Federal Government Sues Volkswagen Over Emissions Defeat Devices

January 7, 2016

Recently Volkswagen admitted to deliberately creating software for its TDI diesel engines to thwart EPA emissions testing. After several class-action suits and a plummet in reputation and sales, the federal government has brought suit against the carmaker.

On January 4 the Department of Justice sued Volkswagen in federal court for the car company’s installation of software to evade U.S. emissions standards. In a statement, the DOJ said the lawsuit alleges nearly 600,000 diesel engine vehicles had illegal defeat devices installed which impaired their emission control systems and caused emissions to exceed the Environmental Protection Agency’s standards. The DOJ is suing Volkswagen to stop using the devices, mitigate excess air pollution, and pay civil penalties.

The allegations are consistent with what environmental regulators accused Volkswagen of in September of last year, when the EPA alleged that the car maker installed devices that circumvent emissions standards for nitrogen oxides in its cars with two liter engines from 2009 to 2015. The EPA later alleged that the company installed devices to evade emissions standards in cars with larger engines and in Porsches. In November, Volkswagen admitted to installing the devices in all U.S. 3.0 liter diesel models in 2009. According to the EPA, the vehicles emit 40 times the amount of nitrogen oxide allowed by prevailing clean air standards.

The DOJ’s complaint covers nearly 500,000 two-liter engine vehicles sold since 2009 and 85,000 three-liter vehicles. Volkswagen released a statement saying the claims in the suit cover the same vehicles covered by the EPA’s violation notices in September and November. In December, Volkswagen tasked Kenneth Feinberg (the lawyer noted for overseeing the 9/11 victim compensation process) with coming up with a program for Volkswagen buyers. “Volkswagen will continue to work cooperatively with the EPA on developing remedies to bring the TDI vehicles into full compliance with regulations as soon as possible,” the company’s statement said. “We will continue to cooperate with all government agencies investigating these matters.”

In addition to collecting civil penalties that could be up to $48 billion, the government could leverage this suit to compel Volkswagen to address its diesel issue once and for all. The complaint specifically accuses Volkswagen of violating the Clean Air Act by producing and selling cars that didn’t match up with the performance and design criteria reported to the EPA and California Air Resources Board when getting them certified. It also claims investigation into Volkswagen’s emissions “were impeded and obstructed by material omissions and misleading information provided by Volkswagen entities.”

“Today’s complaint is the first stage in bringing Volkswagen to justice for failing to disclose the defeat device while seeking certification for its diesel vehicles from EPA’s Office of Transportation and Air Quality in Ann Arbor, Michigan,” U.S. Attorney Barbara McQaude said in a recent statement.

The deception first came to light after third-party tests performed by the International Council on Clean Transport. The tests set out to prove that Volkwagen’s engines were cleaner than standard gasoline engines by inadvertently exposed the scandal. Based in a European facility, the research group was stunned to discover that some of the TDI-powered vehicles were producing much more nitrogen oxide than reported. The ICCT replicated the experiments in the United States, where emissions regulations are more stringent, expecting the U.S. market vehicles to pass the tests. The vehicles appeared to pass the tests when driven on a dynamometer or “rolling road” but gave different results outside of the lab.  Driving from San Diego to Seattle, the ICCT tested the emissions on a Jetta TDI, Passat TDI, and BMW X5 xDrive 35d. During the trip, the Jetta produced 15 to 35 times the U.S. legal limit of nitrogen oxide. The Passat produced 5 to 20 times the legal limit of the pollutant. Only the BMW’s emissions were at or below regulated levels.

Volkswagen performed its own tests in December of 2014, replicating the ICCT tests, and claimed the discrepancy could be remedied with a software update. The carmaker recalled nearly 500,000 vehicles. Meanwhile California Air Resources Board tested the vehicles in question and found they were in violation of U.S. law. In May 2015, the EPA and CARB opened a non-publicized inquiry into the Volkswagen Group’s emissions. On July 8, 2015 CARB informed the EQP and Volkswagen of its findings. Subsequently, the EPA demanded proof the emissions issues had been resolved before it would certify Volkswagen’s 2016 TDI models. It was then that Volkswagen admitted it had installed a “defeat device,” which “reduces the effectiveness of the emission controls system,” as described by the EPA, that could detect when it was in testing mode versus a normal driving situation.

In September class-action suits began to pop up. For instance law firm Hagens Berman, with experience in class-action litigation against General Motors for faulty ignition switches, filed two complaints against Volkswagen. The second complaint is 190 pages long and names plaintiffs from at least 20 states. The complaint brings at least 70 counts against the car maker, cites numerous states’ consumer protection laws, and asks for undisclosed damages including attorney fees and punitive damages. Another class-action firm, Keller Rohrback, has filed a complaint against Volkswagen with 14 counts and 7 plaintiffs so far.

Whether the class-actions are successful has yet to be determined, and could depend on the lawsuit from the DOJ. “It is not unusual to have class actions follow regulatory developments,” said Neal Walters, an attorney at Ballard Spahr who has defended corporations in product liability cases. “As serious as the allegations may be from the regulatory perspective, the class actions will not be as easy as they look.” One obstacle is that plaintiffs will have to show that buyers specifically bought the affected models because of their (possibly illusory) environmental benefits, or that their cars suffered a serious reduction in resale value due to the emissions scandal and its fallout. This has not escaped the notice of Hagens Berman. “I paid a premium for a Golf TDI because I was promised that it was ‘Clean Diesel.’ I was told that the emissions were better than a standard gas automobile. In addition, I was also promised high fuel economy,” one buyer says in the firm’s announcement of its class-action suit. “I now feel I have been defrauded by these claims.”

Lawsuits will likely follow the modifications Volkswagen is required by the court to make in order for its cars to comply with emissions standards. If the tweaks affect engine performance, for instance, consumers will lose value when they resell the cars. Alec Gutierrez, a senior market analyst at Kelley Blue Book, said the value of affected cars could decline 3% to 5% in the second-hand markets. For example, a 2013 Golf Sportswagen TDI with a $16,000 Kelly Blue Book value could see its price decline $500 to $800, Gutierrez said, based on the experience of past models which experienced recalls.

However retail values do not always take a hit. In the GM ignition case, used car values and retail values showed no decline. After the wake of Toyota’s unintended acceleration debacle, resale values went back to normal within a year. Additionally, it is very difficult for lawyers to prove diminution in value given the myriad of factors that influence what you pay for a car and what you sell it for. It is worth noting that the aforementioned two cases differ in that Volkwagen’s issue is not life-threatening but one of trust violation. Even after the dust settles, Volkswagen could be left with a permanently damaged reputation among consumers.

The carmaker has two options. It can either:

  • Change the engine software which will significantly hinder engine power output and fuel economy or
  • Install urea treatment systems which would not only require major vehicle modification but also cost the company thousands of dollars per car.

Meanwhile owners will simply have to keep driving. The initial sale of the vehicles was technically illegal. As a consequence, owners may not be able to re-register (at least in California) until the emission are brought into compliance, and they will not likely be able to re-sell the cars. Volkswagen has send out a stop-sale order to its dealers, halting the sales of new and used 2.0-liter TDI models. The company’s stock plummeted 38% when the story broke last September.

Volkswagen Chief Executive Matthias Mueller is scheduled to meet with the EPA chief Gina McCarthy next week. Mueller was named chief executive in September, days after the company’s longtime CEO, Martin Winterkorn, resigned. The meeting will take place in Washington on Wednesday at the request of Volkwagen, according to an agency spokesman. Mueller will be discussing the next steps for Volkswagen in remedying the fiasco. According to Volkswagen brand chief Herbert Diess, fixing older cars equipped with 2.0 liter diesel engine would be more difficult than bringing newer models into compliance. Germany’s daily newspaper Sueddeutsche Zeitung said Volkswagen expected it would have to either refund the purchase price of a fifth of the diesel vehicles affected (about 115,000) or offer a new car at a significant discount. Volkswagen declined to confirm the report.

Tina Li

By

Tina Li is a licensed attorney in Houston, Texas with experience in both civil litigation and immigration law. She earned her Juris Doctor from the Northwestern University School of Law and a Bachelor of Journalism degree from the University of Texas.

Get Business Legal Updates

Please provide your full name.
Please provide a valid email address.
We respect your privacy, and we will never share your information. Unsubscribe at any time.

Related Publications

Legally Sound Smart Business cover art

Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
Apple Podcast badge
Google Podcast badge
Spotify Podcast badge

Latest Episodes

July 14, 2021

Through a five-round championship bout, Matt travels to Texas from California to determine which state is better for business. Will it be a knockout with a clear winner or will it go to the scorecards?

June 16, 2021

Covered in this episode of Legally Sound Smart Business are some typical business mistakes blunders small businesses often make and how to avoid them. Blunder #1: Copying and pasting agreements It may sound like a good idea at the time, but this blunder comes with hidden pitfalls. Having an attorney draft terms that are specific…

February 4, 2021

How you terminate an employee can make the difference between a graceful transition to avoidable negative outcomes like a dramatic exit or even a lawsuit. We gathered a panel of experts and asked them – is there a “right way” to fire an employee? We would like to thank our guests for this episode: Amr…

December 2, 2020

The COVID-19 pandemic has turned nearly every aspect of life on its head, and that certainly holds true for the business world. In this episode, Matt and Nasir explain how the early days of the pandemic felt like the Wild West and how the shifting legal playing field left a lot open to interpretation and…

November 16, 2020

After plenty of ups and downs, our buyer has finally closed on the purchase of their business. While we’re marking this down in the ‘wins’ column, it never hurts to review the game tape. In this final episode, our hosts, Matt Staub and Nasir Pasha, return to the deal almost a year later to reflect…

September 15, 2020

The ink is drying on the signature line and things are looking great for our buyer. After so much hard work, the finish line is in sight and the cheering within ear shot.   Though the landlord is still serving friction, things seem safe to move forward and for now, our buyer will be keeping…

July 31, 2020

Though things are coming along well, the journey would not be interesting if it was purely smooth sailing. After our buyer opens escrow, they are forced to push the closing date back when suddenly a letter from an attorney was received claiming the business, we are buying has a trade mark on the name!  Now…

June 12, 2020

With frustration at an all-time high and professionalism at an all-time low, our friend the Buyer has “had it” with the Seller and quite frankly their lack of knowledge. At present our Buyer is rightfully concerned that the latest misstep from our loose-lipped Seller will threaten not only the entire operation of the businesses but…

May 11, 2020

As we go deeper into the buying process, we start to uncover more challenges from our seller and encounter some of the wrenches they are tossing our way. When we last left off in episode three our team was knee deep in due diligence for our buyer, had already penned and signed the Letter of…

April 4, 2020

One word–interloper! When a new mysterious broker enters the transaction and starts to kick up dust, Nasir and Matt take the reins. The seller signed off on the letter of intent (see episode 2), yet this “business broker” serves only friction and challenges by refusing to send financials, whilst demanding more of a firm commitment…

April 4, 2020

Just as most stories and deals start out, everyone is optimistic, idealistic and full of hope for clear skies. It’s a perfect outlook with a perfect setup for the ups and downs yet to come. Peek further behind the curtain and into the first steps of buying a business: the letter of intent. After the…

April 4, 2020

When a savvy buyer hears opportunity knocking to purchase a prime positioned business, she decides not to go it alone and taps in the professionals to help navigate what could potentially be a fruitful acquisition. “Behind the Buy” is a truly rare and exclusive peak into the actual process, dangers, pitfalls and achievements, that can…

August 7, 2019

GrubHub is subject to two “matters of controversy” that have likely become common knowledge to business owners: “fake” orders and unfriendly microsites.

May 28, 2019

In this podcast episode, Matt and Nasir breakdown the legal issues of the subscription industry’s business on the internet. Resources A good 50-state survey for data breach notifications as of July 2018. California Auto-Renewal Law (July 2018) Privacy Policies Law by State Why Users of Ashley Madison May Not Sue for Data Breach [e210] Ultimate…

March 12, 2019

In recording this episode’s topic on the business buying process, Matt’s metaphor, in comparing the process to getting married probably went too far, but they do resemble one another. Listen to the episode for legal advice on buying a business.

December 3, 2018

Nasir and Matt return to discuss the different options available to companies looking to raise funds through general solicitation and crowdfunding. They discuss the rules associated with the various offerings under SEC regulations and state laws, as well as more informal arrangements. The two also discuss the intriguing story about a couple who raised over…

July 24, 2018

Flight Sim Labs, a software add-on creator for flight simulators, stepped into a PR disaster and possibly some substantial legal issues when it allegedly included a Trojan horse of sorts as malware to combat pirating of its $100 Airbus A320 software. The hidden test.exe file triggered anti-virus software for good reason as it was actually…

April 17, 2018

Attorneys Matt Staub and Nasir Pasha examine Mark Zuckerberg’s congressional hearings about the state of Facebook. The two also discuss Cambridge Analytica and the series of events that led to the congressional hearings, the former and current versions of Facebook’s Terms of Service, and how businesses should be handling data privacy. Full Podcast Transcript NASIR:…

March 10, 2018

The Trump presidency has led to a major increase in ICE immigration enforcement. It’s critical for business owners to both comply with and know their rights when it comes to an ICE audit or raid. Nasir, Matt, and Pasha Law attorney Karen McConville discuss how businesses can prepare for potential ICE action and how to…

February 5, 2018

New years always bring new laws. Effective January 1, 2018, California has made general contractors jointly liable for the unpaid wages, fringe benefits, and other benefit payments of a subcontractor. Nasir and Matt discuss who the new law applies to and how this affects all tiers in the general contractor-subcontractor relationship. Click here to learn…

January 2, 2018

With a seemingly endless amount of new mattress options becoming available, it is unsurprising that the market has become increasingly aggressive. As companies invest in more innovative solutions to get in front of customers, review sites, blogs and YouTube videos have moved to the forefront of how customers are deciding on their mattresses and how…

December 7, 2017

In recent months explosive amounts of high profile allegations of sexual harassment, assault, and varying acts of inappropriate behavior have transcended every sector of our professional world. With a deluge from Hollywood and politics, and the private workforce, accusations have inundated our feeds and mass media. This harassment watershed has not only been felt within…

November 16, 2017

If you are not familiar with the EB-5 program started in 1990 to give green cards to certain qualified investors in the United States, then you may not have been alone a few years ago. Currently, the EB-5 program has since exploded since its inception and now hits its quotas consistently each year. The program…

October 10, 2017

Government requests come in multiple forms. They can come in as requests for client information or even in the form of investigating your company or your employees. Requests for Client Information General Rule to Follow Without understanding the nuances of criminal and constitutional law and having to cite Supreme Court cases, any government requests for…

August 24, 2017

Nasir and Matt suit up to talk about everything pertaining to employee dress codes. They discuss the Federal laws that govern many rules for employers, as well as state specific nuances in California and other states. The two also emphasize the difficulty in identifyingreligious expression in dress and appearance, how gender-related dress codes have evolved…

June 28, 2017

Nasir and Matt discuss the life cycle of a negative online review. They talk about how businesses should properly respond, how to determine if the review is defamatory, the options available to seek removal of the review, how to identify anonymous reviewers, whether businesses can require clients to agree not to write negative reviews, and…

June 7, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Mattbreak down social media marketing withguests Tyler Sickmeyer and Kyle Weberof Fidelitas Development. They first discuss contests and promotionsand talk about where social media promotions can go wrong,when businesses are actually running an illegal lottery, and the importance of a soundterms and conditions. Next, they…

April 3, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Matt go in depth with the subscription box business. They discuss where subscription box companies have gone wrong(4:30), the importance of a specifically tailored terms and conditions(6:30), how to structure return policies (11:45), product liability concerns (14:45),the offensive and defensive side of intellectual property (19:00),…

February 1, 2017

Nasir and Matt discuss the suit against Apple that resultedfrom a car crashed caused by the use of FaceTime while driving. They also discuss howforeseeable use of apps can increase liability for companies. Full Podcast Transcript NASIR: Hi and welcome to Legally Sound Smart Business! I’m Nasir Pasha. MATT: And I’m Matt Staub. Two attorneys…

January 5, 2017

The guys kick in the new year by first discussing Cinnabon’s portrayal of Carrie Fisher as Princess Leia soon after her death, as well as other gaffes involving Prince and David Bowie. They alsotalk about right of publicity claims companies could be held liable for based on using someone’s name or likeness for commercial gain.

December 22, 2016

Nasir and Matt discuss the recent incidentat a Victoria’s Secret store where the store manager kicked out all black women after one black woman was caught shoplifting. They then each present dueling steps businesses should take when employees are accused of harassment.

December 8, 2016

Nasir and Matt return to talk about the different types of clients that may have outstanding invoices and how businesses can convert unpaid bills to getting paid.

November 10, 2016

After a long break, Nasir and Matt are back to discuss a Milwaukee frozen custard stand that is now revising it’s English only policy for employees. The guys also discuss how similar policies could be grounds for discrimination and what employers can do to revise their policies.

October 6, 2016

The guys discuss the new California law that allows actors to request the removal of their date of birth and birthdays on their IMDB page and why they think the law won’t last. They also discuss how age discrimination claims arise for business owner.

September 29, 2016

Nasir and Matt discuss the racial discrimination claims surroundingAirbnb and how it’s handled the situation. They also discuss some practical tips for businesses experiencing similar issues.

September 8, 2016

Nasir and Matt discuss whyAmazon seller accounts are getting suspended and banned without notice and how business owners can rectify this situation through a Corrective Action Plan.

August 25, 2016

Nasir and Matt talk about the accusations surroundingfashion giant Zararipping off the designs of independent artists like Tuesday Bassen and howsmaller companies can battle the industry giants.

August 18, 2016

Nasir and Matt discuss Brave Software’s ad replacing technology that has caught the eye of almost every national newspaper and has a potential copyright infringement claim looming. They also welcome digital marketing expert Matt Michaelree to speak on the specifics of what Brave is attempting to do and whether it has the answers moving forward.

July 28, 2016

Nasir and Matt discuss the sexual harassment lawsuit filed by Gretchen Carlson against Fox CEO Roger Ailes. They also talk aboutthe importance of sexual harassment training and properly handling such allegations in the office.

July 15, 2016

Nasir and Matt talk about the changes at Starbucks that have led to many disgruntled employees and customers.

June 23, 2016

Nasir and Matt discuss the criminal charges facing FedExinvolving the alleged transportation of illegal drugs. They also talk about how business owners should address working with customers that may be breaking the law.

June 15, 2016

The guys return after a long break to discuss why Yahoo is auctioning off over 3,000 patents and how this decision will affect the longevity of the company.

May 25, 2016

Nasir and Matt discuss the increase in the salary thresholdfor exempt employees and how employerscan try to avoid paying overtime as a result.

May 18, 2016

Nasir and Matt discuss the Baltimore law that makes it very difficult to operate food trucks in the city. They also discuss all the legal restrictions tohaving a food truck.

May 11, 2016

Matt listens to Nasir recap the developing battle in his hometown of Vandalia, Ohio over whether a Dunkin Donuts can move into a location in close proximity to a local favorite donut shop. They then discusswhether the issue is more legal or personal.

May 9, 2016

The guys kick off the week by discussing a Nevada employee who is claiming she was fired for not supporting the Scientology beliefs of her employer.

April 27, 2016

The guys discuss the massive floods in Houston,how employers responded, and why one meteorologist became a local hero. They also discuss the steps businesses should take in preparing for storms outside the workplace.

April 20, 2016

The guys discuss the boycott of Amazon over the products of an unnamed presidential candidate. They also talkabout how a business should handle a boycott and whether it’s possible to exit one unscathed.

April 13, 2016

Click here to read HubSpot’s response on this topic. Nasir and Matt discuss the trend in startups to compensate programmers and other early employees with stock options and how the company culture at HubSpot isn’t what it seems.

April 6, 2016

Nasir and Matt discuss various lawsuits against social media platforms in which users are accused of artificially inflating their social currency.

We represent businesses.
That’s all we do.

Oh, and we love it.

We love our work. We love reviewing that lease for your new location. We thrive on closing that acquisition that nearly fell through. We’re fulfilled when we structure a business to grow, raise capital, and be legally protected.

We focus on developing close relationships with our clients by being like business partners. A partner who provides essential, personalized, proactive legal support.

We do all of this without utilizing the traditional billable hour model. You pay for the value we bring, not the time spent on calls, emails, and meetings.

Our team is made up of attorneys and staff that share these values and we are retained by clients who want the same.

Pasha Law PC operates in the states of California, Illinois, New York, and Texas.

Meet Our Team

Fractional General Counsel Services

Pasha Law Select offers the expertise of a high-end general counsel legal team for every aspect of your business at a fixed monthly rate. Pasha Law Select is deliberately designed to allow our legal team to be proactive, to anticipate, and to be comprehensive in serving our clients. To be great lawyers, we need to know our clients. We can’t know our clients unless we represent a select number of clients in the long-term. This is Pasha Law Select.

Learn More