United States v. Gear Box Z Incorporated ( 2021 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 United States of America, No. CV-20-08003-PCT-JJT 10 Plaintiff, ORDER 11 v. 12 Gear Box Z Incorporated, 13 Defendant. 14 15 At issue is Plaintiff United States of America’s Motion for Preliminary Injunction 16 (Doc. 37, Mot.), to which Defendant Gear Box Z Inc. filed a Response (Doc. 42, Resp.), 17 the United States filed a Reply (Doc. 46, Reply), Defendant filed a Sur-Reply (Doc. 55, 18 Sur-Reply) with leave of Court, and the United States filed a Reply to Sur-Reply (Doc. 61, 19 Reply to Sur-Reply) with leave of Court. The Court held a hearing on the Motion on 20 February 17, 2021. (Doc. 88; Doc. 95, Transcript (“Tr.”).) At the hearing, the Court granted 21 leave for non-party Specialty Equipment Market Association (“SEMA”) to file an Amicus 22 Curiae brief (Doc. 89-1, Amicus Br.), and responses with leave of Court were filed by 23 Defendant (Doc. 103, Def.’s Resp. to Amicus Br.) and the United States (Doc. 105, U.S. 24 Resp. to Amicus Br.). 25 I. BACKGROUND 26 Defendant Gear Box Z, Inc., an Arizona corporation, manufactures and sells 27 aftermarket products for the modification of diesel engines on motor vehicles including 28 Ford, General Motors, and Dodge trucks. In April 2017, the United States Environmental 1 Protection Agency (“EPA”) notified Defendant that it was under investigation for selling 2 products that, when installed, circumvent or delete an engine’s emissions controls, 3 violating the Clean Air Act (“CAA”), 42 U.S.C. § 7522(a)(3)(B). After Defendant provided 4 the requested information, the EPA sent a Notice of Violation (“NOV”) to Defendant in 5 December 2017. 6 Defendant produces and sells both hardware and software products, and the EPA 7 claims that virtually all of Defendant’s products are defeat devices—because they defeat 8 emissions controls—and that each independently violates the CAA. (Doc. 37-4, Attach. A, 9 Defeat Device Product List.) The hardware products the EPA claims are used to defeat 10 emissions controls include block plates, which block emissions gas recirculation (“EGR”) 11 flow to the engine; delete pipes, which replace the original equipment manufacturer’s 12 (“OEM”) exhaust pipe; and diesel particulate filter (“DPF”) emulators, which simulate 13 signals to the engine control module (“ECM”) that the DPF is functioning properly when 14 it is not. Installation of this hardware requires new software, which Defendant also sells, to 15 “tune” the vehicle so that it functions without emissions controls by modifying or 16 overwriting the vehicle’s emissions calibrations that the OEM put in place for compliance 17 with federal regulations and certification by the EPA. Defendant also produces and sells a 18 kind of “tuner,” which is a handheld device preloaded with Defendant’s tunes. The tunes 19 also function to mask the disabling of emissions controls by reprograming the ECM so that 20 the on-board diagnostics (“OBD”) do not detect, record, or notify the driver (or an 21 inspector) of the disabling; as a result, no malfunction indicator light (“MIL”) will activate. 22 By circumventing or defeating emissions controls, a driver can obtain enhanced 23 vehicle performance through greater power, torque, and/or fuel economy, because 24 emissions controls consume engine power and fuel. On the flip side, excess emissions 25 cause known harm to human health and the environment—an issue the Clean Air Act 26 attempts to remedy. 27 28 1 Since receiving the NOVs, Defendant has continued to produce and sell its 2 products.1 The parties failed to resolve the NOVs outside of court, and the United States 3 filed this lawsuit on January 3, 2020, and filed a Motion for Preliminary Injunction on 4 August 20, 2020. 5 II. ANALYSIS 6 In order to obtain a preliminary injunction, the United States must show that “(1) 7 [it] is likely to succeed on the merits, (2) [it] is likely to suffer irreparable harm in the 8 absence of preliminary relief, (3) the balance of equities tips in [its] favor, and (4) an 9 injunction is in the public interest.” Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 10 2015) (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 9 (2008)). The Ninth 11 Circuit Court of Appeals, employing a sliding scale analysis, has also stated that simply 12 “serious questions going to the merits” but “a hardship balance that tips sharply toward the 13 plaintiff can support issuance of an injunction, assuming the other two elements of the 14 Winter test are also met.” Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1078 (9th Cir. 15 2013) cert. denied, 134 S. Ct. 2877 (2014) (quoting Alliance for the Wild Rockies v. 16 Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011)) (internal quotations omitted). 17 A. Likelihood of Success on the Merits 18 Under the relevant portion of the CAA, it is prohibited 19 for any person to manufacture or sell, or offer to sell, or install, any part or 20 component intended for use with, or as part of, any motor vehicle or motor vehicle engine, where a principal effect of the part or component is to bypass, 21 defeat, or render inoperative any device or element of design installed on or 22 in a motor vehicle or motor vehicle engine in compliance with regulations under this subchapter, and where the person knows or should know that such 23 part or component is being offered for sale or installed for such use or put to 24 such use. 25 42 U.S.C. § 7522(a)(3)(B). 26 In its Motion and supporting papers, the United States provides extensive evidence 27 as to the functionality of Defendant’s products and their capability to act as defeat devices, 28 1 As an indication of sales volume, in a 28-month reporting period from 2015 to 2017, Defendant sold 8,323 products that the EPA considers to be defeat devices. 1 and Defendant does not explicitly address or refute that evidence. Instead, Defendant 2 argues it is not in violation of the CAA because its products fall under certain of the CAA’s 3 exceptions, including the “maintenance exception” and exceptions or exclusions for use on 4 motor sports, military, and emergency vehicles. (Resp. at 2–3; Sur-Reply at 1–3.) 5 Defendant also contends the United States cannot demonstrate the knowledge component 6 of the CAA’s prohibition. (Resp. at 13.) The Court examines these arguments in turn. 7 1. Maintenance Exception 8 The so-called maintenance exception provides as follows: 9 No action with respect to any device or element of design referred to in [§ 7522(a)(3)] shall be treated as a prohibited act under that paragraph if (i) 10 that action is for the purpose of repair or replacement of the device or 11 element, or is a necessary and temporary procedure to repair or replace any other item and the device or element is replaced upon completion of the 12 procedure, and (ii) such action thereafter results in the proper functioning of 13 the device or element referred to in [§ 7522(a)(3)]. 14 42 U.S.C. § 7522(a)(5). 15 Defendant contends that its hardware and software products can be used for the 16 repair of a motor vehicle and can be removed or reversed, and thus, under the maintenance 17 exception, the products are not prohibited by the CAA. (Resp. at 5–16.) In response, the 18 United States argues that Defendant’s products are not designed for “necessary and 19 temporary” repair procedures; the products are not designed such that their installation is 20 to be reversed; and even if use of the products is reversible, the statute requires that the 21 changes made using the products are actually reversed, resulting “in the proper 22 functioning” of the original emissions controls, which changes using Defendant’s products 23 are not. (Reply at 5–9.) 24 Although the United States has the burden to show a likelihood of success on the 25 merits to obtain the requested injunctive relief, the burden of proof applicable to an 26 exception to a CAA prohibition lies with Defendant. See United States v. First City Nat’l 27 Bank of Houston, 386 U.S. 361, 366 (1967) (stating the general rule that the burden falls 28 to the party that “claims the benefits of an exception to the prohibition of a statute” (citing 1 F.T.C. v. Morton Salt Co., 344 U.S. 37, 44–45 (1948))); E.E.O.C. v. Kamehameha 2 Sch./Bishop Estate, 990 F.2d 458, 460 (9th Cir. 1993). That is, the United States has the 3 burden to show Defendant’s products fall within the CAA’s prohibitions; Defendant has 4 the burden to show the maintenance (or another) exception to the prohibitions applies to 5 its products. 6 Other than its own conclusory statements, Defendant has pointed to no evidence 7 that, under the statutory exception, its products were designed “for the purpose of repair or 8 replacement” of a device or element in compliance with the CAA regulations, or for “a 9 necessary and temporary procedure to repair or replace any other item.” This failure of 10 evidence alone is fatal to Defendant’s claim that it can demonstrate that the maintenance 11 exception applies to its products. 12 Defendant’s principal contention is that installation of its products can be 13 reversed—an attribute Defendant argues theoretically brings use of the products within the 14 exception—and that Defendant does not know what its customers ultimately do with its 15 products. The Court agrees with the United States (Reply at 5) that the exception requires 16 not only reversibility, but that the CAA-compliant device or element—which Defendant’s 17 products modified—“is replaced” upon completion of any maintenance procedure 18 resulting “in the proper functioning of the device or element” under the CAA. Put another 19 way, it is not sufficient that installation of Defendant’s products can be reversed; the 20 installation must actually be reversed. This is logical, considering the purpose of the CAA 21 and its implementing regulations in this context is to reduce harmful emissions. The plain 22 language of the exception makes it clear that it is not intended as a long-term loophole. 23 Defendant has proffered no evidence that any installation of its products has been reversed. 24 The United States has produced evidence that the design of certain of Defendant’s 25 products indicates that their installation is not intended to be reversed. For example, 26 through an examination of the source code, it is evident that Defendant did not design its 27 software to reverse the changes it makes and return the vehicle back to the EPA-certified 28 condition. (Doc. 37-2, Jones Decl. ¶¶ 88–89.) Likewise, the United States has produced 1 evidence that Defendant’s contention that it designed its parts for maintenance purposes is 2 not credible. Specifically, existing OEM diagnostic tools are sufficient for a technician to 3 diagnose and fix problems with a vehicle without the need for third-party tuners such as 4 Defendant’s (Jones Decl. ¶¶ 71–72), and common diagnostic trouble code readers—to 5 which Defendant equates its tuners—cost $20, as opposed to the average cost of 6 Defendant’s tuners of $400. 7 What sales and customer evidence there is indicates that the purpose of Defendant’s 8 product line is not for short-term maintenance.2 For example, Defendant’s responses to 9 customer requests about what Defendant’s product line can do have included statements 10 such as, “Not only will you see an increase in mileage, but it will give you around 70 more 11 [horsepower] which is really handy for towing.” (Tr. at 19; Pl.’s Ex. 24.) And, “On average 12 we are seeing a 20% increase in fuel mileage and power, but each truck is different.” (Pl.’s 13 Ex. 31.) No customer evidence before the Court indicates customers have actually used 14 Defendants’ products for maintenance and repair. For all these reasons, Defendant has not 15 shown the maintenance exception applies to its products. 16 2. Other Exceptions or Exclusions 17 Defendant also argues that other exceptions, or exclusions, exist in the CAA to cover 18 uses for its products, including an exclusion for the use of defeat devices in motor sports 19 or competition vehicles as well as exceptions for emergency and military vehicles. Much 20 ink has been spilled already in this case regarding whether a motor sports exception, or 21 exclusion, exists in the CAA and if so, what its limits are. (Docs. 55, 61, 89-1, 103, 105.) 22 Indeed, the Amicus Curiae brief and its responses examine this question in great detail. But 23 Defendant has not produced a single piece of evidence that a single one of its products has 24 been used on a motor sports vehicle (or an emergency or military vehicle, for that matter). 25 By contrast, the United States has produced ample evidence, as was its burden, that 26 Defendant’s products are used in motor vehicles as contemplated by the CAA. (See, e.g., 27 U.S. Resp. to Amicus Br. at 5–9.) Any examination of the question whether a motor sports 28 2 Defendant has consistently claimed it has not kept records of who it sold its products to or for what purpose customers use its products. 1 exception or exclusion exists and is applicable here would be entirely hypothetical at this 2 point. Without any evidence that there is a motor sports use for Defendant’s products, the 3 motor sports exclusion issue is moot. 4 3. Knowledge 5 Defendant also suggests that the United States cannot show that Defendant “knows 6 or should know” that its products are “being offered for sale or installed” as defeat devices, 7 as required by the CAA, 42 U.S.C. § 7522(a)(3)(B), because Defendant does not know 8 what its customers do with its products. (E.g., Resp. at 13.) As the Court alluded to above, 9 Defendant’s suggestion is belied by its own statements in response to customer questions 10 on its website and on social media platforms. Defendant’s own product manuals and 11 advertisements also demonstrate that Defendant knows its products are installed as defeat 12 devices. (E.g., Doc. 37-3, Jorquera Decl. ¶¶ 49–52.) Defendant cannot claim a lack of 13 knowledge simply by not keeping sales records, and the evidence clearly shows that 14 Defendant knows the purpose of its products is for use as defeat devices. 15 Considering all the evidence before the Court, the United States is likely to succeed 16 on the merits to show that Defendant is violating the CAA by manufacturing and selling 17 its products. 18 B. Irreparable Harm 19 In instances in which a federal agency such as the EPA brings an enforcement action 20 under a statute that authorizes injunctive relief, as the CAA does, the United States need 21 not further demonstrate irreparable harm in seeking a preliminary injunction. See F.T.C. v. 22 Consumer Def., LLC, 926 F.3d 1208, 1213 (9th Cir. 2019). In any event, the irreparable 23 harm at issue here is obvious. Emissions of harmful pollutants damage human health and 24 the environment—a proposition Defendant concedes. Instead, Defendant argues that 25 because the United States waited two years from the time it sent NOVs to Defendant to the 26 time it filed suit, somehow addressing the irreparable harm “can wait until the case is 27 decided on the merits at trial.” (Resp. at 18.) Defendant’s argument goes more to a 28 balancing of the equities than irreparable harm in this instance. Harm to human health and 1 the environment is what it is, and any delay in the United States’ enforcement of the 2 CAA—which here was only minimal—does not change the irreparable harm caused by 3 defeat devices. To the extent the United States must make an independent showing of the 4 irreparable harm caused by the manufacture, sale, and use of Defendant’s products, it has 5 done so amply. 6 C. Balance of Equities and the Public Interest 7 The United States also has the burden to show that the balance of equities tips in its 8 favor and that a preliminary injunction is in the public interest. Winter, 555 U.S. at 20. “A 9 preliminary injunction is an extraordinary remedy never awarded as of right.” Id. at 24 10 (citing Munaf v. Green, 553 U.S. 674, 689–90 (2008)). “In each case, courts ‘must balance 11 the competing claims of injury and must consider the effect on each party of the granting 12 or withholding of the requested relief,’” paying particular attention to the public 13 consequences. Id. (quoting Amoco Prod. Co. v. Vill. of Gambell, Alaska, 480 U.S. 531, 542 14 (1987)). 15 Here, the Court must essentially balance the irreparable harm identified above with 16 financial harm to Defendant. As the United States points out, “economic loss does not in 17 and of itself, constitute irreparable harm. Financial injury is only irreparable where no 18 adequate compensatory or other corrective relief will be available at a later date, in the 19 ordinary course of litigation.” (Mot. at 20 (citing Mexichem Specialty Resins, Inc. v. E.P.A., 20 787 F.3d 544, 555 (D.C. Cir. 2015)).) Weighing the harm to human health and the 21 environment the United States seeks to prevent against potential financial loss to Defendant 22 if the sale of its products is enjoined, the balance tips in the United States’ favor in this 23 instance. 24 Likewise, Congress enacted the CAA to combat air pollution, which itself is a 25 declaration of public policy. The public interest in halting Defendant’s acts that likely 26 violate the CAA outweighs Defendant’s interest in continuing to operate a private business. 27 28 1 || Having satisfactorily demonstrated all the Winter factors, the United States is entitled to a preliminary injunction against Defendant.* TI. PRELIMINARY INJUNCTION 4 For the foregoing reasons, 5 IT IS ORDERED granting Plaintiff United States of America’s Motion for || Preliminary Injunction (Doc. 37). 7 IT IS FURTHER ORDERED that, until the Court rules on the merits of this 8 || lawsuit, Defendant Gear Box Z, Inc., and all persons acting for or on its behalf, are hereby enjoined from (1) selling, offering for sale, or transferring any products or components || listed in Attachment A to this Order, or any materially similar products; and (2) selling, offering for sale, or transferring any intellectual property associated with the products listed 12 || in Attachment A to this Order, or any materially similar products. 13 Dated this 17th day of March, 2021. CN 14 “wok: 15 hlee— Unitgd State$District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 | 3 Under Federal Rule of Civil Procedure 65(c), the United States is not required to give security for the issuance of a preliminary injunction. -9- 1 2 Vehicle GBZ Part Type of Defeat 3 Name Make Number Device Application 4 5 DPF-R Ford EGR Block Plates Ford GBZ-FBP Software 6 7 Ford 4.0 Programmer Ford GBZ-FD40 Software 8 9 Ford 4.0 Plus Programmer Ford GBZ-FED40 Software 10 Electron - Ford 2008-2010 6.4L 11 Power Stroke Ford GBZ-EM1.0 Software 12 Electron - Ford 2011-2017 6.7L 13 Power Stroke Ford GBZ-EM1.0 Software 14 Ford Electron Add-Ons 15 (including Plus Tune, Tachyon Ford GBZ-EM1.0 Software Tune, and Maintenance Mode) 16 GBZ - E41 Maintenance Mode Ford Unknown Software 17 & Economy Tune 2011-2016 18 GBZ - 41 Maintenance Mode Ford Unknown Software 19 2011-2016 6.7L 20 Dodge 3.0 Dodge GBZ-DD30 Software 21 22 Dodge Electron Add-Ons (including Plus Tune, Tachyon GM GBZ-EM1.0 Software 23 Tune, and Maintenance Mode) 24 GBZ- Duramax 4.0 Programmer GM Software 25 GMD40 26 GBZ- Duramax 4.0 Plus Programmer GM Software 27 GMED40 28 1 Electron - GM 2007.5-2010 GM GBZ-EM1.0 Software LMM Duramax 2 3 Electron - GM 2011-2017 LML GM GBZ-EM1.0 Software Duramax 4 AFE 4” Down-Pipe Back 5 CAT/DPF Delete Race Exhaust Ford AFEFP4F Hardware 6 for Ford Trucks 7 AFE CAT/DPF Delete Race Ford AFEFP2 Hardware Exhaust for Ford Trucks 8 9 AFE DPF Delete Race Exhaust Ford AFEFP Hardware for Ford Trucks 10 11 Race Exaust for Ford Trucks Ford Unknown Hardware 12 13 CAT/DPF Delete Race Exhaust Ford Unknown Hardware 14 4" Down-Pipe Back Cat/DPF 15 Ford Unknown Hardware Delete Race Exhaust 16 11-16 6.7L Diesel MBRP/P1 17 Installer Series Competition Ford Uknown Hardware Race Pipe 18 AFE 4” Down-Pipe Back 19 CAT/DPF Delete Race Exhaust GM AFEGMP4F Hardware for GM Trucks 20 AFE DPF Delete Race Exhaust AFEGMP- 21 for GM Trucks Crew Cab Long GM Hardware CCLB Box 22 AFE DPF Delete Race Exhaust AFEGMP- 23 for GM Trucks Crew Cab Short GM Hardware CCSB Bed 24 AFE DPF Delete Race Exhaust AFEGMP- 25 for GM Trucks Extended Cab GM Hardware ECSB Short Box 26 27 2 28 1 DPF Delete Race Exhaust for GM Unknown Hardware Extended Cab Long Box 2 3 DPF Delete Race Exhaust-Crew GM Unknown Hardware Cab long Box 4 5 DPF Delete Race Exhaust for GM Unknown Hardware Extended Cab Short Box 6 7 DPF Delete Race Exhaust-Crew GM Unknown Hardware Cab Short Box 8 9 4" Down-Pipe Back Cat/DPF GM Unknown Hardware Delete Race Exhaust 10 11 DPF Emulator Dodge GBZ-DD30 Hardware 12 13 EGT Emulator Dodge Unknown Hardware 14 AFE 4” Turbo Back DPF 15 Delete Race Exhaust for Dodge Dodge AFEDP4F Hardware Trucks 16 AFE CAB & Chassis DPF 17 Delete Race Exhaust for Dodge Dodge AFEDPCC Hardware Trucks 18 AFE CAT/DPF Delete Race 19 Dodge AFEDP2 Hardware Exhaust for Dodge Trucks 20 AFE DPF Delete Race Exhaust 21 Dodge AFEDP Hardware for Dodge Trucks 22 23 DPF Delete Race Exhaust Dodge Unknown Hardware 24 25 CAT/DPF Delete Race Exhaust Dodge Unknown Hardware 26 27 3 28 1 Cab & Chassis DPF Delete Dodge Unknown Hardware Race Exhaust 2 3 4" Full DPF Delete Race Dodge Unknown Hardware Exhaust 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 4 28