The 9th Circuit U.S. Court of Appeals has affirmed the right of state and local governments to sue Volkswagen over tampering with emissions devices on their vehicles after they were sold.  The decision reverses the lower court’s dismissal of the claims and opens the door for more litigation.  In re Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prod. Liab. Litig., No. 18-15937, 2020 WL 2832121 (9th Cir. June 1, 2020).

This appeal stemmed from Volkswagen’s installation of defeat devices in new cars for the purpose of evading compliance with federally mandated emission standards, and subsequent updating of the software in those cars so the defeat devices would do a better job of avoiding and preventing compliance. After Volkswagen settled EPA’s criminal and civil actions for over $20 billion dollars, two Texas counties sought to impose additional penalties for violation of their laws prohibiting tampering with emission control systems.

Harris County was the first governmental entity in Texas to file a suit against Volkswagen after it was revealed that the German auto manufacturer had tampered with emissions control systems on their diesel-powered vehicles so that the devices showed the vehicles complied with clean air requirements when they did not.  Volkswagen claimed the Clean Air Act (“CAA”) gave the federal government sole discretion to enforce laws regarding tampering with emission control devices.  A lower federal court agreed with the company.   However, the 9th Circuit ruled that while federal law covers tampering with cars before they are sold, it does not prohibit local governments from enforcing local regulations on vehicles that were tampered with after they had been sold.

The Court explained that Volkswagen realized that some of its diesel engine vehicles would not be able to meet heightened clean air standards while still operating at a performance level that could attract customers. “Therefore, beginning in 2006, Volkswagen employees developed and installed two defeat devices that would enable its diesel engine vehicles to pass federal emission tests, even though the vehicles could not actually meet” those standards while being driven on the street.

However, some customers began reporting operating problems with the vehicles that were, unknown to them, caused by the tampered emission systems. Volkswagen issued a “recall” that not only repaired the operational problems, but also installed software devices to the emissions systems that did not affect the operation of the vehicle, but still gave false readings showing the cars were in compliance with the CAA.  It is this post-sale recall tampering that allowed these vehicles to continue polluting and for which the 9th Circuit Court ruled local governments can legally sue for penalties.

The 9th Circuit Court acknowledged that its ruling “…may result in the imposition of unexpected (and enormous) liability on Volkswagen. But that result is caused by the unusual and perhaps unprecedented situation before us. In drafting the Clean Air Act, Congress apparently did not contemplate that a manufacturer would intentionally tamper with the emission control systems of its vehicles after sale in order to improve the functioning of a device intended to deceive the regulators.