Viral Threat Emerges to the Vehicle Aftermarket Parts Industry

The pre-pandemic portion of 2020 saw continued vigorous enforcement by EPA of Clean Air Act “defeat device” provisions against the vehicle aftermarket parts industry, including manufacturers and installers, as well as the emergence of a new and potentially viral threat: citizen suit enforcement.

The first quarter of 2020 saw EPA finalize 15 “defeat device” enforcement case resolutions,[1] with untold others stalled due to the pandemic.  These actions involve two related provisions of the Clean Air Act (“CAA”).  Section 203(a)(3)(A) of the CAA, the “anti tampering” provision, prohibits

any person from removing or rendering inoperative any device or element of design installed on or in a motor vehicle or motor vehicle engine in compliance with regulations promulgated under Title II of the CAA…. [2]

Section 203(a)(3)(B) of the CAA, the “defeat device” provision, prohibits

any person from manufacturing, selling, offering to sell, or installing any part or component intended for use with, or as part of, any motor vehicle or motor vehicle engine, where a principal effect of the part or component is to bypass, defeat, or render inoperative any device or element of design installed on or in a motor vehicle or motor vehicle engine in compliance with regulations under Title II of the CAA, where the person knows or should know that such part or component is being offered for sale or installed for such use or put to such use.[3]

Typical allegations are that the defendant manufactured, sold, or installed one or some combination of “defeat device” products e.g. software or hardware modifications to the electronic control module tuning software, or parts designed to remove, disable or bypass an emission control device from the vehicle’s exhaust system (aka “delete pipes”).

Most of the settlements were reached under EPA’s administrative settlement authority, documented with either a short “expedited settlement agreement” or a more elaborate “consent agreement” with penalties ranging from $475 for a single violation to $150,000 for the sale of approximately 5000 defeat devices.[4]  Many of these settlements involved “ability to pay” issues, which reduced the amount of the penalty EPA otherwise would have sought to recover.  Similarly, the largest recent settlement, achieved via Consent Decree (more formal settlements which involve the courts and Department of Justice on behalf of EPA) required a penalty of $850,000, but this relatively large penalty was also tempered by the defendant’s ability to pay issues.[5]

The threat of exorbitant penalties is illustrated by the one recent resolution that did not involve a settlement.  In that notable case, the defendant essentially ignored EPA’s settlement attempts and litigation threats.  An administrative law judge ordered the defendant to pay over $7 million in penalties arising out of its sale of 14,000 defeat devices.[6]  The judge largely upheld EPA’s application of its civil penalty policy to calculate the penalty.[7]  The defendant’s bankruptcy proceeding is reportedly pending.

In the midst of these ominous enforcement developments for the aftermarket parts industry,  EPA announced – somewhat anticlimactically – its “National Compliance Initiative: Stopping Aftermarket Defeat Devices for Vehicles and Engines” (“NCI”) with the goal of “stopping the manufacture, sale, and installation of defeat devices on vehicles and engines used on public roads as well as on nonroad vehicles and engines.”  As explained in the NCI announcement:

The CAA prohibits tampering with emissions controls, as well as manufacturing, selling, and installing aftermarket devices intended to defeat those controls. The EPA has found numerous companies and individuals that have manufactured and sold both hardware and software specifically designed to defeat required emissions controls on vehicles and engines used on public roads as well as on nonroad vehicles and engines.[8]

The NCI will extend through EPA fiscal year 2023 (September, 2023).

Finally, to cap off a very bad quarter for the aftermarket parts industry, a federal district court last month awarded over $850,000 in penalties plus attorneys’ fees to a citizens group against several high profile parties, including several of their officers, involved in the sale and installation of defeat devices.[9]

Fans of the Discovery Channel’s Diesel Brothers show will recognize the defendants in the Utah Physicians case.  Their diesel truck modifications caught the attention of the plaintiffs, who brought a citizen suit claiming various violations of the Clean Air Act, including under the defeat device provisions.  The Clean Air Act citizen suit provision provides that

any person may commence a civil action on his own behalf—

(1) against any person … who is alleged to have violated (if there is evidence that the alleged violation has been repeated) or to be in violation of (A) an emission standard or limitation under this chapter….[10]

The Clean Air Act defines these key terms as follows:

The terms “emission limitation” and “emission standard” mean a requirement established by the State or the Administrator which limits the quantity, rate, or concentration of emissions of air pollutants on a continuous basis, including any requirement relating to the operation or maintenance of a source to assure continuous emission reduction, and any design, equipment, work practice or operational standard promulgated under this chapter.[11]

The Utah Physicians court is the first to find that the defeat device provisions constitute emissions limitations or emissions standards to support a citizens suit, doing so by merely citing the plaintiff’s argument in a footnote.[12]  In contrast, the 9^th Circuit Court of Appeals, in a recent reported decision arising out of – ironically – the enforcement action that focused EPA’s attention on the defeat device area a few years ago, found that the defeat device provisions were not emission standards or limitations that would support a citizen suit provision.[13]

The Utah Physicians court found that the defendants had committed dozens of Clean Air Act violations, including due to their sale and offering for sale of various defeat devices.  But rather than impose liability on the entities that had committed the violations, the court went on to find two of the reality show stars personally liable under the “responsible corporate officer doctrine,” as well as jointly and severally liable for the alleged violations.  The responsible corporate officer doctrine allows corporate officers to be found personally liable if they had responsibility and authority either to prevent or correct a violation, but failed to do so.[14]  While the responsible corporate officer doctrine only expressly appears in the Clean Air Act’s criminal liability provisions,[15] in an earlier reported ruling on motions for summary judgment, the Utah Physicians court found that the doctrine could also be applied in the civil, citizen suit enforcement context.[16]  In its trial ruling, the court found two of the Diesel Brothers defendants liable because they were “aware of the violations, [] had the ability to prevent them, and [] failed to take any preventative or corrective action.”[17]

As a result, the aftermarkets parts industry manufacturers face not only the prospect of continued focused EPA enforcement over the next few years, but also the threat of citizens suit enforcement and the imposition of personal liability on corporate officers.  A number of open questions remain to be resolved, including the meaning of the knowledge requirement in the defeat device prohibition and the ability of the off-road racing industry – long considered exempt from the tampering and defeat device prohibitions – to avoid enforcement scrutiny.  EPA has thus far not offered any compliance guidance to this segment of the aftermarket industry.  It also remains to be seen whether the citizen enforcement threat will go viral, or be quarantined in Utah.

[1] https://www.epa.gov/enforcement/2020-clean-air-act-vehicle-and-engine-enforcement-case-resolutions.

[2] 42 U.S.C. § 7522(a)(3)(A) (emphasis added).

[3] Id. § 7522(a)(3)(B) (emphasis added).

[4] See https://www.epa.gov/sites/production/files/2020-01/documents/innovativedieselllccafo.pdf.

[5] https://www.epa.gov/sites/production/files/2020-01/documents/punchit-cd.pdf.

[6] https://www.epa.gov/sites/production/files/2020-03/documents/freedomperformance-initialdecisionandpenaltyorder.pdf.

[7] https://www.epa.gov/sites/production/files/documents/vehicleengine-penalty-policy_0.pdf.

[8] https://www.epa.gov/enforcement/national-compliance-initiative-stopping-aftermarket-defeat-devices-vehicles-and-engines.

[9] Utah Physicians for a Healthy Environment v. Diesel Power Gear LLC et al., No. 2:17-cv-00032-RJS-DBP (D. Utah, March 6, 2020) (unpublished bench trial order).

[10] 42 U.S.C. § 7604(a) (emphasis added).  Citizens are also required to give 60 days advance notice to EPA, and are prohibited where EPA is diligently prosecuting the case.  Id. at § 7604(b).

[11] Id. § 7602(k) (emphasis added).

[12] Utah Physicians, supra.

[13] In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation., 894 F.3d 1030, 1043 (9^th Circuit 2018).

[14]  Utah Physicians for a Healthy Environment v. Diesel Power Gear LLC, et al., 374 F. Supp.3d 1124, 1137 (D. Utah 2019).

[15]  42 U.S.C. § 7602(k).

[16]  Utah Physicians, 374 F. Supp.3d at 1137-1138.

[17]  Utah Physicians, trial order, pp. 34-37.