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Volkswagen’s Emissions Scandal

Shannon Corregan
Can public pressure put the brakes on regulation evasion? Photo credit: Financial Post

In what’s shaping up to be the biggest auto industry shake-up of the decade, Volkswagen’s (VW) emissions scandal has—by this point —obliterated over 30 billion USD of the company’s shares, and forced CEO Martin Winterkorn to resign.

In late September, the US Environmental Protection Agency (EPA) revealed that VW cars being sold in the US were rigged with stealth software that allowed the cars to “cheat” emissions tests. In what has been dubbed a “defeat device,” the software signals to the car when its emissions are about to be tested; upon receiving the signal, the car shifts gears, so to speak, and begins to run cleaner than it would during ordinary use. This allows the cars to pass emissions tests while emitting more pollution than the legal limit. In some cases, VW cars were revealed to be emitting forty times the allowable amount.

As legal loopholes go, the “defeat device” is quite clever. It could be argued that the system wasn’t breaking any regulations, just evading them.

Initially, the EPA indicated that the “defeat device” had been installed in 482,000 of the cars that VW had sold in the US, but it wasn’t long before the company admitted that eleven million of their diesel cars across the globe had similar software installed. To put that number in perspective, eleven million cars amounts to approximately twenty-five percent of VW’s vehicles worldwide.

Maybe more than any other automaker, German-based Volkswagen has a reputation for reliability, trustworthiness, and—increasingly—environmental responsibility. This is perhaps why the initial backlash against VW has been immediate and unequivocal. Governments across the globe are beginning investigations, customers have begun to file class-action lawsuits, and the US Department of Justice is considering pressing criminal charges. On 8 October, VW’s US representatives were summoned to appear before Congress. VW is setting aside approximately 7.3 billion USD to cover the costs of the scandal, but the EPA has stated that VW’s violations of the Clean Air Act could lead to over three times that amount—18 billion USD—in fines.

With its stock plummeting and its directors in crisis, VW is recalling the eleven million vehicles for a refit; however, experts say that refitting the cars will likely decrease their efficiency and performance. The CBC reports probes are now being sent to other major auto manufacturers, including BMW, Chrysler, GM, Land Rover and Mercedes-Benz.

Volkswagen’s attempt to evade regulations through legal loopholes is more than a mere point of interest for the legal community. The scandal raises serious issues: business ethics, the importance of regulation, the fragility of public trust, whether a lawyer’s job is to help their client find the legal loopholes in a case, or whether the legal community demands a higher standard of ethical behaviour than strict adherence to the role of zealous advocate.

VW is currently denying any knowledge of who is responsible for the software, but Don Pittis correctly observes that this is not the result of one “rogue engineer.” This was a strategy designed to duplicitously evade standards regulations that  were implemented across entire production lines, affecting cars produced as far back as 2009. Winterkorn may be telling the truth when he denies that he was responsible for this idea or its execution, but it is clear that many, many individuals in the company are implicated in the scandal. The question for many is, were VW’s lawyers as in the dark as VW’s directors claim to be? If they weren’t, what kind of sanctions might they be facing, if any, for providing the legal backdrop against which unethical behaviour took place?

No investigation of VW has taken place yet, let alone of its lawyers, but as law students, the story is reminiscent to many as an Ethical Lawyering hypothetical.

The question of, “What does this mean for lawyers?” can be answered with another question: “Whose lawyers?” With class action suits already begun in Canada and the US, and more sure to follow in Europe, consumer-side litigators’ futures look rosy; however, the situation might look different for VW’s legal team, and the question of  what this means for the legal profession remains unanswered.

Whose responsibility is it to understand that there are interests other than the bottom line? Does this fall to a business, or its legal team, or does the ethical dimension simply fall to the side, irrelevant?

Unfortunately for VW, its consumers are less than pleased. A court has yet to find VW’s behaviour illegal, but people are having no problem deciding it’s unethical. This is not the first time this type of technology has been used to evade emissions regulations. Both Caterpillar and Volvo have been dinged for it in the past, but bounced back relatively unscathed.  However, for a company that prides itself on its environmental standards, and who makes claims to consumers about its adherence to those standards, the taint of hypocrisy is injurious. VW has suffered an enormous blow to its reputation and much of its consumer goodwill has vanished, as many purchasers specifically chose VW cars for environmental reasons.

Environmental scientists agree that climate change is the most significant threat to the human population in the 21st century. With a global public increasingly concerned about air pollutants and greenhouse gases, perhaps the days when companies can emerge unscathed from a scandal like this are over.

It’s early days yet: trust has been broken, money has been lost, and at the outset, it seems like a short-sighted gamble might have cost VW its reputation. But mistakes are endemic in the auto industry. Certainly other auto manufacturers have been held liable for production issues that weren’t just “honest mistakes”: in 2012, for example, Hyundai-Kia was slapped with a $ 1 million fine for misrepresenting the fuel efficiency of its cars.

It’s too premature to say what the outcome of the emissions scandal will be. Public pressure is fuelling Volkswagen’s tailspin, but public pressure is only as powerful as public memory. When it comes to climate change, however, the stakes are high—and the idea that corporations (or their lawyers) simply don’t have responsibility in this area might be running on fumes