Filed Under:Claims, Auto

Volkswagen sued by U.S. for cheating on emissions standards

Attorney General Loretta Lynch attends a news conference at the Justice Department in Washington, Monday, Nov. 16, 2015. (AP Photo/Andrew Harnik)
Attorney General Loretta Lynch attends a news conference at the Justice Department in Washington, Monday, Nov. 16, 2015. (AP Photo/Andrew Harnik)

(Bloomberg) -- The Justice Department sued Volkswagen AG, accusing the German automaker of installing illegal devices meant to defeat emissions testing on nearly 600,000 vehicles, marking another blow against the company which has been rocked by the pollution scandal since September.

The complaint filed Monday in federal court in Detroit is the first case against the company brought by the Justice Department, which is also investigating the carmaker for possible criminal conduct related to the devices.

The biggest possible penalty under the complaint could be against Volkswagen on all of the alleged violations for all of the cars. However, judges rarely impose the maximum penalty and some of the alleged violations could be considered to be overlapping, bringing down any final amount, a senior Justice Department official said. Nevertheless, the penalties requested against the company would clearly be in the billions of dollars, another official said.

"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," Assistant Attorney General John Cruden said in a statement.

Rigged diesel engines

Volkswagen admitted in September that it had rigged some diesel engines so that emissions controls only came on during testing. Those controls shut off while the car was on the road, producing nitrogen oxide emissions well in excess of the U.S. legal standard. Since then, the company has said that the cheating software was installed in 11 million vehicles worldwide. The company, which has so far set aside 6.7 billion euros for recalls of diesel cars, has gradually made progress in dealing with the crisis. The automaker is nearing regulatory approval for a low-cost fix for some 8.5 million cars in Europe.

The Justice Department complaint includes additional vehicles with larger engines, including some Porsche and Audi models, that Volkswagen admitted in November also contained modes that could be considered defeat devices.

Repair issues haven't been resolved

The Environmental Protection Agency, which in September announced Volkswagen violated federal law by using the defeat devices, said that talks with the company about repairing the affected vehicles hadn’t been resolved.

“So far, recall discussions with the company have not produced an acceptable way forward," Cynthia Giles, assistant administrator for enforcement and compliance assurance at EPA, said in the statement.

The Justice Department is seeking an order requiring Volkswagen to take “appropriate steps,” including mitigating nitrogen oxide emissions. Such steps might include forcing Volkswagen to install equipment to reduce pollution or buy back vehicles from owners. To obtain such an order, the government would have to spell out what it’s seeking in a separate filing later.

The government is seeking to add the case to consumer and investor lawsuits now before a federal judge in San Francisco for pre-trial proceedings.

Volkswagen is working with all government agencies investigating its diesel engines for possible violations of the Clean Air Act, company spokeswoman Jeannine Ginivan said in an e-mailed statement. It’s also developing an independently administered program to compensate consumers for their economic losses, she said.

“Volkswagen will continue to work cooperatively with the EPA on developing remedies to bring” the affected vehicles into full compliance with regulations as soon as possible, Ginivan said.  The company has suspended sales of its diesel vehicles in the U.S. until the matter is resolved.

4 alleged violations for each vehicle

The complaint includes four alleged violations for each vehicle: selling cars without EPA emissions certifications, selling cars with the so-called defeat devices, tampering with the engines and failing to report the existence of the defeat devices.

Under the Clean Air Act, each of those violations could result in a penalty of up to $32,500 or $37,500 depending on when the violation occurred. That means that each of the approximately 580,000 cars sold by Volkswagen in the U.S. that had defeat devices could, in theory, be hit with four separate penalties, according to the Justice Department official.

Related: VW's emissions retrofit may be among costliest recalls ever

In addition to Volkswagen, the lawsuit also names company units Audi AG, Porsche AG and Porsche Cars North America as defendants. The U.S. said the violations involved car models from 2009 to 2016 including some Volkswagen Jettas, Golfs and Passats, as well as the Audi A6 and A7 Quattro.

Volkswagen presented California regulators with a proposal to make its 2.0-liter diesel engines compliant with pollution standards on Nov. 20. The EPA and California’s Air Resources board have been evaluating VW’s proposed fixes. CARB has said it will formally respond to the plan no later than Jan. 14. EPA hasn’t given any timetable for its response.

VW won approval from European regulators in December for a plan to repair emissions controls on about 8.5 million vehicles with 1.2-liter, 1.6-liter and 2.0-liter engines. The 2.0-liter engines in the European Union’s 28 national markets will need only a software patch, VW said.

The case is U.S. v. Volkswagen AG, 16-cv-10006, U.S. District Court, Eastern District of Michigan (Detroit).

--With assistance from Jeff Plungis.

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Copyright 2016 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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