Briefing for certiorari has recently completed in Volkswagen v. Environmental Protection Commission of Hillsborough County.  The challenged Ninth Circuit decision, if permitted to stand, could have significant effects on federal administration of motor vehicle emissions regulations, and enforcement actions against auto manufacturers.

Background

The suit is one of many stemming from Volkswagen’s installation of emissions-increasing software in nearly 600,000 passenger cars sold in the United States.  As relevant here, Volkswagen installed new and updated software after the vehicles were sold and in the hands of customers, effectuated through voluntary recalls and servicing provided when the vehicles were brought in for normal maintenance.  This post-sale conduct implicates the “tampering” prohibitions under the federal Clean Air Act and many similar state laws, both of which generally forbid actions to remove or disable emissions control components after a vehicle has been delivered to the ultimate purchaser.  See, e.g., 42 USC 7522(a)(3)(A).

The United States and the State of California brought suit against Volkswagen, which ended in settlement.  These settlements did not cover claims from other state or local governments however.  Two counties subsequently brought suit against the manufacturer alleging that, inter alia, the post-sale software modifications were violations of state tampering laws.  The Ninth Circuit ruled in favor of the counties, permitting the suits to proceed.

The Dispute

Volkswagen claims that the federal government (and California)[1] have the exclusive right to regulate its post-sale conduct, and that the suits by the counties are therefore preempted.  The mobile source provisions of the Clean Air Act prohibit states from enforcing standards “relating to” emissions controls in “new motor vehicles,” but preserves their right to “control, regulate, [and] restrict the use, operation, [and] movement” of vehicles already licensed in commerce.  42 USC § 7543(a), (d).  The Ninth Circuit read these provisions in combination to permit states to enforce tampering violations that occur after the vehicle has been manufactured and is in the hands of customers.  It also concluded that allowing states to bring these suits would not undermine the congressional goal of national uniformity in administration of motor vehicle rules by EPA.

Volkswagen’s argument to the contrary, and its emphasis in its request that the Supreme Court hear the case, rests on the fact that the post-sale software modifications were instituted on a fleet wide basis:  That is, all vehicles which were eligible for the modification were expected to receive it, and the modification would affect each vehicle in the same way.  The mobile source preemption provisions were drafted in part in order to prevent manufacturers from having to deal with a patchwork of potentially inconsistent state emissions requirements.  Fleet wide post-sale changes instituted for a 50-state market, Volkswagen argues, should thus also be subject only to a uniform, national standard, administered by EPA.

Despite the potential disruption the ruling could have to EPA’s primacy over mobile source regulation, however, the federal government has not offered its views in the suit,[2] previously turning down the opportunity before the Ninth Circuit.

Implications

Unless the Supreme Court hears the case, the Ninth Circuit’s decision has the potential to affect both regulatory compliance regime for motor vehicles, as well as enforcement cases brought against manufacturers in the future.

With respect to the former, it could open up and introduce uncertainty into a process that has, to date, taken place largely between the manufacturer, EPA, and the California Air Resources Board (CARB).  As Volkswagen and several amici note in their certiorari submissions, manufacturers routinely implement fleet-wide model updates after a vehicle is placed in service to address an issue or improve performance.  Because of the risk that these changes to a vehicle’s certified configuration could constitute tampering (even if the intent behind them is to address a legitimate issue), manufacturers sometimes submit these updates, referred to as “running changes” and “field fixes,” to EPA and CARB to preview any issues.  If the 49 other states may now enforce their own views on whether the proposed model updates constitute tampering, manufacturers may be forced to change their practices, such as by generating a more defined record to defend any particular change, or seeking assurances from additional regulatory bodies that the proposed changes do not present an issue.  All these have the potential to delay the in-use update process.

The ruling could also expose manufacturers to “copycat” suits going forward.  Given the sophistication of their regulatory programs, EPA and CARB will likely continue to lead enforcement in this area.  But, as occurred in the Volkswagen matter, the resolution of any action is unlikely to include a release that covers other states so long as they are not a party.  States and their subdivisions could bring suit for the same conduct.  Indeed, as Volkswagen points out, one of the county plaintiffs in the Ninth Circuit ruling up for review has filed suit against Daimler in the wake of Daimler’s own recent settlement with the U.S. and California regarding defeat device allegations.

 

[1] In recognition of California’s leadership in motor vehicle pollution controls, the Clean Air Act allows California to enforce more stringent standards for new motor vehicles upon EPA’s grant of a waiver of preemption, which EPA may deny in only limited circumstances.  See 42 U.S.C. § 7543(b).  Once California has been granted a waiver of preemption, any other state may adopt identical standards.  See id. § 7507.

[2] Former EPA and DOJ officials have authored an amicus brief in support Volkswagen’s position alongside several industry groups.