United States v. Volvo Powertrain Corp.

• Citation: 758 F.3d 330
• Decision Date: 24 September 2014
• Docket Number: No. 12–5234.,12–5234.
• Parties: UNITED STATES of America, Appellee v. VOLVO POWERTRAIN CORPORATION, Appellant California Air Resources Board, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

758 F.3d 330

UNITED STATES of America, Appellee

v. VOLVO POWERTRAIN CORPORATION, AppellantCalifornia Air Resources Board, Appellee.

No. 12–5234.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 11, 2013.

Decided July 18, 2014.

Rehearing En Banc Denied Sept. 24, 2014.

Appeal from the United States District Court for the District of Columbia (No. 1:98–cv–02547).

Aaron M. Streett argued the cause for appellant. With him on the briefs were Lauren Tanner, William H. Jeffress, Jr., and William M. Bumpers.

Russell S. Frye was on the brief for amici curiae the National Association of Manufacturers, et al. in support of appellant.

Brian C. Toth, Attorney, U.S. Department of Justice, argued the cause for appellee the United States. With him on the brief was Lori Jonas, Attorney.

Kamala D. Harris, Attorney General, Office of the Attorney General for the State of California, Robert W. Byrne, Senior Assistant Attorney General, and Nicholas Stern, Deputy Attorney General, were on the brief for appellee California Air Resources Board.

Before: GRIFFITH and SRINIVASAN, Circuit Judges, and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge SRINIVASAN.

SRINIVASAN, Circuit Judge:

Under the Clean Air Act, manufacturers of new motor vehicle engines need to obtain certificates of conformity from the Environmental Protection Agency before selling their engines in the United States. To obtain the certificates, manufacturers must verify that their engines comply with EPA emissions standards. In 1998, EPA alleged that several major engine manufacturers had violated federal law by equipping certain engines with “defeat devices” designed to suppress emissions during EPA tests even though emissions exceeded the legal limit in normal operating conditions. The manufacturers settled the allegations, and each entered into similarly worded consent decrees with the federal government.

The consent decrees required the manufacturers to satisfy future EPA emissions standards ahead of schedule. In particular, the decrees provided that certain model year 2005 engines for which the manufacturers sought certificates of conformity would meet model year 2006 limits on emissions of oxides of nitrogen (NOx). The decrees' requirements apply to engines “manufactured at any facility owned or operated by” the settling companies.

Volvo Powertrain Corporation, a wholly owned subsidiary of the Swedish conglomerate AB Volvo, is one of the companies subject to such a decree. Volvo Powertrain owns and operates a facility in Skövde, Sweden, where it and other Volvo subsidiaries manufacture engines. Another wholly owned Volvo subsidiary, AB Volvo Penta, sought certificates of conformity from EPA for 8,354 model year 2005 engines manufactured at the Skövde facility. Those engines did not comply with EPA's model year 2006 NOx emissions standard.

Volvo Powertrain now argues that the consent decree has no application to the Volvo Penta engines even though, under the language of the decree, the engines were manufactured at a “facility owned or operated by” a settling company. The district court disagreed, and it held Volvo Powertrain liable for the failure of the 2005 engines to satisfy the 2006 emissions standard. As a remedy, the court ordered Volvo Powertrain to pay approximately $72 million, an amount calculated in accordance with the consent decree's schedule of stipulated penalties for violations of the decree's requirements.

We agree with the district court that the consent decree applies to the 8,354 Volvo Penta engines manufactured at the Volvo Powertrain plant. Although Volvo Penta, not Volvo Powertrain, sought the certificates of conformity in question, we read the terms of the consent decree to impose liability on Volvo Powertrain for its affiliate's engines manufactured at its facility. We also conclude that the district court committed no abuse of discretion when it ordered Volvo Powertrain to pay approximately $72 million as a remedy for the violations of the decree. We therefore affirm the judgment of the district court.

I.

A.

The Clean Air Act requires the EPA Administrator to prescribe standards for emissions of air pollutants from new motor vehicles and motor vehicle engines if the emissions “cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” Clean Air Act § 202(a)(1), 42 U.S.C. § 7521(a)(1). A manufacturer who desires to sell new motor vehicle engines in the United States must conduct tests to show that the engines meet emissions standards prescribed under section 202. See id. § 206(a)(1), 42 U.S.C. § 7525(a)(1); see also40 C.F.R. § 89.119(a)-(b). If the engine meets EPA standards, the agency issues a “certificate of conformity” allowing the manufacturer to sell the engines in the United States for up to one year. See Clean Air Act § 206(a)(1), 42 U.S.C. § 7525(a)(1). It is unlawful to sell new motor vehicle engines in the United States or to import new engines into the country without a certificate of conformity. See id. § 203(a)(1), 42 U.S.C. § 7522(a)(1).

The Clean Air Act also allows the State of California to adopt and enforce emissions standards for new motor vehicles and motor vehicle engines if California determines that its standards “will be, in the aggregate, at least as protective of public health and welfare as applicable Federal standards.” Id. § 209(b)(1), 42 U.S.C. § 7543(b)(1); see also Chamber of Commerce of the U.S. v. EPA, 642 F.3d 192, 196 (D.C.Cir.2011). A vehicle or engine generally cannot be sold in California or imported into the state until the California Air Resources Board certifies compliance with state emissions standards. SeeCal. Health & Safety Code §§ 43151–43153 (Deering 2014). Certificates issued by the California Air Resources Board are called “executive orders.”

The pollutants subject to emissions limits under the Clean Air Act and California law include oxides of nitrogen, or NOx. See Clean Air Act § 202(a)(3)(A)(i), 42 U.S.C. § 7521(a)(3)(A)(i); 40 C.F.R. § 89.112; Cal.Code Regs. tit. 13, § 2423. NOx emissions contribute to the formation of fine particulate matter, also known as PM2.5, as well as ground-level ozone, a primary component of smog. See North Carolina v. EPA, 531 F.3d 896, 903 (D.C.Cir.2008). Elevated levels of fine particulate matter have been linked to “adverse human health consequences such as premature death, lung and cardiovascular disease, and asthma.” Catawba Cnty. v. EPA, 571 F.3d 20, 26 (D.C.Cir.2009). And “even at very low levels,” inhalation of ozone “can cause serious health problems by damaging lung tissue and sensitizing lungs to other irritants.” Ass'n of Irritated Residents v. EPA, 686 F.3d 668, 671 n. 1 (9th Cir.2012).

In 1998, the United States brought enforcement actions in federal district court against seven major engine manufacturers, alleging that they had been using “defeat devices” to meet EPA standards for NOx emissions. The devices enabled the engines to meet EPA emissions standards in laboratory testing even though the engines produced NOx emissions far above the applicable limit in ordinary use. See Crete Carrier Corp. v. EPA, 363 F.3d 490, 491 (D.C.Cir.2004). The manufacturers collectively negotiated settlement terms with the federal government. Most of the manufacturers agreed to be bound by similarly worded consent decrees so that none would gain a competitive advantage by negotiating a better deal. The manufacturers did not admit to using defeat devices, but they agreed to pay civil penalties exceeding $80 million collectively.

To offset excess NOx emissions caused by the alleged violations, the manufacturers also agreed to comply with certain EPA emissions standards earlier than EPA regulations otherwise required. Most significantly for purposes of this case, the manufacturers agreed that their nonroad compression-ignition (or diesel) engines with 300 to 750 horsepower would comply with EPA's model year 2006 emissions standards one year ahead of schedule, starting with model year 2005. The parties refer to that provision of the consent decree as the “nonroad pull-ahead” requirement. The manufacturers agreed to pay stipulated penalties to the United States under an established formula if they certified nonroad compression-ignition engines for model year 2005 that failed to comply with the nonroad pull-ahead requirement.

Volvo Truck Corporation (Volvo Truck, or VTC), a wholly owned subsidiary of AB Volvo, was one of the manufacturers covered by the standard form consent decree. Its decree states that all heavy-duty diesel and nonroad compression-ignition engines “manufactured at any facility owned or operated by VTC on or after January 1, 1998, for which a Certificate of Conformity is sought, must meet all applicable requirements of this Decree, regardless of whether VTC still owned, owns, operated, or operates that facility at the time the engine is manufactured.” Consent Decree ¶ 110. Another wholly owned subsidiary of AB Volvo, Volvo Construction Equipment Components AB, filed a motion to intervene in the case. Volvo Construction stated that it “is the Volvo Group company that sells [nonroad] engines in the United States” and that it sought to intervene “[t]o ensure that the proper Volvo Group company is subject to the jurisdiction of the Court for purposes of the Consent Decree requirements applicable to Nonroad CI Engines.” Mot. to Intervene at 2 (June 11, 1999). The district court granted Volvo Construction's motion to intervene, and, on July 1, 1999, approved the consent decree.

Volvo Truck and Volvo Construction entered into a similarly worded settlement agreement with the California Air Resources Board. Like the consent decree with EPA, the settlement agreement with the California Air Resources Board includes a nonroad pull-ahead requirement, a schedule for stipulated penalties, and a provision confirming that the agreement applies to...