VOW3 Volkswagen AG

By Sara Randazzo 

German auto giant Volkswagen AG is asking the U.S. Supreme Court to overturn a ruling that it says opens up car makers to a flood of emissions regulations from local governments that could clash with existing federal rules.

The request to the high court, filed last week and made public Tuesday, is the latest turn in litigation that has dogged Volkswagen since it admitted in 2015 to rigging 11 million diesel vehicles world-wide with software that allowed them to evade government emissions tests. The company has paid more than $30 billion in fines and settlements because of the scandal, including some $23 billion in the U.S.

At issue is a June decision by the Ninth U.S. Circuit Court of Appeals that ruled two counties have authority alongside the federal Environmental Protection Agency to regulate the updates that car manufacturers make to emissions systems in vehicles after they are sold. Florida's Hillsborough County and Salt Lake County in Colorado are seeking daily penalties of $5,000 per rigged diesel car for the local pollution they caused, with potential yearly damages of $11.2 billion.

Volkswagen argues it shouldn't have to pay those fines because the court decision misinterprets the federal Clean Air Act, which it says gives sole regulatory authority over manufacturer changes to car emissions to the EPA and California. The company argues that the EPA approved a software update Volkswagen made to the cars before the diesel-emissions scandal broke, and that its move isn't akin to something a county could regulate, such as a local mechanic tampering with emissions.

To date, the company has entered into $23 billion worth of civil and criminal settlements with federal and state regulators and drivers of nearly 600,000 U.S. diesel vehicles. Those agreements didn't prevent some states and local governments from separately suing Volkswagen, lawsuits the company has won in Alabama, Tennessee and Minnesota.

"The Ninth Circuit's decision conflicts with the rulings of multiple courts and will severely compromise the EPA's ability to regulate auto emissions," a company spokesman said Tuesday. The company made similar arguments this week in a separate case in front of the Ohio Supreme Court over that state's regulatory power.

If the Ninth Circuit ruling stands, "manufacturers will know that settling with EPA could trigger copycat state and local government actions," Volkswagen wrote in its Supreme Court petition.

The California-based Ninth Circuit acknowledged in last year's ruling that its conclusion "may result in the imposition of unexpected (and enormous) liability on Volkswagen" and prevent the EPA from controlling the total liability imposed on auto makers for any emissions tampering violations. But the judges concluded Congress didn't intend for the Clean Air Act to prohibit counties and states from having enforcement power in this context.

The Ninth Circuit upheld part of a lower court's ruling in favor of Volkswagen, finding the Clean Air Act prevents local governments from regulating new cars.

The counties have argued in court filings that air pollution is a local problem that warrants local enforcement in addition to the federal regulations. Attorneys for Salt Lake and Hillsborough counties said Tuesday they don't expect the Supreme Court to take up the appeal. Volkswagen's diesel cars "caused exponential harm to the Tampa area" and the county should be able to protect its local environment, Hillsborough County attorney Dee Miles said.

Other auto makers have watched the dispute closely. "[T]he decision has created regulatory chaos," two car maker trade organizations and the U.S. Chamber of Commerce wrote in a brief in support of Volkswagen last August. If EPA alone can't be relied on, the groups wrote, "The effect would be to discourage all post-sale changes, including those that benefit consumers and the environment."

Since the Ninth Circuit decision came out, Hillsborough County, represented by private plaintiffs' lawyers, has sued Mercedes-Benz owner Daimler AG over similar diesel-emissions issues. The county's Environmental Protection Commission is contemplating lawsuits against other car makers, according to a September public-meeting agenda. A Daimler spokesman said the claims have no merit.

The EPA and Justice Department under former President Donald Trump declined to participate in the Volkswagen case when invited to by the Ninth Circuit. President Biden's administration could have the opportunity to weigh in if asked by the Supreme Court, which has the discretion to take up or deny Volkswagen's request for an appeal.

Volkswagen has been working to move on from its emissions scandal, including by making a huge push into electric vehicles. Several former executives might still face a trial in Germany on charges of defrauding customers. Last fall the company wrapped up a three-year compliance monitoring program required by U.S. regulators.

Write to Sara Randazzo at sara.randazzo@wsj.com

(END) Dow Jones Newswires

January 26, 2021 16:10 ET (21:10 GMT)

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