Massachusetts, New York, Maryland accuse Volkswagen execs in fresh lawsuits

On Tuesday, the attorneys general of Massachusetts, New York, and Maryland launched fresh lawsuits at Volkswagen Group and its affiliates Audi and Porsche, naming more than two dozen engineers and managers in an apparent scheme to install illegal software on diesel VWs, Audis, and Porsches that were sold in the US.

The civil lawsuits allege that prior to the Environmental Protection Agency’s (EPA) public announcement in September that it had discovered defeat devices to circumvent emissions control systems in VW Group’s diesel cars, the German automaker engaged in a year and a half of cover ups and deception with the knowledge of VW Group’s former CEO, Martin Winterkorn. The company “only confessed to the defeat devices when they knew the regulators had them pinned to the facts,” according to the New York attorney general’s press release.

The lawsuits also allege that VW Group has not cooperated with investigators. “When the investigation was getting under way in late 2015, numerous employees, tipped off by a senior in-house lawyer in Germany, allegedly destroyed incriminating documents,” the press release added.

Attorneys general from several states complained earlier this year that VW Group’s management was not being forthright.

A month ago, VW Group announced a proposed settlement to end litigation with the Department of Justice, the Federal Trade Commission, and a class action brought by 2.0L diesel VW and Audi owners. That settlement, if approved, will ultimately cost VW Group tens of billions in car buybacks, customer compensation, and environmental fines.

Still, no corporate executives had been named in any lawsuits in the US until now. In March, VW Group filed a response to pending litigation in Germany, which it later published on its own website, claiming that top executives at the company had no knowledge of any illegal software planted on the cars to help them meet US and EU emissions criteria.

The complaint from the New York attorney general (PDF) names many engineers and managers, including Wolfgang Hatz, the former head of powertrain development at Volkswagen and Audi; Ulrich Hackenberg, a former manager responsible for emissions at Volkswagen and Audi; and James Liang, a former engineer at Volkswagen “directly involved in the development of the defeat device for the Volkswagen Jetta in 2006.”

How the defeat devices worked

The attorneys general say their lawsuits today are the result of nine months of investigation into VW Group. As a result, the complaints contain more salient details about how VW Groups’ various defeat devices worked. The complaints say that there were six separate defeat devices found on the various VW, Audi, and Porsche diesel vehicles that have been in development since 2004.

The New York complaint says that the first modern defeat devices at VW Group came from Audi, which was developing a European-market car that was not sold in the US. At the time, the company had just found a way to reduce the clattering noise heard when diesel engines start up by injecting extra fuel into the engine as it started, but that solution, called the “Acoustic Function,” impacted the cars’ pollution levels. Audi allegedly solved the problem by putting software on the car that would recognize the lab test necessary to certify the cars to drive on European roads and only engage the polluting Acoustic Function when the car sensed it was being driven on a real road.

Then, the complaint continues, Volkswagen was getting ready to introduce new diesel engines to the US, so it started researching Selective Catalytic Reduction (SCR) technology to reduce NO_x emissions. “SCR technology chemically reduces NO_x emissions by spraying liquid urea (sometimes called by its trade name “AdBlue”) in the exhaust stream, thereby creating harmless nitrogen and water,” the complaint explains. But the SCR technology that Volkswagen wanted to use was licensed by Mercedes-Benz, and Volkswagen’s only way around that was to outfit its upcoming 2009 diesel Jetta with another tank capable of storing “gallons” of AdBlue.

The company then allegedly explored using a “Lean Trap” to capture NO_x emissions in a catalytic converter, and “periodically [run] the engine in a fuel-rich, oxygen-lean mode to activate the catalytic converter, so as to enable it to break down its trapped NO_x into benign nitrogen and oxygen.” But Volkswagen’s diesels gave off too much NO_x for the Lean Trap, and VW Group engineers quickly came to the conclusion that such a system would not work for more than 50,000 miles before the Lean Trap broke.

“In late 2006, facing these major engineering challenges and a management imposed production deadline, and with the knowledge and approval of their managers, Volkswagen’s engineers in Wolfsburg adapted Audi’s “Acoustic Function” defeat device to overcome these issues,” the lawsuit claims.

Soon after, Audi and Volkswagen were in the process of developing larger luxury diesel vehicles, and, in order to comply with stricter US EPA rules, the two companies allegedly realized that the cars would need even larger urea tanks to pass emissions testing. Here, the complaint names two key players as being made aware of the new problem: former VW Group CEO Martin Winterkorn, who was then the CEO of Audi, as well as an “H. Müller,” which investigators say is a reference to Matthias Müller, who was then the head of project management for Audi and has since succeeded Winterkorn as the current CEO of VW Group.

Although the complaint does not specify the nature of Winterkorn and Müller’s involvement, it concludes that “Ultimately, Volkswagen and Audi decided not to expend the time and money necessary to re-engineer the 3.0Ls to equip them with larger urea storage tanks.”

The complaint alleges that Porsche then decided to release a 3.0L diesel engine in the US—the Porsche Cayenne—and “in communications in or around September 2011 that included Audi engineer Martin Gruber, the then-head of Volkswagen Engine Development, Ulrich Hackenberg, and Porsche’s electronics development chief, Carsten Schauer, among others, Audi explained to Porsche personnel the 3.0Ls’ urea tank-size limitation,” as well as the defeat device that Audi engineers had devised.

Around 2013, Volkswagen then apparently decided to ditch Lean Trap emissions control systems and install urea-dosing emissions control systems, still with the requisite defeat devices necessary for the Volkswagens to actually pass the emissions tests in the US.

But that wasn’t the extent of the cheating, New York’s complaint alleges. Volkswagen, Audi, and Porsche tampered with the cars’ On-Board Diagnostics module illegally as well:

In New York, as elsewhere, the inspection tests do not directly measure the cars’ emissions, but rely instead on the vehicles’ on-board diagnostics (“OBD”) to relay information on whether the cars’ emissions system is functioning properly. State and federal law require auto manufacturers to equip their cars with OBD systems that electronically report failures of emissions systems to mechanics or inspectors during service or inspection.

Properly-functioning OBD systems would have reported the failure of Volkswagen’s defeat-device equipped cars to run their EGR [Exhaust Gas Recirculation] systems properly and would have alerted inspectors, mechanics, and car owners that the cars’ emissions systems were not functioning correctly and required repair.

To allow its defeat-device equipped vehicles to pass New York’s (and other states’) inspection and maintenance tests, Volkswagen therefore needed to, and in fact did, implement a further cheat: It programmed the OBD systems on its defeat-device equipped cars to falsely report at inspection time that the automobiles’ emissions systems, including EGR, were working properly.

The complaints from the three states assert that Volkswagen and Audi knew exactly what they were doing and deny that a group of “rogue engineers” duped the company. “Volkswagen and Audi researched the laws in this country and previous enforcement cases before embarking on this course,” the press release from the New York attorney general’s office states. “They knew what they were going to do was illegal, and if caught they would face government enforcement and sanctions. They went ahead and did it anyway.”

No isolated incident

The New York complaint also alleges that Volkswagen and Audi engineers "openly discussed" the defeat device solutions in the workplace. State investigators say internal communication and interviews with employees confirm the allegation.

By March 2014, an Audi engineer apparently sounded the alarm to an impending report from West Virginia University’s Center for Alternative Fuels, Engines & Emissions, which had done an independent study of auto emissions and found alarming emissions results from certain diesel cars.

"Anxiety within the company about the possibility that the vehicles that failed were Volkswagens was demonstrated by the flurry of internal Volkswagen and Audi communications that followed," the New York complaint says. When the company's fears were realized, it allegedly began an operation to deflect accusations of defeat devices, offering "proposed software updates to 'optimize' the emissions" on early diesel Volkswagens, despite the fact that the company knew the optimization wouldn't fix the emissions issue.

By early 2015, the California Air Resources Board (CARB) said it would be changing how it tested some of Volkswagen's diesels after the software "optimizations" failed to work. According to the complaint, "internal e-mails between EEO [Volkswagen's Engineering and Environmental Office] and engineers at Volkswagen AG began to reflect desperation and panic," with Volkswagen AG engineering executive Juergen Peter writing to his colleagues, “Come up with the story please!”

In one instance in May 2015, Mike Hennard, senior manager of emissions compliance at EEO, wrote to "multiple Volkswagen AG managers and engineers," warning that CARB's new level of involvement "is not a normal process and that we are concerned that there may be possible future problems/risks involved." A senior manager apparently wrote to Hennard's manager after receiving the e-mail, "admonishing him for allowing his staffer to send such an open e-mail to those recipients."