Friday, January 29, 2016

Clean Air Act Series: Regulatory Loophole Won't Save VW

On the Road to Cleaner Air: Jail Time for White-Collar Violators?
By Brandon Kline, Energy Law Fellow

This post is the final installment in a four-part series on the Clean Air Act, exploring the legal issues arising from the probe into a nitrogen-oxide trap (a "Defeat Device") alleged to have been installed in vehicles manufactured by Volkswagen of America. Part 1 described the manner in which a Defeat Device operates and why it matters for the Clean Air Act, while Part 2 reviewed the nature of regulatory failure, alternatives to regulatory enforcement and evidence that VW’s actions resulted in premature deaths. Part 3 explored VW’s potential criminal liability for its alleged actions under federal environmental law. This fourth post analyzes recent legal developments and focuses on civil recovery.
President Johnson signs the Clean Air Act into law.
More than half of Americans have no money in the stock market, so their most valuable asset is likely to be either a house or car. In the wake of the Volkswagen emissions scandal, owners of VW diesel cars have seen the value of their vehicles decline by 13%, according to Kelly Blue Book, the gold standard in vehicle valuation and automotive research. When President Lyndon B. Johnson signed the Clean Air Act on December 17, 1963, the stage was set for a number of injured parties to find relief; such as auto-dealers and consumers who can’t get rid of the defective cars, as well as the U.S. government. The Clean Air Act, as amended, created a dual recovery system, with its civil and criminal liability provisions, that is uniquely American.

Justice Department Brings Civil Complaint, Criminal Probe Ongoing
Earlier this month, the U.S. Department of Justice filed a civil complaint on behalf of the Environmental Protection Agency, accusing the German automaker of four counts of violating the Clean Air Act.
Under Sections 204 and 205 of the Clean Air Act, VW’s potential liability ranges between $48 billion to $90 billion, arising from fines of $37,500 per vehicle for each of two violations of the law, up to $3,750 per "defeat device" and another $37,500 for each day of violation.
“Car manufacturers that fail to properly certify their cars and that defeat emission control systems breach the public trust,endanger public health and disadvantage competitors,” said Assistant Attorney General John C. Cruden of the Justice Department’s Environment and Natural Resources Division.
It’s Raining Civil Lawsuits -- Except in Europe
The government’s civil action comes as a massive class-action lawsuit gets underway in California. Earlier this week, a federal judge in California named the lead plaintiff’s attorney in the massive multi-district suit.
The United States will now seek to transfer its case and fully participate in the pretrial proceedings now initiated in the related multi-district litigation in the Northern District of California, according to the Justice Department.
Beyond the U.S. market, VW estimates about 11 million vehicles were sold with the defeat device worldwide. 
Indeed, prosecutors in France, Italy, South Korea and elsewhere have separately indicated that authorities have begun preliminary investigations following the German automaker’s admission of cheating on diesel-emissions tests, according to the New York Times
Meanwhile, earlier this week European Commission policymakers announced plans to seek authority to fine carmakers for anti-pollution cheating. (#Fear of Missing Out)
Under current European law, however, VW is set for an easier ride in Europe. According to Reuters, while the EU outlawed defeat devices in 2007, there are no defined penalties for using such software to mask emissions.
Differences Between a Criminal and a Civil Case
In contrast to the higher standard of proof for criminal cases (“beyond a reasonable doubt”), in civil matters, the government has a lower standard of proof to clear (“preponderance of evidence”). 
VW U.S. CEO Michael Horn testifies before a Congressional Committee.
Because the head of Volkswagen’s US division apologized for the software that rigged emissions tests in testimony before the U.S. Congress, the automaker has little room to fight these accusations in court. 
The real action is therefore likely to occur in settlement negotiations between DOJ and VW.
But the government can still elect to seek criminal charges against individual VW executives and others who knowingly placed defective cars in the U.S. economy and lied to the EPA about cheating on emissions standards.
Here, individuals could be pursued criminally under the statute’s criminal penalties for making materially false statements or omissions in connection with documentation of Clean Air Act compliance. See Section 113(c)(2)
Again, criminal sanctions would require a higher burden of proof than the civil lawsuit. As noted earlier in this series, the civil matter against VW is proceeding along a separate track, as the Justice Department continues the criminal probe into the alleged emissions scandal. 
Deputy Attorney General Sally Yates (middle) is joined by others at a DOJ Summit.
Significantly, the DOJ investigation unfolds under new guidance from Deputy Attorney General Yates, reflecting six key steps the Justice Department is taking to strengthen the government’s pursuit of individual corporate wrongdoing. 
Under the new guidance, DOJ will not resolve VW’s multi-billion dollar civil matter “without a clear plan to resolve related individual cases.”
And apparently, absent “extraordinary circumstances,” culpable individuals will not be released from civil or criminal liability when resolving a matter with a corporation.In conclusion, the Clean Air Act provides a powerful tool for US consumers and regulators (which is more than Europeans can claim). See Yates memo, key steps No. 5 and 6.
Even in spite of the loophole, VW is vulnerable under multiple lawsuits in multiple jurisdictions, and will likely be required to pay civil penalties. 
At the same time, DOJ’s handling of the case has the potential to send a strong message to corporate wrongdoers that the U.S. government takes defeat devices very seriously and corporate wrongdoers should be weary of personal liability.

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