Class-Action Suits

VW's Legal Tsunami

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The legal risks from Volkswagen's Dieselgate scandal are mounting daily -- aided by class-action lawyers in the United States and Europe.
  • Why it matters

    Why it matters

    Dieselgate’s legal consequences for Volkswagen are getting worse by the week. Fines, product recalls and class-action suits could cost far more than the €6.7 billion the company has set aside.

  • Facts


    • California authorities say Volkswagen admits it also manipulated emissions on larger diesel engines, something it previously denied.
    • In the United States, VW faces 300 separate lawsuits related to the scandal.
    • German law firms are gathering tens of thousands of customers and investors for a pan-European class action suit, centered in the Netherlands.
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Mary Nichols, the head of California’s environmental regulator, is a patient woman.

When she first met with car company representatives in 2008, one automaker refused to talk about its emissions data and the environment: Volkswagen.

“They made it pretty clear they believed that the superior efficiency of the diesel engine was sufficient reason why we should basically leave them alone,” Ms. Nichols said in an interview.

The U.S. regulator tolerated Volkswagen’s explanation for years, unaware that VW’s self-confidence was based on deception, not innovative engineering.

But now that the German automaker’s cheating technology has been exposed, the company has to explain to the California Air Resources Board by the end of this week just how it will recall a half million of its cars. Based on preliminary reports, VW may have to buy them all back.

Things are getting quite unpleasant for the world’s second-largest automaker and Germany’s largest listed corporation. U.S. authorities are cranking up the pressure.

Millions of European drivers, employees and investors have been affected and, theoretically, could press their grievances through the courts. Each can probably demonstrate considerable financial loss caused by Volkswagen's emissions-rigging deception.

“It is quite likely that they will end up buying back at least some portion of the fleet from the current owners,” Ms. Nichols told Handelsblatt in an interview.

VW executives fear the €6.7 billion ($7.2 billion) the automaker has set aside to pay the costs of its “dieselgate” will not be enough.

While newer models can probably be fixed with new software, older cars may need new hardware, Ms. Nichols said.

Those costs could be significant, running into several hundreds of dollars per car — just in labor costs alone, according to Volkswagen managers who declined to be named.

As a possible prelude to higher costs, the carmaker on Friday said it would reduce its 2016 investment budget, excluding development, by €1 billion to €12 billion, citing “the current situation” as the reason for the cutback.

“We will strictly prioritize all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed,” VW’s chief executive Matthias Müller said in a statement.

Also on Friday, VW’s supervisory board, the top panel that hires and fires the chief executive and sets major strategy, announced that VW’s human resources chief, Horst Neumann, would step down after a ten-year tenure on its executive board. The departure had been expected. Two labor representatives also left the supervisory board, replaced by two new delegates.

But the board kept silent on a range of big, open questions left in the wake of the Dieselgate scandal, such as why only American customers have been offered financial compensation, while European consumers, so far, have been offered nothing.

Fines and recalls are expected to cost the automaker upwards of €10 billion.

Shareholders may also have to be compensated if it is proven the company sat on market-moving information: The emissions data scam was known to some VW managers in mid-August, but only made public nearly a month later, on September 18.

That’s not the only inconsistency. According to Ms. Nichols, VW has also accepted the regulator’s charge that emissions deception was involved in larger VW diesel engines previously thought to be unaffected by the scandal.


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Volkswagen U.S. chief Michael Horn testified before a Congressional panel in Washington days after the German automaker’s diesel-rigging scandal broke. Like other top-level VW executives, Mr. Horn said he had no knowledge of the software manipulations. The California regulator, Mary Nichols, told Handelsblatt that VW may have to buy part part of the 500,000 affected diesel cars from owners in the United States. Source: DPA


At first, VW vehemently denied the larger engines, which include some Audi and, for the first time, Porsche models that sell well in the United States, had also been manipulated.

But according to Ms. Nichols, Volkswagen has conceded there was deception on these too, which could ultimately further boost the costs to the automaker, perhaps signficantly.

But tough-minded, fine-wielding regulators such as Ms. Nichols may not be Volkswagen’s biggest worry.

It may in fact be American lawyers, and the country’s costly system of class-action lawsuits.

On the very day the scandal broke in September, a Seattle lawyer filed a 27-page lawsuit against Volkswagen. Within a few days, 40 more lawsuits were pending.

Now, there are more than 300.

Most have good chances of succeeding: Many facts are public, and Volkswagen has admitted fault.

“It’s not about whether Volkswagen will have to pay, but how much,” said Erik Gordon, a law professor at the University of Michigan.

Similar suits are pending in Australia.

But Volkswagen’s legal troubles are growing in Europe too. The German Federal Motor Transport Authority, a regulator, has ordered the automaker to refit 2.4 million vehicles.


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Volkswagen’s reputation is on the line in thousands of lawsuits. Source: PR [M]


The work is supposed to begin in early 2016. But it is not clear if Volkswagen’s proposed fix to the engine will be enough, and the list of models affected gets longer each week.

Millions of European drivers, employees and investors have been affected and, theoretically, could press their grievances through the courts. Each can probably demonstrate considerable financial loss caused by Volkswagen’s emissions-rigging deception.

In America, not just the injured parties, but the lawyers — who typically work for free and take a large percentage of court awards as compensation — stand to gain.

But in Germany, and Europe, the legal profession also stands to benefit as law firms around the continent put together long lists of potential clients.

Handelsblatt has learned that two large German firms – Düsseldorf-based Baum Reiter & Collegen, and Gansel of Berlin – are planning large-scale legal actions on behalf of VW investors and car owners.

Both companies have strong reputations in investment law.

Against Volkswagen, they plan to use American-style legal approaches unusual on the continent that may end up costing plaintiffs nothing, creating greater incentives for litigation.

For investors looking for compensation from VW, law firms are planning to use a litigation funder: a type of risk-taking financier/investor which bears the costs of lawyers, experts and court fees should the judgment go against the plaintiffs.


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And if and when Volkswagen loses the case, the funder will get a cut of the court award. Other law firms have similar tactics in mind.

For car owners, the two German law firms are working with a Dutch foundation. The Volkswagen Car Claim Foundation, based near Rotterdam, is gathering compensation claims from across Europe, with collective lawsuits in mind.

“We have over 47,000 VW customers affected in Austria alone,” said Julius Reiter, one of the lawyers involved. The Austrian consumer organization VKI supports the foundation’s suit, and has a seat on its board.

Talks are ongoing with similar organizations in France, Italy and Spain.

The reason for this unusual crossborder procedure is that Germany does not permit true American-style “class action suits,” which gather thousands of clients into a single case.

The German business lobby has so far successfully blocked the country from introducing class-action claims, which could expose many of the country’s industrial heavyweights to costly new legal risk. Often in Germany and Europe, class-action suits are criticized as a U.S.-style legal excess that above all rewards greedy lawyers.


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The debate in Europe typically glosses over the fact that class-action suits in the United States have also brought compensation and justice to millions of consumers and people wronged by corporate negligence — such as thousands of women who took a birth defect-causing drug thalidomide or the victims of a chemical disaster at a Union Carbide plant in Bhopal, India.

As a result, consumers in Germany and most parts of Europe are at a disadvantage compared to Americans in personal injury and damage suits. For example, the survivors of victims of the Air France Concorde supersonic jet crash in 2000, which mostly killed German tourists, received about €30,000 each — the maximum allowed under French and European law.

Only two weeks ago, the German parliament rejected a proposal by the Green Party to introduce class-action suits into Germany.

But in the Netherlands, class action suits have been possible since 2005.

“The foundation will also negotiate with VW on behalf of German participants in the case, and come to a comprehensive settlement in favor of the injured parties that we represent,” Mr. Reiter said.

The Dutch foundation wants to negotiate a binding settlement in Dutch courts.

“A settlement applies throughout the E.U., with the same effect as a court judgment,” said Eric Breiteneder from the Vienna law firm Breiteneder, which is involved in the case in Austria. The lawsuit is being financed by New York law firm Labaton Sucharow, which specializes in whistleblowing cases in the finance industry.

According to Mr. Breiteneder, the U.S. law firm will receive 18 percent of any award.

VW's legal risks are highly complex. There are 11 million cars affected around the world including five different auto brands and six different production years.


The foundation hopes car owners will receive 100 percent of any award, with Volkswagen separately footing the bill for the New York law firm. But in the final calculation, this may just be a bookkeeping trick.

“Basically the foundation works like a non-profit,” said Mr. Breiteneder.

“We welcome any action which puts pressure on VW to finally come out and make a reasonable offer to European consumers,” said Marion Jungbluth of the Federation of German Consumer Associations.

It costs nothing for German car owners to join the foundation, and participants can drop out of the class action suit at any time. When the case is over, if they are not happy with the result, they can refuse the compensation and pursue an individual complaint.

Owners can join at after answering a short questionnaire.

“The questions are needed to sort car owners into the right category,” said Mr. Reiter, the lawyer. Claims will vary depending on the date of purchase and the type of engine and transmission.

The VW case is particularly suited to these types of legal actions, since potential awards per car are probably too low to make an individual case worthwhile.

But it won’t be easy. The chances of success depend on whether Volkswagen can fix the engines. Customers may have some redress through their warranties: If VW repeatedly fails to fix a problem, car owners may be able to void their purchase contracts or demand rebates.

Owners of new cars would have the best chances of succeeding in this route.

Warranties on new cars generally run for two years after delivery.

“Our aim is to settle the claims out of court,” said Mr. Reiter. “Only as a last resort will we undertake an expensive courtroom battle.”

So there is a lot riding on VW’s promise to provide an engine fix. Recalls for 2.0 liter models are to start as early as January. By next September, it will be the turn of the 1.6 liter VW engines, although these could be much more expensive repair.

But if software updates can fix the problem with fuel consumption and emissions, as some suggest, then there would no case for major compensation or buybacks.

Volkswagen itself, from the time the scandal broke, has promised quick and generous help.

But the problem is highly complex. There are 11 million cars affected around the world including five different auto brands and six different production years. So the company is still not ruling out scenarios where owners, especially with older models, have their vehicles bought back at a generous price to trade up on newer models.

That would cost Volkswagen a lot of money, take a heavy toll on its image, and put production under considerable pressure. But at this point, the costs seem inevitable. After all the car owners, investors and lawyers are paid, the question is whether VW’s brand will survive.


Astrid Dörner, Thomas Jahn, Michael Murphy and Christian Schnell are editors at Handelsblatt in Germany and the United States. Kevin O’Brien is editor in chief of Handelsblatt Global Edition in Berlin. To reach them:,, and

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