Farchione Motors, Inc. v. Volkswagen Group of America

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE VOLKSWAGEN “CLEAN DIESEL” No. 19-16361

MARKETING, SALES PRACTICES, AND

PRODUCTS LIABILITY LITIGATION, D.C. No.

3:15-md-02672-

CRB

NICHOLAS BENIPAYO,

Plaintiff,

and

FARCHIONE MOTORS, INC.,

Claimant-Appellant,

v.

VOLKSWAGEN GROUP OF AMERICA,

INC.,

Defendant-Appellee.

2 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

IN RE VOLKSWAGEN “CLEAN DIESEL” No. 19-16362

MARKETING, SALES PRACTICES, AND

PRODUCTS LIABILITY LITIGATION, D.C. No.

3:15-md-02672-

CRB

NICHOLAS BENIPAYO,

Plaintiff,

and

AUTOVID, LLC,

Claimant-Appellant,

v.

VOLKSWAGEN GROUP OF AMERICA,

INC.,

Defendant-Appellee.

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 3

IN RE VOLKSWAGEN “CLEAN DIESEL” No. 19-16363

MARKETING, SALES PRACTICES, AND

PRODUCTS LIABILITY LITIGATION, D.C. No.

3:15-md-02672-

CRB

NICHOLAS BENIPAYO,

Plaintiff,

and

KENNEDY’S AUTOS, LLC,

Claimant-Appellant,

v.

VOLKSWAGEN GROUP OF AMERICA,

INC.,

Defendant-Appellee.

4 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

IN RE VOLKSWAGEN “CLEAN DIESEL” No. 19-16376

MARKETING, SALES PRACTICES, AND

PRODUCTS LIABILITY LITIGATION, D.C. No.

3:15-md-02672-

CRB

NICHOLAS BENIPAYO,

Plaintiff,

OPINION

and

HADDAD CLAIMANTS,

Claimant-Appellant,

v.

VOLKSWAGEN GROUP OF AMERICA,

INC.,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of California

Charles R. Breyer, District Judge, Presiding

Argued and Submitted June 11, 2020

San Francisco, California

Filed September 10, 2020

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 5

Before: Mary M. Schroeder and Patrick J. Bumatay,

Circuit Judges, and Brian M. Morris, * District Judge.

Opinion by Judge Bumatay

SUMMARY **

Settlement Agreement

The panel affirmed the district court’s denial of

claimants’ motions to enforce a settlement agreement that

the district court approved between Volkswagen Group of

America, Inc. and owners and lessees of diesel cars that had

defeat devices, which altered emissions profiles of the cars.

Under the settlement agreement, certain vehicles

purchased from junkyards or salvage yards, known as

“branded title” vehicles, were ineligible for compensation.

In February 2018, the Claims Supervisor announced that the

Claims Review Committee had adopted a general

Framework to expand the types of vehicles ineligible for

compensation by revising the exclusion for “branded title”

vehicles to also include those acquired from the “equivalent”

of a junkyard or salvage yard, i.e., an insurance auction.

Claimants all purchased a Volkswagen “branded title”

vehicle from an insurance auction in the months following

*

The Honorable Brian M. Morris, United States District Judge for

the District of Montana, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

6 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

the approval of the settlement agreement and sought

compensation from Volkswagen. Their claims were denied.

The panel held that the district court had the authority to

review claimants’ motions to enforce the settlement

agreement. Because the district court expressly retained

authority to “ensure compliance” with the settlement

agreement’s terms, the district court was well within its

jurisdiction to determine whether the new Framework

breached the agreement. The panel held further that the

district court did not err in reaching the merits of claimants’

motions without resolving their status as third-party

beneficiaries.

The panel held that the district court had the authority to,

and did, approve the amendment to the settlement

agreement. Accordingly, the Framework was an enforceable

part of the settlement agreement. The panel held further that

the district court did not abuse its discretion in finding the

Framework as a manifestation of the parties’ assent to

modify the settlement. The panel rejected claimants’

argument that any modification to the agreement required a

substantial change of circumstances and a notice to the class.

The panel also rejected claimants’ contention that

Volkswagen should be estopped from denying their claims

based on claimant’s reliance on Volkswagen’s course of

performance and pre-Framework agreement in purchasing

“branded title” cars.

The panel concluded that, given the settlement

agreement’s express modification procedures, the district

court did not abuse its discretion in construing the

Framework as such a modification and approving it in

response to claimants’ motions.

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 7

COUNSEL

John H. Cigavic III (argued), Basic Legal Services, San

Francisco, California, for Claimants-Appellants Farchione

Motors Inc., Autovid LLC, and Kennedy’s Autos LLC.

Murray B. Silverstein (argued) and Jacob L. Boehner,

Greenspoon Marder LLP, Tampa, Florida; Anthony A.B.

Dogali (argued) and Barbara U. Uberoi, Dogali Law Group

P.A., Tampa, Florida; for Claimants-Appellants the Haddad

Claimants.

Diane L. McGimsey (argued), Sullivan & Cromwell LLP,

Los Angeles, California; Robert J. Giuffra Jr., Sharon L.

Nelles, William B. Monahan, Sullivan & Cromwell LLP,

New York, New York; for Defendant-Appellee.

OPINION

BUMATAY, Circuit Judge:

It doesn’t take a mechanic to understand this case. While

ostensibly it involves whether certain vehicles meet specific

criteria of operability and title to recover funds from a

complex class action settlement, the heart of the dispute is

simpler than that. Farchione Motors, Autovid Inc.,

Kennedy’s Auto LLC, and the Haddad Claimants all argue

that they are entitled to payouts under a settlement

agreement between Volkswagen Group of America and

many owners and lessees of its vehicles. But Volkswagen

counters that the settlement bars their claims, and even if it

didn’t, their claims were properly denied after the district

court approved an amendment to the settlement’s eligibility

criteria. Reading the plain terms of the settlement

8 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

agreement, we are convinced that the district court got it

right.

I.

In September 2015, the Environmental Protection

Agency accused Volkswagen of violating the Clean Air Act.

According to the EPA, Volkswagen installed a software

device known as a “defeat device” in its 2.0-liter and 3.0-

liter diesel cars, which altered the emissions profiles of the

cars during emissions tests. With the defeat devices, these

cars could emit up to 40 times more pollution than standards

allowed.

Volkswagen and the government eventually entered into

settlement, which involved criminal penalties, restitution

payments, and injunctive relief to prevent future violations.1

Parallel to the law enforcement proceedings, Volkswagen

faced a slew of private lawsuits from owners and lessees of

the diesel cars fitted with the defeat devices. All federal

court cases were consolidated in the Northern District of

California.

In June 2016, Volkswagen and some of its affiliates

entered into a nationwide class-action settlement agreement

involving approximately 500,000 cars. Under the

agreement, Volkswagen would (1) reimburse the owners or

lessees of qualifying vehicles for the harm suffered because

of the emissions cheating and (2) remove the offending

vehicles from the road. The district court approved the

settlement agreement in October 2016, but retained the

1

U.S. Dep’t of Justice, Volkswagen AG Agrees to Plead Guilty and

Pay $4.3 Billion in Criminal and Civil Penalties (Jan. 11, 2017),

https://www.justice.gov/opa/pr/volkswagen-ag-agrees-plead-guilty-and

-pay-43-billion-criminal-and-civil-penalties-six.

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 9

jurisdiction to “enforce, administer, and ensure compliance”

with its terms. This court affirmed the district court’s

approval of the settlement. See In re Volkswagen “Clean

Diesel” Mktg., 895 F.3d 597, 619 (9th Cir. 2018).

The agreement provides for multiple levels of review for

each claim for compensation. First, Volkswagen makes the

initial eligibility determination. Second, a court-appointed,

third-party Claims Supervisor reviews and validates the

eligibility of each claim. Finally, a Claims Review

Committee (or “CRC”) conducts a third level of review for

any claimant who appeals an eligibility decision. The

Claims Review Committee consists of a representative from

Volkswagen, a representative from the Class Counsel, and a

court-appointed third party. 2 The agreement provides that

the Claims Review Committee’s decisions are “final

determinations.”

The terms and provisions of the settlement may “be

amended, modified, or expanded by written agreement of the

Parties and approval of the Court.” This provision also

allows for amendments, modifications, or expansions, by

written agreement, “without further notice to the Class or

approval by the Court if such changes are consistent with the

Court’s Final Approval Order and do not limit the rights of

Class Members under” the settlement agreement. The

agreement defines “Parties” as Volkswagen and the Class

Representatives. 3 A “Party” to the agreement may seek to

2

The district court appointed the Honorable Fern Smith, a retired

district judge of the Northern District of California, to serve as the third-

party CRC member.

3

According to the agreement, a “Class Representative” is a named

plaintiff in the underlying class action who agreed to represent the class

for purposes of obtaining approval of the settlement.

10 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

enforce the agreement for a “breach” after providing notice

to the “breaching Party.” California law governs the

settlement agreement.

Under the settlement agreement, certain vehicles

purchased from junkyards or salvage yards were ineligible

for compensation. These vehicles, known as “branded title”

vehicles, had titles such as “Junk,” “Rebuilt,” or “Salvaged”

and were deemed damaged or unsafe to drive. In February

2018, the Claims Supervisor announced that the Claims

Review Committee expanded the types of vehicles ineligible

for compensation. According to the Claims Supervisor, the

Claims Review Committee adopted a general framework

(the “Framework”) to process “branded title” claims based

on a “holistic review” of the agreement. As relevant here,

the Framework determined that the exclusion for “branded

title” vehicles would also include those acquired from the

“equivalent” of a junkyard or salvage yard, i.e., an

“insurance auction.” The new Framework applied to all

pending “branded title” claims.

Farchione Motors, Inc., Autovid, LLC, Kennedy’s

Autos, LLC, and the Haddad Claimants (collectively, the

“Claimants”) all purchased a Volkswagen “branded title”

vehicle from an insurance auction in the months following

the approval of the agreement and sought compensation

from Volkswagen. After the adoption of the new

Framework, their requests were denied.

Claimants filed motions to enforce the agreement,

arguing that their “branded title” claims should have been

approved under the pre-Framework settlement and that the

Framework improperly extinguished their claims. After

establishing that it retained jurisdiction to enforce

compliance with the agreement, the district court concluded

that Claimants’ “branded title” claims did not further the

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 11

goals of the settlement agreement. The district court found

that Claimants purchased the cars after Volkswagen’s fraud

became public, so they didn’t unknowingly suffer harm from

the auto manufacturer’s actions. Moreover, the district court

noted that Claimants purchased the vast majority of the cars

after they were already taken off the road (since they were

damaged or unsafe to drive) and, therefore, they were not

polluting roads. The district court adduced that Claimants

bought the cars to profit from the settlement.

The district court characterized the Framework as

“clos[ing] loopholes” in the agreement and concluded that it

was consistent with the goals of the settlement. The district

court then construed the Framework as an amendment to the

agreement and approved it as such. As Claimants were then

ineligible for compensation under the amended agreement,

the district court denied their motions to enforce. Claimants

now appeal that decision.

We review the district court’s denial of a motion to

enforce a settlement agreement for abuse of discretion.

Wilcox v. Arpaio, 753 F.3d 872, 875 (9th Cir. 2014). Under

this deferential standard, we must affirm the district court

absent “an error of law or clearly erroneous findings of fact.”

Id. at 875. We review questions of law, including the

interpretation of a settlement agreement, de novo. Parsons

v. Ryan, 949 F.3d 443, 453 (9th Cir. 2020). Under California

law, we look to the plain meaning of the settlement’s terms.

See Navarro v. Mukasey, 518 F.3d 729, 734 (9th Cir. 2008).

II.

There are two core questions in this case. The threshold

question is whether the district court had the authority to

review Claimants’ motions to enforce the settlement

agreement. The second is whether the district court was

12 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

right to deny the motions and instead treat the Framework as

an amendment to the agreement. We believe the district

court properly handled these questions.

A.

Volkswagen advances the somewhat odd position that

we should affirm the district court even though it believes

the district court shouldn’t have considered Claimants’

motions to enforce the settlement agreement in the first

place. Volkswagen asserts that the settlement precluded

judicial review of claims since it establishes the Claim

Review Committee as the final arbiter of eligibility for

compensation. And even if not, it asserts that Claimants are

not a party to the agreement, and, therefore, can’t bring a

motion to enforce it. Instead of resolving these questions,

the district court assumed the motions were properly before

the court and reached their merits. We see nothing wrong

with that.

As the district court expressly retained authority to

“ensure compliance” with the settlement agreement’s terms,

the district court was well within its jurisdiction to determine

whether the new Framework breached the agreement. See

Arata v. Nu Skin Int’l, Inc., 96 F.3d 1265, 1268–69 (9th Cir.

1996) (“[I]f the district court explicitly retains jurisdiction

over the settlement agreement, or incorporates the terms of

the agreement in its dismissal order (as is common in class

action settlements), then ‘a breach of the agreement would

be a violation of the order, and ancillary jurisdiction to

enforce the agreement would therefore exist.’”) (quoting

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,

381 (1994)). Indeed, a district court must have “power to

enforce” its order approving a settlement “to protect the

integrity of a complex class settlement over which it retained

jurisdiction.” In re Prudential Ins. Co. of Am. Sales Practice

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 13

Litig., 261 F.3d 355, 367–68 (3d Cir. 2001). Since

Claimants alleged a breach of the Volkswagen settlement,

the district court properly exercised its ancillary jurisdiction

over their motions. See Alvarado v. Table Mountain

Rancheria, 509 F.3d 1008, 1017 (9th Cir. 2007) (“[T]he

party seeking enforcement of the settlement agreement must

allege a violation of the settlement agreement in order to

establish ancillary jurisdiction.”).

Although the district court didn’t decide these questions,

Claimants brought their motions as class members and third-

party beneficiaries to the settlement agreement. California

law recognizes that third-party beneficiaries may seek to

enforce an agreement if they are within the class of persons

intended to be benefited by that agreement. Gen. Motors

Corp. v. Superior Court, 15 Cal. Rptr. 2d 622, 628 (Ct. App.

1993); cf. Hook v. State of Ariz., Dep’t of Corr., 972 F.2d

1012, 1014 (9th Cir. 1992) (recognizing as blackletter

contract law that an intended third-party beneficiary may

bring an action to enforce an agreement). In turn, we have

permitted judges to assume, without deciding, that a plaintiff

is a third-party beneficiary under a contract or agreement.

See, e.g., Barnes-Wallace v. City of San Diego, 704 F.3d

1067, 1086 (9th Cir. 2012) (assuming plaintiffs can qualify

as third-party beneficiaries of leases); Lucas v. Bechtel

Corp., 800 F.2d 839, 848 (9th Cir. 1986) (assuming a third

party was the intended beneficiary of a contract governed by

the Labor-Management Relations Act). The practice under

California law is no different. See, e.g., Los Angeles Cnty.

Metro. Transp. Auth. v. Shea-Kiewit-Kenny, 69 Cal. Rptr. 2d

431 n.1 (Ct. App. 1997) (assuming company could sue the

transit authority for breach of contractual covenants).

Accordingly, the district court did not err in reaching the

14 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

merits of Claimants’ motions without resolving their status

as third-party beneficiaries. 4

B.

We next turn to the merits of Claimants’ motions to

enforce the agreement. In denying Claimants’ motions, the

district court construed the Framework as an effort by the

Parties to amend the agreement and so ratified it. With the

new Framework in place, the district court then agreed that

Claimants were ineligible for compensation under the

agreement. The district court didn’t abuse its discretion in

ruling in this manner.

By its plain language, “[t]he terms and provisions of

th[e] Class Action Agreement may be amended, modified,

or expanded by written agreement of the Parties and

4

To be clear, courts can’t assume Article III jurisdiction to reach the

merits of a case. See Steel Co. v. Citizens for a Better Env’t, 523 U.S.

83, 94 (1998); see also Righthaven LLC v. Hoehn, 716 F.3d 1166, 1172

(9th Cir. 2013) (observing that the Court rejected the “doctrine of

hypothetical jurisdiction” to reach the merits when a court lacked Article

III jurisdiction on account of standing). Here, the district court retained

subject matter jurisdiction over the settlement agreement and the

Claimants undoubtedly satisfy the three elements of Article III standing.

See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992)

(establishing injury in fact, causation, and redressability as the

“irreducible constitutional minimum” of standing). In this case, whether

Claimants possess legally enforceable rights under the settlement

agreement is a question of the merits rather than one of constitutional

standing. Lindsey v. Starwood Hotels & Resorts Worldwide Inc., 409 F.

App’x 77, 78 (9th Cir. 2010) (unpublished); see also Harris v. Amgen,

Inc., 573 F.3d 728, 732 n.3 (9th Cir. 2009); cf. Churchill Vill., L.L.C. v.

Gen. Elec., 361 F.3d 566, 572 (9th Cir. 2004) (explaining that “neither

Article III nor prudential standing is implicated by the efforts of non-

intervening objectors to appeal class-action settlements.”). Accordingly,

we see no Article III issue here.

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 15

approval of the Court[.]” Thus, after a “written agreement

of the Parties,” the district court need only ratify the change

to make it an enforceable part of the agreement. The district

court did so here. The district court treated the Framework

as the Parties’ written “agree[ment] to modify how certain

claims for benefits are handled to better reflect the goals of

the settlement[].” As the district court found, excluding

Claimants from the agreement was consistent with the

settlement’s goals since they purchased their vehicles after

the existence of the defeat devices became public and after

most of the vehicles were already off the road. The district

court’s justification for ratifying the amendment was, thus,

not “illogical, implausible, or without any support” in the

record. United States v. Hinkson, 585 F.3d 1247, 1264 (9th

Cir. 2009). Accordingly, the district court had the authority

to, and did, approve the amendment to the agreement. The

Framework is now an enforceable part of the settlement

agreement.

Claimants argue that the district court didn’t properly

follow the agreement’s modification procedures. They say

that the “Parties” didn’t agree to the Framework as required

by the agreement; instead, only the Claims Review

Committee did. But the district court found otherwise. The

district court considered Volkswagen and Class Counsel as

acting through the Claims Review Committee to reach this

agreement. Such a finding was not clearly erroneous. After

all, the Claims Supervisor reported that the “Parties have

been working with the court-appointed CRC” to address how

the “eligibility requirements” in the agreement applied to

“branded title” claims. The Claims Supervisor further

documented that “the Parties and the CRC undertook to

further scrutinize whether the [branded title] claims should

be deemed eligible.” Finally, the report indicated, in

response to that effort, the “CRC adopted a general

16 IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION

framework of processing branded title claims.”

Accordingly, the district court didn’t abuse its discretion in

finding the Framework as a manifestation of the Parties’

assent to modify the settlement.

Claimants also assert that any modification to the

agreement required a substantial change of circumstances

and a notice to the class. But the agreement’s modification

provision requires neither. Instead, the plain terms of the

agreement show no notice to the class is necessary if the

modification has court approval. Additionally, the cases

suggesting that a change of circumstances is necessary to

amend a class action settlement don’t involve the situation

here—where both Parties agreed to the amendment using the

agreement’s modification procedures. See, e.g., Flores v.

Lynch, 828 F.3d 898, 909–10 (9th Cir. 2016) (denying a Rule

60(b)(5) motion by one party to modify a consent decree in

light of a change in circumstances). Absent an express term

requiring notice or a change of circumstances to validate an

amendment, we will not read one into the agreement.

Claimants also argue that Volkswagen should be

estopped from denying their claims. It is true that

Volkswagen honored at least 84 of Claimants’ requests for

compensation prior to adopting the new Framework.

Consequently, Claimants contend that they relied on

Volkswagen’s course of performance and the pre-

Framework agreement in purchasing “branded title” cars.

But Claimants’ reliance arguments cannot override the

plain terms of the settlement agreement—which expressly

grant the Parties the authority to amend the agreement with

court approval. Carving out an exception to the modification

procedures based on a third party’s detrimental reliance

would constitute an impermissible judicial revision of the

agreement. Cf. Hanlon v. Chrysler Corp., 150 F.3d 1011,

IN RE VOLKSWAGEN “CLEAN DIESEL” LITIGATION 17

1026 (9th Cir. 1998) (“Neither the district court nor this

court have the ability to delete, modify or substitute certain

provisions [of a settlement agreement].”) (simplified),

overruled on other grounds by Wal-Mart Stores, Inc. v.

Dukes, 564 U.S. 338 (2011). Plus, any reliance on

Volkswagen’s implementation of the agreement should have

been tempered by the possibility that Volkswagen and Class

Counsel would agree to change the settlement’s eligibility

criteria under the modification procedures.

III.

Given the settlement agreement’s express modification

procedures, we see no abuse of discretion in the district court

construing the Framework as such a modification and

approving it in response to Claimants’ motions.

AFFIRMED.