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

United States District Court, N.D. California

May 23, 2017

IN RE VOLKSWAGEN “CLEAN DIESEL” MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION This Order Relates To: Dkt. Nos. 2002, 2267, 2443, 2445, 2599, 2627, 2738, 2814, 2816, 2826, 2829, 2832

          ORDER GRANTING STATES' MOTIONS TO REMAND

          CHARLES R. BREYER, United States District Judge

         Currently before the Court are 12 motions to remand, respectively filed by the State Attorneys General of Alabama, Illinois, Maryland, Minnesota, Missouri, Montana, New Hampshire, New Mexico, Ohio, Oklahoma, Tennessee, and Vermont (the “States”). Each State filed a complaint in state court, alleging that Volkswagen violated state law by using a defeat device in certain model TDI diesel engine vehicles. Volkswagen removed the cases, asserting federal question subject-matter jurisdiction under 28 U.S.C. § 1331.

         As the removing party, Volkswagen bears the burden of demonstrating that this Court has jurisdiction over the States' cases. Volkswagen contends that the States' complaints support “arising under” jurisdiction under § 1331 because: (1) at least some of the statutes reference EPA regulations; (2) all of the States' factual allegations rely on Volkswagen's use of a “defeat device, ” a term defined only in EPA regulations; and (3) many of the States' claims conflict with the Clean Air Act's division of enforcement authority between states and the federal government.

         Ultimately, none of these grounds supports “arising under” jurisdiction. While some of the state statutes at issue do reference EPA regulations, and the States' factual allegations do rely on Volkswagen's use of a defeat device, the mere presence of these federal components-which are not disputed and in most instances are not elements of the States' claims-is insufficient to support “arising under” jurisdiction. Further, irrespective of the merit of Volkswagen's argument that the States' claims conflict with the Clean Air Act, this argument is a preemption defense, which does not give rise to federal subject-matter jurisdiction. For these reasons, the Court GRANTS the States' motions to remand.

         BACKGROUND

         I. Factual Background

         Between 2009 and 2015, Volkswagen sold nearly 600, 000 Volkswagen-, Audi-, and Porsche-branded TDI “clean diesel” vehicles in the United States, which it marketed as being environmentally friendly, fuel efficient, and high performing. Unbeknownst to consumers and regulatory authorities, Volkswagen installed a software defeat device in these cars that allows the vehicles to evade United States Environmental Protection Agency (“EPA”) and California Air Resources Board (“CARB”) emissions test procedures. The defeat device senses whether the vehicle is undergoing emissions testing or being operated on the road. During emissions testing, the defeat device produces regulation-compliant results. When the vehicle is on the road, the defeat device reduces the effectiveness of the vehicles' emissions control systems. Only by installing the defeat device in 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 TDI diesel engine vehicles; in fact, these vehicles release nitrogen oxides (NOx) at a factor of up to 40 times permitted limits.

         II. Procedural Background

         The public learned of Volkswagen's deliberate use of a defeat device in the fall of 2015. Litigation quickly ensued, and many of those actions were consolidated and assigned to this Court as a multidistrict litigation (“MDL”). Among the lawsuits assigned to this Court were 17 cases filed by State Attorneys General, asserting violations of state law and naming as defendants Volkswagen AG; Volkswagen Group of America, Inc.; Audi AG; Porsche AG; and Porsche Cars of North America, Inc., and in some cases also Audi of America LLC; Volkswagen Group of America Chattanooga Operations, LLC; and Martin Winterkorn, former CEO of Volkswagen AG (collectively, “Volkswagen” or “Defendants”). Sixteen of the State cases were originally filed in state court and later removed by Volkswagen. The seventeenth was filed by the Wyoming Attorney General in the United States District Court, District of Wyoming, and later transferred to this Court. (See Case No. 3:16-cv-06646-CRB.)

         After Volkswagen removed 16 of the State cases, Attorneys General of some of those States filed motions to remand. On July 7, 2016, however, this Court stayed all remand motions until after the fairness hearing regarding the 2.0-liter class action settlement. (See Pretrial Order No. 22, Dkt. No. 1643.) On January 5, 2017, the Court lifted the stay and set January 31, 2017 as the deadline for all opening briefs. (Dkt. No. 2640.) On or before January 31, the Attorneys General of the 16 States that originally filed complaints in state court filed or joined briefs in support of their motions to remand. Four of the States (Maine, Massachusetts, New York, and Pennsylvania) subsequently entered into a settlement with Volkswagen that resolved their claims, leaving the Court with 12 outstanding remand motions.[1] (Dkt. No. 3126.)

         The States can be divided into two groups. The first includes States that have not adopted CARB emissions standards. These States refer to themselves as “Non-177 States”-signifying that they have chosen not to follow CARB standards in lieu of EPA standards, as permitted by Section 177 of the Clean Air Act. (See Dkt. No. 2834.) The Non-177 States are Alabama, Illinois, Minnesota, Missouri, Montana, New Hampshire, Ohio, Oklahoma, and Tennessee. The second group of States includes those that have adopted CARB standards (the “177 States”). (Dkt. No. 2832.) Maryland and Vermont are the only pure 177 States, while New Mexico is a hybrid 177 State-having adopted CARB emissions standards, but only during a limited time period statewide, and during a more extensive time period in Bernalillo County. (Dkt. No. 2829.)

Category

States

Non-177 States

Alabama, Illinois, Minnesota, Missouri, Montana, New Hampshire, Ohio, Oklahoma, Tennessee

177 States

Maryland, New Mexico (hybrid), Vermont

         III. Claims Background

         A. Exclusively Non-177 State Claims

         The Non-177 States' claims can be divided into four categories: (1) anti-tampering; (2) inspection and maintenance (I&M); (3) environmental; and (4) consumer-protection claims.

         1. Anti-Tampering Claims

         Seven of nine Non-177 States bring claims against Volkswagen under state statutes that prohibit tampering with vehicle emission control systems. As an example, Alabama law provides that:

No person shall cause, suffer, allow, or permit the removal, disconnection, and/or disabling of . . . [an] exhaust emission control system . . . which has been installed on a motor vehicle.

ADEM Admin. Code R. 335-3-9-.06. In its complaint, Alabama asserts that Volkswagen violated this provision by installing a defeat device in its vehicles, which caused each vehicle's exhaust emission control systems-e.g., its diesel particulate filters-to be disconnected or disabled “each and every time the subject vehicle was operating outside of dyno testing conditions.” (Dkt. No. 2834-2 at 15, 28.)

         The other Non-177 States' anti-tampering statutes are materially the same as Alabama's, although some also rely in part on federal motor vehicle standards. For example, Illinois law provides that:

Except as permitted or authorized by law, no person shall . . . remove, dismantle or otherwise cause to be inoperative any equipment or feature constituting an operational element of the air pollution control systems or mechanisms of a motor vehicle as required by rules or regulations of the Board and the United States Environmental Protection Agency to be maintained in or on the vehicle.

35 Ill. Adm. Code § 240.102 (emphasis added). In its complaint, Illinois contends that, by installing a defeat device in its vehicles, Volkswagen rendered inoperative air pollution control systems that were required to be maintained in order for its vehicles to comply with the EPA's Tier 2 and Tier 3 NOx emissions standards. (Dkt. No. 2834-2 at 153.)

         2. Tennessee's Inspection and Maintenance Claim

         In addition to an anti-tampering claim, Tennessee brings a claim against Volkswagen under its I&M laws.[2] Generally, I&M laws require vehicles to undergo periodic emissions testing to ensure they are being properly maintained. In this case, Tennessee contends that Volkswagen violated an I&M provision that prohibits any person from “knowingly . . . [f]alsif[ying], tamper[ing] with, or render[ing] inaccurate any monitoring device or method required to be maintained or followed[.]” Tenn. Code Ann. § 68-201-112(a)(3). Tennessee alleges that Volkswagen violated this provision by using a defeat device in its vehicles, which falsified, tampered with, or rendered inaccurate each vehicle's “on-board diagnostics system[s']” assessment of true emissions performance during annual I&M testing. (Dkt. No. 2834-2 at 68, 73-74.)

         3. Missouri's Environmental Claims

         Missouri filed two claims against Volkswagen under its environmental protection laws.[3]The first is for violation of a Missouri regulation providing that:

No person shall cause or permit the installation or use of any device or any means which, without resulting in reduction in the total amount of air contaminant emitted, conceal or dilute an emission or air contaminant which violates a rule of the Missouri Air Conservation Commission.

10 CSR § 10-6.150. In its complaint, Missouri asserts that Volkswagen violated this regulation by installing a device in its vehicles that concealed NOx emission levels greater than those permitted by the Missouri Air Conservation Commission. (Dkt. No. 2834-2 at 115.) Missouri's NOx standards mirror the EPA's NAAQS standards. (See generally Id. at 86-95.)

         Missouri's second claim is for unlawful emission of an air contaminant. The relevant statute provides that:

It is unlawful for any person to cause or permit any air pollution by emission of any air contaminant from any air contaminant source located in Missouri, in violation of sections 643.010 to 643.190, or any rule promulgated by the commission.

Mo. Rev. Stat. § 643.151. Missouri asserts that Volkswagen violated this provision by installing a defeat device in its vehicles, which concealed emissions during vehicle inspections, but “caused or permitted an elevation in the level of NOx, a regulated air contaminant, that discharged from the [vehicles] during normal on-road operation.” (Dkt. No. 2834-2 at 116.)

         B. Exclusively 177 State Claims

         1. CARB Emissions Standards Claims

         Maryland and New Mexico bring claims against Volkswagen for violation of CARB emissions standards. They allege that Volkswagen violated CARB standards by delivering to, and offering for sale in their respective states, vehicles equipped with a defeat device, which rendered invalid the vehicles' CARB certifications and caused the vehicles to emit excess emissions. (Dkt. No. 3116-3 at 50-55 (N.M. Compl.); Dkt. No. 2858 at 84-91 (Md. Compl.).)

         New Mexico, as noted above, is a hybrid 177 State and consequently bases its CARB emissions claims on only a subset of the TDI diesel vehicles Volkswagen sold in the State. In 2007, New Mexico adopted CARB standards statewide to be applied to vehicle model year 2011 and later. But in 2010, New Mexico repealed the statewide CARB standards, effective January 31, 2011. See N.M. Admin. Code § 20.2.88.101 (adopting California standards statewide starting with model year 2011); id. § 20.2.88.14 (waiving “all requirements of this part” through January 1, 2016); N.M. Register, Vol. XXIV, No. 23 (Dec. 13, 2013) (repealing Statewide Emissions Standards). In 2008, however, the State's Environmental Improvement Board separately adopted CARB standards for vehicles sold in Bernalillo County (which includes the city of Albuquerque), starting with model year 2011. CARB standards remain in effect Bernalillo County. (See Dkt. No. 3116-3 at 52.)

         C. Consumer Protection Act Claims

         New Mexico (Hybrid 177 State), Oklahoma (Non-177 State), and Vermont (177 State) also bring consumer-protection claims against Volkswagen. In their complaints, they allege that Volkswagen advertised and marketed its TDI diesel engine vehicles as “clean diesels” and as environmentally friendly, when in fact Volkswagen knew-because of its use of a defeat device- that its vehicles emitted NOx at rates well above applicable emissions standards. (See Dkt. No. 2816-3 at 37-39 (Okla. Compl.); Dkt. No. 3116-3 at 62-66 (N.M. Compl.); Dkt. No. 2832-5 at 83-85 (Vt. Compl.).) Volkswagen's actions, the States assert, were unfair and deceptive, and violated various enumerated provisions of their respective consumer protection acts. (See ...


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