Envtl. Prot. Comm'n of Hillsborough Cnty. v. Volkswagen Grp. of Am., Inc. (In re Volkswagen "Clean Diesel" Mktg., Sales Practices, & Prods. Liab. Litig.)

• Decision Date: 01 June 2020
• Docket Number: No. 18-15937,18-15937
• Parties: IN RE VOLKSWAGEN "CLEAN DIESEL" MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION, The Environmental Protection Commission of Hillsborough County, Florida; Salt Lake County, Plaintiffs-Appellants, v. Volkswagen Group of America, Inc.; Audi of America, LLC; Porsche Cars North America, Inc.; Robert Bosch, LLC; Robert Bosch GMBH, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

959 F.3d 1201

IN RE VOLKSWAGEN "CLEAN DIESEL" MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION,The Environmental Protection Commission of Hillsborough County, Florida; Salt Lake County, Plaintiffs-Appellants,

v.Volkswagen Group of America, Inc.; Audi of America, LLC; Porsche Cars North America, Inc.; Robert Bosch, LLC; Robert Bosch GMBH, Defendants-Appellees.

No. 18-15937

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 6, 2019 Anchorage, Alaska

Filed June 1, 2020

Peter K. Stris (argued), Stris & Maher LLP, Los Angeles, California, for Plaintiffs-Appellants.

W. Daniel "Dee" Miles III, H. Clay Barnett, and Archie I. Grubb II, Beasley Allen Crow Methvin Portis & Miles P.C., Montgomery, Alabama; Luis Martinez-Monfort, Gardner Brewer Martinez-Monfort P.A., Tampa, Florida; Thomas L. Young, Law Office of Thomas L. Young P.A., Tampa, Florida; for Plaintiff-Appellant Environmental Protection Commission of Hillsborough County.

Bridget K. Romano, Deputy District Attorney, Office of the Salt Lake County District Attorney, Salt Lake City, Utah; Colin P. King and Paul M. Simmons, Dewsnup King Olsen Worel Havas Mortensen, Salt Lake City, Utah; for Plaintiff-Appellant Salt Lake County.

Robert J. Giuffra, Jr. (argued), Sharon L. Nelles, David M.J. Rein, and Matthew A. Schwartz, Sullivan & Cromwell LLP, New York, New York; for for Defendants-Appellees Volkswagen Group of America, Inc. and Audi of America, LLC.

Cari K. Dawson, Alston & Bird LLP, Atlanta, Georgia, for Defendant-Appellee Porsche Cars North America, Inc.

Carmine D. Boccuzzi, Jr., Cleary Gottlieb Steen & Hamilton LLP, New York, New York; Matthew D. Slater, Cleary Gottlieb Steen & Hamilton LLP, Washington, D.C.; for Defendant-Appellee Robert Bosch, LLC and Robert Bosch GMBH.

Richard W. Mithoff, Sherie Potts Beckham, and Warner V. Hocker, Mithoff Law, Houston, Texas; Russell S. Post and Owen J. McGovern, Beck Redden LLP, Houston, Texas; Benny Agosto, Jr. and Muhammad S. Aziz, Abraham Watkins Nichols Sorrels Agosto & Friend, Houston, Texas; Debra Tsuchiyama Baker, Earnest W. Wotring, John Muir, and David George, Baker & Botring LLP, Houston, Texas; Vince Ryan, Robert Soard, Terence L. O’Rourke, and Rock W.A. Owens, Office of the Harris County Attorney, Houston, Texas; for Amicus Curiae Harris County, Texas.

Jonathan S. Martel, Arnold & Porter Kaye Scholer LLP, Washington, D.C.; S. Zachary Fayne, Arnold & Porter Kaye Scholer LLP, San Francisco, California; Sarah Grey, Arnold & Porter Kaye Scholer LLP, Denver, Colorado; Steven P. Lehotsky and Michael B. Schon, U.S. Chamber Litigation Center, Washington, D.C.; for Amici Curiae Alliance of Automobile Manufacturers Inc., Association of Global Automakers, and Chamber of Commerce of the United States of America.

Before: Richard C. Tallman, Sandra S. Ikuta, and N. Randy Smith, Circuit Judges.

OPINION

IKUTA, Circuit Judge:

Volkswagen,¹ a car manufacturer, installed defeat devices in new cars for the purpose of evading compliance with federally mandated emission standards, and subsequently updated the software in those cars so the defeat devices would do a better job of avoiding and preventing compliance.² Volkswagen settled EPA’s criminal and civil actions for over $20 billion dollars—but failed to obtain a release of liability from state and local governments at the same time. When two counties sought to impose additional penalties for violation of their laws prohibiting tampering with emission control systems, Volkswagen persuaded the district court that these claims were preempted by the Clean Air Act.

We agree with the district court only in part. We agree that the Clean Air Act expressly preempts state and local government efforts to apply anti-tampering laws to pre-sale vehicles.³ But we disagree with the district court’s ruling that the Clean Air Act impliedly preempts state authority to enforce anti-tampering laws against post-sale vehicles. In other words, the Clean Air Act does not prevent the two counties here from enforcing their regulations against Volkswagen for tampering with post-sale vehicles.

We base this conclusion on Supreme Court precedent. A "high threshold must be met if a state law is to be preempted for conflicting with the purposes of a federal Act." Chamber of Commerce of U.S. v. Whiting , 563 U.S. 582, 607, 131 S.Ct. 1968, 179 L.Ed.2d 1031 (2011) (citation omitted). Volkswagen has not met that high threshold here. The text and structure of the Clean Air Act do not indicate any congressional intent to prohibit states from enforcing anti-tampering laws in this context. Moreover, the regulation of air pollution for health and welfare purposes "falls within the exercise of even the most traditional concept of what is compendiously known as the police power," Huron Portland Cement Co. v. Detroit , 362 U.S. 440, 442, 80 S.Ct. 813, 4 L.Ed.2d 852 (1960), so we must "assume that ‘the historic police powers of the States’ are not superseded ‘unless that was the clear and manifest purpose of Congress,’ " Arizona v. United States , 567 U.S. 387, 400, 132 S.Ct. 2492, 183 L.Ed.2d 351 (2012) (citation omitted). No such purpose exists here.

We acknowledge that our conclusion—that the Clean Air Act does not prevent the two counties from enforcing their regulations against Volkswagen for tampering with post-sale vehicles—may result in the imposition of unexpected (and enormous) liability on Volkswagen. But that result is caused by the unusual and perhaps unprecedented situation before us. In drafting the Clean Air Act, Congress apparently did not contemplate that a manufacturer would intentionally tamper with the emission control systems of its vehicles after sale in order to improve the functioning of a device intended to deceive the regulators. In other words, Volkswagen faces liability due to the straightforward application of the Clean Air Act and the preemption doctrine to its unexpected and aberrant conduct. We may not strain to give Volkswagen the equivalent of a release from state and local liability (which it did not secure for itself) by engaging in a "freewheeling judicial inquiry into whether a state statute is in tension with federal objectives; such an endeavor would undercut the principle that it is Congress rather than the courts that preempts state law." Whiting , 563 U.S. at 607, 131 S.Ct. 1968 (internal quotation marks and citation omitted).⁴

I

Under Title II, Part A of the Clean Air Act of 1990 (CAA),⁵ car manufacturers cannot sell new motor vehicles in the United States unless the vehicles comply with federal emission standards, including standards for the emission of nitrogen oxide (NOx). See 42 U.S.C. §§ 7521, 7525. The CAA gives the Environmental Protection Agency (EPA) the authority to establish emission standards for new motor vehicles, § 7521(a)(1), and administer a certification program to ensure compliance with those standards, § 7525. To obtain a certificate of conformity from the EPA, a manufacturer must submit an application to the EPA; the application must be submitted for each model year and it must include (among other things) test results from standardized federal emission tests that demonstrate compliance with the applicable emission standards. See 40 C.F.R. §§ 86.1843-01, 86.1844-01, 86.1848-01. The CAA also governs the use of emission control devices. 42 U.S.C. § 7521(a)(4)(A). A device "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" is called a "defeat device," 40 C.F.R. § 86.1803-01,⁶ and is prohibited, see 42 U.S.C. § 7522(a)(3)(B).

A

In 1998, the EPA established new federal emission standards for light duty vehicles, the type of vehicles at issue here,⁷ including stricter NOx emission standards. Manufacturers were required to comply with the new standards beginning with model year 2007 vehicles. Volkswagen concluded that some of its diesel engine vehicles would not be able to meet the heightened NOx emission standards while still operating at a performance level that could attract customers. Therefore, beginning in 2006, Volkswagen employees developed and installed two defeat devices that would enable its diesel engine vehicles to pass federal emission tests, even though the vehicles could not actually meet the NOx emission standards while being driven on the street.

Volkswagen installed different defeat devices in vehicles with a 2.0 liter diesel engine (the "2.0 Liter Vehicles") and vehicles with a 3.0 liter diesel engine (the "3.0 Liter Vehicles"). The defeat device in the 2.0 Liter Vehicles comprised software designed to recognize whether the vehicle was undergoing federal emission testing on a dynamometer⁸ or was being driven on the road. When the software detected that the vehicle was being tested, the vehicle performed in "dyno mode," i.e., in compliance with federal NOx emission standards. Otherwise, the vehicle would operate in "street mode," which substantially reduced the effectiveness of the vehicle’s emission control system. When in street mode, the vehicle’s NOx emissions were up to 35 times higher than federal standards.

The defeat device installed in the 3.0 Liter Vehicles was also designed to recognize when the vehicle was undergoing emission testing, but rather than cause the vehicle to switch between dyno mode and street mode, the defeat device injected varying amounts of a solution, AdBlue, into the exhaust system. When the vehicle was being tested, the defeat device would inject high amounts of AdBlue, reducing NOx emissions below federal standards. When the vehicle was being driven on the street, the defeat device would inject less AdBlue, causing NOx emissions to exceed federal standards.

Between 2009 and 2015, Volkswagen installed these defeat devices in approximately 585,000 new motor vehicles that were sold in the United States. During this period, Volkswagen deliberately misled the EPA by concealing the...