In re Volkswagen "Clean Diesel" Mktg., Sales Practices, & Prods. Liab. Litig.

• Decision Date: 31 August 2017
• Docket Number: MDL No. 2672 CRB (JSC)
• Citation: 264 F.Supp.3d 1040
• Parties: IN RE: VOLKSWAGEN "CLEAN DIESEL" MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION This Order Relates to: MDL Dkt. No. 3354 Wyoming v. Volkswagen Group of America, Inc., No. 16-cv-6646 (N.D. Cal.)
• Court: U.S. District Court — Northern District of California

264 F.Supp.3d 1040

IN RE: VOLKSWAGEN "CLEAN DIESEL" MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION This Order Relates to: MDL Dkt. No. 3354 Wyoming v. Volkswagen Group of America, Inc., No. 16-cv-6646 (N.D. Cal.)

MDL No. 2672 CRB (JSC)

United States District Court, N.D. California.

Signed August 31, 2017

ORDER GRANTING VOLKSWAGEN'S MOTION TO DISMISS WYOMING'S COMPLAINT

CHARLES R. BREYER, United States District Judge

From approximately May 2006 to November 2015, Volkswagen AG conspired to and did defraud the U.S. Environmental Protection Agency (EPA) by surreptitiously installing software in its "clean diesel" vehicles that masked true nitrogen oxide (NOx) emission levels. In response, the U.S. Department of Justice (on behalf of EPA) filed civil and criminal actions against Volkswagen to enforce the Clean Air Act (CAA), and Volkswagen ultimately pled guilty to three criminal felony counts and settled the civil charges in three partial consent decrees.¹

The State of Wyoming now brings claims against Volkswagen based on the operation of the "clean diesel" vehicles within the State. At least eight other States (and one political subdivision) have filed similar actions in state courts. The question before the Court is whether Wyoming's action is permitted by the Clean Air Act. For the reasons that follow, the Court concludes that it is not and accordingly GRANTS Volkswagen's motion to dismiss.

BACKGROUND

I. New Vehicle Certification Process

The Clean Air Act, as amended, vests EPA with significant authority to set and enforce motor-vehicle emission standards. 42 U.S.C. § 7521(a). Pursuant to that authority, EPA has set emission limits for, among other pollutants, NOx and diesel particulate matter. 40 C.F.R. § 86.1811–04. The Clean Air Act also requires EPA to administer a certification program to ensure that all vehicles introduced into United States commerce satisfy these and other emission standards. 42 U.S.C. § 7525(a). As part of that certification program, each vehicle manufacturer must submit a detailed application to EPA for each model year and for each test group of vehicles that it intends to sell in the United States. 40 C.F.R. § 86.1844–01 (listing required content). If, after review and the testing of vehicles, EPA determines that the application is complete and that the vehicles meet the applicable standards, EPA will issue a certificate of conformity. 42 U.S.C. § 7525(a) - (b) ; see also 40 C.F.R. § 86.1848–01.

Among the information a manufacturer must include in an application for certification is a list of all auxiliary emission control devices (AECDs) installed in the vehicles. 40 C.F.R. § 86.1844–01(d)(11). AECDs sense factors such as engine and vehicle speed for purposes of activating and deactivating vehicle emission controls. Id. § 86.1803–01. EPA regulations permit the use of AECDs during certain driving conditions, such as at high altitude if the use is justified to protect the vehicle, or during engine start-up. See id. §§ 86.1803–01; 86.1810–09(f)(2). But an application for certification must include "a justification for each AECD ... and [a] rationale for why it is not a defeat device." Id. § 86.1844–01(d)(11).

A defeat device is an AECD "that reduces the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use," subject to limited exceptions. 40 C.F.R. § 86.1803–01. EPA prohibits the installation of defeat devices in all new passenger vehicles, see id. §§ 86.1809–10, 86.1809–12, and the Clean Air Act gives EPA authority to bring a civil action against any disobedient manufacturer, 42 U.S.C. §§ 7522(a)(3)(B) ; 7524(b). The Clean Air Act also prohibits manufactures from introducing into commerce any new motor vehicle that is not covered by a certificate of conformity, and similarly grants EPA authority to enforce that restriction. 42 U.S.C. §§ 7522(a)(1) ; 7524(b). And even if a manufacturer obtains a certificate of conformity, the certificate is not deemed to cover vehicles that are not as described in the manufacturer's application for certification "in all material respects." 40 C.F.R. § 86.1848–10(c)(6).

While less important for present purposes, California also plays an important role in the certification of new vehicles, as Congress has permitted California to adopt its own vehicle emission standards, which other States may follow. See Engine Mfrs. Ass'n v. EPA ("EMA "), 88 F.3d 1075, 1079–80 (D.C. Cir. 1996) ; Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. N.Y. State Dept. of Envtl. Conserv. ("MVMA "), 17 F.3d 521, 525–27 (2d Cir. 1994). The California Air Resources Board (CARB) runs that certification program, which is materially similar to EPA's. See MVMA , 17 F.3d at 527.

II. Volkswagen's "Clean Diesel" Vehicles

In or around May 2006, Volkswagen began working on a line of environmentally-friendly diesel engine vehicles for sale in the United States. (Compl. ¶¶ 81–82, 102.) Diesel engines are generally more fuel efficient than gasoline engines, but historically have emitted greater amounts of air pollution, including nitrogen oxides. (Id. ¶¶ 82, 93.) To lower NOx emissions, Volkswagen equipped its "clean diesel" vehicles with an exhaust recirculation device and a diesel particulate filter. During the design process, however, it quickly became apparent to Volkswagen's engineers that there was a material problem with the emission-control system; specifically, if the recirculation device was activated as often as needed to bring NOx emissions within EPA limits, the vehicles would produce too much particulate matter, which would clog and break the particulate filter. (Id. ¶¶ 86–90, 100–05.)

Rather than altering the design of its cars, Volkswagen decided to develop and install software in the vehicles to detect and evade U.S. NOx emission standards. (Id. ¶¶ 106–08.) The software is able to detect whether a vehicle is undergoing emissions testing on a dynamometer

, or being driven normally on the road. (Id. ¶¶ 96–98, 107–08.) During emissions testing the vehicle's emission-control system will perform in a mode that enables the car to satisfy NOx emission standards. (Id. ¶¶ 107–08.) When the vehicle is on the road, however, the software reduces the effectiveness of the emission controls. (Id. ) Programmed in this manner, the software constitutes a defeat device. (Id. ¶¶ 91–92); see 40 C.F.R. § 86.1803–01.

Volkswagen installed its defeat device in nearly 600,000 "clean diesel" vehicles, model years 2009 through 2016. (Compl. ¶¶ 83, 137.) But the company did not disclose the defeat device in its applications for new-vehicle certification, or in meetings with EPA and CARB staff during the certification process. (Id. ¶¶ 127–30, 136, 142, 163–71.) Only by installing the defeat device in its vehicles was Volkswagen able to obtain EPA and CARB certificates of conformity. In fact, these vehicles release NOx at factors up to 40 times higher than EPA limits. (Id. ¶¶ 107, 143.)

In mid-2014 a research group at West Virginia University published a study, which identified significant discrepancies in the level of NOx emitted from certain of Volkswagen's 2.0-liter "clean diesel" vehicles during on-road testing as compared to on a dynamometer. (Id. ¶ 143.) Following the study, CARB and EPA attempted to determine the cause. Volkswagen, however, continued to conceal the defeat device—offering false explanations for the excess on-road emissions and implementing a software recall to "optimize" emissions. (Id. ¶¶ 149–51, 164–71.) Nevertheless, by the spring of 2015 it became clear to regulators that the software updates had not worked. (Id. ¶¶ 179, 187.) And with certification of certain model-year 2016 "clean diesel" vehicles at risk, Volkswagen finally explained in September 2015 that certain of its vehicles used defeat-device software. (Id. ¶¶ 202–05.)

The public learned about Volkswagen's emissions scheme in the fall of 2015, when EPA issued two Notices of Violation of the Clear Air Act and announced that the company had admitted to deliberately cheating on emissions tests. (Id. ¶¶ 207–08, 212–14.) Hundreds of lawsuits were subsequently filed against Volkswagen and consolidated before this Court as part of this multidistrict litigation. The Department of Justice also filed a criminal indictment against Volkswagen AG before the Honorable Sean F. Cox in the Eastern District of Michigan. (See No. 16–CR–20394 (E.D. Mich.), Dkt. Nos. 1, 32.) In March 2017, Volkswagen AG pled guilty to three criminal felony counts, including conspiracy to defraud the United States and to violate the Clean Air Act, by making false statements and representations to EPA in violation of 18 U.S.C. § 371 and 42 U.S.C. § 7413(c)(2)(A). (Id. , Dkt. No. 68.) The company also has settled claims related to the scheme brought by classes of U.S. consumers, franchise dealers, and reseller dealerships, as well as claims by EPA, CARB, the FTC, and certain States.²

As part of Volkswagen's plea agreement and EPA consent decrees, the company has agreed to pay $4.3 billion in civil and criminal penalties, to invest $2.0 billion in Zero Emission Vehicle technology, to recall and/or repair the affected vehicles, and to contribute $2.925 billion to an emissions mitigation trust. (Dkt. No. 3495 at 9.) The trust is expected to fully mitigate the environmental harm caused by Volkswagen's emissions scheme, and the States will be beneficiaries. (Dkt. No. 2103 at 10–11.) As a beneficiary, Wyoming is expected to receive approximately $8 million from the trust. (Dkt. Nos. 2103–1 at 207; 3228–1 at 164.) Wyoming residents who owned or leased an affected vehicle did or can also receive compensation as part of the consumer settlements.

III. Wyoming's Lawsuit and State Implementation Plan

In November 2016, Wyoming filed a complaint against Volkswagen AG; Volkswagen Group of America, Inc.; Audi AG; Audi of America, LLC; Porsche AG; and Porsche Cars North America, Inc. (collec...