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Historic Settlement of VW Emissions Scandal Near

SAN FRANCISCO (CN) - Although a federal judge delayed granting final approval of Volkswagen's $15 billion class action settlement of an emissions cheating scandal that has reverberated around the globe, the agreement is likely days away from becoming official.

U.S. District Judge Charles Breyer told a packed courtroom on Tuesday that while he was inclined to approve the settlement, he would first consider the objections raised by some class members to its provisions and possibly make modifications. The judge said he would issue a final ruling on or before Oct. 25.

"I think it is important for consumers, for the public and for everyone to understand what is being offered here in terms of a settlement is a comprehensive settlement as to the 2-liter vehicles," Breyer said.

The settlement covers certain Volkswagen and Audi "clean diesel" vehicles with 2.0-liter TDI engines. The parties are still negotiating claims related to 3.0-liter engines.

After the German automaker admitted in September 2015 that it had installed software in its TDI clean diesel cars to cheat emissions tests so that regulators would allow the cars on the road, Volkswagen drivers sued the company for fraud, breach of contract, unjust enrichment and racketeering, and of violating consumer protection laws in every state.

The cars pollute at 40 times the legal limit despite Volkswagen billing itself as a clean diesel pioneer, according to the proposed settlement

Under the agreement, Volkswagen will pay just over $10 billion to help class members either get rid of their cars or modify them to reduce emissions.

Class members can sell their cars to Volkswagen at trade-in value, which will not depreciate over the claim period, plus a cash payment of at least $5,100. Lessees can cancel their leases without paying a penalty and will also receive their car's trade-in value and a cash payment.

If class members choose to keep their cars, Volkswagen will modify for free the cars' emissions systems to reduce emissions to acceptable levels. These class members will also receive compensation.

Attorney's fees will not be part of the settlement, according to Breyer.

Under settlements with the U.S. Environmental Protection Agency and the California Air Resources Board, which are incorporated into the class action agreement, Volkswagen will also pay $2.7 billion to remediate the effects of its cars' excess pollution on the environment, and $2 billion to create a public awareness campaign on zero-emissions vehicles.

If Volkswagen fails to remove or modify 85 percent of the covered cars on the road by June 2019, it must pay additional funds into a mitigation trust.

"Some fairly onerous penalties kick in if we miss by one percent," Volkswagen attorney Robert Giuffra told Breyer at the hearing. "So the company is very incentivized to make this settlement work."

Volkswagen has also reached agreements with the Justice Department, the Federal Trade Commission and 44 state attorneys general.

At $15 billion, experts are calling the settlement the largest consumer class action settlement in U.S. history. Breyer praised the parties on Tuesday for settling the massive case so quickly.

"It was in the court's experience extraordinary," Breyer said. "There is nowhere you can go in the country that people have not commented on the speed with which this matter has been brought to the court for the court's approval."

About 20 objectors spoke at the hearing, most of them telling Breyer they don't approve of the settlement because it doesn't provide a large enough payout for various types of class members.

Among those are owners who lost money selling their cars after the emissions scandal broke, those who want the full purchase price of their cars instead of the amount their car was worth the day the allegations became public, and some who objected to the trade-in amount they would receive.

"Reimbursing for a car's value on [Sept. 18, 2015] is tantamount to saying [Volkswagen's] behavior was OK before then," objector Mark Cedric told Breyer. Cedric asked that Volkswagen reimburse class members for the entire purchase price of their vehicles.

Lead class counsel Elizabeth Cabraser addressed the objectors' concerns, telling Breyer the parties used carefully calibrated formulas to determine in what way and how much to reimburse class members. Those formulas, she said, compensate most class members for the entire replacement value of their vehicles.

As an example, Cabraser said that although the trade-in value under the buyback option may cause concern for class members, it is only a "starting point." From there, additional costs are factored in so that the ultimate payment under the buyback option amounts to the car's retail replacement value.

"It isn't the most perfect thing, it isn't the most pristine thing," Cabraser said. "Is it as good as new? No, that would be magic and the law can't do that. But what the law can do is fix it so that it functions. The settlement is our best effort to do just that."

Giuffra noted that the number of objectors totaled less than 1/1000 of the class, and that 3,200 of approximately 470,000 class members have opted out.

"If this were an election run the settlement would win in a landslide," Giuffra said. "This settlement provides massive relief to consumers."

In what was perhaps the most obvious indication of how he will rule, Breyer defended the settlement to objector Anna St. John, a representative of the libertarian Competitive Enterprise Institute.

St. John told Breyer the settlement doesn't provide any additional relief to consumers beyond what had already been provided in the related government settlements, so class members shouldn't be asked to give up their claims under the consumer settlement.

"Any additional mechanisms provided in the consumer settlement are inconsequential," St. John said.

Breyer seemed displeased with the comment.

"I think the consumer action of the settlement wasn't achieved in a vacuum. It's not like, 'We'll sit down with consumers and then with the FTC and figure out what they want,'" Breyer told St. John. "It's all part and parcel of an overall settlement. Who is to say that had not the plaintiffs' steering committee pushed this type of resolution then perhaps the government wouldn't have reacted in a particular way or vice versa? A settlement is looked upon as a hope."

He added after a lengthy defense, "Maybe your misfortune was to stand in front of me and make that comment," and told St. John he was "mindful and grateful" for her input.

Cabraser is with Lieff Cabraser Heimann & Bernstein in San Francisco. Giuffra works for Sullivan & Cromwell in New York.

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