VOW3 Volkswagen AG

By William Boston

BERLIN--Germany's highest civil court on Monday ruled against Volkswagen AG in the first case brought by customers seeking damages in connection with the car maker's emissions-cheating scandal, a landmark ruling that could herald further litigation against Volkswagen and some competitors.

The ruling comes more than four years after Volkswagen in 2015 admitted to installing illegal software on millions of diesel models. The device allowed the cars to pass emissions tests in the laboratory while emitting much higher levels of toxic pollutants during normal road use.

Volkswagen pleaded guilty to charges of committing fraud and deceiving consumers and the U.S. government and has paid more than $30 billion in fines, penalties and consumer compensation.

Yet in Germany, Volkswagen has until now avoided paying costly compensation to consumers. That could change with the current ruling, though it is unclear how many of the large number of diesel owners in Germany will be able to take advantage of the ruling because of the statute of limitations covering the fraud.

U.S.-style class action suits are generally not allowed in Germany, a fact that limits the ability of consumers to seek redress for corporate fraud. In this case, the court ruled on a lawsuit brought by a single car owner and found that Volkswagen must compensate any consumer who unwittingly purchased a vehicle containing illegal software.

Explaining the judges' ruling, the Federal Court of Justice said that Volkswagen had not behaved in a way that was "compatible with the fundamental values of the legal and moral order."

"The defendant's behavior must be considered unethical," Stephan Seiters, the presiding judge, said in the court's ruling.

Responding to the ruling, Volkswagen said it would offer one-off payments to some owners of tainted diesel cars who already have cases pending with the courts. Volkswagen said it did not expect the ruling to unleash a wave of new litigation.

"This will hardly be a cause for new lawsuits," the company said in a statement, citing the considerable hurdles to establish a case under German law and the fact that the statute of limitations on many claims had already expired.

Generally, claims against fraud in Germany expire after three years. The ruling could be significant in future litigation against other car makers who are also being targeted by diesel-vehicle owners seeking compensation.

Volkswagen recently agreed to pay up to 830 million euros ($904 million) to settle lawsuits with 235,000 car owners in Germany. About 40,000 of those plaintiffs turned down the settlement, which would allow them to seek damages under the court's new ruling.

Claus Goldenstein, an attorney who represented the plaintiff in the Volkswagen case, said the court's ruling sets a precedent for all future diesel litigation, allowing lower courts to rule in favor of consumers.

"Now, the diesel scandal is just beginning," Mr. Goldenstein said in a statement.

Jessica Sier contributed to this article.

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

(END) Dow Jones Newswires

May 25, 2020 12:25 ET (16:25 GMT)

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