US lawsuit could potentially cost VW over $90 bn

The US Justice Department on Monday filed a civil lawsuit against Volkswagen AG for allegedly violating the Clean Air Act by installing illegal devices to impair emission control systems in nearly 600,000 vehicles.

The allegations against Volkswagen, along with its Audi and Porsche units, carry penalties that could cost the automaker billions of dollars, a senior Justice Department official said.

VW could face fines, in theory, exceeding $90 billion - or as much as $37,500 per vehicle per violation of the law, based on the complaint. In September, government regulators initially said VW could face fines in excess of $18 billion.

"The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation's clean air laws," said Assistant Attorney General John Cruden, head of the departments environment and natural resources division.

The Justice Department lawsuit, filed on behalf of the Environmental Protection Agency, accuses Volkswagen of four counts of violating the US Clean Air Act, including tampering with the emissions control system and failing to report violations.

The lawsuit is being filed in the Eastern District of Michigan and then transferred to Northern California, where class-action lawsuits against Volkswagen are pending.

"We're alleging that they knew what they were doing, they intentionally violated the law and that the consequences were significant to health," the senior Justice Department official said.

The Justice Department has also been investigating criminal fraud allegations against Volkswagen for misleading US consumers and regulators. Criminal charges would require a higher burden of proof than the civil lawsuit.

The civil lawsuit reflects the expanding number of allegations against Volkswagen since the company first admitted in September to installing cheat devices in several of its 2.0 litre diesel vehicle models. The US lawsuit also alleges that Volkswagen gamed emissions controls in many of its 3.0 litre diesel models, including the Audi Q7, and the Porsche Cayenne.

Volkswagen's earlier admissions eliminate almost any possibility that the automaker could defend itself in court, Daniel Riesel of Sive, Paget & Riesel PC, who defends companies accused of environmental crimes, said.

To win the civil case, the government does not need to prove the degree of intentional deception at Volkswagen - just that the cheating occurred, Riesel said. "I don't think there is any defence in a civil suit," he said.

Instead, the automaker will seek to negotiate a lower penalty by arguing that the maximum would be "crippling to the company and lead to massive layoffs," Riesel said.

Even after Volkswagen first admitted to using defeat devices in certain models, the automaker "failed to come forward and reveal" that other vehicles contained such devices, the government said.

To cheat the emissions controls, Volkswagen installed software that allowed the vehicles to detect when they were being tested on a flatbed. When the vehicles detected they were actually on the road, the software caused the emissions control systems to underperform or shutdown, the government said, allowing the cars to emit dangerous levels of air pollution.

The civil lawsuit does not preclude the Justice Department from pursuing criminal charges against Volkswagen, said the Justice Department official.

"Volkswagen will continue to work cooperatively with the EPA on developing remedies to bring the TDI vehicles into full compliance with regulations as soon as possible. In addition, we are working with Kenneth Feinberg to develop an independent, fair and swift process for resolving private consumer claims relating to these issues," Volkswagen said in a statement.

"We will continue to cooperate with all government agencies investigating these matters."

US-listed shares of Volkswagen were down 3.3 per cent at $29.95.