Business & Commercial Litigation Newsletter

By Paul McDonald and Dan Murphy

Our September recap highlights cases that address the controversy involving Volkswagen, an enforcement action against UPS, and other news that will have an impact on business and litigation.

Volkswagen Investigation

German prosecutors have commenced an investigation of Martin Winterkorn, the former CEO of Volkswagen, who resigned after reports that the company cheated on diesel emission tests in the United States. Since Winterkorn’s resignation, VW has been hit with dozens of class action lawsuits in the U.S. VW is alleged to have misled consumers by promoting “clean diesel” cars that actually emit up to 40 times the amount of acceptable limit of harmful emissions. In comparison to standard gasoline engines, diesel engines use less fuel and emit less carbon, but they also emit substantially greater amounts of nitrous oxides, which are known to impair health. VW’s crisis was triggered last week, when the U.S. Environmental Protection Agency alleged that the company employed sophisticated software that allowed vehicles to detect emissions testing and conceal nitrous oxide emissions to pass tests. Analysts have estimated that VW’s vehicles have emitted more than 40,000 tons of toxic gas in the U.S. per year, far exceeding the approximately 1,000 tons allowed by EPA standards. In the United States alone some 500,000 diesel vehicles contain such “defeat devices.” The company’s shares have fallen more than 35 percent since the scandal has emerged and it has set aside more than $7 billion to address claims.

Read more about this development here and here.

Read about the engineering behind VW’s software here.

Enforcement Action Against UPS

The State of New York has commenced an action against United Parcel Service seeking penalties and damages based on the carrier’s delivery of millions of dollars in untaxed cigarettes to unauthorized recipients. In 2005, UPS entered into a consent decree with the State of New York by which it agreed not to deliver untaxed cigarettes to unlicensed dealers and individuals. In this suit, the state has alleged that since 2010, UPS has continued to deliver more than 700,000 cartons of untaxed cigarettes from American Indian reservations in New York to unauthorized recipients. While vendors of cigarettes on American Indian reservations are not subject to state cigarette taxes, licensed vendors in New York must pay $4.35 in tax on each pack. According to a report issued by the Tax Foundation, more than half of all cigarettes sold in New York are smuggled. The state is seeking recovery of more than $180 million in unpaid taxes. UPS has denied the allegations, stating that it was not aware of any violations and terminates services when it becomes aware of shipments in violation of its policies.

Read more about this development here.

Armstrong Contempt Sanctions Settlement

Lance Armstrong has settled a multi-million dollar lawsuit with an insurance company that refused to pay final installments on prize money to the cyclist after he won the Tour de France in 2002-2004. In 2004, the insurer, SCA Promotions, refused to pay a final installment of $5 million owed to Armstrong on his insured prize money, which would be triggered if he won the Tour de France. In arbitration, SCA Promotions was ordered to pay Armstrong millions of dollars in prize money based on testimony that he did not take any performance enhancing substances. However, earlier this year, Armstrong was sanctioned by an arbitration panel and ordered to pay SCA Promotions $10 million in penalties for providing untruthful testimony. The Arbitrator’s Award was confirmed in federal court under the Federal Arbitration Act, 9 U.S.C. §§ 1-16. The terms of the settlement that has concluded between the parties are confidential. However, Armstrong is still facing claims by the U.S. government based on the False Claims Act seeking to recover the $30 million in sponsorships invested in his team by the U.S. Postal Service.

Read more about the settlement here and review the Arbitration Award here.