Marks First-ever Ny State Environmental Enforcement Penalty Against An Automaker.
Albany, NY – March 30, 2017 - Attorney General Eric T. Schneiderman announced today that Volkswagen AG, Audi AG and Porsche AG, as well as their American subsidiaries, have agreed to pay over $157 million to ten states – including $32.5 million to New York – to settle the environmental lawsuits first filed last summer by New York and Massachusetts challenging the companies’ secret use of unlawful “defeat device” software in their vehicles – software that caused tens of thousands of tons of excess harmful pollutants to be emitted into the air in New York and other states.
The settlement marks the first time New York and the other settling states – all of which have adopted California’s stringent vehicle emission standards – have secured environmental penalties from an automobile manufacturer under their own state auto emissions laws. Historically, enforcing vehicle emission standards has been done primarily by the federal government. Setting this precedent is particularly vital now, when President Trump has vowed to defund federal environmental enforcement and undo federal environmental protections, which would leave states like New York and California as the first line of defense for the environment. New York will continue to enforce the tough auto emission and greenhouse gas standards established by California, and intends to oppose any effort by the federal government to roll back EPA emission standards currently in place.
“Volkswagen, Audi and Porsche tried to pull off an extraordinarily cynical corporate fraud – deceiving hundreds of thousands of consumers, pumping thousands of tons of harmful pollution into our air, and flouting New York and federal environmental laws designed to protect public health,” said Attorney General Schneiderman. “This went on for nearly a decade, for no other reason than their bottom line, so the companies could avoid the expense of engineering cars that would actually meet our environmental standards. Adding insult to injury, they marketed these dirty vehicles as environmentally-friendly and technologically-advanced – not only deceiving consumers and harming our environment, but also undercutting the sales of their law-abiding competitors.”
“But Volkswagen was caught – and today’s settlement means we’ve now held them to full account,” Attorney General Schneiderman continued. “The companies are already paying billions of dollars in consumer relief, environmental mitigation funds, and criminal and civil penalties as a result of our earlier state, federal and private settlements. Now, this state environmental penalty makes clear that no company – however large or powerful – is above the law in New York. As we’ve made clear, if the federal government fails to do its job, I will continue to enforce our state’s environmental laws and hold accountable anyone who violates them – to ensure New Yorkers’ public health and environment are protected.”
“We are once again continuing our unwavering commitment to enforce our state’s strict air quality standards against any company that violates our environmental laws.” said Governor Cuomo. “This state has a long track record of holding polluters accountable and this landmark settlement is a stern reminder that New York and its regulators will use ever legal means possible to protect the health and safety of all New Yorkers.”
Crucial to New York State’s enforcement action – and the precedent it sets – is the substantial size of this settlement; the $32.5 million in penalties Volkswagen will pay New York for emissions cheating represents the largest air pollution fine ever obtained by New York State. Amounting to over $1,250 per defeat-device-equipped Porsche, Audi, and Volkswagen diesel vehicle sold or leased in the state – and in addition to the amounts the companies have already agreed to pay – this penalty will serve to deter other companies considering breaking New York’s environmental laws. The monies, in conjunction with other remedial payments Volkswagen has agreed to pay to offset the pollution caused by the operation of its illegal defeat device-equipped cars, will fund environmental and other government programs across the state.
The settlement announced today caps a series of settlements New York and other states have reached with Volkswagen over its deployment of illegal defeat devices:
In June 2016, a coalition of over 45 jurisdictions, led by New York, settled their consumer deception claims against Volkswagen, for a total of approximately $570 million, with $31.8 million going to New York alone.
Volkswagen also agreed to establish a national $2.9 billion fund to mitigate the environmental damage caused by their defeat-device-equipped vehicles’ excess pollution; over $127 million of that fund will be directed to New York for air quality improvement plans in the state.
With the settlement announced today, New York will receive a total of $193 million in penalties and environmental remediation funds, as a result of the Attorney General’s vigorous enforcement of state and federal environmental law against Volkswagen.
Also as part of today’s settlement, Volkswagen has agreed to substantially increase its commitment to New York’s emerging electric car market. The agreement requires Volkswagen to – by 2020 – at least triple the number of electric car models its Volkswagen, Porsche, and Audi brands offer to New Yorkers from one model to three, including two electric SUVs. This commitment will further increase consumer choice and spur pollution-reducing electric car sales. Further, as part of the related class action, federal and state settlements, Volkswagen will provide consumers who purchased or leased a 2.0 liter vehicle the option of a buyback or fix of the vehicle’s emissions systems, plus thousands of dollars in restitution, and as part of a settlement that is currently awaiting court approval, Volkswagen will provide substantial compensation to consumers who purchased or leased a 3.0 liter vehicle and is committed to fix the emissions systems of those vehicles or eventually repurchase them.
This multistate settlement agreement was filed today in the U.S. District Court for the Northern District of California and will be further memorialized in consent judgments to be filed in New York and other state courts. The other states joining today’s settlement include Connecticut, Delaware, Massachusetts, Maine, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington. Referred to as “Section 177 States,” New York and the other states settling with Volkswagen today have all incorporated into their state law the more stringent auto emissions standards established by California, as permitted by Section 177 of the federal Clean Air Act.
Attorney General Schneiderman’s and the other states’ lawsuits followed an extensive investigation by a multistate coalition of over 40 states and other jurisdictions, led by New York, Massachusetts, Connecticut, Tennessee, Oregon, and Washington. New York’s Department of Environmental Conservation and other state environmental agencies provided important assistance with the investigation.
As alleged in Attorney General Schneiderman’s complaint, Volkswagen, Audi, and Porsche sold more than 570,000 2.0- and 3.0-liter diesel vehicles in the United States equipped with “defeat device” software intended to circumvent applicable emissions standards for certain air pollutants. Once installed, the software activates required emissions controls during a car inspection, but deactivates those controls during regular driving, effectively falsifying the inspection results and allowing nitrogen oxide (NOx) emissions up to 35 times the legal limit. The automakers installed defeat devices in several generations of US-market Volkswagen and Audi diesel engines that equipped over a dozen models, including flagship Audi luxury sedans and high-performance Porsche SUVs, with sales eventually totaling over 25,000 vehicles in New York, before these vehicles were pulled from the market in 2015.
Volkswagen, Audi and Porsche resorted to the illegal defeat devices because of their inability to develop emissions control systems that would comply with applicable standards, while still maintaining the performance and durability they promised to consumers and regulators. In other cases – for example, on the high-end V6 diesel engines that equipped the Porsche, Volkswagen and Audi SUVs and Audi luxury sedans – the automakers also installed defeat devices to compensate for the companies’ unwillingness to include a large enough emissions-control-fluid tank or reduce the intervals between tank refills, which they believed would turn off diesel car buyers. In these vehicles, the defeat devices limited dosing of the emissions-control-fluid, again driving up harmful NOx emissions far past their legal limits.
Volkswagen and Audi researched the law and previous enforcement cases before embarking on their defeat-device strategy. They knew that what they were going to do was illegal, and that they would face government enforcement and sanctions if caught.
Attorney General Schneiderman’s June 2016 complaint further alleged that the defendants engaged in an extensive cover-up of their illegal conduct. In 2014, researchers at West Virginia University alerted authorities that these diesel cars emitted much more NOx when driven on the road than they did when tested on equipment used by the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB). Volkswagen and Audi then tried to cover up the problem through sham recalls that they knew would not meet the required standards; repeatedly failed to disclose to regulators the true reason – the defeat devices – for the discrepancies; and only confessed to the defeat devices once it became inevitable that the regulators would discover them. The lawsuit alleged that managers at the highest levels of the company – up to and including former CEO Martin Winterkorn – were aware of or participated in this cover-up.
The detailed allegations of Attorney General Schneiderman’s complaint constituted the first public account by any law enforcement officer in the United States of just how systematic and wide-ranging Volkswagen’s fraudulent conduct was. Attorney General Schneiderman demonstrated that the fraud was not the work of an isolated handful of lower-level engineers, but deliberate corporate behavior, reaching the highest levels of the company, across several different divisions, and lasting nearly a decade. The detailed allegations in the New York and Massachusetts complaints were essentially acknowledged by Volkswagen when it pleaded guilty to federal criminal charges in early 2017.
NOx pollution presents grave risks to human health. It contributes to the formation of harmful ground-level ozone (smog) and soot. Exposure to smog and soot is linked to a number of respiratory- and cardiovascular-related health effects, including premature death. Children, older adults, people who are active outdoors (including outdoor workers), and people with heart or lung disease are particularly at risk for health effects related to smog or soot exposure. Nitrogen dioxide formed by NOx emissions can aggravate respiratory diseases, particularly asthma, and may also contribute to the development of asthma in children. Attorney General Schneiderman’s complaint alleges that thousands of tons of NOx were illegally spewed onto streets around the country, many of them in low-income communities that are disproportionately situated near major roadways, leaving residents at greater risk of asthma and other respiratory diseases, and driving up the formation of harmful ozone in the atmosphere. In New York, the Department of Environmental Conservation issues air quality alerts on numerous days every year because ozone levels make the air unhealthy to breathe.
This matter was handled by David Nachman, Senior Enforcement Counsel in the Attorney General’s Executive Division; Michael Myers, Affirmative Litigation Section Chief, Lisa Burianek, Deputy Bureau Chief, and Assistant Attorneys General Morgan Costello, Brian Lusignan and John Turrettini, and Legal Assistant Andrea Catalfamo, all of the Environmental Protection Bureau; Noah Popp, Assistant Attorney General in the Consumer Protection Bureau; and Senior Trial Counsel David Ellenhorn, with the assistance of Laura Sarli of the Attorney General’s Investor Protection Bureau. New York Department of Environmental Conservation staff also provided critical contributions to the outcome of this matter. The Environmental Protection Bureau is led by Bureau Chief Lemuel Srolovic and the Consumer Protection Bureau is led by Bureau Chief Jane Azia. Alvin Bragg heads the Division of Social Justice, and Manisha Sheth heads the Division of Economic Justice.