American lawyers bank on European VW woes

Unlike their American counterparts, Volkswagen drivers face a bumpy legal ride across the Continent.

European drivers hoping to get even with Volkswagen are stuck in a legal slow-lane.

Unlike Americans, European VW owners lack the legal tools to set up a pan-EU class-action lawsuit. Not only that, Volkswagen has made it clear it has no intention of offering them the $1,000 goodwill gift it is handing to U.S. drivers affected by the emissions scandal.

Now lawyers and legal organizations across Europe are busy looking for ways to cash in on the scandal, seeing a business opportunity in the disparity between the treatment dished out to VW consumers on opposite sides of the Atlantic.

One of them is Michael Hausfeld, a Washington attorney working on the VW class action in the U.S., who said he plans to take on the German car-maker on its home turf and has lined up several clients.

“We have been retained by a number of [European] businesses to represent their interests,” said Hausfeld, who built his reputation on extracting payouts for consumers worth billions from the energy industry, pharmaceutical companies and even Swiss banks on behalf of plaintiffs who have been affected by industry decisions.

Hausfeld said he will push to get the same deals for Europeans as American VW owners and investors, starting with the $1,000 payment that VW has ruled out for car owners on this side of the Atlantic. “There is no justification for not having similar payments for European consumers because the damage they have suffered is the same,” he said in a phone interview.

Hausfeld’s law firm, which specializes in cross-border disputes, opened a Berlin office this year and announced it had built up a €30 million war-chest with the help of Burwood Capital, a global finance firm that backs lawsuits. The firm says German VW customers alone could be entitled to claim up to €2.5 billion in damages.

Hausfeld, and any consumer wanting to take action against VW in a European court, faces an uphill road. While class actions are entrenched in the U.S. legal system, they are much more difficult to put together in the many different legal jurisdictions of the EU.

“The irony is that when it comes to consumer rights, the situation is usually better in the EU than it is in the U.S.,” said Ursula Pachl, the deputy director-general of the European consumer umbrella group BEUC. “But when it comes to enforcing those rights, the EU simply doesn’t have a uniform collective redress tool.”

Pachl said the European Commission’s 2013 recommendation that EU member countries introduce what is called “collective redress,” the EU definition of class action, went largely unheeded. As a result, fewer than half of the Union’s 28 justice systems allow for anything that would enable consumers to band together.

The weakness of the recommendation, BEUC argued, left European consumers more vulnerable than their U.S. counterparts. “It is not justified that EU consumers be treated so differently because they have suffered the same damage,” Pachl said. “VW should compensate European consumers in the same way.”

The collective alternative

Since the emissions scandal broke in September 2015, VW has made it clear it has no plans to extend to European car owners the conciliatory approach it used in the U.S.

VW argues the legal chasm between the EU and the U.S. means it cannot apply a one-size-fits-all approach and the class action filed in the United States District Court in San Francisco has no bearing on Europe.

When pressed on compensation for consumers during two meetings with Elżbieta Bieńkowska, the European industry commissioner, Volkswagen said the situation in the U.S. was “not automatically comparable” to other markets.

“[The compensation scheme] cannot simply be rolled out in other markets,” Volkswagen said in a statement, prompting Bieńkowska to vow to keep up the political pressure on the company to compensate EU consumers.

Lawyers working on the issue in Brussels said European consumers are unlikely to ever file a class action lawsuit similar to the one lodged in the San Francisco federal district court in February, which accused VW, Audi and Porsche of having created a “fraudulent scheme” to sell diesel cars.

That doesn’t mean European consumers have no means of redress. Under one possible scenario, competing law firms could band together to shepherd thousands of individual claims into a coherent, manageable group.

“These are not group actions, but firms cooperating with each other to aggregate their claims,” said Laurent Geelhand, Hausfeld’s Brussels managing partner.

In Germany the legal process is accelerating, slowly. In a victory for the industry, a district court in the western German city of Bochum ruled that a VW dealership was not obliged to take back a diesel car it had sold a customer, given that the deceptive software problem could be fixed in 30 minutes.

Although marginal in its significance, this was the first of what are likely to be many cases referring to Dieselgate to make its way to a German court.

In other parts of the EU, VW customers are taking what few class action provisions they can find, although this legal route is difficult.

Italian consumer group Altroconsumo is spearheading a complex class action brought against VW in a Venetian court. That legal action ran into problems when a judge threw out the case, prompting an appeal by Altroconsumo, which has used the situation to highlight what is says are the weaknesses of Italian class action provisions.

Lawyers working on the issue in Brussels said legal action brought by car owners is only the beginning.

“This is not just the moms and dads,” said Geelhand, a lawyer who specializes in the auto industry and the former European general counsel for Michelin. “You will see fleet holders, shareholders, suppliers, suppliers of suppliers coming forward. It will be very damaging not just for VW, but the entire car industry.”

Shareholders unite

European shareholders in VW — who have seen the value of their investments fall as a result of the manufacturer’s decision to install illegal software to deceive official emissions tests — are on firmer legal ground than the average owner, although shareholders are also uncertain they will be able to take legal action as a group.

One Netherlands-based shareholder challenge, the Dutch Volkswagen Settlement Foundation, is the European chapter of a shareholder lawsuit which is being managed in the U.S. by law firm Bernstein Litowitz Berger & Grossmann (BLBG). The American lawsuit refers to U.S.-traded securities while the Dutch Foundation targets investors with shares listed in Frankfurt.

“We are in a very strong position,” said the foundation’s senior adviser, Anatoli van der Krans. “We have the backing of BLBG and their approach is not to settle in the U.S., but to achieve a global settlement. And I think it is in Volkswagen’s interests to do so.”

Van der Krans says the foundation was established in the Netherlands because it is “the only legal system in the world in which a settlement can be declared globally binding” and, therefore, provides aggrieved investors with their best chance of redress.

“We are calling on institutional and retail investors,” he said. “But regardless how many sign our petition, they will still be entitled to compensation.”

Meanwhile, for investors who hope to take action through the German court system, time could be running out. “What you have to keep in mind… is the statute of limitations,” said Jürgen Kurz, from the German private investor association Deutsche Schutzvereinigung für Wertpapierbesitz.

The worst-case scenario, Kurz said, is that the statute of limitations could kick in as soon as September 2016, meaning anyone who had not filed a lawsuit before then would be “out of the game.”

However, a German court may also rule that multiple claims could be gathered into one, which would be more cost-effective for complainants and would turn the process into a de facto class action.

Volkswagen appears determined to scupper any class action put forward by shareholders as a group. Earlier this month the auto company submitted a statement to the Braunschweig District Court challenging a shareholders’ claim its management board had violated disclosure obligations under capital markets law.

Kalina Oroschakoff contributed to this article.