GM Pushes Strong Hand In Lawsuit Against VW

With his legal troubles mounting on both sides of the Atlantic, Volkswagen AG's embattled worldwide purchasing chief, Ignacio Lopez de Arriortua, finally decided to hand in his resignation.

At the eye of the storm in a battle between VW and General Motors Corp., Mr. Lopez is facing criminal indictments in both the US and Germany for stealing trade secrets. But his departure Friday could set the stage for a settlement of the automakers' rancorous dispute.

The corporate soap opera began in March 1993. Lopez, a charismatic, unabashedly ambitious Basque, was running GM's worldwide purchasing operations. A big promotion was in the offing, but on the afternoon it was to be announced, Lopez disappeared. After a day of rumors he resurfaced - in Wolfsburg, Germany, the Volkswagen factory town. For GM, it would have been humiliating enough. But looking closely at some security tapes taken during his final days, the company claims it caught Lopez leaving with boxes of product plans and other trade secrets. The US automaker filed suit, sat back, and waited.

And waited - until last month, when GM won the first in a stunning string of legal victories. First, Federal District Judge Nancy Edmunds upheld GM's right to sue not only Lopez but also several other VW executives, including chairman Ferdinand Piech and management board member Jens Neumann.

Then, last week, Judge Edmunds delivered a second blow. She let stand GM's claim that the defendants conspired to steal trade secrets and ship them abroad. That translates into racketeering. Embarrassing as it was to be charged under a statute originally crafted to crack down on organized crime, Volkswagen had even worse reasons to worry. The so-called RICO law would automatically triple any damage award, and GM was expected to seek billions in damages.

For Volkswagen, the setbacks have been raining down on both sides of the Atlantic. In October, the German courts threw out VW's countersuit. And in November, prosecutors in Darmstadt were ordered to share the evidence they've been collecting over the last three years with the US Justice Department and FBI. Beyond GM's civil suit, VW, Lopez and other Volkswagen officials face possible criminal charges in Germany and the US

For the three years since the Lopez affair first broke, VW officials have insisted that it is nothing more than a case of personal pique played out by GM's high-priced lawyers. Even last week's ruling by Judge Edmunds was downplayed by VW's US lawyer, Jim Devir.

But inside Volkswagen, the mood is anything but sanguine, sources suggest. Lopez has been warned by his own lawyer to expect a criminal indictment in the next few weeks.

With that in mind, Volkswagen appears to be looking for a way to contain its worsening legal mess. The German magazine, der Spiegel reported that VW supervisory board chairman Klaus Liesen met in mid-November with John Smale, chairman of GM's executive committee, to broach the idea of a settlement.

But GM made it clear: There would be no talks until at least one precondition was met; Lopez had to go.

According to his Frankfurt attorney, Juergen Taschke, Lopez now plans to go into consulting. Lopez is also expected to use his time to prepare for an eventual trial.

Seeming to hold all the cards, GM is - at least publicly - making it clear it's in no rush to resolve the dispute, even with the departure of Lopez. If and when it does move to settle out of court, insiders say GM will demand as much as a $4 billion payoff.

It's anyone's guess what he'd say on the stand. And he may have plenty to say about the role of VW Chairman Piech and other executives who helped lure him to Germany. Even if those officials can sidestep culpability, they are likely to share some of the blame for the financial and public relations problems that the Lopez affair has brought down on VW. To reinspire confidence among investors, consumers, and its own employees, some observers suggest Volkswagen may be forced to go through a painful management shake-up, whatever happens to Lopez.