SAN FRANCISCO (CN) — Bosch, an auto parts supplier for Volkswagen, beat civil conspiracy and RICO claims in court after a federal judge said an Illinois auto dealer failed to show a concrete business loss resulting from the German car company’s widely publicized 2015 diesel emissions scandal.
In a brief order Thursday, U.S. District Judge Charles R. Breyer granted summary judgment for Bosch, stating that the Volkswagen franchisee who brought the suit sought compensation for “intangible” injuries that couldn’t be recovered under law.
“Because plaintiffs’ injuries are either intangible (lost goodwill or brand value) or intractably tied up with intangible injuries (lost sales or property value), plaintiffs have failed to establish that they suffered an injury to business or property,” Breyer ruled.
The case arises from a high-profile emissions scandal in 2015, when the Environmental Protection Agency discovered that Volkswagen violated the Clean Air Act by placing software in their diesel vehicles to cheat on emissions tests. As a result, each car could “sense” when it was being evaluated under controlled laboratory circumstances and adjust its performance to emit fewer emissions.
Once back on the road, the engines spewed nitrogen oxide pollution up to 40 times what is allowed in the U.S.
Following the scandal, regulators in several countries began investigating the company, and its stock price plunged by a third after the announcement.
Around this time, William Slevin, the president of the plaintiff companies behind the lawsuit, signed an agreement with Volkswagen to build a dealership in Elgin, Illinois, taking out several loans. Slevin claims he was motivated by the car company’s past performance in the auto market and potential “future as a leader in environmentally friendly technologies.”
Once the scandal dried up consumer desires for Volkswagen cars, Slevin said he and his companies were left holding the bag, suffering heavy reputational damage and lost sales.
Slevin was excited about the company’s “turbocharged direct injection” diesel vehicles, which Volkswagen ordered its dealerships to stop selling shortly after the “Dieselgate” scandal.
The plaintiffs first sued Volkswagen and Bosch in late 2015 for violations of the Racketeer Influenced and Corrupt Organizations Act and for civil conspiracy under Illinois law. They later entered into a settlement with Volkswagen in 2018, leaving only their claims against Bosch unresolved.
After nine years of litigation, the judge found that claims the scandal “permanently tainted” the Volkswagen brand and led to a “diminution in brand value and brand loyalty” were not recoverable under the RICO Act. Harm to intangible interests like public perception, he said, were not injuries to business or property according to the law.
Breyer also rejected any backup arguments that the dealership suffered concrete financial damages because these injuries led to decreased sales of Volkswagen cars and the property on which they built the Elgin dealership decreased in value.
“But these claims merely ‘cast in different language’ the same basic theory — that the emissions fraud harmed Volkswagen’s (and Plaintiffs’) reputation and thus caused them harm,” the Bill Clinton appointee ruled.
Even if the plaintiffs could plausibly connect these harms to their financial losses, the judge said they would have a tough time proving it was directly caused by Bosch’s misconduct, which is required under RICO.
“For one, any reputational injuries were not caused by the underlying fraud, but by the fraud’s discovery and publicization,” Breyer found, adding that the Ninth Circuit has already confirmed that such a connection is too weak to establish a direct cause.
Attorneys for both sides did not immediately respond to a request for comment.