Volvo Engine Maker |Owes EPA $72 Million

(CN) - A Volvo subsidiary must pay $72 million for failing to comply with a consent decree in which Volvo agreed its engines must meet next year's EPA standards to be sold in the U.S., the D.C. Circuit ruled.

Under the Clean Air Act, auto manufacturers are required to conform to certain emissions standards before selling their engines in the U.S.

In 1998, the Environmental Protection Agency found that several major engine manufacturers, including Volvo, were evading emissions requirements with "defeat devices" designed to allow an engine to pass emissions tests without actually being in compliance.

To settle the allegations, Volvo signed a consent decree and agreed to satisfy future EPA emissions standards one year ahead of schedule. As a result, model year 2005 Volvo engines were supposed to meet model year 2006 emissions standards.

But 2005 engines made by Volvo Powertrain, a wholly owned subsidiary of Volvo, did not comply with the EPA's 2006 requirements.

A federal judge held Volvo Powertrain liable for the failure, as a "facility owned or operated by" a setting company, and ordered it to pay a $72 million penalty.

The D.C. Circuit affirmed the judgment last week.

"[W]e read the terms of the consent decree to impose liability on Volvo Powertrain for its affiliate's engines manufactured at its facility," Judge Sri Srinivasan said, writing for the three-judge panel.

Even if a separate subsidiary, Volvo Penta, openly applied for EPA certificates of conformity under 2005 standards, rather than 2006, this inconsistency does not prevent the EPA from asserting violations of the consent decree.

An EPA official testified that "a certificate of conformity does not reflect a conclusion that the engine satisfies other applicable requirements, such as those imposed by consent decrees and settlement agreements. Rather, EPA relies on applicants to include the information necessary to meet all applicable requirements and to assure the information's accuracy," according to the 26-page judgment. (Emphasis in original.)

And although the EPA presented no specific evidence that Volvo Powertrain obtained a competitive advantage by certifying noncompliant engines, the district court did not abuse its discretion by imposing a $72 million penalty.

"We acknowledge that the district court could have chosen to deviate downward from the consent decree's formula for stipulated penalties based on that consideration. But the 'abuse of discretion' standard 'means 'that the [district] court has a range of choice, and that its decision will not be disturbed as long as it stays within that range and is not influenced by any mistake of law,'" Srinivasan said.

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