Volkswagen and the Changing Landscape of Transnational Litigation

In September, Volkswagen announced that it had rigged diesel emissions tests in the United States to make its “Clean Diesel” cars seem energy efficient while they were being tested. In fact, the cars emitted pollutants up to 40 times more than what is allowed by U.S. law. After the announcement, which affects 11 million cars worldwide, Volkswagen’s market value dropped by about $25 billion. VW owners and shareholders around the world are now wondering how they could hold VW accountable.

Only a few years ago, these events would likely have led to enormous global class action lawsuits in the United States. There would have been suits asserting consumer fraud claims over cars sold in the United States and around the world and securities fraud claims by investors around the world.

Today, the landscape is different. The U.S. consumer actions have been filed, but they have fewer foreign plaintiffs and very limited securities claims. As I show in a recent piece published in the Stanford Law Review, U.S. courts in recent years have erected barriers to transnational litigation—litigation dealing with foreigners on one or both sides of the “v,” foreign conduct, or foreign law. Through a number of seemingly disparate doctrines, courts have made it harder for plaintiffs of any nationality to sue foreign defendants or to sue for conduct that occurred abroad. In the securities context, even most U.S. investors can no longer sue Volkswagen for the securities fraud it perpetrated in large part by lying to U.S. authorities. Instead, U.S. private securities fraud actions are now mostly limited to suits about securities traded on U.S. exchanges. Volkswagen primarily trades on the Frankfurt exchange.

For better or worse, Volkswagen may face a litigation war on more different fronts than it would have even ten years ago.

Business interests, for example the Chamber of Commerce, have been rallying for this narrowing of U.S. jurisdiction for a long time. But these developments have had unexpected and unintended results, in part because of a failure to appreciate the dynamism of foreign court systems. It had long been assumed that these cases, once blocked from U.S. court, will go away or settle for a pittance. A 1987 survey found that most cases dismissed on the grounds of forum non conveniens—which directs a U.S. court to dismiss or stay a case if, among other things, another country’s courts would be a more convenient forum—were never re-filed abroad.

That dynamic is changing. Evidence suggests that plaintiffs are re-filing cases after they are dismissed from U.S. courts, and bringing cases in foreign courts that might have been brought in the United States a few decades ago (and then, as necessary, bringing foreign judgments to the United States for enforcement). The Volkswagen example is a case in point: Plaintiffs who might have sued in the United States a decade ago are today contemplating and pursuing litigation against the car manufacturer in domestic courts from Europe to Canada to Korea. For better or worse, Volkswagen may face a litigation war on more different fronts than it would have even ten years ago.