In re Volkswagen "clean Diesel" Litig., CL-2016-9917

• Decision Date: 30 August 2016
• Docket Number: CL-2016-9917
• Court: Circuit Court of Virginia
• Parties: Re: In re: Volkswagen "Clean Diesel" Litigation

Re: In re: Volkswagen "Clean Diesel" Litigation

CL-2016-9917

NINETEENTH JUDICIAL CIRCUIT OF VIRGINIA COUNTY OF FAIRFAX CITY OF FAIRFAX

August 30, 2016

OPINION LETTER

BRUCE D WHITE CHIEF JUDGE RANDY I. BELLOWS ROBERT J SMITH DAVID S SCHELL JAN L BRODIE LORRAINE NORDLUND BRETT A. KASSABIAN MICHAEL F DEVINE JOHN M TRAN GRACE BURKE CARROLL DANIEL E. ORTIZ PENNEY S AZCARATE STEPHEN C. SHANNON THOMAS P MANN JUDGES

BARNARD F JENNINGS THOMAS A FORTKORT JACK B. STEVENS J HOWE BROWN F BRUCE BACH M LANGHORNE KEITH ARTHUR B VIEREGG KATHLEEN H MACKAY ROBERT W WOOLDRIDGE, JR MICHAEL P McWEENY GAYLORD L FINCH, JR STANLEY P KLEIN LESLIE M ALDEN MARCUS D WILLIAMS JONATHAN C THACHER CHARLES J MAXFIELD DENNIS J SMITH RETIRED JUDGES

James Feinman, Esq.
1003 Church Street
P.O. Box 697
Lynchburg, VA 24505
Counsel for the Fleshman, Grose, Davidson, Lum, Bredemeier, and Claytor Plaintiffs

Steven T. Webster, Esq.
Webster Book LLP
300 North Washington Street, Suite 404
Alexandria, VA 22314
Counsel for the Zelonis, Campbell, Nunes, and Van Houten Plaintiffs

Kristi Kelly, Esq.
Kelly & Crandall
4084 University Drive, Suite 202A
Fairfax, VA 22030
Counsel for the Varky and Basile Plaintiffs

Harris D. Butler, III, Esq.
Butler Royals, PLC
140 Virginia Street, Suite 302
Richmond, VA 23219
Counsel for the Schwalm, Amato, Royals, and Via Plaintiffs

Kenneth Abrams, Esq.
McGuire Woods
800 East Canal Street
Richmond, VA 23219
Counsel for the Defendant, Volkswagen Group of America

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Dear Counsel:

After announcement of an Environmental Protection Agency ("EPA") investigation into the emissions performance of several models of Volkswagen diesel automobiles, all Plaintiffs, owners of affected vehicles, brought cases against Defendant Volkswagen Group of America ("VWGA") and some additionally brought claims against certain dealerships. The cases raise, to varying degrees of similarity, claims of fraud, violations of the Virginia Consumer Protection Act ("VCPA"), violations of Virginia's Motor Vehicle Warranty Enforcement Act ("Lemon Law"), and other breaches of warranty. After initially seeking but failing to remove the cases to federal court, VWGA moved to have these cases consolidated for pre-trial proceedings under Va. Code Ann. § 8.01-267.4. On June 15, 2016 a three-judge panel ordered that the cases be coordinated before this Court.

The Parties filed numerous pre-trial motions including VWGA's request for a stay of all cases pending final approval of a class action settlement; Demurrers to all claims; Plaintiffs' Motions for Temporary Injunctions and Partial Summary Judgment in three cases; and other matters not addressed in this Letter Opinion. The Court held an initial status and scheduling hearing on July 14, 2016, resulting in "Pre-Trial Order #1" and established a hearing date for the Motion to Stay, all pending Demurrers, the two Motions seeking temporary injunctive relief, and the two Partial Summary Judgment motions. This Letter Opinion addresses all motions with the exception of the motions for summary judgment, which will be addressed under an independent Order.

The Court heard argument on August 11, 2016, and took the matters under advisement. The Court has since had the opportunity to consider the Parties' arguments on brief and in open Court and rules as set forth herein.

MOTION TO STAY

VWGA requests that these cases be stayed pending final approval of the federal class action settlement currently before the U.S. District Court for the Northern District of California. VWGA emphasizes the extent of the litigation and progress towards settlement in California, and notes that preliminary approval was granted on July 26.

A. VWGA's Arguments

VWGA argues a stay until final settlement approval would allow litigants to know their full options before proceeding in Court, and would streamline the litigation process by eliminating Plaintiffs who choose settlement, benefitting the Parties and judicial

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economy. VWGA argues stays are "regularly" imposed on state cases in matters subject to multi-district settlement in service to judicial economy.¹

B. Plaintiffs' Arguments

Collectively, Plaintiffs respond by first asserting they raise state law claims in Virginia as Virginia citizens against a Virginia citizen. Plaintiffs also refer to a pre-trial order in the federal case, which asserted it was not intended to prescribe how or whether parallel state court cases should proceed. Id. Plaintiffs assert Virginia law requires the cases move forward, and that delay would hinder their ability to make informed decisions, as staying the Virginia claims will "entice" Plaintiffs to take the "only option then on the table." Mr. Feinman, on behalf of his clients, further characterizes the settlement as a "scheme to defraud Virginians" because it does not explain the full recovery allowed under Virginia law and because VWGA, under his analysis, has falsely asserted that the affected vehicles are legal to drive on Virginia roads.

C. Analysis

The granting of a stay pending the outcome of an action in another court is in the sound discretion of the Court and is based on consideration of factors including the identity of the parties and issues in both actions; the time of filing; promotion of judicial efficiency; and possible prejudice to a party as a result of the stay.

Here, the Virginia Plaintiffs are subject to the proposed settlement and identity of the parties is not at issue. The timing between the Virginia cases and the federal case is not dispositive. That leaves questions of prejudice and judicial economy. Considering the latter first, these cases involve numerous parties and complicated claims, suggesting that judicial economy could be served by elimination of settling Plaintiffs.

Turning to prejudice, under the proposed settlement Plaintiffs could choose to have their car repaired or bought back by VWGA at market value, and would receive some amount of restitution. By comparison, Plaintiffs' Virginia claims could give rise to full replacement or refund (Va. Code Ann. §59.1-207.12 (2016)) and/or punitive damages for fraud or treble damages for willful violations of the VCPA (see, e.g., Va. Code Ann. § 59.1-204(A) (2016)). The VCPA and Lemon Law also provide for attorneys' fees. As a

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result and as Plaintiffs note, staying this litigation would offer strategic advantages favoring VWGA while disserving Plaintiffs' full understanding of their possible remedies. Thus by increasing uncertainty about potential damages recoverable under Virginia law, a stay would work a prejudice to the Plaintiffs. Additionally, consolidation of these cases for pre-trial proceedings has already dramatically increased judicial economy.

Because the prejudice to Plaintiffs outweighs any remaining benefits to judicial economy, the Court denies the Motion to Stay.

DEMURRERS

Plaintiffs have filed Complaints raising similar, but not identical, claims. The complaints variously bring claims for Actual Fraud, Fraud by Concealment, Violations of the VCPA, Violations of Virginia's Lemon Law, and Breaches of Express and Implied Warranty. For its part, VWGA has filed Demurrers in nearly all cases raising two arguments with universal application to all Plaintiffs and all claims: preemption and that a stay is required under the primary jurisdiction doctrine. VWGA asserts additional arguments specific to the allegations of each Complaint, most notably challenging the sufficiency of Plaintiffs' fraud claims. For the reasons that follow, VWGA's Demurrers are sustained in part and overruled in part.

I. PREEMPTION

VWGA first asserts all Plaintiffs' claims are expressly or impliedly preempted under the Clean Air Act ("CAA"). The Court agrees, in part, with VWGA.

A. VWGA's Arguments

VWGA argues that federal emissions standards and the surrounding body of legislative history, case law, and statutes compel the conclusion that the CAA represents a "comprehensive regulatory scheme" preempting all claims in Virginia courts. The gist of VWGA's position is that the CAA entirely preempts state suits, that the actions here "seek to end-run the EPA's exclusive authority," and that the claims are expressly or impliedly preempted or, alternatively, subject to a stay under the primary jurisdiction doctrine.² By way of example, VWGA cites from the CAA and federal regulations setting procedures for manufacturers to meet emissions standards; establishing specific consumer rights including a prescribed warranty; granting EPA exclusive authority and discretion to

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determine and enforce emissions standards; and requiring claims be brought in federal court.

Having set forth this statutory review, VGWA argues all of the state law claims here are expressly preempted under the CAA. Arguing the claims here effectively use Virginia law to enforce the federal standards, VWGA concludes the claims are expressly pre-empted. VWGA further argues the claims are impliedly preempted because federal law "occupies the field" of new car emissions such that Plaintiffs' claims would "stand as an obstacle" to Congressional objectives under the CAA.

B. Plaintiffs' Arguments

The Plaintiffs represented by Mr. Feinman counter there is no preemption arguing "air pollution at its source is the primary responsibility of States and local governments." Pls.' Mem., 2 (quoting 42 U.S.C. § 7401(a)(3)). Plaintiffs review the general scheme under Title I of the CAA, where states establish air quality control regions within which to apply federal standards and implement State Implementation Plans ("SIPs") to adhere to those standards. Plaintiffs further assert their claims are not preempted because they seek to recover damages arising out of their ownership and operation of their used, rather than new, vehicle, and the mere presence of a federal emissions regulation standard as an element of their state cause of action is not a basis for preemption.

Plaintiffs represented by Ms. Kelly also argue against preemption, asserting the CAA's express preemption language...