White Collar Alert

This guest post was authored by Mara Smith, a summer associate with Montgomery McCracken.

This Tuesday, Volkswagen agreed to pay the largest auto-related class action settlement in U.S. history, totaling $14.7 billion. The settlement was reached amidst allegations that the German automaker cheated on government-mandated emissions tests. The Clean Air Act, which Congress originally passed in 1973 and amended in 1990, requires manufacturers to certify that the vehicles satisfy the federal emission standards established by the Environmental Protection Agency (“EPA”). Volkswagen acknowledged that many of their two-liter engine vehicles were programmed with software that turned on emission controls during government lab tests but turned off the controls while cars were on the road, emitting nitrogen oxides above the federally regulated limits. Since Volkswagen’s revelation, the EPA has included on-road tailpipe testing.

In the agreement, which still must receive final approval from the courts, Volkswagen settled with the United States Department of Justice, the State of California, the Federal Trade Commission, and private plaintiffs represented by the plaintiffs’ steering committee.  Under the settlement terms, Volkswagen is set to pay over $10 billion to buy back or repair approximately 475,000 two-liter diesel vehicles made between 2009 and 2015 and sold or leased in the United States. These vehicles include the TDI diesel models of Jettas, Passats, Golfs, Beetles, and Audi A3s. Additionally, owners of the affected vehicles are eligible for payments between $5,100 and $10,000, dependent upon the age and mileage of the vehicle. Although the settlement offers affected Volkswagen owners’ repair options, the proposed repairs diminish the vehicle’s engine performance and gas mileage. A Volkswagen website dedicated to the 2016 settlement noted that the company is working on an emissions modification compliant with United States regulations, but any modifications first require EPA and California Air Resources Board (CARB) approval. Former owners of the affected vehicles may also be eligible for compensation, with the settlement allowing the payment to be split between them and the consumer who purchased the car. If the company does not buy back or repair eighty-five percent of the vehicles, they must deposit an additional sum of money into an environmental trust fund.

Under the terms of the agreement, Volkswagen will pay $2.7 billion to fund projects that will reduce emissions of nitrogen in areas across the nation where the two-liter vehicles operate or operated. Another $2 billion will be invested in improving infrastructure, access, and education in support of zero emission vehicles. Volkswagen’s Chief Executive Officer Matthais Müeller noted that the settlement provisions were a “significant step forward” in the company’s resolution to “building a better company that can shape the future of integrated, sustainable mobility for…customers.” Deputy Attorney General Sally Yates expressed a similar sentiment, acknowledging that the agreement is an “important step forward….” Yates also noted that Tuesday’s settlement does not resolve the government’s currently pending Clean Air Act claims for civil penalties or any of the claims regarding the Volkswagen’s three-liter diesel vehicles.

The Clean Air Act allows criminal penalties for knowingly making false statements to the EPA. With ongoing criminal investigations, the question arises: What does that mean for corporate executives at Volkswagen? Yates, in the now infamous Yates Memo, set forth the DOJ’s budding policy of seeking to impose individual accountability for corporate criminal conduct. But how will this play out for the Volkswagen executives alleging that they had no knowledge of the software? How much of the potential liability for this falls on the execs and how much may be attributed to other affiliated manufacturers and companies? The United States criminal investigation is likely to encounter some difficulty navigating Germany’s strict privacy laws, but if Volkswagen executives cooperate and provide useful information, they may likely avoid criminal charges.