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Volkswagen to pay out a hefty settlement

After a scandal revolving emission cheating, Volkswagen will pay $15 billion settlement.

Volkswagen has agreed to pay out $15 billion to settle the claims resulting from its emission cheating scandal.  This amount represents one of the largest consumer class-action settlements in the United States.  The automaker reached its agreement with the Unites States Department of Justice (DOJ), the State of California, the U.S. Federal Trade Commission (FTC), and private plaintiffs, about 475,000 Volkswagen vehicle owners, represented by the Plaintiffs’ Steering Committee (PSC).  The settlement is comprised of vehicle buybacks, lease terminations, emissions modifications, and payments to eligible owners of 2.0L TDI vehicles.

Volkswagen admitted that 11 million of its vehicles were equipped with the software programmed to slant the emissions tests.

The settlement follows the automaker’s admission of cheating on emissions tests.  An emission testing is the study of reducing the motor vehicle emissions.  Volkswagen admitted that 11 million of its vehicles were equipped with the software programmed to slant the emissions tests.  The software was designed to sense when the car is being tested for its emissions.  It then activated the equipment that reduced the emissions.  However, the software turned down the emissions reducing equipment during the regular driving and operation of the vehicle.  The emissions that such vehicle released during regular driving was far above the legal limits.  As such, the automaker consciously designed and installed the software that effectively bypassed emissions tests supposedly allowing such vehicles to save fuel and maintain the car’s acceleration.

The installation of the software altered such parts as catalytic converters or valves, which recycle some of the exhaust gases.  If installed properly, these parts serve to reduce emissions of nitrogen oxide.  The “defeat device” is designed to conceal the real amount of the poisonous gas released in the atmosphere.  This gas can cause emphysema, bronchitis and other respiratory disease.  The “defeat device” was found in such Volkswagen-manufactured cars as Audi A3, VW Jetta, Beetle, Golf, and Passat.  All of the cars with the device are diesel rather than gas fueled vehicles.

Testing results revealed that some models emitted 40 times the permitted levels of nitrogen oxides…

The California Air Resources conducted an on-road investigative testing in May 2014, which led to the discovery of the Volkswagen emissions cheating software.  West Virginia University then tested emissions from two 2-liter turbocharged 4-cylinder diesel engine Volkswagen models.  The testing results revealed that some models emitted 40 times the permitted levels of nitrogen oxides while on the road.

$10.033 billion of the settlement will be dedicated to the funding of buyback, lease termination or emissions modification program.  The program contemplates that 100% customer will participate in program and 100% of eligible customers will choose the buyback or lease termination.  $2.7 billion of the total settlement is committed to an environmental remediation fund, and $2 billion is to be invested to promote the use of zero emissions vehicle infrastructure, access and awareness initiatives in the United States.  Volkswagen also agreed to devote $603 million of the proposed settlement to resolve potential state consumer protection claims related to the diesel matter.  “We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” said Matthias Muller, Chief Executive Officer of Volkswagen AG.  In addition to vehicle buybacks, individual owners will receive additional cash compensations.  Such compensations will range from $5,100 to $10,0000 and depend on the cars’ value before Volkswagen’s public admission of its wrongdoings.

Given the large scope of the settlement, it will have to be approved by a federal judge overseeing the case.   The agreement has already been submitted to the Court for its approval.   The DOJ filed a Consent Decree on behalf of Environmental Protection Agency (EPA).  The State of California and the California Air Resources Board (CARB) and the California Attorney General have filed the requisite documents consenting to the proposed Volkswagen settlement.  FTC consented in writing and filed Consent Decree with the court.  The parties believe that filed documents and a class settlement as presented to the Court provide a fair and reasonable resolution for affected Volkswagen and Audi customers.  “We are in a position to manage the consequences.  It provides further clarity for our U.S. customers and dealers as well as for our shareholders.  Settlements of this magnitude are clearly a very significant burden for out business.  We will now focus on improving operational excellence across Volkswagen Group,” said Frank Witter, Chief Financial Officer of Volkswagen AG.

Volkswagen was not the only player involved in the emissions cheating scandal.

However, Volkswagen was not the only player involved in the emissions cheating scandal.  The German auto supplier Robert Bosch GmbHh helped develop the software that Volkswagen used to circumvent the emissions tests.  Bosch furnished the processor that controlled VW diesel engines that were implicated in the emissions tests cheating.  The processor is an engine control unit, known as the “brain” of the engine that controls acceleration and power and is highly customizable to fit any model it is used on.  Because the auto supplier did not allow for modification of its engine software without its prior approval, the prosecutors argue that Bosch must have known that its product has been transformed into a “defeat device” used for illicit purposes.  U.S. owners of affected VW diesel vehicles filed suit in U.S. District Court in San Francisco against the auto supplier alleging Bosch’s knowledge of VW’s attempts to evade the emissions standards.  Plaintiffs’ lawyers also contend that the supplier proactively aided the automaker to slant the tests.

It is unclear whether U.S. prosecutors intend to charge Volkswagen with criminal violations.   EPA can impose hefty civil penalties on Volkswagen for violations of the Clean Air Act.  However, the automaker may be subject to criminal prosecution, as authorized by the Clean Air Act, for knowingly making false statements in an application to EPA and for slanting the device required to track emissions.  Moreover Hudson v. United States established that the double jeopardy protection does not bar criminal prosecution of a defendant even if the defendant paid a substantial monetary penalty pursuant to an order from a regulatory agency.

Prosecutors may face several challenges in building a strong criminal case…

Prosecutors may face several challenges in building a strong criminal case against the automaker.  First, most of the employees that would be subject to criminal charges reside in Germany.  They would need to be extradited to the United Stated for criminal prosecution. Second, it will be extremely difficult for prosecutors to obtain the information that implicates top executives in the emissions evasion scheme.  In addition, if Volkswagen cooperates fully with the investigators, it will most likely receive a lighter penalty.

The terms of the negotiated settlement compel the automaker to buy back or fix the affected vehicles by December 2018.  The buy back program is expected to begin in October.  Volkswagen has not yet agreed about what they are going to do about the remaining affected 3-liter diesel vehicles in the United States.  The company has decided to install a small tubular part into some of its engines in Europe to help them come into line with European clean-air standards however, the part would not lower the emissions enough to come into compliance with the American standards.

The discovery of emissions cheating software has shaken the company in a profound way.  The automaker continues to battle civil and criminal investigations in the United States and Europe.  The company suspended its top quality control executive, head of diesel motor development, head of development for Volkswagen-brand cars, head of engines and transmissions development, and a manager of a Volkswagen factory in Germany.   Martin Winkerton, the former chief executive resigned.  The company also decreased its investment in new projects by billions of euros to account for the cost of buybacks and deal with a number of lawsuits from disgruntled owners.  Consumers and regulators will want to see all the claims against the manufacturer reviewed.  The scandal highlights how few test results match real-life emissions.  Current concerns about diesel may see more stringent restrictions, but some believe really clean engines will be too expensive to produce and sell.

Olga Ivanushko, Senior Staff Writer Emeritus
About Olga Ivanushko, Senior Staff Writer Emeritus (13 Articles)
Olga Ivanushko is a 2017 graduate of Campbell Law School and served as a Senior Staff Writer for the Campbell Law Observer. Olga is originally from Belarus, but has lived in Hollywood, Florida, then Raleigh, North Carolina for the past 13 years. She earned BA in Political Science from the University of North Carolina at Chapel Hill. Between undergrad and law school Olga worked as a paralegal at a plaintiffs’ medical malpractice and personal injury firm in Chapel Hill, North Carolina. After her first year in law school, Olga interned at the North Carolina Medical Board. Olga now interns with the Honorable John M. Tyson at the North Carolina Court of Appeals.