$14.7 Billion VW Settlement Won't Resolve Everything

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By Patrick Ambrosio

June 28 — Volkswagen AG still faces possible civil and criminal penalties in the U.S. over its diesel emissions scandal, despite a $14.7 billion settlement with the automaker, the federal government and consumers.

Government officials touted the proposed settlement, announced June 28, as an agreement that would provide consumers with substantial compensation, get over-emitting vehicles off of the road and help to pay for programs to repair environmental damage caused by the automaker's use of illegal technology in its diesel vehicles. However, Deputy Attorney General Sally Yates said the settlement is only a “significant first step” toward holding Volkswagen accountable for its actions.

“Let me be clear: It is by no means the last step,” Yates said at a news conference.

The proposed settlement covers about 475,000 two-liter diesel vehicles, including various model years of the VW Passat and Jetta, that were sold in the U.S. The settlement would address consumer lawsuits, environmental harm caused by the noncompliant diesel vehicles and Federal Trade Commission claims that Volkswagen engaged in deceptive marketing activities (see related story).

Yates said the following issues remain unresolved:

  •  Civil penalties and injunctive relief sought by the government for alleged violations of the Clean Air Act related to the two-liter vehicles.
  •  Pending claims covering three-liter diesel engine vehicles that also are alleged to contain illegal emissions-cheating technology.
  •  An ongoing criminal investigation.

The civil complaint filed by the Justice Department against Volkswagen in January sought billions of dollars in maximum civil penalties for violations of the Clean Air Act related to Volkswagen's alleged use of defeat devices, which allowed the vehicles to pass emissions tests despite emitting more pollution than allowed under actual driving conditions. Government officials haven't shared details about the ongoing criminal investigation into Volkswagen, but attorneys previously told Bloomberg BNA that potential charges could include obstruction of justice, conspiracy and making false statements to government officials.

Investigation ‘Active and Ongoing.'

“I can assure you that our criminal investigation is active and ongoing,” Yates said. “We’ll follow the facts wherever they go, and we’ll make a determination about whether any companies or individuals should be criminally charged.”

With civil penalties and possible criminal fines still on the table, the overall cost of Volkswagen's emissions issues in the U.S. likely will increase beyond the $14.7 billion included in the settlement, according to a former EPA attorney.

“I think the number is most likely going to go up,” Jon Jacobs, a former senior attorney in the EPA's enforcement office, told Bloomberg BNA. “I'm still of the belief that the company faces substantial civil penalties and criminal fines.”

Jacobs, who co-founded the law firm Jacobs Stotsky PLLC after leaving the agency, said “the door is still open” for individual Volkswagen officials to be charged criminally, in addition to the corporate liability the company faces.

Michael Weinstein, a former trial attorney with the Justice Department, told Bloomberg BNA that the criminal investigation may not be running as efficiently as the negotiations to address consumer complaints and environmental damage, which faced a tight deadline from U.S. District Judge Charles Breyer. However, criminal charges could follow within a couple of months, said Weinstein, who now chairs the White Collar Defense & Investigations Department at Cole Schotz P.C.

“I think that's the next shoe to drop for Volkswagen,” Weinstein said of criminal charges. “I think the government is going to go real strong and look at these executives and pursue them.”

Frank O’Donnell, president of nonprofit organization Clean Air Watch, told Bloomberg BNA that while the settlement appears to be a “very good start” toward holding Volkswagen accountable, advocacy groups would like to see criminal charges brought against the automaker.

No Estimate for Penalty Resolution

In addition to possible criminal charges, the Justice Department still is seeking civil penalties and injunctive relief under the Clean Air Act, Assistant Attorney General John Cruden told reporters June 28. Cruden said he could not provide an estimate on how long it could take to resolve those issues.

“Ultimately, maybe we could settle,” Cruden said. “But if we don't, at the end of the day, the judge will order a penalty in the case depending on a number of factors, including the economic benefit that Volkswagen gained by violating the law.”

Julie Domike, a partner at Haynes Boone LLP, told Bloomberg BNA that it is “bizarre” that the partial settlement doesn't address the civil penalties and injunctive relief sought by the federal government.

“I'm shocked that there is a settlement with those two big items outstanding,” Domike said. “It is mind-boggling to think they could be assessed another penalty on top of this unprecedented amount.”

Domike, who formerly served as an attorney in the EPA's Air Enforcement Division, said without Breyer's deadline for Volkswagen to come up with a plan to address the diesel vehicles that remain on the road, there likely would not have been a settlement for some time.

The EPA's focus in the Volkswagen case was to address the air pollution caused by Volkswagen's actions, said Cynthia Giles, assistant EPA administration for enforcement and compliance assurance. The proposed settlement includes $4.7 billion to fund environmental remediation programs and promote the development of zero-emissions vehicle technology.

“Our top priority was the air pollution, so that's what we addressed first,” Giles said. “We will get more than enough to mitigate the [nitrogen oxides] emissions, historic and future.”

Settlement May ‘Buy Good Will.'

While criminal penalties are still on the table, the amount that Volkswagen agreed to pay under the settlement could aid the company in resolving the remaining civil issues, Weinstein said. Volkswagen could argue in future negotiations that it already paid a premium to resolve the most pressing issues in the case, he said.

“Volkswagen has bought themselves some good will here when it comes to the civil fine,” Weinstein said.

The EPA assesses several factors in determining the size of a civil penalty, including the economic benefit the company received from violating the law, the gravity of the violation and the goal of deterring future behavior from the industry. Domike said the economic benefit component is a “big consideration” under the EPA's civil penalty policy and, given the $14.7 billion penalty, Volkswagen appears to already be spending far more than any profit they received.

New York Investigation Ongoing

Volkswagen reached a separate settlement June 28 with state governments to resolve deceptive marketing claims. That settlement will require Volkswagen to pay more than $500,000 to states and bring the total amount the company agreed to pay to more than $15.2 billion.

However, much like the federal government, Volkswagen could face additional liability under state laws. New York Attorney General Eric T. Schneiderman (D) June 28 pledged to continue pursuit of claims against Volkswagen.

“Today’s settlement is a welcome and important step forward, but it is by no means the end,” he said. “It does not in any way waive or limit the ability of my office to seek additional penalties from Volkswagen for its violation of state environmental laws, nor does it limit any of my counterparts.”

Schneiderman said Volkswagen faces “substantial liability” for violation of state environmental laws. He said that he was not sure if others will continue to pursue claims against Volkswagen, but indicated New York will despite the settlement.

With assistance from Gerald B. Silverman in Albany, N.Y.

To contact the reporter on this story: Patrick Ambrosio in Washington at pambrosio@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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