Three U.S. states sue Volkswagen, say executives covered up diesel cheating

By David Shepardson

WASHINGTON (Reuters) – Senior executives at Volkswagen AG <VOWG_p.DE> including its former chief executive covered up evidence that the German automaker had cheated on U.S. diesel emissions tests for years, three U.S. states charged on Tuesday in civil lawsuits against the company.

New York, Massachusetts and Maryland filed separate, nearly identical lawsuits in state courts, accusing the world’s No. 2 automaker of violating their environmental laws. The lawsuits, which could lead to state fines of hundreds of millions of dollars or more, complicate VW’s efforts to move past the “Dieselgate” scandal that has hurt its business and reputation, and already cost it billions of dollars.

The suits outlined more than a decade of efforts by VW to deceive regulators in the United States and Europe, citing internal VW documents.

VW last September admitted using sophisticated secret software in its cars to cheat exhaust emissions tests, with millions of vehicles worldwide affected. The scandal prompted the departure of VW’s CEO and other executives.

The states charged that dozens of VW employees at various levels knew that the company’s “clean diesel” engines could not meet pollution standards in normal driving without compromises to performance or fuel economy. The suits publicly identified for the first time many of these employees and accused them of “unlawful conduct.”

The suits said at least eight employees in VW’s engineering department deleted or removed incriminating data in August 2015 after a senior attorney advised them of an impending order not to destroy documents. The New York suit stated that “some but not all of the data has been recovered.”

Former VW CEO Martin Winterkorn and VW’s former global head of marketing, Christian Klingler, knew by spring 2014 of the existence of unlawful “defeat devices” and “did nothing to prevent both Audi and Volkswagen from repeatedly deceiving regulators,” the New York lawsuit stated.

The suits were filed by New York Attorney General Eric Schneiderman in Albany, Massachusetts Attorney General Maura Healey in Boston and Maryland Attorney General Brian Frosh in Baltimore. Additional states could file similar actions, Schneiderman’s office said.

“This cover-up was deep, wide and long-lasting. It extended from front-line engineers throughout the corner offices … and right into the CEO suites,” Schneiderman said, adding that the “toxic corporate culture that produced this fraud must be stopped.”

Of the nearly 600,000 VW diesel vehicles with excess emissions in the United States, about 53,000 were sold in New York, Massachusetts and Maryland.

Volkswagen spokeswoman Jeannine Ginivan said the company already has agreed to spend billions of dollars to address all environmental harms from the excess emissions, adding that it was “regrettable that some states have decided to sue for environmental claims now.”

The states’ claims “are essentially not new and we have been addressing them in our discussions with U.S. federal and state authorities,” Ginivan added.

SUBPOENAS FROM NEW YORK STATE

In another development, New York state’s Department of Financial Services has sent separate subpoenas to VW Group of America, the automaker’s U.S. subsidiary, and its VW Credit unit seeking documents by July 27 regarding use of “defeat devices” and other matters, according to documents seen by Reuters.

In March 2014, VW learned that West Virginia University had conducted testing that found real-world testing on two VW diesel cars detected emissions five to 35 times legally allowable limits, the suits alleged.

That prompted an email to Winterkorn in May 2014 from Frank Tuch, then head of group quality management for Volkswagen, who wrote that “a thorough explanation for the dramatic increase in NOx (nitrogen oxide) emissions cannot be given to the authorities.”

The New York suit said current CEO Matthias Muller, then head of project of management at Audi, and Winterkorn became aware in July 2006 of the effect of undersized urea tanks on the ability to comply with emissions standards. The suit said VW opted to install defeat software instead of larger tanks to save money.

The suits did not state Muller was aware of the cheating. Schneiderman told reporters Muller “was made aware of some aspects of this problem” and that “he clearly was in the loop.” A VW spokesman in Germany called the accusations about Mueller “unfounded.”

VW has admitted that it installed improper software that deactivated pollution controls on more than 11 million diesel vehicles sold worldwide, and last month agreed to pay $15.3 billion to settle U.S. federal litigation and charges lodged by 44 U.S. states that the company violated consumer fraud laws.

The U.S. Justice Department and Environmental Protection Agency have not yet reached a deal with Volkswagen on fines as part of separate settlement that could lead to an outside monitor overseeing VW’s compliance with American laws. VW also faces a Justice Department criminal investigation.

VW faces potentially billions of dollars more in costs in the United States if it is forced to buy back 85,000 3.0-liter Audi, Porsche and VW cars and SUVs sold since 2009. Last week, California rejected VW’s proposed fix plan.