Complaint was on behalf of investors who lost billions when firm's shares plunged

By William Boston 

BERLIN -- Volkswagen AG suffered a legal setback on Monday when a German court ruled that it would allow investor lawsuits seeking up to EUR4 billion ($4.4 billion) in damages to move forward.

The District Court in Braunschweig, near Volkswagen's headquarters, said that it would allow a collective complaint that was launched on behalf of investors who lost billions when Volkswagen's shares plunged after U.S. authorities disclosed its diesel cheating in September.

Volkswagen last month reached a $15 billion settlement with U.S. environmental authorities, state attorneys general, and affected customers, who sought compensation for violations of environmental laws and damages after Volkswagen admitted it rigged diesel-powered vehicles to cheat on emissions tests.

"Volkswagen still believes it dutifully fulfilled its responsibilities to inform capital markets," a Volkswagen spokesman said in an emailed comment.

The German court procedure could have the same impact as a U.S. class-action suit but is handled differently because Germany, like much of Europe, doesn't allow U.S.-style class-action cases.

Under German law, the court must choose one case as a pilot case and apply its ultimate ruling in that case to all others. The Braunschweig court said in a statement that it expects to choose its pilot case by the end of 2016.

The court said it had received 170 individual law suits against Volkswagen in Braunschweig, seeking around EUR4 billion in damages, for retail and institutional investors.

The news in Germany comes after South Korea last week banned the sale of 80 Volkswagen models, affecting more than 80,000 vehicles in the country, stranding a ship in Seoul's harbor that was delivering more than 3,000 new Volkswagen vehicles.

Korean authorities in July indicted a local Volkswagen executive on charges of submitting manipulated emissions data to authorities and violating air quality laws and has called other executives in for questioning. Volkswagen has declined to comment on the indictment.

A district court judge in Germany last week dismissed Volkswagen's objections and ruled that local owners of tainted diesel vehicles had a right to return their cars to dealers for a full refund because of Volkswagen's "massive fraud" with its diesel-powered cars.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

August 09, 2016 02:48 ET (06:48 GMT)

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