How the massive diesel fraud incinerated VW’s reputation—and will hobble the company for years to come. ... “Hoax,” of course, is a layman’s word. But plenty of legal terms also arguably apply, including “consumer fraud” and “false advertising.” They are fueling an explosion of litigation. That and the horrific reputational damage are subjecting Volkswagen to one of the severest challenges in its nearly 80-year history. ... The U.S. Department of Justice and the EPA have filed a civil suit that could theoretically subject VW to up to $45 billion in fines (though, in fairness, no one expects penalties quite that draconian). The DOJ and the EPA are also pursuing a criminal inquiry, as are prosecutors in Germany, France, Italy, Sweden, and South Korea. All 50 state attorneys general in the U.S. are also on the warpath, armed with state laws that, nominally at least, are every bit as crushing as the federal law. ... All of that comes on top of more than 500 class actions filed on behalf of owners and lessors of Volkswagen diesel cars ... VW’s misbehavior did not come out of nowhere. The company has a history of scandals and episodes in which it skirted the law. Each time—till now—it has escaped without dire consequences. ... VW is driven by a ruthless, overweening culture. Under Ferdinand Piëch and his successors, the company was run like an empire, with overwhelming control vested in a few hands, marked by a high-octane mix of ambition and arrogance—and micromanagement—all set against a volatile backdrop of epic family power plays, liaisons, and blood feuds. It’s a culture that mandated success at all costs.
Litigation funding has a checkered past. For centuries it was a crime to fund someone else’s lawsuit, under ancient English “champerty and maintenance” laws created to stop noblemen from meddling in each other’s quarrels. ... By the 20th century, legal and accountancy firms started buying and selling insurance and bankruptcy claims informally, but champerty rules remained a barrier to trading in legal claims. Then, during the late 1990s and early 2000s, a string of British and Australian court rulings held that it wasn’t a bad thing for claimants with legitimate grievances to get external financial help, even if the helpers were out to make a profit. ... Although litigation funding remained impossible in some jurisdictions, it spread quickly in others. Early investors in lawsuits were mostly opportunistic hedge funds and wealthy individuals whose involvement was private and confidential. It was a good deal for litigants, who no longer had to worry about spiraling legal costs; for lawyers, who got paid no matter the outcome; and for the funders, who could get back multiple times what they paid for a share of the suit if it succeeded. ... True to the maxim that lawyers make money in good times and bad, litigation funding is impervious to recessions and other economic shocks. Managed well, litigation funds can offer returns that are hard to find anywhere else.