United States v. Daimler Ag

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES, et al.;

Plaintiffs,

v. Civ. Action No. 20-2564 (EGS)

DAIMLER AG, et al.,

Defendants.

Memorandum Opinion

Pending before the Court are the United States’ Motion to

Enter Consent Decree, ECF No. 7, 1 and the State of California’s

Motion to Enter California Partial Consent Decree, ECF No. 9.

The proposed consent decrees lodged with the Court resolve

claims the United States and the California Attorney General’s

Office, on behalf of the California Air Resources Board

(“CARB”), assert against the Defendants Daimler AG and Mercedes-

Benz USA, LLC (collectively, “Daimler”) for certain violations

of California law and the Clean Air Act (“CAA”), 42 U.S.C. §§

7521 et seq. See Unopposed Mot. Enter Consent Decree (“Gov’t’s

Mot.”), ECF No. 7 at 8; Calif. Mot. Enter Calif. Partial Consent

Decree (“Calif. Mot.”), ECF No. 9 at 2.

1 When citing electronic filings throughout this Opinion, the
Court cites to the ECF page number, not the page number of the
filed document.
 Upon careful consideration of the motions, the arguments

therein, the relevant law, and for the reasons set forth below,

the Court GRANTS the United States’ motion and California’s

motion.

I. Background

A. Factual and Procedural History

On September 14, 2020, the United States filed a complaint

against Daimler, alleging four types of violations of the CAA

arising from the sale of “more than 250,000 diesel-engine vans

and passenger cars in the United States that contain undisclosed

auxiliary emission control devices (AECDs) and unlawful ‘defeat

devices’ used to circumvent emissions testing.” See Gov’t’s

Mot., ECF No. 7 at 9.

With respect to the first type of violation, Section

203(a)(1) of the CAA “prohibits vehicle manufacturers from

selling any new motor vehicle in the United States that is not

covered by a valid certificate of conformity (COC) issued by the

Environmental Protection Agency (EPA).” Id. According to the

allegations in the government’s complaint, Daimler allegedly

“failed to disclose numerous AECDs installed in its diesel

vehicles when applying for COCs, meaning that the vehicles were

not covered by a valid COC issued under EPA’s regulations when

Daimler sold them to consumers.” Id. at 9-10. With respect to

the second type of violation, Section 203(a)(3)(B) of the CAA

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prohibits “knowingly selling or installing a part or component

in a vehicle to bypass, defeat, or render inoperative any aspect

of the vehicle’s emissions control system, unless certain narrow

exceptions apply.” Id. at 10. The complaint alleges that Daimler

installed “unlawful defeat devices that cause the vehicles’

emissions control systems to perform less effectively during

normal driving than they perform while undergoing federal

emissions testing.” Id. With respect to the third type of

violation, Section 203(a)(3)(A) of the CAA prohibits “tampering

with a vehicle’s emissions control system by removing or

rendering inoperative a part installed to comply with the CAA.”

Id. The complaint alleges that, by installing undisclosed AECDs

and defeat devices in the affected vehicles prior to their sale,

Daimler tampered with the vehicles. Id. With respect to the

fourth type of violation, Section 203(a)(2) of the CAA “requires

vehicle manufacturers to provide information required under

Section 208 of the CAA, including information that the EPA

Administrator requires to determine compliance with the Act.”

Id. at 11. The complaint alleges that Daimler failed to provide

information regarding the undisclosed AECDs and defeat devices

to the EPA, which the EPA needed to determine whether the

company was in compliance with the CAA. Id.

On the same day it filed the complaint, the government

lodged a consent decree that had been agreed to and signed by

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all parties. See Notice Lodging Consent Decree, ECF No. 2. The

government requested that the Court take no action pending

publication of the proposed consent decree in the Federal

Register and the running of the comment period, stating that it

would move for entry of the proposed consent decree as a final

order at a later date. Id. at 1-2.

Also on September 14, 2020, the California Attorney

General’s Office, on behalf of CARB, filed a separate eleven-

count complaint against Daimler under Civil Action Number 20-cv-

2565 (“California Action”). See Compl., ECF No. 1, California v.

Daimler AG, No. 20-cv-2565 (D.D.C. Sept. 14, 2020) (EGS).

Similar to the above, the complaint in the California Action

alleged that Daimler violated certain provisions of the CAA, the

California Health and Safety Code, the California Business and

Professions Code, and the California Code of Regulations. See

Calif. Mot., ECF No. 9 at 2. The complaint alleged, among other

things, that the affected diesel vehicles contained undisclosed

AECDs and defeat devices, “as well as several unreported,

unapproved running changes and field fixes that have resulted

in, and continue to result in, increased NOx emissions from each

Subject Vehicle in excess of California limits.” Id. The State

of California lodged a partial consent decree on the same day it

filed its complaint. Notice Lodging, ECF No. 3, California v.

Daimler AG, No. 20-cv-2565 (D.D.C. Sept. 14, 2020) (EGS). The

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State of California indicated that it would submit a motion

requesting entry of the proposed partial consent decree at a

future date. Id. at 2.

The Court thereafter consolidated the California Action

with this case pursuant to Federal Rule of Civil Procedure

42(a), see Min. Order (Sept. 14, 2020), California v. Daimler

AG, No. 20-cv-2565 (D.D.C. Sept. 14, 2020) (EGS); and the

California Action was terminated on September 23, 2020. On

December 17, 2020, the United States filed its motion for an

order entering a consent decree (“Consent Decree”), 2 Gov’t’s

Mot., ECF No. 7, and the State of California joined in the

United States’ motion the same day, see Calif.’s Notice Joinder,

ECF No. 8. The State of California subsequently filed its motion

for an order entering the partial consent decree (“California

Partial Consent Decree”). Calif. Mot., ECF No. 9. Daimler does

not oppose the motions. See Gov’t’s Mot., ECF No. 7 at 7; Calif.

Mot., ECF No. 9 at 1.

2 The government notes that during the notice-and-comment period,
the parties discovered typographical errors in the initial
proposed consent decree lodged on September 14, 2020. The
errors, which did not relate to any of the public comments
received, were corrected, but the Consent Decree the parties ask
this Court to adopt is otherwise the same. See Gov’t’s Mot., ECF
No. 7 at 9 n.1; Calif. Notice Joinder, ECF No. 8 at 1 n.1.
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 B. The Consent Decree And The California Partial Consent
Decree

The Consent Decree requires Daimler to:

(1) fix its vehicles at no cost to consumers;

(2) offer an extended warranty on all parts
expected to be impacted by the fix;

(3) conduct future testing of the affected
vehicles to demonstrate compliance with
emissions standards for their full useful
life;

(4) perform projects to fully mitigate damage
caused to the Nation’s air;

(5) implement new corporate compliance
measures to discourage future cheating; and

(6) pay a civil penalty of $875 million, plus
retroactive stipulated penalties of about
$70.3 million.

Gov’t’s Mot., ECF No. 7 at 11. The settlement’s total value will

reach $1.5 billion, according to the government. Id.

The government notes that it held a 30-day public comment

period on the Consent Decree, received 16 comments which it

carefully considered, and concluded that none of the comments

provided a basis for withholding its consent to the entry of the

decree. Id. at 15-16.

The California Partial Consent Decree requires Daimler to

make a $110,000,000 payment to CARB and a $17,500,000 payment to

the California Attorney General. Calif. Mot., ECF No. 9 at 3-5.

The California Partial Consent Decree also resolves: (1) all

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civil claims for relief that were or could have been brought

under Section 17200 of the California Business & Professions

Code “to the extent that those claims are predicated on

allegations that Daimler engaged in unlawful business acts or

practices,” within the meaning of the provision, “by virtue of

having violated certain provisions of California and [f]ederal

law”; and (2) all claims related to the affected vehicles and

the allegations in the California Complaint or “facts disclosed

to California before the lodging of the Consent Decree” that the

California Attorney General could have brought pursuant to

certain provisions of California law and federal law. Id.

Finally, the California Partial Consent Decree enjoins Daimler

from: (1) introducing any vehicles that contain undisclosed

AECDs or defeat devices, or that otherwise fail to comply with

certain California Health and Safety Code provisions; (2)

“engaging in unlawful business acts or practices, within the

meaning of California Business and Professions Code § 17200 et

seq.,” by violating certain California Health and Safety Code

provisions; (3) failing to notify relevant authorities if

Daimler has reason to believe that a vehicle with an undisclosed

AECD or defeat device has been sold or offered for sale; (4)

failing to comply with any injunctive terms obtained that apply

to the vehicles at issue or Daimler; and (5) submitting “a copy

of any report filed under Paragraph 44” of the Consent Decree to

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the California Attorney General. Ex. 1 to Calif. Mot. (“Calif.

Partial Consent Decree”), ECF No. 9-1 at 9-10.

The California Partial Consent Decree was not subject to

any notice and comment requirements. Calif. Mot., ECF No. 9 at

1.

II. Standard for Entry of Consent Decree

The “generally applicable” standard for the review of a

consent decree in the District of Columbia Circuit is whether

the consent decree “fairly and reasonably resolves the

controversy in a manner consistent with the public interest.”

Massachusetts v. Microsoft Corp., 373 F.3d 1199, 1206 n.1 (D.C.

Cir. 2004) (quoting New York v. Microsoft Corp., 231 F. Supp. 2d

203, 205 (D.D.C. 2002)) (citing Citizens for a Better Env’t v.

Gorsuch, 718 F.2d 111, 1126 (D.C. Cir. 1983)). “[P]rior to

approving a consent decree a court must satisfy itself of the

settlement’s overall fairness to beneficiaries and consistency

with the public interest.” Citizens for a Better Env’t, 718 F.2d

at 1126 (internal quotation marks and citation omitted).

“Approval of a settlement is a judicial act that is

committed to the informed discretion of the trial court.” United

States v. Hyundai Motor Co., 77 F. Supp. 3d 197, 199 (D.D.C.

2015) (quoting United States v. District of Columbia, 933 F.

Supp. 42, 47 (D.D.C. 1996)). The Court is not to “substitute its

judgment” for that of the parties to the decree and “may not

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modify but only approve or reject a consent decree.” United

States v. Akzo Coatings of Am., Inc., 949 F.2d 1409, 1435 (6th

Cir. 1991). “Naturally, the agreement reached normally embodies

a compromise; in exchange for the saving of cost and elimination

of risk, the parties each give up something they might have won

had they proceeded with litigation.” United States v. Armour &

Co., 402 U.S. 673, 681-82 (1971).

“The trial court in approving a settlement need not inquire

into the precise legal rights of the parties nor reach and

resolve the merits of the claim or controversy, but need only

determine that the settlement is fair, adequate, reasonable and

appropriate under the particular facts and that there has been

valid consent by the concerned parties.” Citizens for a Better

Env’t, 718 F.2d at 1126 (citing Metro. Hous. Dev. Corp. v. Vill.

of Arlington Heights, 616 F.2d 1006, 2014 (7th Cir. 1980)).

“[I]t is precisely the desire to avoid a protracted examination

of the parties’ legal rights which underlies consent decrees.

Not only the parties, but the general public as well, benefit

from the saving of time and money that results from the

voluntary settlement of litigation. Thus, ‘[v]oluntary

settlement of civil controversies is in high judicial favor.’”

Id. (quoting Autera v. Robinson, 419 F.2d 1197, 1199 (D.C. Cir.

1969)). That said, “[a] decree, even entered as a pretrial

settlement, is a judicial act, and therefore the district judge

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is not obliged to accept one that, on its face and even after

government explanation, appears to make a mockery of judicial

power.” Microsoft Corp., 56 F.3d at 1462. “Finally, broad

deference should be afforded to EPA’s expertise in determining

an appropriate settlement and to the voluntary agreement of the

parties in proposing the settlement.” District of Columbia, 933

F. Supp. at 48 (citing In re Cuyahoga Equip. Corp., 980 F.2d

110, 118 (2d Cir. 1992)).

III. Analysis

The Court must determine whether the government has met its

burden to demonstrate that the consent decrees are fair,

reasonable, and in the public interest. United States v. Davis,

11 F. Supp. 2d 183, 189 (D.R.I. 1998) (“The United States is

obliged to proffer sufficient facts and reasons to establish

that these factors have been satisfied and that approval is

warranted.”).

A. The Consent Decrees Are Fair

“A review of the fairness of a proposed consent decree

requires an assessment of the good faith of the parties, the

opinions of the counsel, and the possible risks involved in

litigation if the settlement is not approved.” District of

Columbia, 933 F. Supp. at 48 (quoting United States v. Hooker

Chem. & Plastics Corp., 607 F. Supp. 1052, 1057 (W.D.N.Y.

1985)). “Fairness incorporates both procedural and substantive

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components.” United States v. Telluride Co., 849 F. Supp. 1400,

1402 (D. Colo. 1994). “An assessment of procedural fairness

involves looking ‘to the negotiating process and attempt[ing] to

gauge its candor, openness, and bargaining balance.’” District

of Columbia, 933 F. Supp. at 47 (quoting Telluride Co., 849 F.

Supp. at 1402). “A consent decree that is substantively fair

incorporates ‘concepts of corrective justice and accountability:

a party should bear the cost of harm for which it is legally

responsible.’” Id. at 47 (quoting United States v. Cannons Eng'g

Corp., 899 F.2d 79, 87 (1st Cir. 1990)).

The Consent Decree and the California Partial Consent

Decree proposed in this litigation are fair. Regarding the

procedural fairness of the consent decrees, all of the parties

involved support entry of the decree. See Gov’t’s Mot., ECF No.

7 at 7; Calif. Mot., ECF No. 9 at 1. Each party was represented

by experienced counsel and engaged in settlement negotiations

that lasted more than three years, resulting in the drafting of,

and agreement on, the provisions of the consent decrees. Gov’t’s

Mot., ECF No. 7 at 17. Furthermore, “there is no suggestion of

impropriety in the negotiation of the agreement[s],” Hyundai

Motor Corp., 77 F. Supp. 3d at 200; rather, the consent decrees

are “a reflection of the parties’ arms-length efforts to reach a

just and equitable outcome,” Gov’t’s Mot., ECF No. 7 at 17. In

addition, the United States complied with the CAA’s required

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notice-and-comment procedures and duly considered each of the 16

comments it received. Id. Regarding the substantive fairness of

the consent decrees, “[t]he proposed settlement requires Daimler

to atone for its misconduct” through repairing affected

vehicles, mitigating excess NOx emitted into the air, taking

steps to prevent future environmental violations, and paying

substantial financial penalties. Id. at 18; see also Calif.

Mot., ECF No. 9 at 4.

Accordingly, the Court finds that the consent decrees are

fair.

B. The Consent Decrees Are Reasonable

“In examining the reasonableness of a decree there are

three factors for the Court to consider: (1) whether the decree

is technically adequate to accomplish the goal of cleaning the

environment, (2) whether it will sufficiently compensate the

public for the costs of the remedial measures, and (3) whether

it reflects the relative strength or weakness of the

government’s case against the environmental offender.” District

of Columbia, 933 F. Supp. at 50 (quoting Telluride, 849 F. Supp.

at 1402). “‘[T]he court must determine whether the proposed

consent decree is reasonable from an objective point of view.’”

Appalachian Voices v. McCarthy, 38 F. Supp. 3d 52, 56 (D.D.C.

2014) (quoting Env’t Def. v. Leavitt, 329 F. Supp. 2d 55, 71

(D.D.C. 2004)).

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 The United States argues that the first factor has been met

because the Consent Decree will force Daimler to: (1) “bring the

majority of the affected vehicles into compliance with

applicable NOx emission standards”; (2) “perform projects to

fully mitigate excess NOx emitted into the air”; and (3)

“implement corporate governance reforms to help ensure

compliance with the CAA in the future.” Gov’t’s Mot., ECF No. 7

at 19. In addition, the State of California argues that the

California Partial Consent Decree is reasonable, noting that the

relief provided is “substantial, and it directly addresses the

violations alleged by California.” Calif. Mot., ECF No. 9 at 3.

The Court agrees. Based on the current record, it appears that

the consent decrees are “technically adequate to accomplish the

goal of cleaning the environment,” District of Columbia, 933 F.

Supp. at 51; will bring Daimler into compliance with the CAA and

ensure future compliance with the CAA; and will increase the

likelihood that Daimler will meet its obligations going forward.

With regard to “whether [the consent decrees] will

sufficiently compensate the public for the costs of remedial

measures,” District of Columbia, 933 F. Supp. at 50; the

substantial financial penalties in the Consent Decree and the

California Partial Consent Decree were negotiated in good faith

taking into account applicable statutory factors, as well as

Daimler’s cooperation and the risks of litigation. In addition,

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the penalties are commensurate with other mobile source

settlements. See Gov’t’s Mot., ECF No. 7 at 20.

The final factor in the reasonableness inquiry is “whether

[the consent decrees] reflect[] the relative strength or

weakness of the government’s case against the environmental

offender.” District of Columbia, 933 F. Supp. at 50. “While it

is true that the [agreements] may have extracted less than was

possible from the defendant, it must be remembered that a

consent decree by its very nature will contain elements of

compromise.” Id. at 51. Here, the government notes that the

settlement “includes compromises,” but that it also “includes

significant injunctive relief to benefit the Nation’s air and

the citizens who breathe it and a substantial civil penalty to

punish and deter Daimler and would-be violators.” Gov’t’s Mot.,

ECF No. 7 at 21. Furthermore, the consent decrees provide relief

to the parties now, as compared to the potential years of

litigation the parties could face if the United States and

California elected to pursue their claims to trial. See District

of Columbia, 933 F. Supp. at 51 (“[I]t is almost axiomatic that

voluntary compliance on an issue where there is a potential

disagreement is a better alternative than the uncertainty of

litigation over that issue.”).

Accordingly, for all of these reasons, the Court finds that

the consent decrees are reasonable.

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 C. The Consent Decrees Are In The Public Interest

“A settlement agreement which seeks to enforce a statute

must be consistent with the public objectives sought to be

attained by Congress.” Stewart v. Rubin, 948 F. Supp. 1077, 1087

(D.D.C. 1996). The purpose of the CAA is “to protect and enhance

the quality of the Nation’s air resources so as to promote the

public health and welfare and the productive capacity of its

population.” 42 U.S.C. § 7401(b)(1). The Court’s inquiry is

limited. “[P]rior to approving a consent decree a court must

satisfy itself of the settlement’s ‘overall fairness to

beneficiaries and consistency with the public interest.’” United

States v. Trucking Emps., Inc., 561 F.2d 313, 317 (D.C. Cir.

1977) (quoting United States v. Allegheny-Ludlum Indus., 517

F.2d 826, 850 (5th Cir. 1975)). “‘[T]he [district] court’s

function is not to determine whether the resulting array of

rights and liabilities is the one that will best serve society,

but only to confirm that the resulting settlement is within the

reaches of the public interest.’” United States v. Microsoft

Corp., 563 F.3d 1448, 1460 (D.C. Cir. 1995) (quoting United

States v. W. Elec. Co., 900 F.2d 283, 325 (D.C. Cir. 1990)).

The Court is satisfied with the decree’s “overall fairness

to beneficiaries and consistency with the public interest.”

Trucking Emps., Inc., 561 F.2d at 317 (citations omitted). As

described above, the consent decrees further the goal of the CAA

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and California law provisions by “secur[ing] significant

injunctive relief to bring the affected vehicles into compliance

with the law, mitigate[ing] excess NOx emissions; and

promot[ing] compliance in the future.” Gov’t’s Mot., ECF No. 7

at 22; see also Calif. Mot., ECF No. 9 at 2 (“The California

Partial Consent Decree, along with the US/CARB/Daimler Consent

Decree, form an integration resolution to remedy the violations

alleged in the California Complaint. The relief provided is

substantial, and it directly addresses the violations alleged by

California.”). The substantial financial penalties provided for

in the consent decrees also send a strong deterrence signal to

other manufacturers who may consider installing undisclosed

AECDs or defeat devices in their vehicles.

Accordingly, for all of these reasons, the Court finds that

the consent decrees are in the public interest.

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IV. Conclusion

For the reasons explained above, the United States’ Motion

to Enter Consent Decree, ECF No. 7, and the State of

California’s Motion to Enter California Partial Consent Decree,

ECF No. 9, are GRANTED. A signed Order entering the Consent

Decree and California Partial Consent Decree, as well as the

Consent Decree and California Partial Consent Decree,

accompanies this Memorandum Opinion.

SO ORDERED.

Signed: Emmet G. Sullivan
United States District Judge
March 9, 2021

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