VW protests request for Texas governor to name substitute justices in emissions case

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REUTERS/Wolfgang Rattay

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(Reuters) - German carmakers Volkswagen and Audi, facing emissions cheating claims by the state of Texas, don’t think it would be fair for Texas Governor Greg Abbott to appoint two substitute state Supreme Court justices to decide the fate of the state’s case.

The carmakers, Volkswagen AG and Audi AG, filed a letter on Wednesday protesting (albeit "with all respect") a request to the Texas governor from Texas Supreme Court Chief Justice Nathan Hecht.

Hecht’s June 24 request to Abbott explained that two justices have recused themselves from the VW and Audi cases, which address the jurisdiction of Texas courts to hear the state’s claims against the German-based companies. The consolidated appeal has already been fully briefed and argued, but, citing a provision in the Texas Government Code, Hecht asked Abbott to commission two additional judges from the lower ranks of Texas state courts “to participate in the deliberation and determination of these cases."

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VW’s lawyers at Sullivan & Cromwell said the unusual procedure would violate the fundamental axiom that litigants don’t get to judge their own cases. Texas' suits against the German automakers was brought by Texas Attorney General Ken Paxton, not by Abbott himself. But Paxton and Abbott both represent the interests of the state, so, according to VW, the governor is effectively a party in the Supreme Court litigation over Texas’s jurisdiction. The Texas state law provision allowing the governor to appoint substitute justices, VW said in Wednesday's letter, has apparently never been invoked when the state is a party and the governor has an interest in the outcome of the case.

"Simply put, the state may not pick two judges who will help to decide whether it wins or loses before this court," the VW letter said. “Procedural due-process rights do not allow any litigant in Texas, including the state, to select its own judges, and ethical canons would require those judges to recuse even if commissioned," the letter said.

If the Texas Supreme Court cannot muster a five-justice majority from the seven non-recused justices, the VW letter said, then the appropriate course is to dismiss the case and leave intact a lower-court ruling that Texas courts do not have jurisdiction over the German companies. (Texas has also sued the companies’ U.S. distributor, Volkswagen Group of America Inc, which is not contesting jurisdiction.)

Otherwise, VW warned, there is a serious risk that the proceeding will violate the companies’ due process rights. At the very least, the letter said, the "profound unfairness" of allowing Abbott to pick new judges to hear Texas' case would create an appearance of impropriety that is at odds with the Texas Code of Judicial Conduct.

Hecht, the chief justice, declined to comment on the letter through a Supreme Court spokesperson. I emailed the Texas Attorney General's office for comment but did not immediately receive a response.

As you know, VW and its subsidiaries have already paid nearly $25 billion to resolve criminal, regulatory and private civil cases arising from the so-called emissions cheating scandal, in which the carmaker installed software designed to fool emissions testing machinery. Texas and its residents, according to VW’s brief at the state Supreme Court, have already reaped more than a billion dollars from those payments. Specifically, according to the intermediate Texas appellate court’s ruling on jurisdiction, the state received more than $209 million for environmental remediation; Texas consumers were paid $1.45 billion; and Texas auto dealers were granted more than $92 million.

But Texas contends that it is entitled to more in statutory penalties because VW and Audi allegedly installed additional emissions cheating software in about 24,000 cars driven on Texas roads after recalling the vehicles in 2014. According to the state, VW and Audi issued recall notices because factory-installed emission software was causing problems with an expensive engine filter covered by warranty. When auto owners responded to recall notices, according to Texas, VW and Audi dealers installed “new tampering software.”

The state asserts that VW’s previous deal with the U.S. government did not resolve claims arising from this alleged second installation of emissions cheating software. A Texas trial judge agreed with the state’s theory in a decision denying VW’s motion for summary judgment on the recall-tampering claims. That ruling is not before state Supreme Court.

The trial court also ruled against Audi Germany and VW Germany on their challenges to Texas' jurisdiction, but in 2020, the intermediate appellate court in Austin reversed. The appeals court held that the German companies did not direct their alleged recall-tampering activities at Texas.

“At most, the evidence in the record establishes that VW Germany directed recall-tampering conduct toward the United States as a whole, not to Texas specifically,” the appellate decision said. “In determining whether a state court can exercise jurisdiction over a foreign defendant, only the defendant's purposeful contacts with the state, not with the United States, are relevant.” The appeals court dismissed the state’s claims against the German companies.

Texas asked the Supreme Court to review the intermediate court’s decision. The Texas justices called for consolidated merits briefing in June 2021 and heard oral arguments from Assistant Texas Solicitor General Lisa Bennett and VW counsel Jeffrey Wall of Sullivan & Cromwell on Feb. 22.

At the time of oral argument, only one of the state’s nine justices, Justice Jimmy Blacklock, was recused. But in his June 24 letter asking the Texas governor to appoint replacement justices to hear the case, the state’s chief justice said Justice Evan Young had also stepped aside. There has been no public explanation for the recusals.

Supreme Court dockets indicate that both the VW and Audi cases are being held in abeyance, presumably until resolution of the chief justice's request that Abbott commission two substitute justices.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.