Probe of automakers' California emissions deal took uncommon route through DOJ

An antitrust investigation into BMW, Ford, Honda and Volkswagen related to California car-emissions standards was recommended by policy officials, not prosecutors, at the US Department of Justice, MLex has learned.

The uncommon process at DOJ has sparked internal concerns at the agency and repeated denials from Assistant Attorney General for Antitrust Makan Delrahim that the probe is politically motivated. A US House panel has opened an investigation into the motivation for the probe.

Lawyers for the automakers have met with the Justice Department over the past several weeks to discuss the investigation, but have yet to receive official document requests. California — a key player in the case — has also not been contacted by federal investigators, a puzzling omission given that the automakers intend to argue their conduct is protected from antitrust scrutiny because of the state’s involvement.

With the Trump administration rolling back national emission standards for some vehicles, the automakers and the state agreed on a voluntary framework to reduce emissions and encourage the transition to electric vehicles. California's involvement in the agreement is crucial to the carmakers' defense. When and how California was involved in drafting the emissions agreement will determine whether the automakers acted outside of the protections offered either by the First Amendment or California's regulatory authority.

The Trump administration and California are separately embroiled in litigation over the state's authority to set its own car emissions standards.

To open an investigation, attorneys within the antitrust division write a preliminary investigation memo, known as a PI memo. The proposed probe must be approved by the division’s front office; only then can investigators begin talking to the potential targets in a probe.

The antitrust division’s manual, last updated in July, outlines information that lawyers must include in a PI memo, including the alleged illegal practice, the parties involved and how long the investigation may take. The attorneys must also outline potential defenses and their legal justifications.

Memos are generally authored by attorneys from one of the division’s six civil sections who are responsible for investigating and litigating cases. In the car emissions probe, however, the memo was authored in late August by lawyers within the division’s Competition Policy and Advocacy section. That group is responsible for coordinating with Congress, the Federal Trade Commission and other government agencies on competition policy and advocacy.

While Justice Department lawyers couldn’t contact the carmakers when developing the basis for a probe, according to the manual, they could have discussed the issue with the California Attorney General’s Office. That didn’t happen. The attorney general’s office wasn’t contacted in advance of the probe, MLex has learned.

A spokesman for the California Air Resources Board also told MLex the board still has heard nothing from the Justice Department.

The automakers intend to argue that their contacts with the California agency are immune from antitrust scrutiny under Noerr-Pennington, a doctrine that protects government petitioning from antitrust scrutiny. The state-action doctrine, which allows states to exempt certain conduct from federal antitrust law, could also shield an agreement between California and the carmakers from an antitrust suit.

Delrahim has said publicly that the agency first became aware of the July 25 agreement from news reports. The division’s front office approved of opening a preliminary probe in late August.

The initial letters to the four carmakers were sent Aug. 28, though it is understood that the companies didn’t receive them until the following week because of the Labor Day holiday.

News of the probe broke Sept. 6 when BMW, Ford and Honda publicly acknowledged the letters from the Justice Department.

Criticism of the probe was swift, both from California politicians — who alleged the investigation was simply another avenue for the Trump administration to challenge California’s emissions standards — and from antitrust experts, who felt the carmakers’ potential defenses are obvious.

The House Judiciary Committee, which has oversight of the Justice Department and antitrust issues, has opened an inquiry into the matter and asked the antitrust division to respond to a number of questions about the investigation’s origin and whether it was influenced by President Trump. The DOJ hadn’t yet responded to the congressional information request as of the end of last week.

Questions also came from within the Justice Department. On Sept. 17, Delrahim held a question-and-answer session open to all lawyers in the antitrust division that addressed internal concerns about the probe.

Delrahim has staunchly defended the probe against criticism that it's politically motivated in several public appearances and in an op-ed published in USA Today.

“While companies are free to make any individual public commitments or set any sales or technical limits for themselves, when competitors agree with each other on how they should act in the marketplace, antitrust law enforcers have stepped in and taken a good, hard look,” Delrahim said. “Anti-competitive agreements among competitors — regardless of the purported beneficial goal — are outlawed because they reduce the incentives for companies to compete vigorously, which in turn can raise prices, reduce innovation and ultimately harm consumers.”

In the past month, lawyers for the automakers have met with the Justice Department to discuss the potential case. The preliminary meetings afforded the carmakers an opportunity to outline their potential defenses and meet the attorneys involved in the investigation.

The DOJ has yet to send official information requests, known as civil investigative demands.