Germany, where litigation is also ongoing.

The appeals court said the hedge funds had failed to show that Porsche's actions created a "substantial nexus" with New York, noting that only links to the state were various phone calls and emails.

It added that most parties in the case are not New York residents, VW stock is traded only on foreign exchanges, and many witnesses and documents are in Germany.