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From Antitrust Law Daily, June 28, 2016

Volkswagen agrees to $14.7B settlement over emissions claims, ‘defeat devices’

By Jeffrey May, J.D.

A $14.7 billion settlement package will partially resolve claims brought by the FTC, the Department of Justice, the State of California, and private consumers against Volkswagen Group of America, Inc. (VW) over the company’s marketing and sales of certain "clean diesel" vehicles. The settlements, which are subject to approval by the federal district court in San Francisco, are intended to compensate consumers and mitigate environmental harms from VW’s purported efforts to evade emissions rules and deceive consumers (In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation, Case 3:15-md-02672-CRB).

Federal and state enforcers announced today the terms of the settlements, which will provide relief for certain owners and lessees of Volkswagen and Audi branded 2.0-liter TDI vehicles. VW will spend up to $10.03 billion to compensate consumers of nearly 500,000 model year 2009-2015 2.0 liter diesel vehicles sold or leased in the United States through buybacks and lease termination deals. This settlement will partially resolve the FTC’s claims and putative class action claims. Under the Justice Department settlement, VW will spend $4.7 billion to mitigate the pollution from these cars and invest in green vehicle technology.

Justice Department complaint. The Department of Justice brought a civil suit, on behalf of the Environmental Protection Agency (EPA), in January against VW. The Justice Department alleged that certain VW vehicles contained "defeat devices" or illegal software designed to enable the vehicles to cheat emissions tests for compliance with EPA or California emissions standards. Use of the defeat device resulted in cars that meet emissions standards in the laboratory, but emitted harmful NOx at levels up to 40 times EPA-compliant levels during normal on-road driving conditions, according to the Justice Department. These defeat devices allegedly caused emissions to exceed EPA standards, resulting in harmful air pollution. VW was charged with violating the Clean Air Act. The Justice Department sought injunctive relief and civil penalties.

FTC complaint. In March, the FTC filed a complaint, asserting that the auto maker misrepresented that certain Audi and Volkswagen vehicles were environmentally friendly, had low emissions, complied with state and federal emissions standards, and retained high resale values. The agency contended that more than a half million "Defeat Device Vehicles" (DDVs) were sold to U.S. consumers, based on VW’s representations that its "clean diesel" vehicles had higher resale values versus comparable gasoline vehicles. According to the FTC, the DDVs suffered a significant reduction in their resale value compared with similar vehicles because they contained defeat devices.

VW sells Volkswagen and Audi vehicles through approximately 1,000 dealers and independent distributors throughout the United States. The complaint also alleged that the car company provided dealers and distributors with the means and instrumentalities for the commission of deceptive acts or practices.

California complaint. The State of California brought claims under the state’s False Advertising Law, Unfair Competition Law, and health and safety code.

Settlement terms. The FTC settlement includes injunctive relief to prevent a recurrence of the alleged conduct and provisions to ensure that consumers are compensated for their injuries. VW is prohibited from making any misrepresentations that would deceive consumers about the environmental benefits, emissions standards, or the value of its vehicles or services. In addition, VW must refrain from marketing vehicles that contain "defeat devices."

In addition, VW has agreed to set aside up to $10.03 billion in a funding pool to pay consumers in connection with the buy back, lease termination, and emissions modification compensation program. These efforts could partially resolve alleged FTC Act violations and approximately 500 class action lawsuits.

VW would be required offer to buy back any affected 2.0 liter vehicle at their retail value as of September 2015—just prior to the public disclosure of the emissions issue—according to the FTC. The affected vehicles include TDI diesel models of Jettas, Passats, Golfs, and Beetles, as well as the TDI Audi A3. Consumers who choose the buyback option will receive between $12,500 and $44,000, depending on their car’s model, year, mileage, and other factors. Because consumers might owe more than their car is worth due to rapid depreciation, the FTC order provides these consumers with an option to have their loans forgiven by Volkswagen.

The settlements also allow VW to apply to EPA and the California Air Resources Board (CARB) for approval of an emissions modification on the affected vehicles, according to the FTC. If approved, consumers would have the option of keeping their cars and having them modified to comply with emissions standards. Under this option, in accordance with the FTC order, consumers would also receive money from Volkswagen to redress the harm caused by VW’s deceptive advertising.

Consumers who leased the affected cars will have the option of terminating their leases (with no termination fee) or having their vehicles modified if a modification becomes available. In either case, under the FTC settlement, these consumers also will receive additional compensation from VW for the harm caused by VW’s deceptive advertising. Consumers who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, which will be split between them and the consumers who purchased the cars from them as set forth in the FTC order.

The FTC settlement also contains compliance reporting provisions. VW must submit compliance reports to the FTC, explaining whether and how it is in compliance with the settlement.

To resolve the Clean Air Act allegations, VW agreed under a proposed settlement to pay $2.7 billion to fund projects across the country that will reduce emissions of NOx where the 2.0 liter vehicles were, are or will be operated. In addition, the company will invest an additional $2.0 billion to create infrastructure for and promote public awareness of zero emission vehicles or "ZEVs". VW did not admit to any wrongdoing under the settlements. California and CARB are also parties to this settlement.

Class action. The private plaintiffs have moved for preliminary approval of the settlement. Attorney fees for class action plaintiffs will not come from the announced settlements. VW will pay attorney fees and costs separately; however, an amount has not yet been reached. The plaintiffs are continuing to pursue non-settled claims against VW and other defendants in this litigation, including VW’s corporate affiliate Porsche, VW’s supplier Bosch, and others. A preliminary approval hearing is scheduled for July 26.

This Case No. 3:15-md-02672-CRB.

Attorneys: Elizabeth J. Cabraser (Lieff Cabraser Heimann & Bernstein, LLP) for private plaintiffs. Jonathan Cohen for FTC. John C. Cruden for Department of Justice. Ellen M. Peter for California Air Resources Board . Robert J. Giuffra, Jr. (Sullivan & Cromwell LLP) for Volkswagen Group of America, Inc.

Companies: Volkswagen Group of America, Inc.

MainStory: TopStory Advertising ConsumerProtection StateUnfairTradePractices FederalTradeCommissionNews

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