Ex-Detroit bankruptcy judge to mediate VW suits

David Shepardson
Detroit News Washington Bureau

Washington — A federal judge in Detroit has named the man who oversaw Detroit’s record-setting Chapter 9 bankruptcy restructuring to try to help mediate a settlement between Volkswagen and owners of vehicles that are emitting higher than allowed emissions.

Chief U.S. District Judge Gerald E. Rosen named Steven Rhodes, the former Detroit bankruptcy judge, and former U.S. District Judge Layn Phillips to oversee “expedited settlement negotiations” stemming from VW’s admission it installed “defeat devices” on 482,000 diesel cars in the United States and 11 million worldwide.

Rhodes retired from the bankruptcy bench in February after staying on to oversee Detroit’s 18-month stay in Chapter 9. He is advising Puerto Rico’s governor on its financial struggles.

There are at least 350 lawsuits pending nationwide against VW — including at least 16 in U.S. District Court in Detroit.

A judicial panel will meet in New Orleans Dec. 3 to decide which court should oversee the cases. Detroit is one possible venue, as is Virginia, where VW’s U.S. corporate headquarters is located in Herndon. Several other courts could be selected including New Jersey, California, Texas and New York.

Rosen issued an order naming the two as “masters for the purpose of facilitating expedited settlement negotiations.” The pair will “proceed with all reasonable diligence in facilitating these negotiations, in the manner and at the times and locations they deem appropriate,” Rosen wrote. There are about 15 cases pending in Detroit.

Separately, Rosen rejected a request to issue an immediate order requiring VW to repurchase the vehicles as “premature.”

The pair have the authority to establish the negotiation process, including the submission of documents, the attendance of parties with authority to settle, the procedure governing the settlement negotiations, and the schedule for the negotiations. All talks are confidential.

The parent company of Volkswagen of America — Volkswagen AG — and Audi AG “are directed to participate in these expedited settlement negotiations but may proceed without prejudice to their right to later raise any defenses to service of process or jurisdiction,” Rosen wrote. Both will act as “as quasi-judicial officers under the authority of the court, and are, therefore, immune from suit.” Both sides will share the costs of mediation.

One day after Rosen’s order, U.S. District Judge Jose L. Linares in Newark, N.J., named Phillips and former Judge Faith S. Hochberg as masters for expedited settlement negotiations in the VW suits pending in New Jersey. Hochberg is a former U.S. attorney and judge who stepped down from the federal bench in New Jersey in March.

VW has asked the cases be consolidated in Alexandria, Virginia, and picked Detroit as an alternative. Some lawyers suing the automaker have pushed to send the cases to California. Depending on which judge is tapped to oversee the cases could impact whether Rhodes, Phillips or Hochberg remain involved in mediation.

Federal prosecutors in Detroit are joining leading the criminal investigation into VW’s admitted cheating that includes the Federal Trade Commission and other agencies.

The U.S. Attorney’s Office in Detroit led by Barbara McQuade is part of the massive federal investigation that is also being led by the Justice Department’s Environment and Natural Resources Division. Federal prosecutors and FBI agents in California — where VW has pollution testing labs — are also involved

The Environmental Protection Agency’s testing labs are in Ann Arbor, VW has offices in Auburn Hills.

VW still hasn’t announced any fix for the vehicles. In Europe earlier this month, VW said it was recalling 8.5 million vehicles in Europe, but hasn’t notified regulators what the fix is. The EPA and California Air Resources Board have refused to certify the 2016 diesel VW cars with 2.0 liter engines. VW has also issued a stop sale on remaining 2015 diesel cars in showrooms.

VW withdrew its application for 2016 certification after it disclosed it hadn’t told EPA that the vehicles have auxiliary emissions control devices that should have been disclosed at the time of its application. The devices may also be on some vehicles currently on the road, EPA has said.

German prosecutors are also investigating and have raided VW offices. Regulators and other agencies around the world are also investigating.

VW has set aside $7.3 billion to cover costs, saw its CEO step down and suspended three top managers as a U.S. law firm, Jones Day, conducts an internal investigation. Winfried Vahland, the VW executive that was tapped to take a new position overseeing VW in North America starting Nov. 1 abruptly resigned before he started the new job.

Earlier this month, VW U.S. chief Michael Horn testified before Congress and said it could be late next year before a fix is ready for all three generations of VW diesel engines. He acknowledged that the oldest vehicles would require software and mechanical repair, which he agreed was a “major fix.”