Antitrust Law Daily Volkswagen $252M 'defect device' class action settlement gets preliminary approval
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Tuesday, February 21, 2017

Volkswagen $252M 'defect device' class action settlement gets preliminary approval

By Linda O’Brien, J.D., LL.M.

Preliminary approval of a $252 million settlement to resolve certain claims brought by the FTC, the Department of Justice, the State of California, and private consumers against Volkswagen Group of America, Inc. (VW), over the company’s marketing and sales of certain "clean diesel" vehicles has been granted by the federal district court in San Francisco. The settlement is intended to compensate consumers and reseller dealerships that purchased 3.0 liter diesel engine vehicles (In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation, February 16, 2017, Breyer, C.).

Volkswagen (VW) sold Volkswagen, Audi, and Porsche "clean diesel" vehicles, which were marketed as being environmentally friendly, fuel efficient, and high performing. These cars contained "defeat devices" or illegal software designed to enable the vehicles to cheat emissions tests for compliance with Environmental Protection Agency (EPA) or California emissions standards. Use of the defeat device resulted in cars that meet emissions standards in the laboratory, but emitted harmful NOx at levels up to 40 times EPA-compliant levels during normal on-road driving conditions. Over six years, VW sold American consumers almost 600,000 diesel vehicles equipped with defeat devices.

After the use of the defeat devices became public, hundreds of consumers filed lawsuits against VW. In addition, in January 2016, the Department of Justice brought a civil suit, on behalf of the EPA, against VW, allegedly that the defeat devices caused emissions to exceed EPA standards, in violation of the Clean Air Act.

The FTC filed a complaint in March 2016, asserting that the auto maker misrepresented that certain Audi and Volkswagen vehicles were environmentally friendly, had low emissions, complied with state and federal emissions standards, and retained high resale values. The agency contended that more than a half million "Defeat Device Vehicles" (DDVs) were sold to U.S. consumers, based on VW’s representations that its "clean diesel" vehicles had higher resale values versus comparable gasoline vehicles. According to the FTC, the DDVs suffered a significant reduction in their resale value compared with similar vehicles because they contained defeat devices. Similarly, in June 2016, the State of California brought claims under the state’s False Advertising Law, Unfair Competition Law, and health and safety code.

Settlement terms. Under the terms of the settlement, VW has agreed to set aside up an initial funding amount of $252 million to pay consumers and reseller dealerships in connection with the buy back, lease termination, and emissions modification compensation program. Specifically, VW would be required offer to buy back any affected 3.0 liter vehicle at their clean trade value as of September 2015—just prior to the public disclosure of the emissions issue—plus owner restitution. The affected vehicles include TDI diesel models of VW Touareg, Audi Q7 and Quattro, and Porsche Cayenne. Consumers who choose the buyback option will receive between $24,755 and $57,157, depending on their car’s model, year, mileage, and other factors.

Consumers who leased the affected cars will have the option of terminating their leases (with no termination fee) and receive lessee restitution. Lessee restitution consists of a fixed amount of $5,577.50 plus one half of the amount by which the vehicle clean retail value exceeds vehicle value and state and local sales taxes on the vehicle clean retail value. The settlements also allow VW to apply to EPA and the California Air Resources Board (CARB) for approval of an emissions modification on the affected vehicles. If approved, consumers would have the option of keeping their cars and having them modified to comply with emissions standards. Under this option, consumers would also receive money from Volkswagen as restitution.

Approval of settlement agreement. The court found that the requirements of Federal Rule of Civil Procedure 23 were satisfied. Due to the over 77,000 eligible vehicles sold, the potential class of tens of thousands members was so numerous that joinder of all members was impracticable. The commonality requirement was met, as VW’s fraudulent scheme to deceive state and federal regulatory authorities was an issue common to all members. The claims and defenses of the class representatives were typical of the claims and defenses of the class and there was no evidence that class representatives or proposed class counsel had a conflict of interest with other class members.

Additionally, common questions of law and fact predominated over questions affecting only individual members of the proposed class and class wide resolution of class members’ claims made a class action superior for adjudicating the claims of the proposed class.

Finally, the court determined that the settlement agreement was fair, adequate, and reasonable in light of: the settlement was the result of serious, informed, non-collusive negotiations; adequately compensated class members for their injuries; had no obvious deficiencies; did not grant preferential treatment to class representatives or segments of the class; and fell within the range of possible approval.

Bosch settlement. The court granted preliminary approval to the proposed settlement agreement with defendants Robert Bosch GmbH and Robert Bosch, LLC, with consumers who purchased 1.0 and 3.0 liter diesel engine vehicles. Bosch is a German supplier of automotive components and developed the software defeat devices for use in VW vehicles. The settlement requires Bosch to create a settlement fund in the total amount of $327.5 million to compensate class members. Of that amount, $163,267,450 will be shared by 2.0 liter class members and $113,264,400 will be shared among 3.0 liter class members.

Under the terms of the settlement, an eligible owner of a 2.0 liter vehicle will receive $350, an eligible seller of such vehicle will receive $175, and an eligible lessee of such vehicle will receive $200. An eligible owner of a 3.0 liter vehicle will receive $1,500, with three exceptions, and an eligible lessee of such vehicle will receive $1,200.

The court determined that the numerosity, commonality, typicality, and adequacy of representation requirements of Federal Rule of Civil Procedure 23(a) were satisfied as well as the requirements of predominance and superiority under Rule 23(b).

A final fairness hearing on both settlements is scheduled for April 14.

The case is No. 3:15-md-02672-CRB.

Attorneys: Robert B. Carey (Hagens Berman Sobol Shapiro LLP) for Nicholas Benipayo. Amie Adelia Vague (Lightfoot Franklin & White), Casey Erin Lucier (McGuireWoods LLP) and Charles J. Baker, III (Womble Carlyle Sandridge & Rice, LLP) for Volkswagen Group of America, Inc. Elizabeth L. Deeley (Kirkland & Ellis LLP), Matthew Henry Marmolejo (Mayer Brown LLP) and Michael Howard Steinberg (Sullivan & Cromwell, LLP) for Audi AG and Volkswagen AG.

Companies: Volkswagen Group of America, Inc.; Audi AG; Volkswagen AG; Robert Bosch GmbH; Robert Bosch, LLC

MainStory: TopStory Advertising ConsumerProtection StateUnfairTradePractices CaliforniaNews FederalTradeCommissionNews

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