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In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation

United States District Court, N.D. California

July 26, 2016



          CHARLES R. BREYER, United States District Judge

         Just a little over 10 months ago, the public learned of Volkswagen’s allegedly deliberate use of a defeat device-software installed in certain Volkswagen- and Audi-branded turbocharged direct injection (“TDI”) diesel vehicles that was designed to cheat emissions tests and deceive state and federal regulators-in nearly 500, 000 cars sold in the United States. Consumers filed hundreds of lawsuits which have been assigned to this Court as a multidistrict litigation (“MDL”). After five months of intensive negotiations, and with the assistance of a Court-appointed Settlement Master, Plaintiffs and Defendants Volkswagen AG, Audi AG, and Volkswagen Group of America, Inc. (collectively, “Volkswagen”) reached a settlement that resolves consumer claims concerning certain 2.0-liter diesel TDI vehicles. (See Dkt. No. 1685.)

         The Settlement Class Representatives now move the Court to (1) preliminarily approve the proposed Amended Consumer Class Action Settlement Agreement and Release (“Settlement”) (see Dkt. No. 1685), (2) conditionally certify a Consumer Class, (3) approve their proposed settlement notice plan (see Dkt. Nos. 1609-2, 1680), and (4) schedule a fairness hearing. Having reviewed the proposed settlement and with the benefit of oral argument on July 26, 2016, the Court GRANTS the Motion for Preliminary Approval. The Settlement is sufficiently fair, adequate, and reasonable to the 2.0-liter diesel engine vehicle consumers to move forward with class notice.

         I. BACKGROUND

         A. Factual Allegations

         In 2009, Volkswagen began selling its Volkswagen- and Audi-branded TDI “clean diesel” vehicles, which they marketed as being environmentally friendly, fuel efficient, and high performing. Unbeknownst to consumers and regulatory authorities, Volkswagen installed in these cars a defeat device-software that bypasses, defeats, or renders inoperative certain elements of the vehicles’ emissions control system-thus evading United States Environmental Protection Agency (“EPA”) and California Air Resources Board (“CARB”) emissions test procedures. Specifically, the defeat device senses whether the vehicle is undergoing testing and produces regulation-compliant results, but operates a less effective emissions control system when the vehicle is driven under normal circumstances. By installing the defeat device on its vehicles, Volkswagen was able to obtain Certificates of Conformity (“COCs”) from EPA and Executive Orders (“EOs”) from CARB for its 2.0- and 3.0-liter diesel engine vehicles when in fact these vehicles release nitrogen oxides (“NOx”) at a factor of up to 40 times over the permitted limit. Over the course of six years, Volkswagen sold American consumers nearly 500, 000 diesel vehicles equipped with a defeat device.

         B. Procedural History

         On September 3, 2015, Volkswagen admitted to EPA and CARB that it installed defeat devices on its model year 2009 through 2015 Volkswagen and Audi diesel vehicles equipped with 2.0-liter engines. On September 18, 2015, the public became aware of the defeat device when EPA issued a Notice of Violation (“NOV”) to Volkswagen, alleging that Volkswagen’s use of the defeat device violated provisions of the Clean Air Act, 42 U.S.C. § 7401 et seq. That same day, CARB sent Volkswagen a letter notifying them that CARB had commenced an enforcement investigation concerning the defeat device.

         Two months later, EPA issued a second NOV to Volkswagen, as well as Dr. Ing. h.c. F. Porsche AG (“Porsche AG”) and Porsche Cars North America, Inc. (“PCNA”), which alleged Volkswagen had installed in its 3.0-liter diesel engine vehicles a defeat device similar to the one described in the September 18 NOV. CARB likewise sent a second letter concerning the same matter.

         1. Consumer Actions

         Consumers nationwide filed hundreds of lawsuits after Volkswagen’s use of the defeat device became public, and on December 8, 2015, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred 56 related actions, including numerous putative class actions, to this Court for coordinated pretrial proceedings in the above-captioned MDL. (Dkt. No. 1.) The JPML has since transferred an additional 832 actions to the Court. (Dkt. No. 1676.)

         The following month the Court appointed Elizabeth J. Cabraser of Lieff, Cabraser, Heimann & Bernstein, LLP as Lead Plaintiffs’ Counsel and Chair of the Plaintiffs’ Steering Committee (“PSC”), to which the Court also named 21 attorneys. (Dkt. No. 1084.) On February 22, 2016, the PSC filed its Consolidated Consumer Class Action Complaint against 13 Defendants: VWGoA; VWAG; Audi AG; Audi of America, LLC; Porsche AG; PCNA; Martin Winterkorn; Mattias Müller; Michael Horn; Rupert Stadler; Robert Bosch GmbH (“Bosch GmbH”); Robert Bosch, LLC (“Bosch LLC”); and Volkmar Denner. (Dkt. No. 1230.) The Consolidated Complaint asserts claims under (1) the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c)-(d), and the Magnusson-Moss Warranty Act, 15 U.S.C. § 2301 et seq.; (2) state fraud, breach of contract, and unjust enrichment laws; and (3) all fifty States’ consumer protection laws. (Id. ¶¶ 361-3432.)

         2. Government Actions

         This MDL also includes two actions brought by federal government entities. The United States Department of Justice (“DOJ”) on behalf of EPA has sued VWAG; Audi AG; VWGoA; Volkswagen Group of America Chattanooga Operations, LLC (“VW Chattanooga”); Porsche AG; and PCNA for claims arising under Sections 204 and 205 of the Clean Air Act, 42 U.S.C. §§ 7523 and 7524. The Federal Trade Commission (“FTC”) has also brought an action against VWGoA. The FTC brings its claims pursuant to Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §53(b), and alleges violations of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

         3. PSC, DOJ, and FTC Settlement Negotiations

         In January 2016 the Court appointed former Director of the Federal Bureau of Investigation Robert S. Mueller III as Settlement Master to oversee settlement negotiations between the parties. (Dkt. No. 973.) Settlement talks began almost immediately, and by April 21, 2016, the parties reached agreements in principle regarding 2.0-liter diesel engine vehicles. (Dkt. No. 1439 at 4:25-6:15.) On June 28, 2016, the DOJ, the PSC, and the FTC filed a Partial Consent Decree, proposed Class Action Settlement, and Partial Consent Order, respectively. (Dkt. Nos. 1605-07.) The PSC subsequently filed an Amended Settlement on July 26, 2016. (Dkt. No. 1685.) The amendment made slight modifications to the class definition. Negotiations concerning 3.0-liter diesel engine vehicles remain ongoing.


         This Order addresses the proposed Amended Class Action Settlement. The key provisions of that Settlement are as follows.

         A. The Settlement Class

         The proposed Settlement Class consists of

a nationwide class of all persons (including individuals and entities) who, on September 18, 2015, were registered owners or lessees of, or, in the case of Non-Volkswagen Dealers, held title to or held by bill of sale dated on or before September 18, 2015, a Volkswagen or Audi 2.0-liter TDI vehicle in the United States or its territories (an “Eligible Vehicle”), or who, between September 18, 2015, and the end of the Claim Period, become a registered owner of, or, in the case of Non-Volkswagen Dealers, hold title to or hold by bill of sale dated after September 18, 2015, but before the end of the Claims Period, an Eligible Vehicle in the United States or its territories.

(Dkt. No. 1685 ¶ 2.16.) “Eligible Vehicles” consist of

Model Year 2009 through 2015 Volkswagen and Audi light-duty vehicles equipped with 2.0-liter TDI engines that are (1) covered, or purported to be covered, by the EPA Test Groups in the table immediately below this paragraph; (2) registered with a state Department of Motor Vehicles or equivalent agency or held by bill of sale by a non-Volkswagen Dealer in the United States or its territories as of June 28, 2016; (3) for an Eligible Owner, currently Operable or cease to be Operable only after the Opt-Out Deadline; and (4) have not been modified pursuant to an Approved Emissions Modification.

(Id. ¶ 2.33.) Eligible Vehicles do not include Volkswagen or Audi vehicles that were sold outside the United States. (Id.)

         Class Members are further categorized as Eligible Lessees, Eligible Owners, or Eligible Sellers. An Eligible Lessee is

(1) the current lessee or lessees of an Eligible Vehicle with a lease issued by VW Credit, Inc.; (2) the former lessee or lessees of an Eligible Vehicle who had an active lease issued by VW Credit, Inc. as of September 18, 2015 and who surrendered or surrenders the leased Eligible Vehicle to Volkswagen; or (3) the owner of an Eligible Vehicle who had an active lease issued by VW Credit, Inc. as of September 18, 2015, and who acquired ownership of the previously leased Eligible Vehicle at the conclusion of the lease after June 28, 2016.

(Id. ¶ 2.29.) An Eligible Owner refers to

the registered owner or owners of an Eligible Vehicle on June 28, 2016, or the registered owner or owners who acquire an Eligible Vehicle after June 28, 2016, but before the end of the Claim Period, except that the owner of an Eligible Vehicle who had an active lease issued by VW Credit, Inc. as of September 18, 2015, and purchased an Eligible Vehicle previously leased by that owner after June 28, 2016, shall be an Eligible Lessee.

(Id. ¶ 2.30.) Finally, an Eligible Seller is one “who purchased or otherwise acquired an Eligible Vehicle on or before September 18, 2015, and sold or otherwise transferred ownership of such vehicle after September 18, 2015, but before June 28, 2016.” (Id. ¶ 2.31.) Eligible Sellers are also “any owner (1) who acquired his, her, or its Eligible Vehicle on or before September 18, 2015, (2) whose Eligible Vehicle was totaled, and (3) who consequently transferred title of his, her, or its vehicle to an insurance company after September 18, 2015, but before June 28, 2016.” (Id.)

         B. Consumer Remedies

         The Settlement gives Class Members choices as to remedies. Eligible Owners have two options: Volkswagen will pay cash (“Owner Restitution”) and either (1) buy the Class Member’s Eligible Vehicle at its pre-defeat device disclosure value, (“the Buyback”) or (2) fix the Class Member’s vehicle when and if EPA and CARB approve an emissions modification (a “Fix”).[1]

         Eligible Lessees may (1) terminate their leases without penalty plus receive additional cash (“Lessee Restitution”), or (2) if a Fix is approved, have their leased car fixed plus receive Lessee Restitution. Finally, Eligible Sellers, that is, consumers who sold their Eligible Vehicle prior to the filing of the proposed Settlement, receive cash (“Seller Restitution”). In general, the condition of the Eligible Vehicle is irrelevant; however, the Vehicle must be operable (i.e., driven under its own power).

         The Settlement requires Volkswagen to render those Eligible Vehicles returned in a Buyback inoperable by removing and recycling, to the extent permitted by law, the vehicle’s Engine Control Unit. (Dkt. No. 1685 ¶ 4.4.3.) Volkswagen cannot render the vehicle operable until the vehicle has received a Fix; only under those circumstances does the Settlement permit Volkswagen to re-sell the Eligible Vehicle in the United States or export it. (Id.; see Dkt. No. 1605-1 ¶ 7.2.3.) In other words, the Settlement ensures that the defective vehicles will not operate in the United States-or anywhere else in the world-unless and until they are fixed in a manner approved by EPA and CARB.

         1. Base Value and Vehicle Value

         The amount of cash a Class Member receives depends on an Eligible Vehicle’s Base Value or Vehicle Value. Base Value refers to, where available, the Clean Trade value of the vehicle based on the National Automobile Dealers Association (“NADA”) Vehicle Identification Code (“VIC”) for each Eligible Vehicle in the September 2015 NADA Used Car Guide published in or around August 2015. (Dkt. No. 1685 ¶ 2.5; Dkt. No. 1685-1 ¶ 11.) In some instances, like with Model Year 2015 Eligible Vehicles, no value was published by NADA as of September 2015. For those Eligible Vehicles, the Base Value is calculated by multiplying the Manufacturer’s Suggested Retail Price (“MSRP”) for each individual vehicle by 0.717. (Id. (both).) The 0.717 figure is the ratio of average September 2015 Clean Trade values to average MSRPs for Model Year 2015 Passats. (Dkt. No. 1685-1 ¶ 11.)

         Vehicle Value refers to the Eligible Vehicle’s Base Value, adjusted for Original Equipment Manufacturer (“OEM”)-installed options and mileage. (Id. ¶ 12.) Options adjustments to Base Values are determined by using Volkswagen OEM-installed options, as valued by the September 2015 NADA Used Car Guide. (Id. ¶ 12(a).) Mileage adjustments to Base Values are determined by the actual mileage at the time the vehicle is surrendered in the Buyback or brought in for a Fix using the mileage adjustment table in the September 2015 NADA Used Car Guide with an allowance for standard NADA mileage of 12, 500 miles per year, prorated monthly from September 2015 to the month of surrender. (Id. ¶ 12(b).)

         2. Restitution Calculation

         Eligible Owners who purchased their Eligible Vehicles before September 18, 2015 are entitled to a minimum Restitution Payment of $5, 100. (Dkt. No. 1685-1 ¶ 5(a); Dkt. No. 1685-3 at 2.) Restitution is calculated by adding (1) 20% of the Vehicle Value plus (2) the greater of $2, 986.73 or the amount necessary to ensure that Owner Restitution is not less than $5, 100. (Dkt. No. 1685-1 ¶ 5(a).) In some cases, Eligible Owners will receive more than the minimum $5, 100 to as much as $10, 000. (See id.) Eligible Owners who purchased their Eligible Vehicles after September 18, 2015 are entitled to 50% of Owner Restitution as calculated above, plus a share of an unused portion of the funds set aside to pay Seller Restitution as discussed below. (Id. ¶ 5(b).)

         Eligible Lessees are also guaranteed a Restitution Payment. (Dkt. No. 1685-1 ¶ 9.) Lessee Restitution has two components: (1) a variable component plus (2) a fixed component. (Dkt. No. 1685-1 ¶ 9.) The variable component is 10% of the Eligible Vehicle’s Base Value adjusted for options, but not mileage. (Id.) The fixed component is $1, 529. (Id.) Eligible Lessees are entitled to Lessee Restitution even if their leases terminated after September 18, 2015. (Dkt. No. 1685 ¶ 4.2.4.)

         For Eligible Sellers, Restitution is calculated as 10% of the Vehicle Value plus $1, 493.36. (Id. ¶ 7; Dkt. No. 1685-3 at 8, 15.) Eligible Sellers are guaranteed a minimum of $2, 550 in Seller Restitution; however, if the sum total of 10% of the Vehicle Value plus $1, 493.36 is greater than $2, 550, the Eligible Seller is entitled to the higher amount. (Id. at 15.)

         C. Claims Process

         The Settlement sets forth a five-step Claims Program, and Class Members have from the date of entry of this Order until September 1, 2018 to submit a claim. (Dkt. No. 1685 ¶ 2.11; Dkt. No. 1685-4 ¶ 7.) Eligible Sellers, however, must identify themselves within 45 days of entry of this Order (the “Eligible Seller Identification Period”). (Dkt. No. 1685 ¶ 2.31; Dkt. No. 1685-4 ¶ 7(a).)

         At Step One, Class Members learn about their available remedies and compensation. (Dkt. No. 1685 ¶ 5.1; Dkt. No. 1685-4 ¶ 1.) There are at least two ways Class Members can do this. Those who wish to obtain information online can visit the Settlement Website ( and register at the Online Claims Portal. There, Class Members provide their (1) name; (2) contact information, including email, mailing address, and phone number; (3) address of vehicle registration; (4) Vehicle Identification Number (“VIN”); (5) vehicle mileage, if the Class Member is a current owner or lessee; and (6) information regarding vehicle financing, i.e., whether the Class Member is a current owner or lessee. (Dkt. No. 1685-4 ¶ 1(a).) The Claims Portal will display individualized preliminary offers for each Class Member. (Id.) Alternatively, Class Members can call 1-844-98-CLAIM and provide the same information to receive their individualized preliminary offers. (Id. ¶ 1(b).)

         At Step Two, Class Members submit a Claim Form that contains information about his or her Eligible Vehicle, as well as the required documentation. (Dkt. No. 1685 ¶ 5.1; Dkt. No. 1685-4 ¶ 2.) Class Members can submit their Claim Forms online via the Settlement Website, by fax, or by mail. (Id. ¶ 2(a)(i)-(iii).) However Class Members choose to submit their Claim Forms, they must also provide information or documentation including: (1) a driver’s license or other government-issued identification; (2) the dates the Class Member owned or leased the Eligible Vehicle; (3) proof of ownership, including title (if applicable) and financing or lease information, including financial consent forms (if applicable). (Id.) Class Members will receive a Claim Number once the Claim is received. (Id. ¶ 2).

         While Class Members need not select a remedy at Step Two, they must submit their claims prior to September 1, 2018. (Id. ¶ 1(a).) Eligible Sellers, however, must identify themselves within 45 days of entry of this Order. They can do this via (1) electronic registration on the Settlement Website or (2) submission of an Eligible Seller identification form by mail or fax. (Dkt. No. 1685 ¶ 2.32; Dkt. No. 1685-4 ¶ 7(a).)

         Step Three involves a determination of the Class Member’s eligibility. (Dkt. No. 1685 ¶ 5.1; Dkt. No. 1685-4 ¶ 3.) The parties propose Ankura Consulting Group, LLC to act as Claims Supervisor and to review the submitted claims and verify a class member’s eligibility. (Dkt. No. 1685 ¶¶ 2.15, 5.2; Dkt. No. 1685-4 ¶ 3.) Per the proposed FTC Consent Order, Volkswagen will notify Class Members within at least 10 business days that their claim is either complete or deficient.[2] (Dkt. No. 1607 at 33.) Within at least 10 business days of receiving a completed application, Volkswagen will notify the Class Member whether he or she is eligible for the elected remedy. (Id.) The Class Member thereafter receives a formal offer if he or she is deemed an eligible “Claimant.” (Dkt. No. 1685-4 ¶ 4(a).)

         At Step Four, Claimants confirm their selection of an offered remedy, accept the formal offer, and schedule an appointment with a Volkswagen or Audi Dealer. (Dkt. No. 1685 ¶ 5.1; Dkt. No. 1685-4 ¶ 4.) Claimants who submitted an online Claim will receive their formal offers through the Claims Portal or via email. (Id. ¶ 4(a).) Claimants who faxed or mailed a Claim will receive their formal offers via mail or, if they so choose, by email. (Id.)

         Claimants may then accept their formal offers either through the Claims Portal or by submitting a paper acceptance form. (Id. ¶ 4(b).) Claimants need not accept an offer immediately; rather, they can defer selection until the Fix is approved or choose a different remedy if one is available. (Id.; id. ¶ 4(c).) Claimants eligible for a Buyback, Lease Termination, or a Fix may also change their remedy selection up until Step Four is completed, even if they have accepted a formal offer, though this may require additional documentation to verify eligibility. (Id. ¶ 4(b).) In other words, Claimants may wait until EPA and CARB approve a Fix, if any, before selecting their remedy. Upon formal acceptance, Claimants must also execute an Individual Release, described in more detail in Section II.F, infra. (Id.)

         Claimants can schedule an appointment for a Buyback or a Fix within 90 days of his or her acceptance of a formal offer. (Id. ¶ 4(c).) Appointments for a Lease Termination will be available within 45 days of the Claimant’s acceptance of a formal offer. (Id.) Claimants will be notified via the Claims Portal, email, or mail when the ability to schedule an appointment is available. (Id.)

         Claimants schedule appointments for a Buyback or Lease Termination online through the Claims Portal or by calling 1-844-98-CLAIM; they cannot schedule appointments directly with the Volkswagen or Audi Dealer. (Id. ¶ 4(d).) Appointments for a Fix, on the other hand, may be scheduled either by directly calling the Claimant’s preferred Volkswagen or Audi Dealer or through the Claims Portal. (Id. ¶ 4(e).)

         At Step Five, Claimants obtain their selected remedy. (Dkt. No. 1685 ¶ 5.1; Dkt. No. 1685-4 ¶ 5.) Claimants who opt for a Buyback or Lease Termination will meet with a Settlement Specialist at a Volkswagen or Audi Dealer to complete the process and receive payment. (Dkt. No. 1685-4 ¶ 5(b).) Claimants who elect a Fix will bring their Eligible Vehicles to a Volkswagen or Audi Dealer to obtain, at Volkswagen’s expense, the Approved Emissions Modification. (Id. ¶ 5(c).)

         Class Members or Claimants who dispute an eligibility determination or calculation of compensation may appeal that decision by mailing a form to the Claims Review Committee (“CRC”). (Dkt. No. 1685-4 ¶ 6.) The CRC will be comprised of three individuals: one representative from Volkswagen, one representative from Class Counsel, and one Court-appointed individual. (Id. ¶ 5.3.)

         D. Distribution of ...

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