The Texas Supreme Court on Friday issued a long-awaited ruling that clears the way for the state of Texas to sue German auto manufacturers Audi and Volkswagen over alleged violations of state environmental laws connected to the emissions-cheating software scandal perpetrated by the companies.
The 6-3 ruling comes after two rounds of oral arguments — first in February 2022 and again in February of this year following the recusal of two justices and the governor’s appointment of two intermediate appellate court justices to fill in — and holds that the manufacturers’ contacts with Texas are sufficient for courts here to hear the dispute.
The companies told The Lawbook that they will be appealing to the U.S. Supreme Court.
Texas has argued that the automakers directed intermediaries to advertise in Texas, brought illegal software to Texas, installed that software on products belonging to Texas residents and profited from that conduct.
The 58-page majority opinion, authored by Justice John Devine, held that the German manufacturers’ conduct shows they “purposely structured their relationships with the distributor and dealerships to retain control over after-sale recalls and repairs and then used that control to tamper with vehicles in Texas after the initial sale to consumers.”
“We also do not agree that the manufacturers’ contacts were not purposefully directed at Texas simply because the same actions were also directed at other states,” the court held. “Personal jurisdiction is a forum-specific inquiry, and a defendant’s contacts with other states do not negate purposeful availment of this jurisdiction regardless of whether out-of-state contacts are more, less, or exactly the same.”
VW and Audi have argued that the environmental tort alleged by Texas wasn’t directed at Texas but “occurred throughout the United States.” The federal government punished the German companies for the conduct to the tune of $1.3 billion — $209 million of which was sent to Texas for environmental mediation.
Justice Rebeca Huddle authored a 37-page dissenting opinion, joined by Chief Justice Nathan Hecht and Justice Jane Bland, saying the majority’s opinion was a departure from longstanding state and U.S. Supreme Court precedent “that a nonresident manufacturer’s placement of goods into the stream of commerce with awareness those goods will eventually enter Texas is, alone, insufficient to justify the exercise of personal jurisdiction over it.”
The majority ignored the “plus factor” requirement that the nonresident also take additional action to show its “purposeful targeting of the Texas market,” Justice Huddle wrote, and instead has issued a ruling that would subject any foreign manufacturer that directs its U.S. distributor to conduct a nationwide recall to personal jurisdiction in Texas courts.
“Here, there is no evidence that the German manufacturers exerted the requisite level of control over the means and details of the recall process to create an agency relationship that would justify haling them into Texas courts,” she wrote.
A second point of disagreement comes from the majority’s holding on what constitutes targeting Texas.
“The court holds that in directing VW America to conduct a nationwide recall, the German manufacturers targeted Texas,” Justice Huddle wrote. “Yet the U.S. Supreme Court’s plurality opinion in Nicastro — which this Court has twice endorsed — makes clear that a defendant’s intent to serve the U.S. market as a whole does not necessarily amount to targeting each of the fifty states. Rather, we have required Texas-specific availment, which is absent here.”
A spokesperson for Volkswagen issued a statement to The Lawbook in support of the dissenting justices’ view.
“We agree with the three dissenters on the Texas Supreme Court that Texas courts do not have personal jurisdiction over these German companies and intend to petition the U.S. Supreme Court to review this case,” the statement reads. “Neither Volkswagen AG nor Audi AG targeted any of the challenged conduct at Texas, and we remain confident in the strength of our factual and legal defenses.”
After oral arguments were first heard by the court, in February 2022, and without either party requesting the move, the Texas Supreme Court abated the case June 24 and removed it from its active docket — a departure from what has for several years been a standard operating procedure that the court decides every case it accepts by the end of the term in June.
Chief Justice Hecht sent a letter to the governor that same day informing him that Justices Jimmy Blacklock and Evan Young recused themselves and requesting two new justices be appointed in their place.
The Texas Constitution requires that five members of the court concur on a decision.
Volkswagen and Audi objected, arguing that allowing the governor to appoint two hand-picked justices would be tantamount to allowing the state “to be the judge of its own cause.”
Chief Justice Bonnie Sudderth of the Second Court of Appeals in Fort Worth and Justice Jaime E. Tijerina of the Thirteenth Court of Appeals in Corpus Christi were appointed by the governor to hear the case — over the due process and ethical objections of Audi and VW.
Both Sudderth and Tijerina, who sided with the majority, are Republicans who were initially appointed to the bench by the governor and have since won reelection.
The Texas Attorney General’s office did not respond to a request for comment Friday.
Audi and Volkswagen are represented by Jeffrey B. Wall, Arnaud Camu, Nicholas Menillo, Jason Barnes and William B. Monahan of Sullivan & Cromwell; Robert L. Sayles, Samuel T. Acker, William Snyder, David C. Miller, Madeleine Bourdon and Richard Sayles of Bradley; and Jeffrey S. Levinger.
Texas is represented by its own Judd E. Stone II, Rance Craft, Lisa Bennett, Nanette DiNunzio and Patrick K. Sweeten.
The case numbers are 21-0130 and 21-0133.