Kansas residents may recall the furor that erupted in September 2015 when the Volkswagen was discovered to have cheated in order pass strict U.S. emissions tests. The German car maker’s malfeasance has not escaped the notice of the Justice Department, and it was announced on Jan. 4 that litigation had been filed against the company for violating insurance laws seeking damages of almost $50 billion.
Reactions to the news in financial circles was swift. Some Wall Street investment banks reacted by advising their clients to ditch VW stock, and shares of the world’s second largest car maker had plummeted to a six-week low the following day. The potential damages in the case are so high because there are hundreds of thousands of vehicles involved and the environmental laws allow for each violation to result in multiple fines.
VW could in theory be ordered to pay $3,750 for each occasion that a device was fitted to a vehicle in order to cheat emissions testing as well as two $37,500 fines per vehicle for violating two environmental regulations and a further $37,500 for each day that the laws were violated. This could all add up to $48 billion. However, observers expect the case to be settled for far less. Toyota faced a similar maximum judgment after being sued by U.S. authorities for environmental violations, but the case was eventually settled for $34 million.
Attorneys with experience of this kind of business litigation could point out that the ultimate financial cost will likely include lost customers and a shrinking market share in addition to fines and legal damages. However, these cases can be extremely difficult and costly to prove, and plaintiffs may sometimes be willing to lower their demands substantially in return for a speedy conclusion.