By Jonathan Stempel and Jody Godoy

(Reuters) -A divided U.S. appeals court ruled in favor of Volkswagen AG on Friday by giving the German automaker another chance to end a lawsuit claiming it defrauded bondholders by concealing how it cheated pollution tests for its vehicles.

The 9th U.S. Circuit Court of Appeals in San Francisco said a lower court judge misapplied the law in refusing to dismiss the proposed class action by holders of $8.3 billion of bonds VW sold in 2014 and 2015, and ordered he look at the case again.

VW had said the plaintiff, Puerto Rico Government Employees and Judiciary Retirement System Administration, could not have been misled by marketing materials for the bonds because it had not shown it relied on them.

U.S. District Judge Charles Breyer had ruled in September 2019 that reliance on the German automaker’s silence about the cheating was presumed, citing the 1972 U.S. Supreme Court case Affiliated Ute Citizens of Utah v. United States.

But in Friday’s 2-1 decision, Circuit Judge Milan Smith said the presumption did not apply because the plaintiff also claimed to have relied on nine pages of VW’s affirmative misrepresentations.

“Plaintiff can prove reliance through ordinary means by demonstrating a connection between the alleged misstatements and its injury,” Smith wrote. “Otherwise, the exception would swallow the rule.”

VW’s lawyer Robert Giuffra, vice chair at Sullivan & Cromwell, welcomed the decision, saying the plaintiff was trying to make Affiliated Ute “an open-ended presumption that would apply in every case.”

Mitchell Twersky, a lawyer at Abraham Fruchter & Twersky representing the plaintiff, said there were “adequate grounds” to challenge the decision, which he said overly burdened securities fraud plaintiffs.

VW admitted in 2015 to having secretly used illegal software to evade emissions rules over six years.

It pleaded guilty in 2017 to fraud in a $4.3 billion settlement with the U.S. Department of Justice. The scandal has cost VW more than 32 billion euros ($38.2 billion) worldwide.

The case is Puerto Rico Government Employees and Judiciary Retirement Systems Administration v Volkswagen AG et al, 9th U.S. Circuit Court of Appeals, No. 20-1556.

(Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis and David Gregorio)

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