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.

WECC Launches New Environmental Data Viewer, an Interactive Transmission Planning Tool Designed to Minimize Environmental Risks and Reduce Costs

By Amelia Schlusser, Staff Attorney

WECC's Environmental Data Viewer allows
transmission planners to assess environmental and
cultural risks and estimate capital and mitigation
costs over the entire western grid.  

Earlier this month, the Western Electricity Coordinating Council (WECC) launched an impressive new transmission expansion planning tool that is publicly available on WECC’s website. This Environmental Data Viewer layers geospatial data representing environmental and cultural risks onto an interactive map. The goal of the program is to minimize future environmental issues and financial costs for new electrical transmission infrastructure by providing planners with compiled and stakeholder reviewed data.  

The map application, which was developed by ICF International and is powered by CartoDB, integrates environmental and cultural data sets identified by WECC’s Environmental Data Work Group into a map of the WECC region, which encompasses the entire western interconnection—the integrated electrical grid delivering power to consumers throughout the western United States. The Environmental Data Viewer allows users to draw a hypothetical transmission line onto the map, identify the potential environmental risks associated with the siting of the line, and estimate the capital and mitigation costs associated with the line.

Each parcel of land on the map is assigned one of four tiered environmental risk classifications. Class 1 lands follow existing transmission corridors and have the lowest environmental risks and associated development-related costs. Class 2 lands are areas with ecosystems and/or species at moderate risk, and may be publicly or privately owned. Class 3 lands are areas with irreplaceable natural or cultural resources, endangered or threatened species, critical or priority habitat, big game winter range, or other publicly owned land with significant restrictions on transmission development. Class 4 lands are areas containing public lands with complete development restrictions, such as national parks and wilderness areas.

Users can draw hypothetical transmission lines onto the
map, which generates a summary of the line's environmental
risk exposure and estimates capital and mitigation costs.

In addition to the environmental risk categories, users have the option to view other data layers on the map, such as existing transmission lines and other infrastructure, other environmental data, and land ownership. Users can also select a different base map, such as a topographic map, street map, or National Geographic map.

WECC’s Environmental Data Viewer enables users to assess environmental and cultural risks during transmission planning. The tool allows prospective transmission developers and other stakeholders to evaluate and mitigate environmental and cultural risks and related costs prior to the siting phase of transmission development. By allowing developers and stakeholders to address risks upfront, the Environmental Data Viewer will help them to avoid conflicts and related costs later on in the development process.  With an increasing focus on regional and landscape scale planning, such as the Bureau of Land Management and US Forest Service’s recent Greater Sage-Grouse management plans, tools like the Environmental Data Viewer provide a consistent, early planning-stage look at potential issues across state, provincial and other jurisdictions boundaries.

The Environmental Data Viewer provides an extremely useful tool for transmission planners and other interested stakeholders, and should prove increasingly valuable in coming years as federal and state regulatory programs encourage utilities to move away from coal-fired power and increase renewable energy capacity throughout the west. Our existing transmission infrastructure was largely designed to transmit electricity from large, geographically isolated coal-fired power plants to urban load centers (i.e. cities), and shifts in the west’s electricity resource mix will subsequently alter the location and capacity of the region’s future transmission needs. New transmission infrastructure will be necessary to access remote renewable energy resources, and WECC’s Environmental Data Viewer will help facilitate strategic, advanced transmission planning that minimizes environmental impacts and reduces capital and mitigation-related costs. The transition to a sustainable, reliable, modern electricity grid will require new technologies, optimized operational and planning practices, and ingenuity, and WECC has provided a useful tool for the energy transition toolbox.

Distributed Generation is Part of the Story, but it is Not the End

By Ben Swerdlow, GEI Policy Extern

For years there has been a discussion regarding the benefits of the distributed generation (DG) of electricity, but I don’t think the concept of DG, where energy is produced locally by sustainable energy sources, should be limited to electricity alone. As technology has become both more affordable and more efficient we should transition to a future where cities not only produce a portion of their own electricity, but also their own consumer products and food. DG as a concept must encompass more than just the generation of energy to ultimately benefit not only how our cities use energy, but how efficiently they use it as well. After all, the benefit of the concept of “distributed” generation or production doesn’t end with electricity, as the same principals are present in the production and generation of various other products.

Distributed generation is often considered to provide several benefits. For example, the amount of electricity lost to transmission can be decreased significantly based on the US Energy Information Administration's report that 6% of electricity is lost during transmission and distribution. Therefore, by generating energy on a smaller scale closer to the community, we can save not only on the costs of transmission, but losses due to that transmission, thereby making the process more efficient. Another benefit of DG is that it can significantly decrease the area required to produce the electricity by enabling land to generate electricity in tandem with other uses. For example, in the case of urban solar, the land used for solar PV was already being used for another purpose, but is now used more efficiently. Whereas without DG buildings and roads only served one purpose, they can now also produce electricity.

Finally, DG may increase reliability across the grid in the case where there are microgrids and local energy generators like solar. By having a DG system in place, a community that suffers a power loss can sustain itself until the larger system function can be restored. Similarly, this benefit may be derived by having energy storage facilities located within the community.

As significant as these benefits are, it is also important to understand that the concept of distributed production can go much further to apply to consumer products. For example, with 3D printing technology becoming more efficient and accurate, products can be produced not only domestically but locally. Just as DG decreases “transmission” or transportation costs, distributed production of consumer products also increases the efficiency of the production process and reduces a product’s carbon footprint. There is also a greater reliability in producing products locally, because there is less reliance on production from outside areas.

The benefits from DG also apply to the indoor production of fruits and vegetables by way of aeroponics. Under this system, transportation costs are decreased significantly as crops can be produced closer to the location where they are consumed, often within city limits. The amount of area required to grow crops is also significantly reduced because crops can be stacked vertically and can occupy existing warehouses or buildings. As for increasing reliability, aeroponically grown crops can be produced every day of the year, no matter the weather outside. Additionally, aeroponics is significantly more efficient than traditional agriculture, with aeroponics systems on average using 98% less water, 60% less fertilizer, and 100% less pesticide, and in the case of tomatoes, there are over three times as many harvest cycles. This allows crops to be produced in nearly any location, and considering that 80% of the nation’s water is used in agriculture, aeroponics can drastically decrease water usage.

While DG as a concept doesn’t solve all of our energy problems, it does promote change that can significantly benefit the entire system. By fully utilizing the concept of DG, it is possible for us to decrease transportation costs, increase efficiency and reliability, and promote an energy future that relies more on communities. Ultimately, it isn’t just how we produce energy, it’s also how we use it, and by building a greater reliance on communities we can use energy more efficiently.

Clean Air Act Series: Regulatory Carve Out Poses Challenge to VW Criminal Case

On the Road to Cleaner Air: Jail Time for White-Collar Violators?
Part III – Loophole Poses Challenge to VW Criminal Case

By Brandon Kline, Energy Law Fellow

This is the third in a four-part series on the Clean Air Act, and the legal issues arising from the probe into a nitrogen oxide trap (a "Defeat Device" in the vernacular) alleged to have been installed in vehicles manufactured by Volkswagen of America (VW).  Part 1 described the manner in which a Defeat Device operates and why it matters for the Clean Air Act; Part 2 reviewed the nature of regulatory failure, alternatives to regulatory enforcement and evidence that VW’s actions resulted in premature deaths. This post discusses VW’s potential criminal liability for its alleged actions under federal environmental law.

More than 20 federal statutes have environmental crime provisions to protect our nation’s ecological and wildlife resources.

The U.S. Department of Justice’s (DOJ’s) Environmental Crimes Section works closely with investigators from other agencies to gather evidence for prosecutions affecting a wide range of economic activity.

Over the past two decades, DOJ concluded criminal cases against more than 1,000 individuals and 400 corporate defendants, leading to $825 million in criminal fines and restitution and 774 years of jail time.

Knowing Mental State (“Mens Rea”) Required.

A party is typically not culpable for a crime unless the act is accompanied by a guilty mind (i.e., mental state or “mens rea”).

Criminal intent serves to separate those who understand the wrongful nature of their act from those who do not, but does not require knowledge of the precise consequences that may flow from that act once aware that the act is wrongful. United States v. X-Citement Video, Inc., 513 U.S. 64, 72 (1994); see also Carter v. United States, 530 U.S. 255, 269 (2000) (“The presumption in favor of scienter requires a court to read into a statute only that mens rea which is necessary to separate wrongful conduct from 'otherwise innocent conduct.' “).  Federal courts have routinely applied this “knowing” degree of scienter to environmental statutes.

Under this standard, prosecutors must prove beyond a reasonable doubt that harm was caused to the environment or public welfare, resulting from a knowing and voluntary action by the defendant, rather than unintentional conduct that caused the infraction. The evidence required commonly turns on the degree of harm and the nature of the offense.

Under the Clean Air Act Amendments of 1990, Congress imposed severe felony penalties for the knowing release of hazardous air pollutants that endanger public health.

Thus, it seems counterfactual that the statute does not provide criminal sanctions where, as here, an automaker is alleged to have knowingly installed a device to defeat emissions controls for criteria air pollutants that are not listed as “hazardous air pollutants” under the Clean Air Act.

Factors Influencing Whether DOJ Prosecutes Environmental Crimes.

In the Harvard Law Review, Prof. David Uhlman suggests environmental prosecutions are reserved for cases with one or more of the following: (1) significant environmental harm or public health effects; (2) deceptive or misleading conduct; (3) operating outside the regulatory system; or (4) repetitive violations.

Uhlman’s research indicates one or more of these aggravating factors were present in 96% of environmental criminal prosecutions from 2005 to 2010.

To be sure, VW’s alleged actions – installing Defeat Devices in hundreds of thousands of clean diesel cars – are likely to reach all four of the Uhlman factors.

But the automaker probably won’t face criminal prosecution for that action.

Professor Rena Steinzor explains, “the one criminal charge the company and its executive are likely to escape is violating the Clean Air Act’s requirement that all cars used in the United States have operational and effective air emissions control devices (AECD) approved by the government.”

Regulatory Loophole Favors Carmakers in Criminal Violations under the Clean Air Act.

Under Title II of the Clean Air Act, which pertains to mobile sources of pollution (i.e., cars and trucks), criminal violations are expressly exempted from section 113(c)(1) – the operative criminal penalties provisions of Title II.

Moreover, the statute does not authorize EPA to refer violations of that Title to the Department of Justice for criminal prosecution. See Section 113(a)(3). Put another way, the agency charged with enforcing the nation’s emissions laws can’t even ask a DOJ lawyer to go after the bad guys.

On the other hand, the Act subjects regulated entities, such as power plants, to stiff criminal provisions for substantially similar violations.

Why the double standard? Auto makers won this regulatory carve-out after lobbying Congress, according to the Wall Street Journal.

The Act therefore appears to protect VW from prosecution for allegedly violating the statutory provisions because of an express and implied exemption from criminal prosecution.

That puts an end to VW’s legal troubles, right? Not exactly.

While commentators note that a criminal case against VW would be messy, the government may pursue a number of viable alternatives under the Clean Air Act, such as 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).

Beyond the Clean Air Act, “VW could be charged with any of a number of crimes, including wire fraud (for selling cars that did not remotely justify the claims in its many advertisements) and making false statements to the government officials,” Steinzor wrote.

The U.S. Department of Justice Signals Individual Accountability for Corporate Wrongdoing.

In spite of the prosecutorial factors outlined by Prof. Uhlman, white-collar defendants commonly escape criminal accountability in connection with environmental crimes because of the difficulty in proving intentional conduct.

However, Deputy Attorney General Sally Quillian Yates recently issued a memorandum on “Individual Accountability for Corporate Wrongdoing” that could shift this dynamic.

 “Civil attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals, recognizing that holding them to account is an important part of protecting the public fisc (sic.) in the long term,” Yates wrote.

The Yates memo is likely to have real implications for federal investigations into corporate wrongdoing such as the VW matter.

Under this new guidance, federal investigators could be paying close attention to the scope of individual responsibility.

According to DOJ, if the Yates memo were adopted as part of environmental policy – and there has been no announcement it will – it could bring significant changes to the way that the Environmental Crime Section’s prosecutors bring criminal cases against individuals and companies that break the laws that protect our nation’s ecological and wildlife resources.

This new guidance could represent a paradigm shift for public health and welfare areas with parallel tracks of civil and criminal enforcement, such as environmental law, where crimes typically require only general intent, with simple negligence sufficient to establish criminal liability and strict liability often the standard for civil cases.

This is important: Prison time for environmental crime is the one cost that a company manager or executive cannot pass on to customers, and represents the ultimate deterrent.

 

# # #

Part IV of the Clean Air Act series concludes with an overview of recent developments, including an update on the criminal probe, as well as legal analysis of the civil complaint filed by the Department of Justice on behalf of the Environmental Protection Agency (January 2016). The complaint alleges that nearly 600,000 diesel engine vehicles had illegal defeat devices installed that impair their emission control systems and cause emissions to exceed EPA’s standards, resulting in harmful air pollution.