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Judge Approves $1.2B Settlement for VW Dealers

Volkswagen will pay $1.2 billion to compensate 644 U.S. dealerships for losses stemming from its diesel-emissions scandal under the terms of a settlement finalized Monday.

SAN FRANCISCO (CN) – Volkswagen will pay $1.2 billion to compensate 644 U.S. dealerships for losses stemming from its diesel-emissions scandal under the terms of a settlement finalized Monday.

Each dealership will receive an average $1.85 million to cover losses precipitated by the German automaker's installation of emissions cheating software in nearly 600,000 diesel-powered vehicles sold in the United States.

U.S. District Judge Charles Breyer finalized the deal in a ruling Monday morning after holding a hearing on the issue last week.

During that hearing, Thomas Smith, owner of Smith Volkswagen in Wilmington, Delaware, objected to the formula for compensating dealers. The formula is based on how many affected vehicles are in operation in each dealership's area of influence, rather than on the number of vehicles sold by each dealer.

Smith argued the deal shorts him $600,000 by excluding vehicles in an "open-point" area, a region not covered by an official dealership, just 1.5 miles from his business location.

In a 27-page ruling, Breyer overruled Smith's objection, finding the franchise owner failed to show the deal was "unfair or unreasonable" when applied across the entire class of dealerships.

"While some class members in class action settlements will inevitably wish they could recover more, 'the very essence of a settlement is compromise, a yielding of absolutes and an abandoning of highest hopes,'" Breyer wrote, citing the 1982 Ninth Circuit ruling Officers for Justice v. Civil Service Commission of City of San Francisco.

Volkswagen also agreed to alter the terms of its release from liability so that Palisades Volkswagen of Nyack, New York, could press its unrelated claims of price discrimination against the German automaker. An amendment to the settlement excludes releasing Volkswagen from claims alleged in any pending lawsuit filed before April 6, 2016.

Aside from direct cash compensation, Volkswagen also agreed to continue its dealership incentive program for an extra year, which rewards dealers with $600 for each car sold, amounting to an estimated $14.4 million in payouts each month.

Volkswagen will also freeze its requirements for dealerships to invest capital funds in renovations and new construction until November 2018, and it will repurchase from dealers any diesel-engine vehicles for which it cannot provide an approved emissions modification.

Seven of 651 eligible U.S. dealerships opted out of taking part in the settlement, according to Breyer's Jan. 23 ruling.

In an emailed statement, Volkswagen spokeswoman Jeannine Ginivan said, "The court’s final approval of the settlement with VW-branded franchise dealers in the United States is another important step forward. We are focused on building even stronger relationships with our U.S. dealers, whose partnership is critical to the future success of our brand.”

Volkswagen previously struck two settlements totaling more than $15 billion to settle claims over its sale of 2-liter and 3-liter diesel engine vehicles that spewed up to 40 times more nitrogen oxide on the road than allowed under federal law.

Earlier this month, Volkswagen also paid a $4.3 billion fine and pleaded guilty to conspiring to defraud the United States, obstructing justice and importing false goods. Six of its executives face criminal charges for the scheme as well.

The automaker is also fighting a shareholder class action claiming it defrauded American investors. Breyer refused to relinquish jurisdiction over that suit to Germany in a ruling issued on Jan. 4.

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