Why it matters: It has been a rough 18 months for the automobile industry. On September 17, 2015, the DOJ announced criminal charges against General Motors Company arising from undisclosed potentially deadly safety defects with its cars that resulted in the company entering into a deferred prosecution agreement with the government and forfeiture of $900 million. Moreover, as the late, great Yogi Berra would say, the General Motors case was "déjà vu all over again" to the March 2014 DOJ criminal action against Toyota Motor Corporation, which also arose from undisclosed potentially deadly safety defects with its cars and similarly resulted in a deferred prosecution agreement and a $1.2 billion penalty. Then, on September 21, 2015, multiple news outlets cited government sources to report that the DOJ has launched a criminal investigation into the recent admission by Volkswagen that it defrauded consumers by knowingly rigging emissions tests of its diesel-powered cars in the United States. Matters such as these traditionally fall under the purview of U.S. regulators such as the National Highway Traffic Safety Administration (in the case of the General Motors and Toyota matters) and the Environmental Protection Agency (in the case of the Volkswagen matter) … and, it seems of late, the Department of Justice, as such regulatory failings have become increasingly criminalized.

Detailed discussion: On September 17, 2015, U.S. Attorney for the Southern District of New York Preet Bharara announced that criminal charges had been filed against Detroit-based General Motors Company (GM) for concealing, from 2012-2014, a "potentially deadly" safety defect from its U.S. regulator, the National Highway Traffic Safety Administration (NHTSA), and misleading consumers about the safety of certain of its cars. The safety defect was described as a defective ignition switch that could too easily knock the car out of the "run" position, resulting in sudden engine shutoff/stalls and disabling the affected cars' front air bags. GM admitted to knowledge of at least 15 deaths and a number of serious injuries caused by the defective switch. In connection with the charges, U.S. Attorney Bharara announced that GM had agreed to enter into a three-year deferred prosecution agreement (DPA) under which GM admitted to the charges and statement of facts and consented to the imposition of an independent monitor to "review and assess policies, practices and procedures relating to GM's safety-related public statements, sharing of engineering data and recall processes." The DPA also required GM to pay $900 million in forfeiture pursuant to a parallel civil action being filed concurrently in the Southern District of New York.

The agreed facts contained in the DPA and other documents filed in the Southern District of New York show that GM knew about the defect in the ignition switch as early as 2002 before the affected cars went into production. In 2004-2005, when the drivers of the cars began to experience sudden stalls while driving, GM did a cost-benefit analysis and decided to leave the switches "as is" (even though the facts show that a simple, inexpensive fix—costing less than $1.00 per car - could have greatly reduced the risk) and opted instead to issue an advisory to the car dealerships with tips drivers should take to minimize sudden stalls. In June 2005, GM made public statements acknowledging the defective switches but assured the public that they did not pose a safety concern. The facts show that by spring of 2012, GM had learned that the defective switches could also cause the non-deployment of the car's front air bags, and was aware of several deaths and serious injuries in crashes where the front air bags didn't deploy that were likely caused by the defective switches. The facts make clear that this knowledge went beyond the GM engineers investigating the crashes and extended to certain supervisors and attorneys at the company. During the nearly two-year period between spring 2012 (when GM learned about the connection between the defective switches and front air bag non-deployment) and February 2014, although no new cars were manufactured with the defective switches, GM still certified "as meeting all safety standards" existing cars with the defective switches as part of its "certified pre-owned" program. It was not until February 2014 that GM first notified the NHTSA and the public about the connection between the defective switches and the non-deployment of the front air bags, and a recall of more than 700,000 of the affected GM cars commenced (which, by March 2014, had risen to over 2 million vehicles recalled). The facts show that the delay in disclosure to the NHTSA and public was caused by the actions of "certain personnel responsible for shepherding safety defects through GM's internal recall process, who delayed the recall until GM could fully package, present, explain and handle the deadly problem" (no word yet on whether any individuals will be charged pursuant to the DOJ's highly publicized recent pronouncement on holding individuals accountable, recently reported on by us in our September 21, 2015, alert titled "New DOJ Policy Alert: Here's Looking at You, Kid—DOJ Announces Six Specific steps to Hold Individual 'Corporate Wrongdoers' Accountable").

The DOJ makes clear in its press release that, since the start of its criminal investigation in February 2014, GM has been a "model citizen" in terms of cooperation with the government, listing GM's "exemplary actions to demonstrate acceptance and acknowledgement of responsibility for its conduct" as follows: "GM, among other things, conducted a swift and robust internal investigation, furnished the government with a continuous flow of unvarnished facts gathered during the course of that internal investigation, voluntarily provided, without prompting, certain documents and information otherwise protected by the attorney-client privilege, provided timely and meaningful cooperation more generally in the federal criminal investigation, terminated wrongdoers and established a full and independent victim compensation program that has to date paid out hundreds of millions of dollars in awards."

While the government most certainly gave GM some mitigation credit for its cooperation post-February 2014, GM was held criminally accountable for the egregiousness of its actions in the years prior. As U.S. Attorney Bharara said in the DOJ's press release, "[f]or nearly two years, GM failed to disclose a deadly safety defect to the public and its regulator. By doing so, GM put its customers and the driving public at serious risk. Justice requires the filing of criminal charges, detailed admissions, a significant financial penalty, and the appointment of a federal monitor. These measures are designed to make sure that this never happens again." Added Attorney General Loretta E. Lynch, "[e]very consumer has the right to expect that car manufacturers are taking their safety seriously. The Department of Justice is committed to ensuring that the products Americans buy are safe; that consumers are protected from harm; and that auto companies follow the law."

All of this sounds eerily familiar to the events of March 19, 2014, when the DOJ announced a three year DPA with Japanese carmaker Toyota Motor Corporation (Toyota) in connection with statements it made to the NHTSA and consumers in the fall of 2009 and early 2010 related to two safety defects that could cause unintended acceleration in its Toyota and Lexus vehicles (“floor mat entrapment” and “sticky pedal,” respectively). The DPA also similarly imposed upon Toyota an independent monitor to “review and assess policies, practices and procedures relating to Toyota’s safety-related public statements and reporting obligations,” and also required Toyota to pay a $1.2 billion financial penalty pursuant to a parallel civil action in the Southern District of New York.

It appears that German carmaker Volkswagen could be next. On September 21, 2015, Bloomberg (as well as The Wall Street Journal and multiple other news sources) reported, based on information from highly placed government sources, that the DOJ has launched a criminal investigation into the recent admission by Volkswagen that over a five-year period it knowingly added software designed to rig emissions tests to approximately 482,000 of its diesel-powered Volkswagen and Audi cars sold in the United States. According to the Environmental Protection Agency (EPA), which first announced the fraud in a news conference on September 18, the "deceive devices" added to the cars tricked U.S. regulators into believing that the cars' emissions met Clean Air Act standards, but in reality the cars emitted as much as 40 times the legal limit of pollutants. Volkswagen allegedly perpetrated a massive fraud on the EPA and U.S. consumers who thought they were doing something good for the environment, and such deception can be criminal and costly. At this point, we ask the same question we wondered about above: In addition to charges against Volkswagen itself, will we also be seeing criminal charges against individual Volkswagen employees pursuant to the DOJ's recent Yates Memo? We will be watching, and report back.

See here to read the DOJ's 9/17/15 press release titled "U.S. Attorney of the Southern District of New York Announces Criminal Charges Against General Motors and Deferred Prosecution Agreement with $900 Million Forfeiture."

See here to read the 9/16/15 Deferred Prosecution Agreement between the DOJ and General Motors Company (attached as Exhibit A to the Verified Complaint), including all exhibits to the DPA containing the information and agreed statement of facts.

See here to read the 3/19/15 DOJ press release titled "Justice Department Announces Criminal Charge Against Toyota Motor Corporation and Deferred Prosecution Agreement with $1.2 Billion Financial Penalty."

For more on this subject, read the 9/21/15 Bloomberg Business article by Del Quentin Wilber and Greg Farrell titled "Volkswagen Said Focus of U.S. Criminal Probe on Emissions."