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FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
Index No.
FLORIAN LAMBINET, derivatively as a
shareholder of VOLKSWAGEN
VERIFIED SHAREHOLDER
AKTIENGESELLSCHAFT on behalf of
DERIVATIVE COMPLAINT
VOLKSWAGEN AKTIENGESELLSCHAFT,
Plaintiff, DEMAND FOR JURY TRIAL
vs.
HANS DIETER PÖTSCH, WOLFGANG
PORSCHE, FERDINAND OLIVER PORSCHE,
HUSSAIN ALI AL ABDULLA, BABETTE
FROHLICH, PETER MOSCH, BERND
OSTERLOH, ESTATE OF FERDINAND
PIECH, HANS MICHEL PIECH, ANNIKA
STEPHAN HANS-
FALKENGREN, WOLF,
PETER FISCHER, STEPHAN WEIL,
HERBERT DIESS, MARTIN WINTERKORN,
MATTHIAS MUELLER, MICHAEL HORN,
RICHARD DORENKAMP, HEINZ-JAKOB
NEUSSER, JENS HADLER, BERND
GOTTWEIS, OLIVER SCHMIDT, THOMAS
ZWIEBLER, DANIEL SCHUKRAFT, SCOTT
KEOGH, DETLEV VON PLATEN, ULRICH
HACKENBERG, FRANK TUCH, JURGEN
PETER, STUART JOHNSON, MICHAEL
HENNARD, LEONARD KATA, JAMES R.
LIANG, MORITZ FREUDENBERGER,
ROBERT BOSCH GMBH, ROBERT BOSCH
LLC, VOLKMAR DENNER, VOLKSWAGEN
GROUP OF AMERICA, INC., AUDI OF
AMERICA, LLC, PORSCHE CARS NORTH
AMERICA, INC. and VOLKSWAGEN GROUP
OF AMERICA FINANCE LLC,
Defendants,
- and -
VOLKSWAGEN AKTIENGESELLSCHAFT,
Nominal Defendant.
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Table of Contents
I. INTRODUCTION AND OVERVIEW OF ALLEGATIONS... .......3
Device"
A. The Diesel "Defeat Scheme Has Resulted in
VWAG Being Criminally Convicted and Sued
Countless Times, Costing VWAG Over $70 Billion to
Date and Ruined Its Reputation for Honesty, Integrity
and Legal Compliance ............................... ...........3
B. The Diesel Device Scheme Was a Massive Years-Long
Worldwide Scheme Overseen and Orchestrated by
VWAG's Supervisors/Managers for Their Own Selfish
Economic Gains............................ ..........10
C. The Unprecedented Abuse and Mismanagement of
VWAG Has Been Criticized by Experts, Commentators
and Law Enforcement Officials Worldwide .....................27
IL THE PARTIES 33
A. Plaintiff..........................- 33
B. Nominal Defendant VWAG and Its German
Subsidiaries .................................. 33
C. The Subsidiary Defendants ...............35
D. The Individual Defendants...................... 37
(1) Members of the Supervisory Board (Directors)....................37
(2) Members of the Board of Managêmênt (Officers) 40
E. The Bosch Defendants........................ ---..... 47
III. JURISDICTION, NON-REMOVABILITY AND VENUE................. 48
IV. THE GERMAN STOCK CORPORATION ACT .......51
V. DUTIES OF VWAG'S SUPERVISORS AND MANAGERS TO VWAG AND
THEIR RESPONSIBILITY FOR THE DAMAGE TO VWAG......................55
Supervisors' Managers'
A. The and Oversight and
Operation of VWAG's Business Including Its
Compliance Controls 55
B. Ignoring Waving Red Flags, the VWAG Supervisors
and Managers Violated Their Duties to Employ the
Care of a Diligent and Conscientious Manager Acting
Loyally to VWAG and Its Public Owners/Shareholders.................. 71
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Device"
C. The "Defeat Illegality Took Place Due to
VWAG's Poisonous Culture and Lack of
Financial/Accounting and Legal/Regulatory
Compliance and Lack of Supervisory Oversight..............................79
SCANDAL"
VL THE VWAG "CLEAN DIESEL EMISSIONS ERUPTED ON
SEPTEMBER 18, 2015, HAS COST VWAG OVER $34 BILLION TO DATE,
CONTINUES TO RAGE ON AND WILL COST BILLIONS MORE OVER
THE NEXT DECADE............................ ....._________..............................
84
EXECUTIVES'
VII. VWAG'S SUPERVISORS, MANAGERS, DEPUTIES AND
OBSTRUCTION OF JUSTICE AND FAILURE TO COOPERATE WITH
REGULATORS/INVESTIGATORS RESULTED IN ENHANCED
PENALTIES AND PUNISHMENTS......................... 102
VIIL THE BOSCH DEFENDANTS WORKED CLOSELY WITH VWAG
MANAGERS, EXECUTIVES AND ENGINEERS TO CREATE AND
DEVICE"
UTILIZE THE "DEFEAT AND TO D1VERT AND BLOCK THE
U.S. INVESTIGATIONS AS WELL ......111
IX. THE ROLES OF PRICEWATERHOUSECOOPERS AND KIRKLAND &
DEVICE"
ELLIS IN THE "DEFEAT SCHEME ............ 116
Device"
A. Involvement of Kirkland & Ellis in the "Defeat
Scheme........................................ ....117
B. Involvement of PricewaterhouseCoopers in the
Device"
"Defeat Scheme................ ..... .....123
X. PLAINTIFF HAS STANDING TO SUE DERIVATIVELY FOR VWAG ....127
A. Derivative Allegations and Plaintiff's Standing to Sue 127
B. The Procedures of the German Stock Corporation Act
for Filing Derivative Claims in German Regional
Court Do Not Control in New York........... 128
XL DEMAND ON THE VWAG SUPERVISORS TO SUE THE MANAGERS,
BOSCH AND THEMSELVES IS UNNECESSARY, WOULD BE FUTILE
AND IS EXCUSED.................................................... ...130
A. The VWAG Supervisory Board Is Under the Control of
Target Defendants .................................... 130
B. The Supervisors and Managers Are Permitting Two
Criminally Indicted Participants in the "Defeat
Device"
Scheme to Act as Board Chairman and CEO of
the Company..._________................ .............................................133
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C. The Supervisory Board Has Failed to Objectively
Evaluate or Properly Pursue VWAG's Valid Claims for
"Independent"
Damages, Quashed the Jones Day
Investigation, Halted Completion of Its Report and
Refused to Disclose Any Results to VWAG's Public
Shareholders to Protect Themselves..... .........................138
D. The Supervisors Are Wasting VWAG's Assets by
Paying off Departing Officials and Unnecessary Fines
to Protect Themselves ..................149
XII. JURISDICTION OVER VWAG AND BOSCH AND ITS
SUPERVISORS/MANAGERS AND VENUE ARE BOTH PERMI'ITED
AND PROPER IN NEW YORK; VENUE IS AS OR MORE CONVENIENT
TOWN" -
IN NEW YORK THAN VWAG'S "COMPANY WOLFSBURG,
GERMANY 154
XIII. CAUSES OF ACTION --------- - - -- -- - -- 176
XIV. PRAYER FOR RELIEF 180
DEMAND FOR JURY TRIAL 181
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1. Plaintiff Florian Lambinet, an owner of Volkswagen
("VWAG"
Aktiengesellschaft or the "Company") common stock, derivatively on
behalf of VWAG, files this verified shareholder derivative complaint against
present and former members of VWAG's Supervisory Board ("Supervisors") and
Board of Management ("Managers"), as well as other actors (collectively,
Device"
"Defendants") involved in the "Clean Diesel Engine Defeat scandal, for,
among other things, breaches of fiduciary duties owed to VWAG. In support of
these derivative claims, Plaintiff alleges the following upon personal knowledge
with respect to those allegations pertaining to himself, and upon information and
belief based upon, among other things, a review of public filings, press releases,
articles and reports, and investigations undertaken by counsel, as to all other
allegations.1 Plaintiff believes that substantial support will exist for the
evidentiary
1 Plaintiff's information and belief as to allegations matters
concerning
other than himself and his own acts are based upon, among other things: (a) review
and analysis of documents filed publicly by VWAG with government regulators;
(b) press releases and other public statements issued by VWAG, Volkswagen
Group of America, Inc. ("VWGoA"), Volkswagen Group of America, Inc. d/b/a
Volkswagen Group of America, Inc. ("VWoA"), and Audi of America, Inc. ("AoA");
(c) VWAG, VWGoA, VWoA, and AoA advertisements and marketing materials; (d)
information from government and regulatory investigations into VWAG and its
subsidiaries and divisions; (e) the complaints filed against VWAG, VWGoA, VWoA,
VWoA, and AoA by the U.S. Securities and Exchange Commission ("SEC"), vehicle
purchasers, ADR/ADSs purchasers and car dealers consolidated under In re
Diesel"
Volkswagen "Clean Marketing, Sales Practices & Product Liability, No.
15-MD-2672-CRB (N.D. Cal.), the complaints filed in United States v.Volkswagen
AG, No. 16-cv-o295-CRB (N.D. Cal.) and Federal Trade Commission v.
Volkswagen Group of America, Inc., No. 16-cv-1534 (N.D. Cal.), and related
complaints filed by several state attorneys general and private plaintiffs; (f) the
criminal plea agreements between the United States, Oliver Schmidt, and VWAG
and between the United States and James R. Liang; (g) the Second Superseding
Indictment filed the United States against Richard Heinz-
("SSI") by Dorenkamp,
Jakob Neuper, Jens Hadler, Bernd Gottweis, Oliver Schmidt and Jürgen Peter; and
(h) the complaint in State of New York v. Volkswagen Aktiengesellschaft, Index
No. 904021-16 (N.Y. Sup. Ct. Cnty. of Albany). All of these documents are
incorporated by reference and are judicially noticeable.
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allegations set forth below after a reasonable for discovery.2 This
opportunity
complaint speaks of and pleads events prior to and through as of March 1, 2020,
before the global Covid-19 pandemic and the resulting stock market crash.
2. As an owner of VWAG ADR/ADSs and/or common stock, Plaintiff
brings this action derivatively on behalf of VWAG, seeking (a) damages for the
Device"
harm caused VWAG due to the "Clean Diesel Engine Defeat scandal,
caused by negligence, lack of due care, prudence and loyalty of the VWAG
("Bosch,"
Managers and Supervisors and Robert Bosch GMBH as defined in
Device"
paragraph 94 below), which designed the "Defeat for VWAG in breach of
their duties to VWAG, influenced the Supervisors and Managers to act to the
disadvantage and damage of VWAG; and (b) disgorgement of all
monies/compensation/pension benefits accrued or paid to any defendants who
participated in the alleged wrongdoing, as well as the VWAG pension benefit of
Defendants'
such defendants. The action alleges breaches of their individual duties
managers"
of prudence and care, i.e., to act as "diligent and conscientious
with loyalty to VWAG, as well as taking actions and participating in a course of
Managers'
conduct that influenced and facilitated the Supervisors and actions that
disadvantaged and damaged VWAG, all in violation of the German Stock
Corporation Act. The failure of the Defendants to comply with the duties imposed
2 VWAG is one of the and most high-profile corporations in the
largest,
Scandal"
world. The VWAG "Clean Diesel Emissions has been covered by
sophisticated and reputable financial and automotive publications which have
investigated and reported the misconduct of VWAG's Managers and Supervisors
and Bosch - secret documents and information from insiders and
obtaining
government regulators.
Because this reporting by reputable publications is reliable, plaintiff relies
on it. Also, because it was the worldwide coverage of the "Clean Diesel Emissions
Scandal"
that has damaged VWAG's reputation, these articles are quoted at length.
No Defendant has demanded retraction of the facts asserted let alone sued any of
these publications, or the others quoted herein.
2
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by the German Stock Corporation Act, the German Corporate Governance Code
and VWAG's own Code of Conduct and other operating rules and procedures has
resulted in a catastrophe for VWAG - VWAG at least $70 billions in
costing
fines, penalties, settlements, payments and provisions, while careless,
disloyal and dishonorable corporate officials and culpable third parties have lined
their own pockets with over $100 millinu in compensation, bonuses, payments and
pensions to which they were not entitled.
I. INTRODUCTION AND OVERVIEW OF ALLEGATIONS
Device"
A. The Diesel "Defeat Scheme Has Resulted in VWAG Being
Criminally Convicted and Sued Countless Times, Costing VWAG
Over $70 Billion to Date and Ruined Its Reputation for Honesty,
Integrity and Legal Compliance
3. Over the past several years VWAG has been engulfed in and badly
damaged by the worst scandal involving a major automobile
manufacturer in history. Beginning in 2005/o6 VWAG and Bosch designed
Device" Diesel"
and implemented a "Defeat for VWAG's "Clean ("Altered
Vehides") to deceive U.S., California and New York regulators into believing the
Altered Vehides complied with applicable emissions standards. In fact, on the
3 In March Reuters reported "Volkswagen Says Diesel Scandal Has
2020,
Billion)]."
Cost it 31 Billion Euros [($34.69 Then a few weeks later, "Germany's
top civil court ordered Volkswagen to pay compensation to consumers affected by
the diesel emissions scandal ordering the Company to pay an estimated 28 billion
billion)]."
Euros [nearly $30-5 Marcy Kreit, Volkswagen Dieselgate: VW
"Unethical,"TopGermanCivilCourtOrdersCompensation inEmissionsScandal,
INT'L BUS. TIMES, May 25, 2020. A few weeks after that a U.S. federal appeals court
ruled VWAG could be sued by counties in the United States for violations of local
environmental regulations which the court acknowledged "may result in
liability,"
staggering as the total penalties for just the two counties involved in
the case amount to $10 billion alone. Hiroko Tabuchi, US ruling could mean a
flood new claims against VWAG - Judges Cleared the for Counties to
of Way
Pursue the Automaker for Cheating on Pollution Tests, Under Local Laws, THE
NEW YORK TIMES, June 1, 2020. Because there are many other open proceedings
that VWAG has admitted will take a decade to resolve, Plaintiff uses the $70 billion
estimate for the economic damage to VWAG.
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road the Altered Vehicles exceeded permitted emissions levels by up to 40 times.
Buyers of Altered Vehicles in New York were cheated. The health of New Yorkers
was harmed by being exposed to the noxious fumes poured out by the thousands
of Altered Vehicles by VWAG. Damaged as well were the New York residents who
purchased VWAG ADR/ADSs and New York institutional investors who were sold
billions of dollars of VWAG debt by New York investment banks as part of
Device"
maintaining VWAG's liquidity, so the "Defeat scheme could be pursued.
Vehicles"
VWAG manufactured and sold 11 million "Altered between 2009-2015
worldwide - over 600,000 in the United States - and over 26,000 here in New
York. When the fraud was first detected by California/New York regulators
VWAG/Bosch officials obstructed the investigations and destroyed key evidence.
When their lies, denials and obstruction were later overcome, VWAG was forced
to admit:
Its diesel cars "were designed and manufactured
with a Defeat Device to bypass, defeat, or
vehicles'
render inoperative elements of the
system."
emissions control
That "our company was dishonest. With the EPA,
and the California Air Resources Board, ...we have
up."4
totally screwed
That "defeat device software ...[was] installed on all of
the approximately 585,000 Altered Vehicles sold in the
2015·"
US from 2009 through
4 New York incorporates and relies on the stringent California automobile
emissions standards and the California procedures for testing, and compliance. In
"agent"
effect The California Air Resources Board ("CARB") acts as New York's
testing and certifying emissions compliance. To cheat or lie California is to cheat
or lie New York. Because of a unique New York post-purchase emissions
Plus"
testing procedure VWAG/Bosch had to create a "Defeat Device
"pass"
for VWAG vehicles sold in New York to these New York testing
procedures. See Section XII.
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4. Because of the misconduct of its Supervisors (Directors) and
Managers (Officers), VWAG had to plead guilty to three criminal felony violations
of laws in the United States, including obstruction of justice. VWAG has paid some
$30 billion to resolve the governmental proceedings and private suits on
Diesel"
behalf of "Clean vehicle purchasers here in the United States,
Vehicles"
including thousands of purchasers of "Altered in New York. Today
VWAG still remains tied down in proceedings that will take a decade to resolve,
Device"
costing the corporation billions more. This "Defeat scheme has also
"precious"
scarred and damaged VWAG's reputation for quality and honesty.
According to prosecutors in the United States:
• "Volkswagen's executives knew about
top
this illegal activity and deliberately kept
regulators, shareholders and consumers in
- years."
the dark and they did this for
• "It was essential that the justice
department insist on a guilty plea given the
egregiousness ofVolkswagen's misconduct
and the fact it reached very high in the
company."
• "The fact that this criminal conduct was
allegedly blessed at Volkswagen's highest
appalling."
levels is
United States District Judge Sean F. Cox accepted VWAG's plea and said "This is
crime."
a very, very, very serious Prosecutors in the United States also
indicted eight VWAG officials for criminal conduct, including VWAG's Chief
Executive Officer ("CEO"), Martin Winterkorn. All but two of these criminal
defendants are fugitives from justice, hiding in Germany. However, German
prosecutors have fined VWAG over $1 billion and indicted several senior VWAG
officials for German criminal laws - the current
violating including
Supervisory Board Chairman and current CEO.
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Device"
5. From the first public disclosure of the "Defeat scheme on
September 18, 2015 the VWAG Supervisors have acted disloyally to VWAG, taking
steps to protect their personal interests, positions and purses at the
expense and to the damage of VWAG, acting to hold onto their
corporate positions ofpower,prestige and profit. The VWAG Supervisory
Board is controlled and dominated by the Porsche and Piëch families, who control
51% of VWAG's voting shares and have Supervisors on the VWAG Board to assure
their control over any significant action.
Scandal"
6. After the exposure of the "Clean Diesel Emissions by U.S.
prosecutors on September 18, 2015, the financial community and press reacted
with shock and outrage over the scope and outrageous nature of the criminal
wrongdoing. The market capitalization of VWAG's stock collapsed by some $60
Device"
billion. The Supervisors falsely claimed that the "Defeat scheme was the
engineers"
work of a few "rogue and attempted to prevent discovery or exposure
of their own involvement in and - possible financial and criminal responsibility
- Device"
for the "Defeat scheme. Under pressure after U.S. authorities exposed
Device"
the "Defeat scheme, the Supervisors loudly promised an independent
why,"
investigation of "who knew or did what, when and promising the
"thorough"
U.S.-headquartered Jones Day law firm would conduct a investigation
and its report would be made available to the shareholders/owners of VWAG and
those responsible for damaging VWAG would be held responsible.
Hans Dieter Pötsch, Chairman of the Supervisory Board, told VWAG's public
stockholders that "we are relentlessly searching for those responsible
and you may rest assured we will bring those persons to account. I
here and now guarantee that we will pursue our thorough
investigation to its conclusion. Ivouchfor this personally as does the
ofVolkswagen."
whole Supervisory Board This was a lie. The Supervisory
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Board later quashed the investigation to protect themselves and the controlling
- damaging."
shareholders admitting disclosure of its results would be "too
Later the Chairman of VWAG's Supervisory Board, who was then under
Device"
criminal indictment in Germany for his role in the "Defeat
scheme,said: "[t]o be clear,there is no writtenfnal reportfrom Jones
be."
Day nor will there
7. In September 2019 German prosecutors indicted VWAG's current
Chairman of the Supervisory Board and its CEO (the two top ofcials at
VWAG) on criminal charges - Hans Dieter Pötsch, the Chairman of the
VWAG Supervisory Board, a longtime VWAG financial executive and close
confidant of the Piëch family, and Herbert Diess, the Chairman of the Board of
Management, i.e., CEO. Pötsch (Chairman) and Diess (CEO) were the top
Managers/Officers of VWAG during the period as the corporate-wide "Defeat
Device"
scheme went on for several years. The current Supervisors, determined to
prevent accountability from reaching them, permitted these two deeply implicated
individuals to remain in their positions of power, trust and confidence, even
though they were under criminal indictment. This is the only public
company in the world where the top two corporate ofcials operated,
while under criminal indictment as part of a huge criminal scheme.
This is unheard of in modern corporate governance and evidences the continued
intent of the controlling shareholders to protect themselves from being held
personally accountable at all co
Preview
FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK Index No. FLORIAN LAMBINET, derivatively as a shareholder of VOLKSWAGEN VERIFIED SHAREHOLDER AKTIENGESELLSCHAFT on behalf of DERIVATIVE COMPLAINT VOLKSWAGEN AKTIENGESELLSCHAFT, Plaintiff, DEMAND FOR JURY TRIAL vs. HANS DIETER PÖTSCH, WOLFGANG PORSCHE, FERDINAND OLIVER PORSCHE, HUSSAIN ALI AL ABDULLA, BABETTE FROHLICH, PETER MOSCH, BERND OSTERLOH, ESTATE OF FERDINAND PIECH, HANS MICHEL PIECH, ANNIKA STEPHAN HANS- FALKENGREN, WOLF, PETER FISCHER, STEPHAN WEIL, HERBERT DIESS, MARTIN WINTERKORN, MATTHIAS MUELLER, MICHAEL HORN, RICHARD DORENKAMP, HEINZ-JAKOB NEUSSER, JENS HADLER, BERND GOTTWEIS, OLIVER SCHMIDT, THOMAS ZWIEBLER, DANIEL SCHUKRAFT, SCOTT KEOGH, DETLEV VON PLATEN, ULRICH HACKENBERG, FRANK TUCH, JURGEN PETER, STUART JOHNSON, MICHAEL HENNARD, LEONARD KATA, JAMES R. LIANG, MORITZ FREUDENBERGER, ROBERT BOSCH GMBH, ROBERT BOSCH LLC, VOLKMAR DENNER, VOLKSWAGEN GROUP OF AMERICA, INC., AUDI OF AMERICA, LLC, PORSCHE CARS NORTH AMERICA, INC. and VOLKSWAGEN GROUP OF AMERICA FINANCE LLC, Defendants, - and - VOLKSWAGEN AKTIENGESELLSCHAFT, Nominal Defendant. 1 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 Table of Contents I. INTRODUCTION AND OVERVIEW OF ALLEGATIONS... .......3 Device" A. The Diesel "Defeat Scheme Has Resulted in VWAG Being Criminally Convicted and Sued Countless Times, Costing VWAG Over $70 Billion to Date and Ruined Its Reputation for Honesty, Integrity and Legal Compliance ............................... ...........3 B. The Diesel Device Scheme Was a Massive Years-Long Worldwide Scheme Overseen and Orchestrated by VWAG's Supervisors/Managers for Their Own Selfish Economic Gains............................ ..........10 C. The Unprecedented Abuse and Mismanagement of VWAG Has Been Criticized by Experts, Commentators and Law Enforcement Officials Worldwide .....................27 IL THE PARTIES 33 A. Plaintiff..........................- 33 B. Nominal Defendant VWAG and Its German Subsidiaries .................................. 33 C. The Subsidiary Defendants ...............35 D. The Individual Defendants...................... 37 (1) Members of the Supervisory Board (Directors)....................37 (2) Members of the Board of Managêmênt (Officers) 40 E. The Bosch Defendants........................ ---..... 47 III. JURISDICTION, NON-REMOVABILITY AND VENUE................. 48 IV. THE GERMAN STOCK CORPORATION ACT .......51 V. DUTIES OF VWAG'S SUPERVISORS AND MANAGERS TO VWAG AND THEIR RESPONSIBILITY FOR THE DAMAGE TO VWAG......................55 Supervisors' Managers' A. The and Oversight and Operation of VWAG's Business Including Its Compliance Controls 55 B. Ignoring Waving Red Flags, the VWAG Supervisors and Managers Violated Their Duties to Employ the Care of a Diligent and Conscientious Manager Acting Loyally to VWAG and Its Public Owners/Shareholders.................. 71 i 2 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 Device" C. The "Defeat Illegality Took Place Due to VWAG's Poisonous Culture and Lack of Financial/Accounting and Legal/Regulatory Compliance and Lack of Supervisory Oversight..............................79 SCANDAL" VL THE VWAG "CLEAN DIESEL EMISSIONS ERUPTED ON SEPTEMBER 18, 2015, HAS COST VWAG OVER $34 BILLION TO DATE, CONTINUES TO RAGE ON AND WILL COST BILLIONS MORE OVER THE NEXT DECADE............................ ....._________.............................. 84 EXECUTIVES' VII. VWAG'S SUPERVISORS, MANAGERS, DEPUTIES AND OBSTRUCTION OF JUSTICE AND FAILURE TO COOPERATE WITH REGULATORS/INVESTIGATORS RESULTED IN ENHANCED PENALTIES AND PUNISHMENTS......................... 102 VIIL THE BOSCH DEFENDANTS WORKED CLOSELY WITH VWAG MANAGERS, EXECUTIVES AND ENGINEERS TO CREATE AND DEVICE" UTILIZE THE "DEFEAT AND TO D1VERT AND BLOCK THE U.S. INVESTIGATIONS AS WELL ......111 IX. THE ROLES OF PRICEWATERHOUSECOOPERS AND KIRKLAND & DEVICE" ELLIS IN THE "DEFEAT SCHEME ............ 116 Device" A. Involvement of Kirkland & Ellis in the "Defeat Scheme........................................ ....117 B. Involvement of PricewaterhouseCoopers in the Device" "Defeat Scheme................ ..... .....123 X. PLAINTIFF HAS STANDING TO SUE DERIVATIVELY FOR VWAG ....127 A. Derivative Allegations and Plaintiff's Standing to Sue 127 B. The Procedures of the German Stock Corporation Act for Filing Derivative Claims in German Regional Court Do Not Control in New York........... 128 XL DEMAND ON THE VWAG SUPERVISORS TO SUE THE MANAGERS, BOSCH AND THEMSELVES IS UNNECESSARY, WOULD BE FUTILE AND IS EXCUSED.................................................... ...130 A. The VWAG Supervisory Board Is Under the Control of Target Defendants .................................... 130 B. The Supervisors and Managers Are Permitting Two Criminally Indicted Participants in the "Defeat Device" Scheme to Act as Board Chairman and CEO of the Company..._________................ .............................................133 ii 3 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 C. The Supervisory Board Has Failed to Objectively Evaluate or Properly Pursue VWAG's Valid Claims for "Independent" Damages, Quashed the Jones Day Investigation, Halted Completion of Its Report and Refused to Disclose Any Results to VWAG's Public Shareholders to Protect Themselves..... .........................138 D. The Supervisors Are Wasting VWAG's Assets by Paying off Departing Officials and Unnecessary Fines to Protect Themselves ..................149 XII. JURISDICTION OVER VWAG AND BOSCH AND ITS SUPERVISORS/MANAGERS AND VENUE ARE BOTH PERMI'ITED AND PROPER IN NEW YORK; VENUE IS AS OR MORE CONVENIENT TOWN" - IN NEW YORK THAN VWAG'S "COMPANY WOLFSBURG, GERMANY 154 XIII. CAUSES OF ACTION --------- - - -- -- - -- 176 XIV. PRAYER FOR RELIEF 180 DEMAND FOR JURY TRIAL 181 iii 4 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 1. Plaintiff Florian Lambinet, an owner of Volkswagen ("VWAG" Aktiengesellschaft or the "Company") common stock, derivatively on behalf of VWAG, files this verified shareholder derivative complaint against present and former members of VWAG's Supervisory Board ("Supervisors") and Board of Management ("Managers"), as well as other actors (collectively, Device" "Defendants") involved in the "Clean Diesel Engine Defeat scandal, for, among other things, breaches of fiduciary duties owed to VWAG. In support of these derivative claims, Plaintiff alleges the following upon personal knowledge with respect to those allegations pertaining to himself, and upon information and belief based upon, among other things, a review of public filings, press releases, articles and reports, and investigations undertaken by counsel, as to all other allegations.1 Plaintiff believes that substantial support will exist for the evidentiary 1 Plaintiff's information and belief as to allegations matters concerning other than himself and his own acts are based upon, among other things: (a) review and analysis of documents filed publicly by VWAG with government regulators; (b) press releases and other public statements issued by VWAG, Volkswagen Group of America, Inc. ("VWGoA"), Volkswagen Group of America, Inc. d/b/a Volkswagen Group of America, Inc. ("VWoA"), and Audi of America, Inc. ("AoA"); (c) VWAG, VWGoA, VWoA, and AoA advertisements and marketing materials; (d) information from government and regulatory investigations into VWAG and its subsidiaries and divisions; (e) the complaints filed against VWAG, VWGoA, VWoA, VWoA, and AoA by the U.S. Securities and Exchange Commission ("SEC"), vehicle purchasers, ADR/ADSs purchasers and car dealers consolidated under In re Diesel" Volkswagen "Clean Marketing, Sales Practices & Product Liability, No. 15-MD-2672-CRB (N.D. Cal.), the complaints filed in United States v.Volkswagen AG, No. 16-cv-o295-CRB (N.D. Cal.) and Federal Trade Commission v. Volkswagen Group of America, Inc., No. 16-cv-1534 (N.D. Cal.), and related complaints filed by several state attorneys general and private plaintiffs; (f) the criminal plea agreements between the United States, Oliver Schmidt, and VWAG and between the United States and James R. Liang; (g) the Second Superseding Indictment filed the United States against Richard Heinz- ("SSI") by Dorenkamp, Jakob Neuper, Jens Hadler, Bernd Gottweis, Oliver Schmidt and Jürgen Peter; and (h) the complaint in State of New York v. Volkswagen Aktiengesellschaft, Index No. 904021-16 (N.Y. Sup. Ct. Cnty. of Albany). All of these documents are incorporated by reference and are judicially noticeable. 1 5 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 allegations set forth below after a reasonable for discovery.2 This opportunity complaint speaks of and pleads events prior to and through as of March 1, 2020, before the global Covid-19 pandemic and the resulting stock market crash. 2. As an owner of VWAG ADR/ADSs and/or common stock, Plaintiff brings this action derivatively on behalf of VWAG, seeking (a) damages for the Device" harm caused VWAG due to the "Clean Diesel Engine Defeat scandal, caused by negligence, lack of due care, prudence and loyalty of the VWAG ("Bosch," Managers and Supervisors and Robert Bosch GMBH as defined in Device" paragraph 94 below), which designed the "Defeat for VWAG in breach of their duties to VWAG, influenced the Supervisors and Managers to act to the disadvantage and damage of VWAG; and (b) disgorgement of all monies/compensation/pension benefits accrued or paid to any defendants who participated in the alleged wrongdoing, as well as the VWAG pension benefit of Defendants' such defendants. The action alleges breaches of their individual duties managers" of prudence and care, i.e., to act as "diligent and conscientious with loyalty to VWAG, as well as taking actions and participating in a course of Managers' conduct that influenced and facilitated the Supervisors and actions that disadvantaged and damaged VWAG, all in violation of the German Stock Corporation Act. The failure of the Defendants to comply with the duties imposed 2 VWAG is one of the and most high-profile corporations in the largest, Scandal" world. The VWAG "Clean Diesel Emissions has been covered by sophisticated and reputable financial and automotive publications which have investigated and reported the misconduct of VWAG's Managers and Supervisors and Bosch - secret documents and information from insiders and obtaining government regulators. Because this reporting by reputable publications is reliable, plaintiff relies on it. Also, because it was the worldwide coverage of the "Clean Diesel Emissions Scandal" that has damaged VWAG's reputation, these articles are quoted at length. No Defendant has demanded retraction of the facts asserted let alone sued any of these publications, or the others quoted herein. 2 6 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 by the German Stock Corporation Act, the German Corporate Governance Code and VWAG's own Code of Conduct and other operating rules and procedures has resulted in a catastrophe for VWAG - VWAG at least $70 billions in costing fines, penalties, settlements, payments and provisions, while careless, disloyal and dishonorable corporate officials and culpable third parties have lined their own pockets with over $100 millinu in compensation, bonuses, payments and pensions to which they were not entitled. I. INTRODUCTION AND OVERVIEW OF ALLEGATIONS Device" A. The Diesel "Defeat Scheme Has Resulted in VWAG Being Criminally Convicted and Sued Countless Times, Costing VWAG Over $70 Billion to Date and Ruined Its Reputation for Honesty, Integrity and Legal Compliance 3. Over the past several years VWAG has been engulfed in and badly damaged by the worst scandal involving a major automobile manufacturer in history. Beginning in 2005/o6 VWAG and Bosch designed Device" Diesel" and implemented a "Defeat for VWAG's "Clean ("Altered Vehides") to deceive U.S., California and New York regulators into believing the Altered Vehides complied with applicable emissions standards. In fact, on the 3 In March Reuters reported "Volkswagen Says Diesel Scandal Has 2020, Billion)]." Cost it 31 Billion Euros [($34.69 Then a few weeks later, "Germany's top civil court ordered Volkswagen to pay compensation to consumers affected by the diesel emissions scandal ordering the Company to pay an estimated 28 billion billion)]." Euros [nearly $30-5 Marcy Kreit, Volkswagen Dieselgate: VW "Unethical,"TopGermanCivilCourtOrdersCompensation inEmissionsScandal, INT'L BUS. TIMES, May 25, 2020. A few weeks after that a U.S. federal appeals court ruled VWAG could be sued by counties in the United States for violations of local environmental regulations which the court acknowledged "may result in liability," staggering as the total penalties for just the two counties involved in the case amount to $10 billion alone. Hiroko Tabuchi, US ruling could mean a flood new claims against VWAG - Judges Cleared the for Counties to of Way Pursue the Automaker for Cheating on Pollution Tests, Under Local Laws, THE NEW YORK TIMES, June 1, 2020. Because there are many other open proceedings that VWAG has admitted will take a decade to resolve, Plaintiff uses the $70 billion estimate for the economic damage to VWAG. 3 7 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 road the Altered Vehicles exceeded permitted emissions levels by up to 40 times. Buyers of Altered Vehicles in New York were cheated. The health of New Yorkers was harmed by being exposed to the noxious fumes poured out by the thousands of Altered Vehicles by VWAG. Damaged as well were the New York residents who purchased VWAG ADR/ADSs and New York institutional investors who were sold billions of dollars of VWAG debt by New York investment banks as part of Device" maintaining VWAG's liquidity, so the "Defeat scheme could be pursued. Vehicles" VWAG manufactured and sold 11 million "Altered between 2009-2015 worldwide - over 600,000 in the United States - and over 26,000 here in New York. When the fraud was first detected by California/New York regulators VWAG/Bosch officials obstructed the investigations and destroyed key evidence. When their lies, denials and obstruction were later overcome, VWAG was forced to admit: Its diesel cars "were designed and manufactured with a Defeat Device to bypass, defeat, or vehicles' render inoperative elements of the system." emissions control That "our company was dishonest. With the EPA, and the California Air Resources Board, ...we have up."4 totally screwed That "defeat device software ...[was] installed on all of the approximately 585,000 Altered Vehicles sold in the 2015·" US from 2009 through 4 New York incorporates and relies on the stringent California automobile emissions standards and the California procedures for testing, and compliance. In "agent" effect The California Air Resources Board ("CARB") acts as New York's testing and certifying emissions compliance. To cheat or lie California is to cheat or lie New York. Because of a unique New York post-purchase emissions Plus" testing procedure VWAG/Bosch had to create a "Defeat Device "pass" for VWAG vehicles sold in New York to these New York testing procedures. See Section XII. 4 8 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 4. Because of the misconduct of its Supervisors (Directors) and Managers (Officers), VWAG had to plead guilty to three criminal felony violations of laws in the United States, including obstruction of justice. VWAG has paid some $30 billion to resolve the governmental proceedings and private suits on Diesel" behalf of "Clean vehicle purchasers here in the United States, Vehicles" including thousands of purchasers of "Altered in New York. Today VWAG still remains tied down in proceedings that will take a decade to resolve, Device" costing the corporation billions more. This "Defeat scheme has also "precious" scarred and damaged VWAG's reputation for quality and honesty. According to prosecutors in the United States: • "Volkswagen's executives knew about top this illegal activity and deliberately kept regulators, shareholders and consumers in - years." the dark and they did this for • "It was essential that the justice department insist on a guilty plea given the egregiousness ofVolkswagen's misconduct and the fact it reached very high in the company." • "The fact that this criminal conduct was allegedly blessed at Volkswagen's highest appalling." levels is United States District Judge Sean F. Cox accepted VWAG's plea and said "This is crime." a very, very, very serious Prosecutors in the United States also indicted eight VWAG officials for criminal conduct, including VWAG's Chief Executive Officer ("CEO"), Martin Winterkorn. All but two of these criminal defendants are fugitives from justice, hiding in Germany. However, German prosecutors have fined VWAG over $1 billion and indicted several senior VWAG officials for German criminal laws - the current violating including Supervisory Board Chairman and current CEO. 5 9 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 Device" 5. From the first public disclosure of the "Defeat scheme on September 18, 2015 the VWAG Supervisors have acted disloyally to VWAG, taking steps to protect their personal interests, positions and purses at the expense and to the damage of VWAG, acting to hold onto their corporate positions ofpower,prestige and profit. The VWAG Supervisory Board is controlled and dominated by the Porsche and Piëch families, who control 51% of VWAG's voting shares and have Supervisors on the VWAG Board to assure their control over any significant action. Scandal" 6. After the exposure of the "Clean Diesel Emissions by U.S. prosecutors on September 18, 2015, the financial community and press reacted with shock and outrage over the scope and outrageous nature of the criminal wrongdoing. The market capitalization of VWAG's stock collapsed by some $60 Device" billion. The Supervisors falsely claimed that the "Defeat scheme was the engineers" work of a few "rogue and attempted to prevent discovery or exposure of their own involvement in and - possible financial and criminal responsibility - Device" for the "Defeat scheme. Under pressure after U.S. authorities exposed Device" the "Defeat scheme, the Supervisors loudly promised an independent why," investigation of "who knew or did what, when and promising the "thorough" U.S.-headquartered Jones Day law firm would conduct a investigation and its report would be made available to the shareholders/owners of VWAG and those responsible for damaging VWAG would be held responsible. Hans Dieter Pötsch, Chairman of the Supervisory Board, told VWAG's public stockholders that "we are relentlessly searching for those responsible and you may rest assured we will bring those persons to account. I here and now guarantee that we will pursue our thorough investigation to its conclusion. Ivouchfor this personally as does the ofVolkswagen." whole Supervisory Board This was a lie. The Supervisory 6 10 of 187 FILED: NEW YORK COUNTY CLERK 07/22/2020 05:11 PM INDEX NO. 653303/2020 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 07/22/2020 Board later quashed the investigation to protect themselves and the controlling - damaging." shareholders admitting disclosure of its results would be "too Later the Chairman of VWAG's Supervisory Board, who was then under Device" criminal indictment in Germany for his role in the "Defeat scheme,said: "[t]o be clear,there is no writtenfnal reportfrom Jones be." Day nor will there 7. In September 2019 German prosecutors indicted VWAG's current Chairman of the Supervisory Board and its CEO (the two top ofcials at VWAG) on criminal charges - Hans Dieter Pötsch, the Chairman of the VWAG Supervisory Board, a longtime VWAG financial executive and close confidant of the Piëch family, and Herbert Diess, the Chairman of the Board of Management, i.e., CEO. Pötsch (Chairman) and Diess (CEO) were the top Managers/Officers of VWAG during the period as the corporate-wide "Defeat Device" scheme went on for several years. The current Supervisors, determined to prevent accountability from reaching them, permitted these two deeply implicated individuals to remain in their positions of power, trust and confidence, even though they were under criminal indictment. This is the only public company in the world where the top two corporate ofcials operated, while under criminal indictment as part of a huge criminal scheme. This is unheard of in modern corporate governance and evidences the continued intent of the controlling shareholders to protect themselves from being held personally accountable at all co