Environment & Energy Report

INSIGHT: Criminal Liability Risk From Vehicle Diagnostic Issues

March 27, 2019, 11:15 AM

The auto industry may face new risks of criminal liability from an emerging federal enforcement strategy.

For decades, the Environmental Protection Agency and the Department of Justice have treated suspected violations of the Title II “mobile source” provisions of the Clean Air Act (CAA) as civil cases. That changed after the 2015 Volkswagen emissions case—breaking from an understanding in the auto industry that the CAA’s criminal enforcement mechanism was limited to stationary sources under Title I, and does not contain a criminal enforcement mechanism for Title II violations.

As such, past criminal enforcement efforts related to mobile source issues relied on the government’s general Title 18 criminal enforcement authority. But after a number of prosecutions last year, the auto sector should be aware of the increasing risks of criminal liability.

What Activity is Catching EPA’s Attention?

Onboard diagnostic systems (OBDs), which track how well a vehicle’s emission-control devices are working (i.e., the familiar “check engine” light), have been the focus of new enforcement efforts. When developing a case, the federal government treats OBDs as the common link between the complex systems within a vehicle that can cause emissions impacts.

Vehicle and engine manufacturers, known as original equipment manufacturers (OEMs), install an engine control module (ECM) on each engine that acts as the brain of the vehicle and contains the OEM’s stock settings that dictate how the vehicle will run. Among other systems, the ECM controls operation of a vehicle’s emission control systems. Vehicle operations are continuously monitored via sensors located throughout the vehicle, and the information is sent to the OBD, which sends it back to the manufacturer. The OBD monitors the emissions control systems’ performance and related equipment and then alerts the vehicle operator when emissions control system has deteriorated or is otherwise compromised.

The EPA gets involved when issuing a certificate of conformity (COC) and authorizing commercial sale of a new motor vehicle. The agency considers the ECM and OBD settings in place during the requisite emissions testing to be “elements of design, changes to which catch the EPA’s attention, and may spark enforcement activity.

EPA’s Civil Enforcement Authority

The EPA believes it can exercise enforcement authority over OBDs where it finds a vehicle is not covered by its COC or it finds a violation of the tampering or defeat device prohibitions.

However, the EPA has provided limited federal regulation over OBDs and instead tends to generally defer to the California Air Resources Board (CARB). This creates an unusual regulatory regime—mobile source enforcement is a federal program but much of the underlying regulation with respect to OBDs comes from CARB. Nevertheless, where EPA finds that an increase of any regulated emissions resulted from misrepresenting OBD capabilities or tampering with OBDs, and the exceptions for use do not apply, the EPA may find a violation of CAA Title II, Section 203.

Until recently, EPA only pursued civil enforcement of the tampering and defeat device prohibitions through CAA Section 205. These cases have historically been a low priority, with the EPA focusing much of its enforcement on stationary sources, with a few notable exceptions, including a 2003 case in which the EPA sued an engine manufacturer in 2003, alleging that it failed to disclose OBD limitations in checking for leaks in vehicles’ evaporative emission control systems in 2.2 million vehicles manufactured between 1996 and 1998, preventing the vehicle from promptly signaling drivers when a problem occurred.

EPA’s Expansion into Criminal Enforcement

In 2015, the Volkswagen case propelled these issues into the world of criminal prosecutions. As has been widely reported, Volkswagen allegedly tricked emissions tests to falsely represent vehicle emissions to EPA and CARB and paid over $17 billion to settle allegations brought in multiple civil suits. On the criminal side, Volkswagen pleaded guilty to three counts under Title 18 of the U.S. Code for conspiracy, obstruction of justice, and false statements, and paid a $2.8 billion penalty.

The Volkswagen case was significant, but there’s another factor in play. Historically, coal-fired power plants, refineries, and other stationary sources accounted for a significant portion of emissions of criteria pollutants, and the EPA spent decades pursuing companies in the utility, refining, cement, steel and other sectors. However, mobile sources now account for approximately 60 percent of all carbon monoxide and nitrogen oxide emissions.

CAA Title I, Section 113(c)(2)(C) creates criminal liability for any “person” who knowingly “falsifies, tampers with, renders inaccurate, or fails to install any monitoring device or method required to be maintained or followed under this chapter.” Title I, however, has typically been understood to only govern stationary sources (e.g., factories and power plants). Thus, until now, Section 113 criminal prosecutions largely focused on stationary source owners and operators who engage in knowing activities and not on mobile sources regulated under Title II.

That’s why it’s so notable that the EPA and DOJ have begun using Title I’s criminal enforcement authorization to pursue violations of the Title II tampering and defeat device prohibitions. Under its new theory, EPA considers OBDs “monitoring devices” under Section 113(c)(2)(C); thus, any “knowing” action that may “render inaccurate” an OBD could, according to the EPA, constitute a violation of this section.

The DOJ also invokes Title 18 of the U.S. Code to bring charges for associated alleged criminal activities, including but not limited to conspiracy and accessory after the fact activities. The government may use any combination of these provisions in charging a defendant. Additionally, Title 18 charges can be easier to prove than violations of the underlying substantive law.

This allows the EPA to continue its criminal enforcement push even where it may not be able to prove a violation of Section 113 beyond a reasonable doubt.

(In Part 2 of this series, we’ll examine recent cases and offer practical guidance.)

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Justin Savage is a partner in Sidley’s Washington D.C. office, focusing on high-stakes environmental litigation and counseling including government enforcement actions, internal investigations and rulemaking challenges.

Karen Popp is a partner and global co-leader of Sidley’s White Collar and Compliance group. She focuses on high-stakes matters such as global internal investigations, criminal, civil and regulatory enforcement matters, congressional investigations, state attorney general actions, compliance and litigation. She previously served as Associate White House Counsel to President Clinton, an attorney in the Office of Legal Counsel at DOJ and an Assistant U.S. Attorney in New York City.

Susan Harris is a counsel in Sidley’s Chicago office where she advises on a broad range of regulatory matters and defends companies in civil and administrative enforcement actions under the Clean Air Act, environmental reporting, water, and pesticides programs.

Samina Bharmal is an associate in Sidley’s Washington, D.C. office where she focuses on guiding clients through internal investigations and judicial challenges to agency rulemakings, with an emphasis on federal environmental law.

Aaron Flyer is an associate in Sidley’s Washington, D.C. office, where his practice focuses on advising automotive and energy clients on a wide range of environmental matters including enforcement actions, regulatory compliance, rulemaking, federal litigation, and asset acquisitions.

This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content therein does not reflect the views of the firm.

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