Quenneville v. Volkswagen, 2017 ONSC 4583

CITATION: Quenneville v. Volkswagen, 2017 ONSC 4583

COURT FILE NO.: CV-15-537029-CP

DATE: 20170801

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Matthew Robert Quenneville, Luciano Tauro, Michael Joseph Pare, Therese H. Gadoury, Amy Fitzgerald, Renee James, Al-Noor Wissanji, Jack Mastromattei and Jay MacDonald, Plaintiffs

AND:

Volkswagen Group Canada Inc., Volkswagen Aktiengesellschaft, Volkswagen Group of America Inc., Audi Canada Inc., Audi Aktiengesellschaft, Audi of America Inc. and VW Credit Canada Inc., Defendants

Proceeding under the Class Proceedings Act, 1992

BEFORE: Justice Edward Belobaba

COUNSEL: Charles Wright for the Plaintiffs

Cheryl Woodin and Ilan Ishai for the Defendants

HEARD: July 26, 2017

LOAN FORGIVENESS MOTION

[1] Under the Volkswagen Diesel 2.0 Litre Settlement Agreement (“the Settlement Agreement”)[^1] all class members receive a damages payment and can return (or trade in) the vehicle at a relatively generous buyback price[^2] or keep the vehicle and have the emissions control system repaired by VW if the proposed fix is approved by the U.S. Environmental Protection Agency.[^3] If the proposed fix is approved by the American EPA, then in Canada the affected vehicles are recalled and repaired by VW at no charge to the class member.

[2] Over the last six months, the EPA has approved proposed fixes for two categories of the affected VW vehicles (model years 2009 to 2015). The fix for the Generation 3 vehicles (model year 2015) was approved by the EPA on January 6, 2017 and was implemented in Canada immediately thereafter. The fix for the Generation 2 automatic transmission vehicles (Passat model years 2012 to 2014) was approved by the EPA on May 19, 2017 and was implemented in Canada beginning June 23, 2017. No emissions fix has yet been approved for either the Generation 2 manual transmission vehicles or the Generation 1 vehicles (model years 2009 to 2014).

This motion

[3] The focus of this motion, brought by the plaintiffs, is the EPA’s approval of the emissions fix for the Generation 2 automatic transmission vehicles. The question is whether the June 23, 2017 availability of this fix in Canada is in breach of the June 15, 2017 deadline set out in the Settlement Agreement and has triggered a “loan forgiveness” payment to eligible class members.

The loan forgiveness benefit

[4] If a class member selects the buyback option, any outstanding car loans must first be paid down.[^4] The “loan forgiveness” benefit (really a car loan reduction payment) is found in both the American and Canadian Settlements. The reason for this benefit is not fully explained in the motion record. It seems that its primary purpose is to provide some measure of financial assistance to a relatively small number of class members who would like to return the vehicle for buyback or trade but have an outstanding car loan obligation that is larger than the expected buyback value and damages payment.

[5] According to counsel for VW, the loan forgiveness benefit is designed to provide class members that have a negative equity in their vehicle with an opportunity to participate in the buyback program. The loan forgiveness benefit, paid directly to the lender, can amount to up to 30 per cent of the sum of the buyback value and damages payment.[^5]

[6] The availability of the loan forgiveness benefit is linked to the EPA’s approval of VW’s proposed emissions modification. The loan forgiveness payment is triggered if there is no Approved Emissions Modification (“AEM”) by June 15, 2017. This is set out in Section 4.2.5 of the Settlement Agreement:

In the event that there is no Approved Emissions Modification by June 15, 2017 for the Eligible Vehicle of an Eligible Owner with a Loan Obligation, and the Loan Obligation exceeds the sum of the Vehicle Value and Owner Damages Payment, the Eligible Owner will qualify for a Loan Forgiveness payment towards satisfaction of the Loan Obligation. An Eligible Owner that receives Loan Forgiveness is responsible for any balance on the Loan Obligation not satisfied by the Loan Forgiveness payment.

[7] Section 2.51 provides that if class members are notified on or before June 15, 2017 (generally by way of a Class Update posted on the Settlement Agreement web site) that “there is an Approved Emissions Modification” then loan forgiveness “will not be available”.

[8] VW posted a Class Update on June 14, 2017 advising class members that the proposed emissions modification for Generation 2 automatic transmission vehicles had been approved by the EPA and that the fix would be available in Canada by the end of June. As it turned out, the EPA-approved fix became available in Canada beginning June 23, 2017.

The issue on this motion

[9] This issue is whether or not there was an AEM by June 15, 2017. The plaintiffs say the loan forgiveness benefit is triggered because the definition of AEM includes not only the fact of EPA approval (which was given on May 19) but also actual availability in Canada (which was achieved eight days after the June 15, 2017 deadline.)

[10] The issue, put simply, is whether the definition of AEM includes the requirement that the approved emissions modification must be immediately available in Canada.

Analysis

[11] If AEM was not a defined phrase, the analysis would be straight-forward: of course there was an approved emissions modification by June 15, 2017 - the EPA approved the fix in question on May 19, 2017.

[12] But AEM is defined in section 2.6 of the Settlement Agreement to mean “if available, a change to the emissions system ... proposed by VW, approved by [the EPA] and implementable in Canada.” (Emphasis added).

[13] Both sides agree that the ordinary meaning of “implementable in Canada” is “able to be implemented or put into effect in Canada.” The plaintiffs say this means immediately available in Canada. VW says “implementable in Canada” more sensibly means “able to be implemented” within a reasonably short time frame that would allow the required repair parts to be shipped to the dealerships and recall notices to be sent out. VW submits that the AEM and actual availability in Canada are two different things.

[14] I agree with VW. The resolution of this definitional dispute can be found in the Class Update provisions. Section 4.7.3 of the Settlement Agreement requires VW to provide a Class Update “for each AEM” setting out the pertinent information. The definition of Class Update in section 2.28 makes clear that an AEM can exist before there is availability in Canada or even if there is no availability in Canada. The AEM and availability in Canada are, indeed, two different things.

[15] Here is section 2.28:

Class Update means … the notice issued by VW … when (a) an Approved Emissions Modification becomes available in Canada for any particular Eligible Vehicles, or (b) it is determined that an Approved Emissions Modification will not become available in Canada for any particular Eligible Vehicles. (Emphasis added).

[16] In my view, section 2.28 tips the balance in favour of VW’s interpretation of the AEM. Not only is it reasonable to expect that some additional time will be needed after the EPA approval to allow VW Canada to prepare the dealerships and recall the vehicles, the definition of Class Update itself draws a clear distinction between the existence of the AEM and its availability in Canada.

[17] Does this mean that VW can drag its feet making the AEM available in Canada? In my view, it does not. If the proposed fix is approved by the EPA, it must be made available in Canada within a reasonable period of time. If VW were to unreasonably delay implementation in Canada, it would be in breach of the Good Faith performance obligation set out in section 9.4 of the Settlement Agreement and policed by judicial intervention under section 9.6.

[18] Put simply, the AEM’s requirement that the approved emissions modification must be “implementable in Canada” does not mean that it must be available in Canada at that very moment. Under a fair and objective interpretation of all of the applicable provisions, including the definition of Class Update and the Good Faith performance obligation, “implementable in Canada” means “available in Canada within a reasonable time.”

[19] Thus, when VW issued the June 14, 2017 Class Update and advised class members that the emissions modification (approved by the EPA on May 19) would be available in Canada by the end of June, it was not in breach of the June 15, 2017 deadline – the AEM did exist at that date, the short wait time for availability in Canada was more than reasonable and the loan forgiveness benefit was not triggered.

[20] I know that the Quebec court on a similar motion came to a different conclusion in reasons released on July 17, 2017.[^6] I am advised, however, that some features of the analysis herein were not fully presented to the Quebec court. If the Quebec court had had the benefit of more fulsome submissions, it could well have decided the matter differently. In any event, and respectfully, I have come to a different conclusion for the reasons set out above.

Conclusion

[21] There was an AEM for Generation 2 automatic transmission vehicles by June 15, 2017. The loan forgiveness benefit has not been triggered.

Disposition

[22] The plaintiffs’ motion is dismissed.

[23] No costs are sought and none are awarded.

Date: August 1, 2017 Justice Edward Belobaba

[^1]: Approved by this court in Quenneville v. Volkswagen, 2017 ONSC 2448. [^2]: Ibid., at para. 7. [^3]: The American EPA is the gateway regulator for VW imports into the U.S. and Canada. The EPA applies emissions control regulations that are virtually identical to those in Canada. [^4]: Section 4.2.4 of the Settlement Agreement. [^5]: Section 2.5.1 of the Settlement Agreement. [^6]: Option Consommateurs v. Volkswagen Group Canada Inc. et al., (Montreal: 500-06-000761-151, July 17 2017) (Sup. Ct).