The people v Volkswagen

After its emissions cheat, an Irish District Court is at the centre of a global legal battle between the car manufacturer and owners of affected vehicles

 

There was standing room only in court number one at Castlebar District Court on Tuesday. Judge Mary Devins worked her way through procedural matters on more than a dozen cases, which ranged from criminal damage to the door of a family resource centre to theft and possession of cannabis.

Solicitors whispered to clients like irritated parents. “Stand straight and get your hands out of your pockets,” one scolded her client, an ashen-faced young man wrapped in a parka.

As the crowd of defendants began to lighten, Volkswagen’s legal team made its way to the front of the court. Paul Fogarty, a barrister representing the car manufacturer, stepped up in black robe and white collar bands. He is representing Volkswagen on behalf of A&L Goodbody; he was accompanied by two of the firm’s solicitors. No VW executives were in court. It was, perhaps, a signal of things to come.

Fogarty’s client is a car giant with revenue of €230 billion in 2015, the year it was hit by a global scandal to do with emissions. The controversy has resulted in a class-action lawsuit in the United States; reports estimate that if the company has to pay compensation in Europe on the same scale as it did in the US its total legal costs could run to hundreds of billions.

Taking the case against Volkswagen in the District Court, where the maximum general damages are €15,000, is Eithne Higgins, a Co Roscommon nurse and mother of three who owns a Seat Leon. She is represented by Evan O’Dwyer, a Co Mayo solicitor with a practice in Ballyhaunis.

After 40 minutes of discussions and two adjournments Volkswagen’s legal team walked out of the courtroom.

This sitting was the latest in a series of hearings related to discovery orders sought by Higgins. Despite the unassuming location, the case has drawn international attention, for it is believed to be the first to seek that the car firm make public the original expert opinion and technical evidence that it used to develop a fix for the affected engines.

Perhaps as a result of the potential cost, the car giant is adopting a zealous defence. It is a far cry from the conciliatory approach the firm has adopted in the US.

The emissions cheat

VW has alleged that as far back as 2005 a small group of employees decided to cheat by installing software that adjusted nitrogen-oxide levels according to whether vehicles were on the road or being tested.

Despite repeated denials, on September 3rd, 2015, when US regulators threatened to withhold certification for 2016 vehicles, the car giant finally admitted to installing the cheat devices. The news reached the wider world on September 18th, disclosed not by Volkswagen but by US authorities.

The devices were fitted to what is known as the EA189 diesel-engine range, installed in 11 million cars worldwide across its brands, including 500,000 in the US and an estimated 8.5 million across Europe, among them 110,000 in Ireland.

Eithne Higgins’s Seat is one of them.

VW promised to recall and fix the affected cars. It was hoped that an interim discovery order by Judge Devins on June 6th would elicit test data to show whether the fix had implications for emissions levels and fuel economy.

The walkout

He said that if the court proceeded with the hearing his client would proceed by way of appropriate judicial review.

Higgins’s solicitor said that “what we have here is unruliness; it is chaos”. O’Dwyer claimed that he, his client and Castlebar District Court had been “systematically bullied” by Volkswagen’s legal team “in an attempt to goad them into taking a judicial review”.

He added, “This court is as important as, if not more important than, any other court in this land, and there is decorum, there is practice, there is protocol.”

After further comments from the judge Fogarty and the two accompanying solicitors walked out of court.

“We’re proceeding without Hamlet, but so be it,” Devins said. In a follow-up hearing on Wednesday she described the walkout as a bizarre stunt and the most unusual thing she had seen in her court.

Devins said that on May 27th she had accepted that Higgins’s car had been bought in a Co Mayo garage from an agent of the maker and that she had thus accepted jurisdiction. Recognising the complexity of the issues, the court had granted an interim order of discovery, to be complied with within six weeks. A&L Goodbody volunteered McDonnell to respond on behalf of its client.

McDonnell’s affidavit was filed late, as he was on holiday in Ibiza when the deadline arrived, and there was trouble getting a notary to certify it. (Notaries apparently don’t work on the island after certain hours.)

VW’s approach

Michael P Lehmann, a partner at the US law firm Hausfeld, was party to those settlement negotiations. Giving evidence in Tuesday’s hearing in Castlebar, he outlined how the litigation was dealt with in the United States, before Judge Charles R Breyer in San Francisco.

“VW’s counsel in the very first case-management hearing before Judge Breyer emphasised that they would co-operate, they were there to co-operate, to reach a quick resolution of the case.”

Devins asked why he thought there was a contrast with proceedings in Castlebar. Lehman said, “I have heard Matthias Müller” – VW’s chief executive – “tell European commissioners that consumers in the United States are the beneficiaries of different environmental laws and regulations than those found in Europe.”

Lehman said that 12 million pages of documents have so far been produced in the United States. “Conversely, looking at what Mr McDonnell supplied, he has 33 exhibits and a summary in his affidavit, but the 33 exhibits mainly consist of public press releases by Volkswagen.”

Although he couldn’t describe the content of the discovery in the US case, he could speak in general terms. “From the documentation, vitally missing from Mr McDonnell’s declaration is the actual data, the testing results, the forensic information provided to US and non-US investigators.”

Lehman said, “In my view Volkswagen has taken the position in Europe that it is not going to provide compensation to consumers and it regards these courts, these cases, as a distraction and a nuisance and hopes that they will wither away.

“I think Volkswagen is fighting a war of attrition against aggrieved consumers in the hope that they won’t file suits, and they will recognise that it’s going to be so difficult to deal with the company and its lawyers that it may not be worth the effort for a small individual claim.”

The affected owner

“I am on a State salary. My husband is in gainful employment, but our house is in negative equity. I became annoyed and angry when I heard on one hand Volkswagen were writing to me directly and saying that they were sorry to have broken my trust, and yet their solicitors are going to pursue me for costs if I continue with my claim.”

Her affidavit explains that on May 17th she visited three garages near her home to see what value they would offer her if she traded in the car. When the garages realised that it was one of those affected by the emissions scandal, none would offer a trade-in price.

The technical side

European governments weighed up the nitrogen-oxide-versus-carbon-dioxide debate and opted to focus on lowering emissions of the latter, which is linked to global warming. Our current motor-tax regime – introduced by the Fianna Fáil-Green Party coalition on July 1st, 2008 – is designed to penalise cars with high carbon-dioxide emissions. But manufacturers must comply with EU nitrogen-oxide limits before they can sell new models in Europe.

For Higgins’s engine the limit is 0.18g/km. Earlier this year a German car magazine, Auto Motor und Sport, tested a 2-litre diesel engine in a VW Amarok pickup that the manufacturer had fixed and recorded a nitrogen-oxide level of 1.5 g/km, more than eight times the European standard. Higgins’s solicitor is seeking data to support VW’s contention that its solution doesn’t breach EU limits.

For the 1.6-litre engine fitted to Higgins’s Seat Volkswagen needs to update the software and add a piece of hardware. VW refers to it as a flow transformer. Others have called it a rubber tube.

VW contends that changes to nitrogen-oxide emissions will not affect carbon-dioxide emissions. But one emissions expert told the court that he does not agree. Horace Calvert Stinton said that combustion theory implies that an increase in carbon-dioxide emissions would accompany a decrease in nitrogen-oxide emissions.

He said of the fact that more than a software change is needed and that a piece of hardware has to be fitted, “Motor manufacturers do not add any components unless necessary, as extra parts cost money and add weight to the vehicle.”

The financial cost

Stiglitz cites an announcement on March 15th this year by Volkswagen Financial Services AG. It made an extraordinary write-down of €353 million to cover the potential decline in the resale value of the affected vehicles.

It’s also worth noting a ruling by Judge Dr Gundula Nathschlager, in Linz Regional Court, in Austria, published in June. Although the names of both parties have been redacted from court documents, the case relates to the owner of a VW Touran with a 1.6-litre type EA189 diesel engine.

The plaintiff successfully requested the retraction of the sales contract and payment of €30,048.20, including interest, along with the return of the car. The court also granted costs. The motorist had argued that low fuel consumption had been an important factor in his decision to buy the Touran.

Outstanding issues

There are a number of other outstanding issues. Will VW continue to fight each case in what Lehman refers to as a “war of attrition” against affected owners?

As for the recall currently under way and the fixes being installed, will the car giant release the data to support its claims that it has managed to remove the cheat devices without affecting carbon-dioxide emissions or fuel economy?

Ultimately – and arguably beyond the discovery orders of the Castlebar court – the public and shareholders in the firm will still want to know who knew about the devices.

It is worth remembering that emissions levels exist to protect human health. Seemingly, a group of engineers at the auto giant set out to cheat the system. Volkswagen couldn’t get its diesel engines to meet strict US standards for nitrogen oxide. Then it could. Did no senior manager or director, from a board staffed with highly qualified engineers, ask to how this game-changing innovation was achieved?

The motor industry is the world’s biggest register of intellectual property and patents, ahead even of the technology sector. Did nobody suggest that such an engineering breakthrough be patented?

The lawyer: Castlebar case ‘immensely important’

With offices in Berlin, and European clients with similar complaints against the car firm, he has teamed up with Eithne Higgins’s solicitor, Evan O’Dwyer.

Hausfeld says, “The importance of the decision and the proceedings in Castlebar are immense . . . and I think this decision by this court will be influential in other proceedings, not only in Ireland but throughout Europe.”

Hausfeld has a long record of handling high-profile cases, including some of the largest and most successful class actions in human-rights, discrimination and antitrust law.

Hausfeld has represented native Alaskans whose lives were affected by the ‘Exxon Valdez’ oil spill of 1989, and Holocaust victims whose assets were wrongfully retained by private Swiss banks during and after the second World War; he also represented Poland, the Czech Republic, Belarus, Ukraine and the Russian Federation on issues of slave and forced labour for both Jewish and non-Jewish victims of Nazi persecution.

He was also the only private lawyer permitted to represent the interests of consumers worldwide in European Commissions’ closed hearings in the Microsoft case in 2003.

He says that Volkswagen has been extremely deferential to American regulators but that “VW is paying indifference to European regulators”.

“With respect to American consumers they were very responsive in understanding their accountability and addressing it. In Europe they denied any and all accountability.”

In the US, the court-ordered discovery process garnered 12 million documents. So far in the Castlebar case it has garnered one affidavit and 33 exhibits. Volkswagen “could never have failed to respond with the paucity of data that was produced for the court in Ireland under United States laws”, Hausfeld says.

“What was made clear in the testimony the other day was that engineers are extremely detailed in their nature. From the development of the device to its manipulation to its testing results to the alleged fix, there have to be details, minute reports concerning the engineering and the results of that entire evolution. None of that was produced before the Irish court, despite the fact it was asked for.”

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