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Volkwagen's Nightmare Is About To Get Worse: Here Come The Class Action Lawyers

The next punishment for the German automaker's allegedly fraudulent approach to emissions testing? Class action lawsuits.

Posted on September 22, 2015, at 6:49 p.m. ET

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Volkswagen's reputation is in tatters and it faces billions of dollars in penalties, but perhaps the most terrifying phase of the nightmare is just beginning: The class-action lawyers are coming.

Law firm Hagens Berman, whose partner Steve Berman is an attorney in class-action litigation against General Motors over its faulty ignition switches, has been particularly fast out of the gate. It has already filed two complaints against Volkswagen, with the second complaint, filed yesterday, running 190 pages long, with plaintiffs from at least 20 states. The complaint brings over 70 counts against Volkswagen, citing different states' consumer protection laws, and asks for undisclosed damages including punitive damages and attorney fees.

Keller Rohrback, another class-action firm, has filed its own complaint against Volkswagen, with 14 counts and 7 individual plaintiffs so far. The firm is also leading a class-action suit against Sony in relation to its massive hacking attack in late 2014.

They're not the only lawyers circling in the bloodied waters. Bloomberg reports that the Justice Department is looking into Volkswagen's behavior and so is a group of U.S. Attorneys General, led by New York state Attorney General Eric Schneiderman.

The group, which is still being formed, will look at whether Volkswagen violated state consumer protection laws as well as environmental protection laws, specifically Volkswagen's claims that it was selling "Clean Diesel" cars, a source familiar with the matter said.

Even amid such a frenzy, victory is far from guaranteed for the class-action lawyers.

"It is not unusual to have class actions follow regulatory developments," said Neal Walters, an attorney at Ballard Spahr who has defended corporations in product liability cases. "As serious as the allegations may be from the regulatory perspective, the class actions will not be as easy as they look."

The reason why, Walters said, is plaintiffs will have to show that buyers specifically bought the affected models because of their (possibly illusory) environmental benefits, or that their cars suffered a serious reduction in resale value due to the emissions scandal and its fallout.

Hagens Berman is trying to do just that.

"I paid a premium for a Golf TDI because I was promised that it was 'Clean Diesel.' I was told that the emissions were better than a standard gas automobile. In addition, I was also promised high fuel economy," one buyer says in the firm's announcement of its class-action suit. "I now feel I have been defrauded by these claims."

Max Kennerly, a lawyer at Tor Hoerman who blogs about litigation, guessed that lawsuits will follow whatever tweaks Volkswagen is required to make to get its cars in compliance with emissions rules. If that affects engine performance, "the car you own is not the car you thought you bought," he said. "Whenever you sell these things, you're going to lose some value."

Resale value will be particularly closely watched. Alec Gutierrez, a senior market analyst at Kelley Blue Book, said the value of affected cars could decline 3% to 5% in the second-hand markets. For example, a 2013 Golf Sportswagen TDI with a $16,000 Kelly Blue Book value could see its price decline $500 to $800, Gutierrez said, based on the experience of past models which experienced recalls.

Eric Ibara, an senior analyst at Kelley Blue Book, said retail values don't always take a hit. In the GM ignition case, used car values and retail values didn't decline at all, and in the wake of Toyota's unintended acceleration saga, resale values went back to normal within a year.

"This incident is different from the above two cases as Volkswagen's issue is not life-threatening but rather violates the trust with the buying public," Ibara said. "Should Volkswagen resort to incentives to move these vehicles later, this could adversely impact the strong residual values these vehicles currently enjoy."

There's a bigger challenge for lawyers looking to sue VW. "It is very difficult for class lawyers to prove diminution in value," Walters said. "There are any numbers of factors that influence what you pay and what you sell it for."

One group sure to benefit from a successful suit against Volkswagen will be the lawyers themselves. In late 2012, Toyota settled a class-action suit related to its unintended acceleration scandal, paying out $1.1 billion to owners of about 16 million eligible cars. Of that payout, $227 million went to the lawyers. One Toyota owner revealed his cut of the settlement in a Wall Street Journal op-ed: a check for $20.91.

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