Court Upholds RICO Charges Against Bosch in VW Dieselgate Dealership Class Action

Federal judge denies Bosch’s motion to dismiss, allows claims to continue, cites internal VW emails linking Bosch to Dieselgate fraud

SAN FRANCISCO – A federal judge today denied a motion to dismiss from Robert Bosch GmbH in a class-action lawsuit filed against it by hundreds of Volkswagen franchise dealerships, alleging that Bosch played a leading role in the Dieselgate scandal that blindsided dealers and cost them millions, according to Hagens Berman.

The Oct. 30, 2017, order granted by Judge Charles Breyer of the U.S. District Court for the Northern District of California upholds the dealers’ arguments that Bosch’s involvement violated the Racketeer Influenced and Corrupt Organizations Act, the same law used to bring charges for mafia-related crime and other organized racketeering. In upholding RICO claims against Bosch, the court also upheld trebling of damages, allowing dealers to receive triple their losses.

The lawsuit alleges that Bosch partnered with Volkswagen, the largest manufacturer of diesel vehicles in the world in a concerted effort to sell as many of the affected “clean-diesel” TDI vehicles as possible. The two made a strategic decision in 2005 to “launch a large-scale promotion of diesel vehicles in the United States,” in a scheme to misrepresent to regulators and the public that Volkswagen’s TDI vehicles complied with emission standards and were environmentally friendly.

Bosch knowingly participated in this scheme by working with Volkswagen to implement the defeat device that made the scheme possible, and by promoting “clean diesel” technology in the United States, the lawsuit states.

In January 2017, Judge Breyer approved a $1.67 billion settlement for hundreds of Volkswagen-branded franchise dealers against the automaker. Attorneys have since continued to fight for the rights of owners of hundreds of independently owned franchise dealerships across the country against Bosch for its part in the Dieselgate scheme.

“We are incredibly pleased that the court upheld claims against Bosch and has seen through its thinly veiled ringleader position in the Dieselgate scam,” said Steve Berman, managing partner of Hagens Berman and the lead attorney representing dealers. “Bosch and Volkswagen worked tirelessly to forge a secret deal to design the emissions-cheating device and market it to boost sales. Bosch made sure it reaped handsome profits for its collusion, and we will make sure it also reaps the just responsibility of payback to franchise dealers.”

“Bosch would rather live by the ‘do as I say, not as I do’ philosophy, but the court saw its emails as a smoking gun,” Berman added.

The four named franchise dealers bringing the class-action suit are Napleton VW Orlando, Napleton VW Sanford, and Napleton VW Urbana and J. Bertolet Inc. Each operate a Volkswagen-branded franchise dealership. Franchise dealers across the country purchased “clean diesel” vehicles from Volkswagen and sold those vehicles to consumers, unaware of the defeat devices installed in them, the lawsuit states. Only when the EPA issued its public notice of the Dieselgate scandal did dealers learn about the fraud affecting their inventory.

Breyer stated that the defeat device in question “made the affected vehicles unsaleable.”

Bosch’s Dieselgate Involvement

The defeat device in the affected VW clean diesel cars is part the electronic control unit which manages engine and emission controls. As noted in the judge’s order, Bosch designed and manufactured this sophisticated computer, which is known as the EDC17.

Bosch and Volkswagen worked together to transform the EDC17 into a defeat device, the dealers state, and Bosch exercised near-total control over the EDC17. Volkswagen could not have modified the EDC17 without Bosch’s involvement and approval.

The complaint highlighted Bosch’s intense involvement, including that it typically locked the EDC17 to prevent customers like Volkswagen from making significant changes on their own.

Judge Breyer’s order upheld all claims brought against Bosch stating “In sum, the Franchise Dealers can satisfy their burden of demonstrating that Bosch engaged in the predicate acts of mail and wire fraud with allegations that Bosch was (1) a knowing participant in a scheme to defraud, (2) that Bosch participated in the scheme with the intent to defraud, and (3) that a co-schemer’s acts of mail and wire fraud occurred during Bosch’s participation in the scheme and were within the scope of the scheme.

Franchise dealers plausibly alleged that Bosch participated, directly or indirectly, in (1) the conduct, (2) of an enterprise that affects interstate commerce, (3) through a pattern, (4) of racketeering activity.

Internal Emails

“Internal Volkswagen emails also support that Bosch was involved in the scheme,” the judge wrote in his order, citing a November 2006 email in which Dieter Mannigel, a member of Volkswagen’s software design team in the U.S. diesel engines division, emailed Hanno Jelden, head of Volkswagen’s powertrain electronics division, about the “US07” project. That project involved the design of the first iteration of “clean diesels” for sale in the United States. Mannigel’s email reads:

“Have you spoken with Bosch about the issue of US07 ...?

This issue is slowly becoming critical ....

I came away from our meeting with Mr. Krebs [who joined Volkswagen from Audi

in 2005] with the following:

- When we use the ‘acoustic function,’ it should have an appearance that won’t get us in trouble ....

- He is very skeptical about its implementation on the U.S. market: for one thing

due to the very critical liability situation....

In my opinion, the requirement of ‘nondiscoverability’ has neither been met for

today’s function nor the planned expansion.

The FP sheet for the expansion has been submitted to Bosch.

How do we proceed?”

“The express references in this email to the ‘acoustic function,’ the ‘US07’ project, and the importance of not getting caught illustrate Volkswagen’s deception in undertaking the emissions scheme,” Judge Breyer wrote. “But the email also casts Bosch as a strategic partner in the scheme. The ‘issue’ discussed appears to be how to implement the ‘acoustic function’ in the U.S. without being discovered. And Mannigel asks if Jelden has ‘spoken with Bosch about the issue,’ suggesting that Bosch might be able to help hide the “acoustic function” from U.S. regulators.”

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