State lawsuits allege Volkswagen diesel deception had deeper roots

The deception involved in Volkswagen’s thwarting of diesel emissions tests spanned nearly a decade and grew to involve senior executives, New York’s attorney general charged in a civil lawsuit on Tuesday.

The allegations offered by Attorney General Eric Schneiderman contradict Volkswagen’s assertions that the deception was limited to a small group of people. Attorneys general in Massachusetts and Maryland also filed separate suits on Tuesday. 

Citing internal VW documents, the New York suit provides a more detailed portrait of how the company came to install so-called “defeat devices” that could evade emissions tests and deceive regulators in the US and Europe.

By contradicting VW’s assertions and instead alleging that high-level officials knew about the devices as early as 2014, the states’ charges could represent a new threat to the company, which agreed in June to a nearly $15 billion settlement with consumers and environmental regulators.

“The allegations against Volkswagen, Audi and Porsche reveal a culture of deeply-rooted corporate arrogance, combined with a conscious disregard for the rule of law and the protection of public health and the environment,” Attorney General Schneiderman said in a statement.

All three suits allege violations of the states’ environmental laws, Reuters reports. The company has said more than 11 million vehicles with the emissions-cheating software were sold around the world.

The New York suit alleges that in March 2014, VW learned that a lab at West Virginia University had conducted real-world tests on two diesel cars, finding the cars had emissions five to 35 times the legally allowable limits.

That led Frank Tuch, then the head of group quality management for Volkswagen, to write in an email to former chief executive Martin Winterkorn in May that “a thorough explanation for the dramatic increase in NOx [nitrous oxide] emissions cannot be given to the authorities,” according to the suit. German prosecutors have said that Mr. Winterkorn is under investigation.

The suit also alleges that Winterkorn and Matthias Müller, then the head of project management at Audi, VW’s luxury car brand, were aware of a 2006 decision not to equip Audi cars with equipment needed to meet American emissions requirements.

In the interest of saving money, the company instead decided to install defeat devices in the cars, the suit says.

The suit does not directly accuse Mr. Müller, who replaced Winterkorn as VW’s chief executive in September, of having specific knowledge of the device, The New York Times reports.

Both men have previously denied any involvement in the wrongdoing. In October, Michael Horn, then the company’s top US executive, told Congress that the deception only went as far as “a couple of software engineers.”

But the New York suit contradicts that statement, calling the installation of the software “the result of a willful and systematic scheme of cheating by dozens of employees at all levels of the company regarding emissions.”

A VW spokeswoman criticized the states’ decision to bring the suits.

The states' allegations "are essentially not new and we have been addressing them in our discussions with US federal and state authorities," spokeswoman Jeannine Ginivan told Reuters. "It is regrettable that some states have decided to sue for environmental claims now."

The suit reveals more about the role Audi played in the creation of the software that could turn off some emissions functions.

In 1999, engineers at the luxury carmaker developed technology to quiet diesel vehicles, but discovered that the technology, which was rolled out in 2004, pushed the vehicles above European emissions standards.

To combat that, they added software they called the “acoustic function,” which turned off the software and allowed the car to meet the European standards, according to the suit.

But faced with engineering challenges, VW later adapted the defeat devices to its own diesel cars sold in the US.

In September, the company admitted to regulators that the software allowed the cars to pollute more on the road than during government tests – up to 40 times the amount allowed, according the Wall Street Journal reports.

When VW agreed to the $14.7 billion partial settlement with regulators and owners last month, some advocates said the increased scrutiny was already spurring changes.

“Only time will tell whether the size of this settlement is sufficient to deter future use of defeat devices,” wrote Drew Kodjak, executive director of the nonprofit International Council on Clean Transportation, in a blog post last week.

“But considering how much the likelihood of discovery and the magnitude of the consequences have increased in just nine months, it’s clear that the odds in favor of a genuinely cleaner transportation sector have changed dramatically for the better,” he wrote.

The states’ charges come as VW is still negotiating with the Justice Department and the Environmental Protection Agency on fines as part of a separate settlement, Reuters reports. The Justice Department is also pursuing a criminal investigation.

The suits didn’t say what penalties the states would seek, but it could be hundreds of million of dollars, the Times reports.

"This is an example of a company that not only engaged in deception and fraud on a brazen scale but covered up that deception," Maura Healey, the Massachusetts attorney general, said at a news conference on Tuesday. The conduct "reflects a corporate culture that had no regard for the law, no respect for the American people and no regard for the environment or peoples' health."