Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Consumers sue Volkswagen over emissions testing “defeat device”, (Oct 13, 2015)

By Linda O’Brien, J.D., LL.M.

German auto maker Volkswagen engaged in anticompetitive conduct by manufacturing diesel-powered passenger cars containing software intended to circumvent vehicle emissions test procedures and by misrepresenting to consumers that the vehicles were environmentally-friendly, fuel efficient, and high performance, according to a complaint filed by a consumer in the federal district court in Chattanooga, Tennessee (Plemmons v. Volkswagen AG, October 9, 2015).

Volkswagen AG is a German multinational auto manufacturer. One of the world’s largest producers of passenger cars, the company sells such models as the Beetle, Golf, Jetta, Passat, and Touareg. Audi AG, a subsidiary of Volkswagen, manufactures its luxury brand vehicle.

Dwight Plemmons, a resident of North Carolina, purchased a new 2014 VW Passat diesel-powered passenger car that was represented to be a highly fuel efficient, high performance, environmentally-friendly “clean diesel” vehicle.

According to the complaint, Congress enacted the Clean Air Act (CAA) and established the U.S. Environmental Protection Agency (EPA) in 1970. The CAA requires vehicle manufacturers to certify to the EPA that their cars and trucks meet applicable federal emissions standards. Certificates of conformity issued by the EPA are required for every vehicle sold in the United States. Diesel powered cars, like gasoline powered cars, must meet the emissions standards set by the EPA. With diesel powered engines, car manufacturers must use different and more expensive emissions control systems than are used in gasoline powered cars.

Between 2009 and September 2015, Volkswagen aggressively marketed its “clean diesel” turbocharged direct injection (TDI) light passenger vehicles to American consumers as environmentally-friendly, fuel efficient, powerful, and reasonably priced. In order to increase its market share, Volkswagen’s cars needed all of those attributes to win over the American public, since higher fuel and vehicle costs made it harder to sell diesel-powered passenger cars in the U.S. market, the complaint alleges.

The complaint states that in September 2015, the EPA and California Air Resources Board (CARB) notified Volkswagen that the company had violated federal and state laws by using a “defeat device”—software that was specifically intended to circumvent vehicle emissions test procedures established by the EPA and CARB. The defeat device is a sophisticated software algorithm that detects when the car is undergoing emissions testing, enables the emissions treatment system in order to produce EPA compliant emissions levels, and then turns off the emissions control systems under normal driving conditions.

The competitive advantage of manipulating emissions results allowed Volkswagen to keep down engine costs in a clean diesel strategy that was popular in Europe and at the center of Volkswagen’s goal to improve its U.S. sales. The disabling of the emissions controls brought major advantages, such as much better fuel mileage, which was a big selling point in Volkswagen’s drive to increase market share. Since the disclosure that Volkswagen illegally installed emissions testing defeat devices in its diesel powered cars, Volkswagen has ordered its dealers to cease selling vehicles in which the defeat devices were installed, the company’s chief executive officer has resigned, and the EPA has ordered a recall. Additionally, numerous countries across the world have begun investigations into this fraud as well as investigations by the U.S. Department of Justice, several state attorneys general, and members of Congress, the complaint states.

The complaint also alleges that Volkswagen’s false representation about its TDI technology was the primary reason that the company charged consumers a premium price for such technology. In addition to consumers paying premium prices for their Volkswagen diesel-powered cars, they have also suffered a significant diminution of the resale value of those vehicles as a result of the EPA and CARB disclosures. Furthermore, the defeat device software allegedly allowed Volkswagen vehicles to emit between 10 to 40 times more nitrogen oxides than allowed by regulation and caused concern for air quality and public health.

The plaintiff asserts claims for unjust enrichment, fraudulent concealment, monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, Racketeering Influenced and Corrupt Organizations Act, Magnuson-Moss Warranty Act, and North Carolina Unfair and Deceptive Trade Practices Act. The action seeks the appointment of an external compliance monitor, declaratory and injunctive relief, restitution, disgorgement, damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-00275.

Attorneys: Scott N. Brown, Jr., Joseph R. White, and Joseph Alan Jackson II (Spears, Moore, Rebman & Williams, P.C.) and Larry S. McDevitt and David M. Wilkerson (The Van Winkle Law Firm) for Dwight B. Plemmons.

Companies: Volkswagen AG; Audi AG

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