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United States of America v. Volvo Powertrain Corporation

April 13, 2012

UNITED STATES OF AMERICA, PLAINTIFF,
v.
VOLVO POWERTRAIN CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Royce C. Lamberth Chief Judge United States District Court for the District of Columbia

MEMORANDUM OPINION

This dispute concerns a consent decree to which the United States and Volvo Powertrain Corporation are parties. Volvo Powertrain has assumed the obligations of Volvo Truck Corporation, the original signatory to the decree. The California Air Resources Board, which signed a substantially identical settlement agreement with Volvo Truck, has intervened. Before the Court is Volvo Powertrain's motion for judicial review of the demand by the United States for stipulated penalties pursuant to the decree. Powertrain asks the Court to find either that it has not violated the decree or else that the stipulated penalties established therein do not apply. Upon consideration of the motion, the oppositions thereto, and the record of this case, the Court concludes that Volvo Powertrain's motion must be denied in part, because the company violated the consent decree. Because the stipulated penalties do not clearly apply to this violation, the Court goes on to exercise its equitable authority and discretion to fashion a remedy. Finally, the Court turns to the essentially identical dispute between Volvo Powertrain and the California Air Resources Board regarding the effect of their settlement agreement.

I. FACTUAL BACKGROUND

In 1998, the United States brought enforcement actions against many manufacturers of truck engines, alleging that a feature of their fuel injection systems violated the Clean Air Act. Those fuel injection systems were operated by computer software, which the government alleged had been programmed to operate differently at highway speeds than under the standardized conditions of federal emissions testing, thereby improving the fuel economy of the engines but causing them to emit nitrogen oxide at levels well above the legal limit. The government argued that the "principal effect" of such a fuel injection timing system was "to bypass, defeat, or render inoperative" the engines' emissions control system, in violation of 42 U.S.C. § 7522(a)(3)(B), and that the timing system was therefore a prohibited "defeat device," 40 C.F.R. § 86.000-16(a). The manufacturers denied that their systems were prohibited.

After a year of negotiations, including a session at which counsel for the engine manufacturers collectively negotiated settlement terms with the United States, the parties agreed to be bound by a series of similar consent decrees. (The decrees' similarity ensured that no manufacturer would gain a competitive advantage by negotiating superior settlement terms.) Under these decrees, the engine manufacturers were required to meet new emissions standards for heavy-duty diesel engines, which are used in trucks and other on-road vehicles, before those standards took general effect. The manufacturers also agreed to accelerate the implementation of heightened emissions standards for non-road compression-ignition engines with a horsepower of at least 300 but less than 750. (The parties refer to this term as the "non-road pull-ahead," and the Court will call the engines to which it applies "non-road engines.") Non-road engines had not been a part of the alleged violation, but were included in the consent decrees in an attempt to further reduce the levels of ambient air pollutants.

After a period of public comment, the Honorable Henry H. Kennedy, Jr. found that the decrees would serve the public interest. He entered them on July 1, 1999. This case concerns one such decree.

The consent decree in question was initially signed by Volvo Truck Corporation, which did not sell non-road engines. Volvo Construction Equipment, which did, intervened shortly before the decree was entered so as to be bound by the non-road pull-ahead. In 2001, as part of a corporate reorganization, Volvo Powertrain acquired certain production facilities from Volvo Truck and assumed Volvo Truck's responsibilities under the consent decree. Thereafter, Volvo Powertrain used its manufacturing facility in Skovde, Sweden to produce non-road engines for Volvo Penta, a corporate sibling, as Volvo Truck had done when it owned the Skovde plant. In late 2004, Volvo Penta asked the US EPA to certify that eleven families of engines produced by Volvo Powertrain at the Skovde facility conformed with the emissions standards for non-road engines produced in Model Year 2005. The EPA issued the certificates of conformity. After a competing engine manufacturer suggested to the United States that, under the consent decree, those engines might have been required to conform to the more stringent standards for Model Year 2006, the United States submitted a series of information requests to Volvo Powertrain. In July 2008, the government issued a letter alleging that the company had violated the decree and demanding penalties of approximately $72 million under its stipulated penalty provisions. Volvo Powertrain denied the allegations and, after the parties attempted to resolve the dispute as required by the consent decree, petitioned this Court for review.

II. JURISDICTION AND LEGAL STANDARD

"[D]istrict courts enjoy no free-ranging . . . jurisdiction to enforce consent decrees, but are instead constrained by the terms of the decree and related order." Pigford v. Veneman, 292 F.3d 918, 924 (D.C. Cir. 2002) (citing Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 380--81 (1994)). When the District Court entered the consent decree at issue here, it retained jurisdiction "for the purpose of enabling any of the Parties to apply to the Court at any time for such further order, direction, and relief as may be necessary . . . to effectuate or enforce compliance with its terms, or to resolve disputes in accordance with the dispute resolution procedures" described by the decree. Consent Decree ¶ 151. The parties have followed those procedures, see id. ¶¶ 129--36, and this Court has jurisdiction over Volvo Powertrain's motion for judicial review of their dispute.

"[C]onstruction of a consent decree is essentially a matter of contract law." Segar v. Mukasey, 508 F.3d 16, 21 (D.C. Cir. 2007) (quoting Citizens for a Better Environment v. Gorsuch, 718 F.2d 1117, 1125 (D.C. Cir. 1983)).*fn1 "The court's task, then, is to discern the bargain that the parties struck." United States v. Microsoft Corp., 147 F.3d 935, 946 (D.C. Cir 1998). "Our inquiry begins, of course, with the text of the Decree." United States v. Western Elec. Co., 12 F.3d 225, 230 (D.C. Cir. 1993). If the text is unambiguous, the inquiry ends there, because "a court may not look to extrinsic evidence of the parties' subjective intent unless the document itself is ambiguous." Segar, 508 F.3d at 22. In determining whether the document is, in fact, ambiguous, "reliance upon certain aids to construction is proper, as with any other contract. Such aids include the circumstances surrounding the formation of the consent order, any technical meaning words used may have had to the parties, and any other documents expressly incorporated in the decree." United States v. I.T.T. Continental Baking Co., 420 U.S. 223, 238 (1975). However, "a contract provision 'is not ambiguous merely because the parties later disagree on its meaning.' It is ambiguous only 'if it is reasonably susceptible of different constructions.'" Segar, 508 F.3d at 22(quoting Bennett Enterprises, Inc. v. Domino's Pizza, Inc., 45 F.3d 493, 497 (D.C. Cir. 1995)).

III. THE CONSENT DECREE

To resolve this dispute, the Court must answer three questions. The first is whetherthe consent decree covers engines produced by Volvo Powertrain but submitted for certification by Volvo Penta, which is not a party to the decree. It does. All non-road engines built at a Powertrain facility and submitted for certification by the EPA are covered by Paragraph 110 of the consent decree and required to conform to the non-road pull-ahead. The second question is whether, under the consent decree, a non-road engine is defined by its certification or by its actual use. Because a definition grounded in actual use would make the consent decree practically impossible to enforce, the Court concludes that any engine labeled for use as a non-road engine is a non-road engine within the meaning of the decree. Third, the court must determine whether the stipulated penalties established in the decree apply to the violations at issue here. Because the engines in question were submitted for certification by Volvo Penta rather than Volvo Powertrain, the stipulated penalties do not clearly apply and the Court must fashion an equitable remedy instead.

A. Volvo Powertrain violated Paragraph 110 of the consent decree.

Although the Court is mindful that a consent decree, like a contract, should be read as a whole and each part interpreted with reference to the whole, three provisions of the decree are especially relevant here. Paragraph 60 requires that all non-road engines "manufactured by" Volvo Powertrain*fn2 on or after January 1, 2005 must meet certain emissions standards as well as "all other requirements that would apply as if the engines were Model Year 2006 engines." Paragraphs 109 and 110 appear below the header "Non-Circumvention Provisions." Paragraph 109 says that Volvo Powertrain "shall not . . . circumvent the requirements of this Consent Decree through leasing, licensing, sales, or other arrangements, or through stockpiling." Paragraph 110 requires that all non-road engines "manufactured at any facility owned or operated by [Volvo Powertrain] on or after January 1, 1998, for which a Certificate of Conformity is sought, must meet all applicable requirements of this Decree, regardless of whether [Volvo Powertrain] still owned, owns, operated, or operates that facility at the time the engine is manufactured."

The United States argues that, under each of these provisions, non-road engines built by Volvo Powertrain after January 1, 2005 were required to meet the emissions standards for Model Year 2006. Volvo Powertrain maintains that they were not. The company contends that under Paragraph 60 engines are "manufactured by" the entity that orders them and submits them for certification, and that in any event the United States has waived its argument as to the direct applicability of that provision to this case. Volvo Powertrain denies that it has circumvented the requirements of the consent decree, as Paragraph 109 forbids, and urges the Court to limit the scope of Paragraph 110 to engines that would have been required to meet the non-road pull-ahead set out by Paragraph 60 but for the transfer of manufacturing facilities from Volvo Powertrain to another owner. The Court concludes, however, that Paragraph 110 means what it says: all non-road engines manufactured at Volvo Powertrain facilities and submitted for certification by the EPA must meet the requirements of the consent decree. The Court need not address the government's arguments that Paragraphs 60 and 109 also compel that result.

Volvo Powertrain begins its interpretation of Paragraph 110 with the header that appears above it: "Non-Circumvention Provisions." The company argues that such provisions are administrative in nature and should not be interpreted to expand the scope of decree's substantive provisions. Powertrain reasons that one can only violate a non-circumvention provision by evading otherwise-applicable requirements, which brings the company to the text of Paragraph 110:

All . . . Nonroad CI Engines manufactured at any facility owned or operated by [Volvo Powertrain] on or after January 1, 1998, for which a Certificate of Conformity is sought, must meet all applicable requirements of this Decree, regardless of whether [Volvo Powertrain] still owned, owns, operated, or operates that facility at the time the engine is manufactured.

Powertrain contends that the phrase "all applicable requirements of this Decree" must mean "the requirements that are made applicable by a provision other than Paragraph 110." It also places a great deal of emphasis on the final clause, "regardless of whether [Volvo Powertrain] still owned, owns, operated, or operates that facility at the time the engine is manufactured," suggesting that this language identifies the purpose and the function of the provision: to prevent the evasion of substantive obligations through the transfer of manufacturing operations or facilities. On Volvo Powertrain's reading, Paragraph 110 prohibits only such acts of evasion. The company further points to the stipulated penalties provision, which on its face applies only when Volvo Powertrain-and not any other entity-seeks certificates of conformity. The company argues that to read Paragraph 110 to allow the possibility that the decree could be violated when some other company sought a certificate of conformity would render that paragraph inconsistent with the penalty provision. Finally, ...


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