SAN FRANCISCO (CN) – A federal judge signaled Tuesday that states like Wyoming likely can't seek additional penalties against Volkswagen for installing emissions-cheating software in some 580,000 vehicles sold in the United States.
"Did Congress intend to permit states to enforce these standards as it applies to manufacturers?" U.S. District Judge Charles Breyer asked during a hearing Tuesday. "I just don't see it that way."
Volkswagen had moved to dismiss the state of Wyoming's lawsuit, arguing its claims are pre-empted by federal law because only the U.S. Environmental Protection Agency can regulate emissions standards under the Clean Air Act.
Seven states and a county in Texas filed amicus briefs opposing Volkswagen's motion to dismiss Wyoming's complaint. The states – Alabama, Illinois, Minnesota, New Hampshire, Ohio, Tennessee, and Texas – say each state has a responsibility to protect its citizens by enforcing state environmental laws to ensure the attainment of national air quality standards.
But Volkswagen attorney Robert Giuffra Jr. said Tuesday that the Clean Air Act expressly forbids states from adopting or attempting to enforce emissions standards for new vehicles.
"Congress put this in because it was concerned about having a patchwork of rules among different states," Giuffra said.
Although California enacted tougher standards under a Clean Air Act waiver, and Volkswagen paid penalties to California, Wyoming is not one of the 15 states that adopted California's tougher emissions standards.
Wyoming says it's not trying to regulate federal emissions standards, but rather to enforce two state laws that prohibit tampering with a pollution-control device.
"The tampering is the problem, not the standard," Wyoming assistant attorney general Elizabeth Morrisseau told the judge.
But Breyer appeared unconvinced. He said attempting to enforce air quality laws, even indirectly, would still be forbidden by federal law.
"There's always an indirect way to do something," Breyer said. "I can't go in a straight line so I'm going to go in a crooked line. It's the same effect. I don't think there's an argument to say, 'We're doing it indirectly [so] it's okay.'"
Volkswagen says Wyoming seeks to impose "Draconian" penalties of $37,500 per vehicle per day on the automaker. Those fines would allow Wyoming to obtain $13.6 million per vehicle each year for an estimated 370 affected vehicles in the state, according to Volkswagen.
Volkswagen has paid out $22.9 billion in U.S. penalties and settlements thus far, including a $2.8 billion criminal fine. Under prior settlements, Wyoming residents will receive more than $9 million in consumer relief and the state will get $8 million for environmental mitigation, according to Volkswagen's motion to dismiss.
"It's hard to imagine an auto manufacturer being penalized as much as Volkswagen has," Giuffra said.
But Morrisseau cited a recent ruling, issued on July 17, by a New Jersey state appeals court, Felix v. Volkswagen. In that ruling, a three-judge panel upheld a lower court ruling denying Volkswagen’s motion to dismiss, finding the plaintiffs did “not seek to enforce an EPA emission standard or force the manufacturer to adopt a different emission standard.”
Morrisseau said the same situation exists here because Wyoming only seeks to enforce its own state laws that prohibit tampering with pollution-control devices.
"Our case does not rise or fall on whether the standards were violated," Morrisseau said. "Our case rises and falls on whether the vehicles were tampered with."
Giuffra replied that states can only regulate that kind of "tampering" when it occurs after vehicles are manufactured and on the road, not when they are coming off the assembly line in Germany.
To make Volkswagen liable for additional state and local government penalties would ignore the plain language of the Clean Air Act, he argued.
"These sorts of state copycat, pile-on enforcement actions are preempted by federal law," Giuffra said.
Breyer seemed inclined to side with Volkswagen on the issue, a move that several states and local governments oppose.
"I have to wonder whether Congress really wanted to have 50 states or even other subdivisions enforce these regulations," Breyer said. "You say, 'We're not enforcing the regulations, but enforcing our anti-tampering laws,' but that's by another name ... the purpose here is to enforce the emissions control standard."
Breyer took the arguments under advisement.
The EPA first revealed to the public on Sept. 18, 2015, that Volkswagen used illegal defeat devices to mask nitrogen oxide pollution during emissions tests. The German carmaker later acknolwledged installing defeat devices in some 11 million diesel-powered vehicles worldwide.
In March, Volkswagen pleaded guilty to conspiracy and obstruction of justice, and agreed to pay $4.3 billion in criminal and civil penalties. It has also struck three settlements with U.S. consumers, regulators, and dealerships, totaling more than $17 billion.
In June and July, Breyer refused to dismiss two separate shareholder class actions against Volkswagen, claiming the company misled U.S. investors by failing to disclose liabilities related to its emissions cheating scandal.
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