Lawsuits Compound VW’s Cheating Troubles

SAN FRANCISCO (CN) - Exposed to $18 billion in fines for installing emissions-masking software in nearly 500,000 diesel vehicles, Volkswagen also faces a multitude of class actions from angry consumers across the country.

Volkswagen admitted on Monday that 11 million diesel autos worldwide had the cheating software installed, exposing itself to regulatory sanctions on several continents. The company issued a profit warning due to the costs it expects to incur. Its share price fell by 20 percent Monday, knocking $16 billion off VW's market capitalization. It said it would write off 6.5 billion euros, about $7.3 billion, in the third quarter, to cover its costs.

At least seven class actions had been filed by Monday from Volkswagen and Audi owners across the country. On Friday the Environmental Protection Agency announced that Volkswagen had installed "defeat device" software on several models, which made emissions controls kick in only when the autos were being inspected.

The cars met standards under laboratory settings, but spew nitrogen oxides at up to 40 times that limit when they are on the road, regulators said.

Emissions controls were turned off during normal driving to make the cars feel peppier and more responsive. Using a sophisticated algorithm, the software kicks into full emissions-control mode only when it detects the vehicle is undergoing inspections.

Statutory damages of up to $37,500 per vehicle could be imposed for Clean Air Act violations. If half a million vehicles are affected, VW faces a maximum fine of $18.75 billion - before the civil claims begin. Industry watchers expect the fines to be less than that, but fines of more than $1 billion would not be surprising.

The EPA is expected to order Volkswagen to recall all the affected vehicles and repair them. Models include VW diesel Jettas, Beetles, Audi A3s and Golfs for 2009 to 2014 model years, and the 2014 and 2015 Passat.

The scandal was discovered when EPA and California regulators began asking questions in May 2014. Researchers with the International Council for Clean Transportation and West Virginia University found that lab results of VWs did not match up with road tests.

In response, Volkswagen tested its vehicles to "identify the technical reasons for the high on-road emissions," but did not admit until last week that the vehicles were equipped with the defeat device, according to a compliance letter from the EPA.

The class actions - filed in California, Illinois, Alabama and Florida - allege fraud by concealment, breach of contract, strict product liability, breach of warranty, and other claims under state and federal laws.

One lawsuit, filed Monday in San Francisco Federal Court, includes plaintiffs from 23 states. Hagens Berman Sobol Shapiro filed that one, after filing the first class action Friday in the same court, with a single named plaintiff.

Volkswagen's advertisements touted the environmental cleanliness of its engine system and the power and efficiency of the engine. The plaintiffs say they paid thousands of extra dollars to buy the so-called "CleanDiesel" VW autos, but wound up with polluting vehicles.

When the vehicles are recalled and made to comply with emissions standards, their performance characteristics, including horsepower and efficiency, will be substantially degraded, the consumers say. The cars will no longer perform as they did when purchased and advertised, and the owners will have to pay more for fuel, according to the complaints.

"The half a million people who own these cars are furious, and with good reason," said Steve Berman, managing partner of Hagens Berman. "Not only did they pay more for something they never received, but they've been victim to a tremendous act of deception.

"Volkswagen marketed these cars as clean, even calling them 'CleanDiesel,' while knowingly implementing this software to cheat emissions tests. And it chose to target the group of consumers who care most about being environmentally conscious."

Berman, who was lead counsel in a $1.6 billion Toyota settlement for consumers, and took on GM for its ignition switch defect recalls, said the "economic loss in this case against Volkswagen rivals that of GM and Toyota."

The Volkswagen plaintiffs seek injunctive relief and punitive damages.

Volkswagen CEO Martin Winterkorn offered an apology on Sunday for cheating on emissions tests, saying the company takes the findings seriously.

"I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case," Winterkorn said. He has been CEO of Volkswagen since 2007. Volkswagen in June this year overtook Toyota as the world's best-selling automaker. It has ordered an external investigation and stopped sales of new and used four-cylinder diesel cars in the United States.

"We do not and will not tolerate violations of any kind of our internal rules or of the law. The trust of our customers and the public is and continues to be our most important asset," Winterkorn said.

European newspapers were speculating Tuesday that Winterkorn's days as CEO are numbered, perhaps in single digits.

German officials said they will investigate VW too.

Jochen Flasbarth, Germany's senior environmental official, called the matter a "case of blatant consumer deception and environmental damage."

"I expect VW to reveal, without any gaps, how and to what extent these manipulations have taken place," he said.

Volkswagen is likely to find itself the subject of a criminal probe by the U.S. Justice Department, which levied a $1.2 billion fine against Toyota in March 2014 for mishandling safety problems, and recently accepted a $900 million settlement involving General Motors' deadly ignition switches. That settlement was immediately attacked as a mere slap on the wrist.

The House Energy and Commerce Committee's oversight subcommittee will hold a hearing on the case in coming weeks. Committee Chairman Fred Upton, R-Michigan, said, "The American people deserve answers and assurances that this will not happen again. We intend to get those answers."

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