VW affair: questionable damage – highly questionable fraud?

VW is – hopefully – not a criminal organization, just like Microsoft, BP, the FIFA or auditors (WPs) of Russian companies. Surely VW only admitted the objective circumstances in a legally preventive way, or rather admitted something of which perhaps until today one did not even know for sure whether one had done it at all – but probably believed it. However, as reality shows, this does not protect against lawsuits brought by lawyers and their clients who may be malicious or greedy.

If eleven million vehicles, each with a net sales price of only 20,000 euros, are affected, this makes 220 billion euros in revenue, which has also been generated by advertising with environmental friendliness.

In addition, it has enabled a market launch to be achieved and a dealer network and production capacity to be built up, worldwide, which will secure the future situation. Experience shows that crises of this kind are overcome quickly – then the advantages gained during this time come to light.

From a purely economic point of view, it might therefore have made sense to even consciously take these risks instead of working with the truth. If the management credibly reckoned with a certain profit, it will hardly be possible to reach a conviction for malice aforethought.

Thus, if necessary, no damage has occurred, but the benefit outweighs the damage. Without the measures taken at that time, VW might have had fewer assets today and would be in a worse position worldwide for the future. With then the question of where the basis should be to demand compensation from someone if a comparatively even more favourable price must now be paid for the advantages gained. A D&O could also argue like this. For a contingent price, which one was consciously prepared to pay for advantages gained, but would have liked to save money, no insurance company pays. Although their payment can of course be part of the calculation. Just as Winterkorn’s salary compensated for the risk he had taken.

 

Objective No intention to defraud

It is not very credible that one was surprised by the events. It is unlikely that one wanted to cheat or even did so in an objective sense. However, the fact that a US authority could see this differently was within the realm of possibility if the legal technical specifications were interpreted to the supposedly still safe limits. It is questionable whether somewhere at VW there was an elaborated scenario for this case that could be found today. However, eliminating a few “culprits” is an efficient means of further limiting the damage to reputation. The board of directors and lawyers can probably convince any technician to carry out an appropriate re-evaluation of his supposedly recognized “legal” risks, or someone else is commissioned to carry out the evaluation and the person concerned learns nothing of it. In a company based on the division of labour this is possible. If someone does not disagree, many companies have methods of persuasion, if only to admit that their own opinion may be wrong, e.g. because the technician assumes his own idiosyncratic interpretation of vague legal terms.

 

Intent despite confession?

Intention must not be assumed at VW because VW admits that an “illegal” shutdown device was present. This is a legal assessment which is not immediately apparent from the underlying facts. This is not simply because the device switches off occasionally or in many situations. On the contrary, it must almost always switch off during operation, so to speak, without this being objectively necessary. However, it may have been necessary in order to comply with the maintenance intervals. VW could have registered its vehicles in the USA with higher limit values, which would then have had to be complied with more often in normal operation. There are no such low targets, nor is there a commitment that they will be met on average during normal operation. So the point is that VW itself operated and advertised with the low values. It could be argued that the pollutants have caused illnesses and deaths which would not have occurred if the advertising had not been misleading, because VW’s products would not have been sold. In concrete terms: not diesel, but petrol or electric vehicles. It was advertised – and this was decisive for the sale of diesel – that the vehicles were particularly clean.

A plaintiff would have to prove that a company had not only committed large-scale fraud in the past, but that the fraud was continuing and that there was a “likelihood of continuation of criminal behaviour”. This is likely to be difficult – as more managers from the upper management levels up to more than three management levels have had to leave the company in the meantime, also to limit the damage. The fact that a supplier of software for exhaust gas regulation is said to have warned of illegal use as early as 2007 (“for test purposes only”) – and that the revision is said to have brought to the attention of the supervisory board only this year a warning from its own company, known since 2011, of “illegal practices in connection with exhaust gas values”. These would be indications of organisational failures in communication that could endanger the existence of the company.

There are plenty of busybodies and worriers in large companies. They are characterized by the fact that they are not sure of their own case, do not pursue it further, and leave it at a one-time report. It is an absolutely useful test to determine the seriousness of their concerns by showing them that they are not being taken seriously. Whoever makes a serious effort will not be deterred by this and will not let the matter rest on itself. In any case, it would be nonsensical to pursue every such report with intensity.

 

Marketing instead of legal advice ?

Certainly, it is more trustworthy for VW if someone is deliberately responsible for it, which has now been eliminated, than if it came out that VW exports everywhere, although VW was perhaps only unaware of the legal risks involved. Some companies had to impose a travel ban on their employees afterwards because arrest or extradition abroad would have been expected.

Should we tell the shareholders that we got into this completely unsuspectingly and that this can happen anywhere, again and again, even much worse? It is better to present the guilty party – let him resign, and proceed in the same way with other “responsible parties” – what remains is a cleaned up company that can be trusted.

 

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

 

With friendly permission of

www.network-Karriere.com (published in issue 07/2017, page 30)

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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