(Adds details from decision, lawyer's comments)
By Jonathan Stempel
NEW YORK Aug 15 Porsche Automobil Holding SE
persuaded a U.S. federal appeals court to uphold the
dismissal of a lawsuit by more than 30 hedge funds that claimed
to suffer big losses because the German automaker fraudulently
cornered the market in Volkswagen AG shares.
The 2nd U.S. Circuit Court of Appeals on Friday said
Porsche's alleged wrongdoing was "so predominantly foreign"
that it could not be held liable in U.S. federal courts under
domestic securities fraud laws.
It also said that the hedge funds might still "conceivably"
show that U.S. laws should apply, and try to amend their lawsuit
in Manhattan federal court.
The unsigned 48-page decision was issued 2-1/2 years after
It is the latest of several 2nd Circuit decisions to make it
harder to pursue U.S. lawsuits over foreign conduct, since a
2010 U.S. Supreme Court ruling in Morrison v. National Australia
Bank Ltd limited the reach of U.S. securities laws.
In various litigation, including some pending in Europe,
hedge funds including Paul Singer's Elliott International LP and
David Einhorn's Greenlight Capital LP sought to recoup about $2
billion of losses they blamed on Porsche's "massive short
squeeze" in VW.
They claimed that during 2008, Porsche quietly bought most
freely traded VW shares, despite publicly stating it had no
plans to take a 75 percent controlling stake.
When Porsche revealed such a stake in October 2008, shares
of VW skyrocketed. This briefly made VW the world's largest
company by market value, but caused losses for the hedge funds
on swap agreements where they bet the share price would drop.
In December 2010, U.S. District Judge Harold Baer, who has
since died, dismissed the hedge funds' federal lawsuit.
Upholding this ruling but on different grounds, the appeals
court said the mere entering of swap agreements in the United
States was by itself not enough to justify invoking Section
10(b) of the Securities Exchange Act, a widely used fraud law.
It said this was because the "foreignness" of the overall
dispute might be so dominant that U.S. courts should stay out,
or else risk putting U.S. and other countries' laws in conflict.
James Heaton, a partner at Bartlit Beck Herman Palenchar &
Scott representing the hedge funds, did not immediately respond
to requests for comment. A similar lawsuit in New York state
court was previously dismissed.
"We're pleased with today's decision, which we think should
finally end the U.S. litigation against Porsche," said Robert
Giuffra, a partner at Sullivan & Cromwell representing Porsche.
"Based on the court's reasoning, we don't see how the hedge
funds can bring a valid U.S. securities fraud claim."
The case is Parkcentral Global Hub Ltd et al v. Porsche
Automobile Holding SE et al, 2nd U.S. Circuit Court of Appeals,
(Editing by G Crosse and Matthew Lewis)