Last month, the Texas Attorney General agreed to a settlement in principle with car manufacturers Audi and Volkswagen requiring them to pay a civil penalty of $85 million for alleged violations of the Texas Clean Air Act and environmental regulations. In 2015, the Texas AG filed separate consumer protection and environmental lawsuits against Volkswagen and Audi alleging that the companies used illegal emission-evading technology to defeat state emission tests. Texas had settled its consumer protection at the same time as a multistate settlement agreement in November 2016.
The 2015 environmental lawsuit named foreign defendants German automobile manufacturer, Volkswagen Aktiengesellschaft (Volkswagen), and its majority-owned subsidiary, Audi Aktiengesellschaft (Audi). The Texas AG alleged that the companies designed, created, and implemented software function to detect, evade, and defeat U.S. emissions standards. The software could detect when an emissions test was occurring, which would in turn cause the car to operate in a manner that would produce less emissions and make the testing equipment think that the car met a better pollution standard that it actually did. Volkswagen argued that the state lacked personal jurisdiction over the manufacturers in Texas courts. The manufacturers argued that, at most, they directed the conduct at issue toward the United States as a whole, not to Texas specifically. The manufacturers lost on this issue at the trial level, but won on appeal before the court of appeals. The state then appealed to the Texas Supreme Court, which rendered its decision late last month.
The Texas Supreme Court disagreed with the court of appeals and found that the manufacturers were in fact amenable to specific personal jurisdiction in Texas. The Supreme Court found that the car manufacturers "effectively (and knowingly) dropped the tampering software down a chute that guaranteed it would land in Texas." The Supreme Court distinguished this against the more common type of personal-jurisdiction disputes in which a nonresident manufacturer has merely placed a product in a stream of commerce that then carried its product to the forum state. Instead, here, the car manufacturers "called all the shots" having developed the product and controlled the stream that brought the product to Texas. Importantly, the Supreme Court noted that personal jurisdiction is a forum-specific inquiry, and that a defendant's contacts with another state "do not negate purposeful availment of this jurisdiction regardless of whether out-of-state contacts or more, less, or exactly the same."
This decision marks a notable reminder of the power of attorneys general, given that the Texas AG was able to successfully exert personal jurisdiction over a foreign entity. National and international companies engaging in commerce across the United States should be mindful that directing products into the stream of commerce to purposefully reach a certain state may be enough for personal jurisdiction.
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