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Volkswagen Diesel Deal Likely To Be Announced Thursday

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Volkswagen CEO Matthias Müller apologized for the diesel scandal in January 2016 at the North American International Auto Show in Detroit.Jewel Samad — AFP/Getty Images

An agreement in principle has been reached between Volkswagen Group, the U.S. Department of Justice, and plaintiffs lawyers to have the manufacturer buy back from their owners most of the American Volkswagen diesel cars that were equipped with so-called cheat software in the scandal that broke last September, according to sources familiar with the situation.

The settlement, which is expected to be announced Thursday in San Francisco, either at a court hearing scheduled for 8 a.m. PT or afterward, would call for a buyout of all 2.0 liter vehicles involved in the controversy, or about 85% of the 600,000 cars implicated in the scandal. The 2.0 liters include diesel versions of VW Jettas, Golfs, Passats, Beetles, and Audi A3s from the 2009 to the 2016 model years.

The 3.0 liter diesels involved in the scandal—including cars like the VW Touareg, Porsche Cayenne, and Audi Q7s and A8s—may be subject to a mechanical fix, and are not believed to be included in the proposed buyout deal.

A buyout might hypothetically mean, for instance, that the company would pay owners the bluebook value of their cars plus some percentage above that as a premium.

(For a Fortune features story on the scandal: see Hoaxwagen.)

Any agreement would have to be approved by U.S. District Judge Charles Breyer. Judge Breyer has been pushing the parties hard to agree to a way to get the cars off the road as soon as possible, stressing that they are polluting the environment every day they remain in operation.

He set Thursday as a deadline to hear from Volkswagen (VLKAY) as to whether it had arrived at a way of accomplishing that goal that would satisfy federal and California regulators.

The proposed deal is expected to lead to some litigated challenges by dissatisfied plaintiffs lawyers over whether it is “fair and adequate.”

Plaintiffs accepting the buyout would have to sign a release waiving other potential claims—including punitive damages claims, for instance. The buyouts are expected to be administered by Ken Feinberg, who was retained by Volkswagen several months ago with the intent of having him administer a voluntary settlement program.

The sources declined to place a dollar figure on the total value of the proposed deal, which is believed to already have the blessing of regulators at the U.S. Environmental Protection Agency and the California Air Resources Board.

The proposed civil settlement would not impact the Department of Justice’s ongoing federal criminal inquiry.

About 500 class actions raising consumer fraud, false advertising, and related claims against Volkswagen Group and its brands were consolidated before Judge Breyer last December. Breyer is also presiding over a suit filed in January by the Department of Justice on behalf of the E.P.A. seeking penalties and other relief for environmental violations.

 

All the litigation arises from Volkswagen’s admission last September that it had equipped its so-called Clean Diesel cars with “defeat devices”—software that caused its cars’ exhaust emissions to pass regulatory requirements when undergoing tests under laboratory conditions, but then switched settings in a manner that allowed emissions to greatly exceed the legal limits for certain pollutants as soon as they renewed real-world driving conditions.

The cars in question exceeded the limits for oxides of nitrogen—or NOx—by nine to 40 times, according to the EPA and CARB. NOx contributes to the production of smog and is believed to aggravate or cause a number of respiratory diseases, and may also lead to premature death.

Elizabeth Cabraser, head of the plaintiffs steering committee, declined to answer any questions when reached by phone, citing a judicial gag order. A Volkswagen spokesperson declined comment. Volkswagen counsel Robert Giuffra, of Sullivan & Cromwell; Department of Justice attorney Josh Van Eaton; and Ken Feinberg did not immediately return phone messages.