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

United States District Court, N.D. California

February 16, 2017

IN RE VOLKSWAGEN “CLEAN DIESEL” MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION This Order Relates To ALL CONSUMER AND RESELLER ACTIONS

          ORDER GRANTING PRELIMINARY APPROVAL OF THE CONSUMER AND RESELLER DEALERSHIP 3.0-LITER CLASS ACTION SETTLEMENT

          CHARLES R. BREYER UNITED STATES DISTRICT JUDGE

         In the fall of 2015 the public learned of Volkswagen's deliberate use of a defeat device- software designed to cheat emissions tests and deceive federal and state regulators-in nearly 600, 000 Volkswagen-, Porsche-, and Audi-branded turbocharged direct injection (“TDI”) diesel engine vehicles sold in the United States. Litigation quickly ensued, and those actions were consolidated and assigned to this Court as a multidistrict litigation (“MDL”). After months of intensive negotiations and with the assistance of a court-appointed settlement master, Plaintiffs and Defendants Volkswagen AG (“VWAG”), Audi AG, Porsche AG, and Volkswagen Group of America, Inc. (“VWGoA”), and Porsche Cars North America, Inc. (collectively, “Volkswagen” or “Defendants”) reached a settlement that resolves consumer claims concerning certain 3.0-liter diesel TDI vehicles. (See Dkt. No. 2894.)

         The Settlement Class Representatives now move the Court to (1) preliminarily approve the proposed Consumer and Reseller Dealership 3.0-Liter Class Action Settlement Agreement and Release, (2) conditionally certify a Settlement Class, (3) approve the proposed settlement notice plan, and (4) schedule a fairness hearing. Having reviewed the proposed settlement and with the benefit of oral argument on February 14, 2017, the Court GRANTS the motion for preliminary approval. The Settlement is sufficiently fair, adequate, and reasonable to the 3.0-liter diesel engine vehicle consumers to move forward with class notice.

         BACKGROUND

         I. Factual Allegations

         Volkswagen sold Volkswagen-, Audi-, and Porsche-branded TDI “clean diesel” vehicles, which it marketed as being environmentally friendly, fuel efficient, and high performing. Unbeknownst to consumers and regulatory authorities, Volkswagen installed in these cars a software defeat device that allowed the vehicles to evade 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. Only by installing the defeat device on its vehicles was Volkswagen able to obtain Certificates of Conformity from EPA and Executive Orders from CARB for its 2.0- and 3.0-liter diesel engine vehicles; in fact, these vehicles release nitrogen oxides at a factor of up to 40 times over the permitted limit. Over six years, Volkswagen sold American consumers nearly 600, 000 diesel vehicles equipped with a defeat device.

         II. Procedural History

         Consumers filed hundreds of lawsuits nationwide 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 1, 182 tag-along actions to the Court. (Dkt. No. 2870.) Many MDL cases have also been filed directly in this Court. In January 2016, 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 September 2, 2016, the PSC filed its Amended Consolidated Consumer Class Action Complaint against 13 named defendants: VWGoA; VWAG; Audi AG; Audi of America, LLC; Porsche AG; Porsche Cars North America, Inc.; Martin Winterkorn; Mattias Müller; Michael Horn; Rupert Stadler; Robert Bosch GmbH; Robert Bosch, LLC; and Volkmar Denner. (Dkt. No. 1804.) The complaint asserts against Volkswagen claims under (1) the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 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. The PSC also filed a Second Amended Consolidated Reseller Dealership Class Action Complaint against the same 13 defendants; that complaint asserts against Volkswagen RICO, fraud, failure to recall/retrofit, and unjust enrichment claims. (Dkt. No. 1805.)

         The MDL also includes actions brought by federal and state government entities. The United States Department of Justice (“United States”) 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). Additionally, the State of California, on behalf of the People and CARB, has sued VWAG, VWGoA, VW Chattanooga, Audi AG, Porsche AG, and PCNA for violations of the Consumer Financial Protection Act, 12 U.S.C. § 5536, and various California state laws.

         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. (Dkt. No. 973.) Since that time, the parties and government entities have engaged in extensive negotiations, resulting in final approval of settlements between Volkswagen and (1) consumers who purchased or leased 2.0-liter diesel engine vehicles (Dkt. No. 2102) and (2) the Volkswagen-branded dealerships (Dkt. No. 2807). The EPA and the FTC have also resolved their claims against Volkswagen (Dkt. Nos. 2103, 2520, 2758 (EPA consent decrees); Dkt. Nos. 1607, 2843 (stipulations resolving FTC's claims), while CARB has resolved most of its claims (Dkt. No. 2519). The PSC now seeks preliminary approval of the 3.0-liter Settlement. (Dkt. No. 2840.)

         SETTLEMENT TERMS

         This Order addresses the proposed Amended Consumer and Reseller Dealership 3.0-Liter Class Action Settlement Agreement. (Dkt. No. 2894.) The key provisions of the Settlement are as follows.

         I. The Settlement Class

         The proposed Settlement Class consists of:

a nationwide class, including Puerto Rico, of all persons (this includes individuals who are United States citizens, residents, United States military, diplomatic personnel and employees living or stationed overseas, as well as entities) who, (1) at any time between September 18, 2015 and November 2, 2015, inclusive, owned or leased a Volkswagen, Audi, or Porsche 3.0-liter TDI vehicle in the United States or its territories (an “Eligible Vehicle, ” defined more fully in Section 2.40); or who (2) between November 3, 2015 and the Claim Submission Deadline for Eligible Owners and Lessees, inclusive, become the owner of an Eligible Vehicle in the United States or its territories; or who (3) own an Eligible Vehicle in the United States or its territories at the time of participation in the 3.0-liter Class Action Settlement Program. The Class includes Non-Authorized Dealers who otherwise meet the definition of the Class.

         The following entities and individuals are excluded from the Class:

(a) Owners who acquired an Eligible Vehicle after September 18, 2015, and sold it before November 2, 2015;
(b) Owners who acquired an Eligible Vehicle after November 2, 2015, and transferred title on or before January 31, 2017;
(c) Lessees of a Generation One Eligible Vehicle leased from a leasing company other than VW Credit, Inc., and lessees of a Generation Two Eligible Vehicle leased from a leasing company other than VW Credit, Inc. or Porsche Financial Services, Inc.;
(d) Owners whose Eligible Vehicle had a Branded Title of Assembled, Dismantled, Flood, Junk, Rebuilt, Reconstructed, or Salvage on September 18, 2015, and was acquired from a junkyard, salvage yard, or salvage dealer after September 18, 2015;
(e) Owners who sell or otherwise transfer ownership of their Eligible Vehicle after January 31, 2017 but on or before the Opt-Out Deadline, unless the Eligible Vehicle is (i) unintentionally damaged after January 31, 2017, in a manner that renders it a total loss (i.e., “totaled”) and (ii) transferred to an insurance company or otherwise permanently removed from commerce;
(f) Defendants' officers, directors and employees; Defendants' affiliates and affiliates' officers, directors and employees; their distributors and distributors' officers, directors and employees; participants in Volkswagen's Internal Lease Program and/or Porsche Associate Lease Program; and Authorized Dealers and Authorized Dealers' officers and directors;
(g) Judicial officers and their immediate family members and associated court staff assigned to this case; and
(h) All those otherwise in the Class who or which timely and properly exclude themselves from the Class as provided in this 3.0-liter Class Action Agreement.

(Dkt. No. 2894 ¶ 2.23.)

         An Eligible Vehicle under the Settlement means:

the Model Year 2009 through 2016 Volkswagen and Audi and Model Year 2013 through 2016 Porsche light-duty vehicles equipped with 3.0-liter TDI engines that (1) are covered, or purported to be covered, by the EPA Test Groups in the table immediately below this paragraph; (2) are, at any point during the period September 18, 2015 to January 31, 2017, registered with a state Department of Motor Vehicles or equivalent agency, or owned by a Non-Authorized Dealer in the United States or its territories that (a) holds title to the vehicle or (b) holds the vehicle by bill of sale; and (3) have not been modified pursuant to an Approved Emissions Modification. Eligible Vehicle also excludes any Volkswagen, Audi, or Porsche vehicle that was never sold or registered in the United States or its territories. A vehicle must be Operable to be considered an Eligible Vehicle for the purpose of the Buyback, Trade-In, Reduced Emissions Modification, or Emissions Compliant Repair.

(Id. ¶ 2.40.) The specific Eligible Vehicles identified in the Settlement are as follows:

Model Year

EPA Test Group(s)

Vehicle Make and Model(s)

Sub-Generation

2009

9ADXT03.03LD

VW Touareg, Audi Q7

1.1

2010

AADXT03.03LD

VW Touareg, Audi Q7

1.1

2011

BADXT03.02UG

BADXT03.03UG

VW Touareg

Audi Q7

1.2

2012

CADXT03.02UG

CADXT03.03UG

VW Touareg

Audi Q7

1.2

2013

DADXT03.02UG

DADXT03.03UG

DPRXT03.0CDD

VW Touareg

Audi Q7

Porsche Cayenne Diesel

2.1 SUV

2014

EADXT03.02UG

EADXT03.03UG

EPRXT03.0CDD

VW Touareg

Audi Q7

Porsche Cayenne Diesel

2.1 SUV

2014

EADXJ03.04UG

Audi: A6 quattro, A7 quattro, A8, A8L, Q5

2 PC

2015

FVGAT03.0NU3

Audi: Q7, A6 quattro, A7 quattro, A8, A8L, Q5

2.1 SUV

2015

FVGAT03.0NU2

FPRXT03.0CDD

VW Touareg

Porsche Cayenne Diesel

2.2 SUV

2015

FVGAJ03.0NU4

Audi: A6 quattro, A7 quattro, A8, A8L, Q5

2 PC

2016

GVGAT03.0NU2

GPRXT03.0CDD

VW Touareg

Porsche Cayenne Diesel

2.2 SUV

2016

GVGAJ03.0NU4

Audi: A6 quattro, A7 quattro, A8, A8L, Q5

2 PC

(Id.)

         Class Members are further categorized as Eligible Lessees, Eligible Former Lessees, Eligible Owners, and Eligible Former Owners.

         An Eligible Lessee is:

(1) the current lessee or lessees of an Eligible Vehicle with a lease issued by VW Credit, Inc. (Generation One vehicles) or VW Credit, Inc. or Porsche Financial Services, Inc. (Generation Two vehicles);
(2) a former lessee or lessees of an Eligible Vehicle who had an active lease issued by VW Credit, Inc. (Generation One vehicles) or VW Credit, Inc. or Porsche Financial Services, Inc. (Generation Two vehicles) as of September 18, 2015 and/or November 2, 2015 and who surrendered or surrenders the leased Eligible Vehicle under the terms of the lease after January 31, 2017, but before the Claim Submission Deadline; or (3) the owner of an Eligible Vehicle who had an active lease issued by VW Credit, Inc. (Generation One vehicles) or VW Credit, Inc. or Porsche Financial Services, Inc. (Generation Two vehicles) as of September 18, 2015 and/or November 2, 2015, and acquired ownership of the previously leased Eligible Vehicle at the conclusion of the lease after January 31, 2017. For avoidance of doubt, no person shall be considered an Eligible Lessee by virtue of holding a lease issued by a lessor other than VW Credit, Inc. or Porsche Financial Services, Inc.

(Id. ¶ 2.38.)

         An Eligible Former Lessee is:

a lessee who leased an Eligible Vehicle from VW Credit, Inc. (Generation One vehicles) or VW Credit, Inc. or Porsche Financial Services, Inc. (Generation Two vehicles) as of September 18, 2015 and/or November 2, 2015, and who surrendered the leased Eligible Vehicle under the terms of the lease on or before January 31, 2017.

(Id. ¶ 2.35.)

         An Eligible Owner is:

the owner or owners of an Eligible Vehicle on September 18, 2015, or the owner or owners who acquire an Eligible Vehicle after September 18, 2015, but before the end of the Settlement Benefit Period, except that the owner of an Eligible Vehicle who had an active lease issued by VW Credit, Inc. (Generation One vehicles) or VW Credit, Inc. or Porsche Financial Services, Inc. (Generation Two vehicles) as of September 18, 2015 and/or November 2, 2015, and purchased that previously leased Eligible Vehicle off lease after January 31, 2017, shall be an Eligible Lessee. For avoidance of doubt, an Eligible Owner ceases to be an Eligible Owner if he transfers ownership of the Eligible Vehicle to a third party. A third party who acquires ownership of an Eligible Vehicle thereby becomes an Eligible Owner if that third party otherwise meets the definition of an Eligible Owner, unless the third party acquired the Eligible Vehicle from an Eligible Lessee, in which case that third party will be an Eligible Lessee. An owner of an Eligible Vehicle will not qualify as an Eligible Owner while the Eligible Vehicle is under lease to any third party, although any such owner, including any leasing company other than VW Credit, Inc. or Porsche Financial Services, Inc., who otherwise meets the definition of an Eligible Owner would become an Eligible Owner if such lease has been canceled or terminated and the owner has taken possession of the vehicle. In exceptional cases, specific arrangements may be made with the leasing company, in consultation with the Claims Supervisor, such that, (1) without canceling or terminating the lease, the leasing company may be treated as an Eligible Owner and obtain (a) an Emissions Compliant Repair plus Lessee Repair Payment or (b) a Reduced Emissions Modification plus Owner Restitution, as appropriate, and (2) a lessor that takes possession of a leased Eligible Vehicle after the Claim Submission Deadline (or the end date of the Claim Program) may nonetheless be entitled to submit a Claim.

(Id. ¶ 2.39.)

         An Eligible Former Owner is:

a person who purchased or otherwise acquired ownership of an Eligible Vehicle on or before September 18, 2015, and sold or otherwise transferred ownership of such vehicle after September 18, 2015 but on or before January 31, 2017, or who acquired ownership of an Eligible Vehicle on or before November 2, 2015, and sold or otherwise transferred ownership of such vehicle after November 2, 2015 but on or before January 31, 2017. For avoidance of doubt, a sale or transfer of ownership under this definition includes the transfer of ownership of an Eligible Vehicle to an insurance company.

(Id. ¶ 2.36.)

         II. Consumer Remedies

         Class Members may seek benefits under the Settlement during the Settlement Benefit Period, which runs from the entry of this Order until (1) September 30, 2019 for Generation One vehicles, or (2) April 30, 2020 for Generation Two vehicles. (Id. ¶ 2.84.)

         A. Generation One (Model Years 2009-2012)

         Class Members who own or a lease a Generation One vehicle have three possible options under the Settlement: (1) Buyback / Lease Termination; (2) Trade-In; or (3) if approved by the EPA and CARB, an emissions modification that would reduce the vehicle's emissions but not to the levels of their original certification (a “Reduced Emissions Modification”). Eligible Former Lessees and Eligible Former Owners are entitled to restitution.

         1. Buyback / Lease Termination

         The first option for Generation One vehicle owners is to receive a Buyback payment that consists of Vehicle Clean Trade Value (or Vehicle Value) plus Owner Restitution. For Class Members electing the Buyback option, the total payment will range from $24, 755 to $57, 157. (Dkt. No. 2840 at 11.)

         Vehicle Value is the Base Clean Trade Value adjusted for certain options and, in the case of eligible owners and former owners, for mileage. (Dkt. No. 2894-1 at 7 ¶ 15.) Base Clean Trade Value for each Eligible Vehicle refers to the Clean Trade value for the National Automobile Dealers Association (“NADA”) Vehicle Identification Code (“VIC”) corresponding to that vehicle in the September 2015 NADA Used Car Guide published in or around August 2015, based on the NADA Region that includes the state of the Eligible Vehicle's last known vehicle registration as of November 2015. (Id. ¶ 14.) Options adjustments are based on Volkswagen original equipment manufacturer (“OEM”)-installed options that are valued in the September 2015 NADA Used Car Guide. (Id. ¶ 16.) Mileage adjustments are made using the mileage adjustment table in the September 2015 NADA Used Car Guide. (Id. ¶ 17.)

         Owner Restitution is composed of a fixed dollar amount that is the same for all Generation One Eligible Vehicles (the “fixed component”), and a variable dollar amount (the “variable component”). (Id. at 3 ¶ 8(i).) Owners who acquired a new vehicle at any point in time or a used vehicle on or before September 18, 2015 will receive a fixed component of $5, 155 and a variable component consisting of (1) the amount by which Vehicle Clean Retail Value exceeds Vehicle Value, plus (2) state and local taxes on the Vehicle Clean Retail Value. (Id.) If Owner Restitution would otherwise be less than $6, 000, the variable component will include an additional amount sufficient to raise Owner Restitution to $6, 000. (Id.) Owners who acquired a used vehicle after September 18, 2015 will receive the same amount just described unless (1) one or more Eligible Former Owners timely file a valid claim related to the same vehicle, or (2) the Eligible Vehicle was previously leased by someone else and the Eligible Former Lessee timely files a valid claim. (Id.) In such instances, Owner Restitution will be half the amount described above.

         The table below provides an illustrative Buyback calculation. (See Dkt. No. 2894-1 at 4.) As noted above, a Buyback payment includes Vehicle Clean Trade Value (or Vehicle Value) plus Owner Restitution. Vehicle Value below is $22, 825, assuming standard mileage. Owner Restitution consists of the fixed component of $5, 155 plus the variable component consisting of (1) the amount by which Vehicle Clean Retail Value ($25, 550) exceeds Vehicle Value ($25, 550 -$22, 825 = $2, 725), plus (2) the appropriate state and local tax rate multiplied by the Vehicle Clean Retail Value (6.35% of $25, 550 = $1, 622.43). The variable component thus equals $4, 347.43, and Owner Restitution totals $9, 502.43 (or $5, 155 $4, 347.43). In this example, the total Buyback amount is $32, 327.43 (or $22, 825 $9, 502.43).

Vehicle ID

100001

Description

2009 Q7 TDI Premium Plus

Vehicle Value

$22, 825 (assumes standard mileage)

Vehicle Clean Retail Value

$25, 550 (assumes standard mileage)

State and Local Tax Rate

Connecticut 6.35%

Tax on Vehicle Clean Retail Value

6.35% of $25, 550 = $1, 622.43

Difference between Vehicle Clean Retail Value and Vehicle Value

$25, 550 - $22, 825 = $2, 725

Owner Restitution

$5, 155.00 [fixed component] $4, 347.43 [variable component: amount by which Vehicle Clean Retail Value exceeds Vehicle Value ($2, 725), plus tax ($1, 622.43)] $0 [amount necessary to bring total Owner Restitution to $6, 000] = $9, 502.43

Buyback Amount

$22, 825 $9, 502.43 = $32, 327.43

Minimums

Owner Restitution is greater than $6, 000, and the Buyback Amount is greater than Retail Replacement Value, so the minimums are not implicated.

         Eligible Lessees who have an active lease of a Generation One Eligible Vehicle can terminate their leases with no penalty for early termination and receive Lessee Restitution. (Dkt. No. 2894 ¶ 5.4.) Lessee Restitution ranges from $5, 001 to $6, 615. (Dkt. No. 2840 at 19.) Lessee Restitution consists of a fixed component of $2, 577.50 and a variable component that is one half of (1) the amount by which Vehicle Clean Retail Value exceeds Vehicle Value, added to (2) state and average local sales taxes on the Vehicle Clean Retail Value. (Dkt. No. 2894-1 at 5 ¶ 9(i).)

         2. Trade-In

         Owners of Generation One vehicles can choose to trade in their vehicle at a participating dealer and receive a Trade-In Credit at the dealer. (Dkt. No. 2894 ¶ 5.3.) The Trade-In Credit will be equal to the Buyback Amount to which that owner would be entitled in a Buyback.

         3. Reduced Emissions Modification

         The availability of this option will depend on whether the EPA and CARB approve an emissions modification for a Class Member's Generation One vehicle. (Id. ¶ 5.5.) The expected timeline for Volkswagen to submit proposed emissions modifications for Generation One vehicles is set forth in the DOJ 3.0-liter Consent Decree. (See Dkt. No. 2520-1.) If no emissions modification is approved for a particular make, model, and model year of Generation One vehicle, Class Members owning or leasing such vehicles will not be able to select a Reduced Emissions Modification. If no emissions modification exists, Class Members will be informed that they remain eligible for Buyback or Trade-In, or that they may opt out of the Settlement from August 1, 2018 to September 1, 2018. Owners that receive an approved emissions modification will also receive Owner Restitution.

         4. Restitution for Eligible Former Lessees and Eligible Former Owners

         Eligible Former Lessees are entitled to the same Lessee Restitution as Eligible Lessees. (See Dkt. No. 2894 ¶ 5.7; Dkt. No. 2894-1 at 5 ¶ 9.) Eligible Former Owners are entitled to receive Former Owner Restitution. (See Dkt. No. 2894 ¶ 5.8; Dkt. No. 2894-1 at 6 ¶ 10.) There can be no more than two Eligible Former Owners for each Eligible Vehicle. If only one Eligible Former Owner for a vehicle timely files a valid claim, Former Owner Restitution will be one half the amount of Owner Restitution, as calculated above. If two Eligible Former Owners timely file valid claims, Former Owner Restitution for each former owner will be 25% of Owner Restitution.

         B. Generation Two (Model Years 2013-2016)

         The benefits available to Generation Two vehicle owners will depend on whether Volkswagen can timely make available an approved emissions modification (an “Emissions Compliant Repair”). (Dkt. No. 2894 ¶ 6.1.) An Emissions Compliant Repair will be considered timely if it is approved (i) on or before the Decision Date for the Sub-Generation to which that Eligible Vehicle belongs, (ii) on or before any subsequent date set by the Court, or (iii) during any 30-day extension period (of which there may be up to three) for which Volkswagen agrees to make an ...


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