Racketeering charges dismissed vs Fiat Chrysler, but Napleton Auto Group's fraud suit proceeds

By Scott Holland | Oct 7, 2016

Fiat Chrysler still faces a legal challenge from owners of a network of auto dealerships in the Chicago area and elsewhere, though it succeeded in removing federal racketeering accusations. 

U.S. District Judge Virginia M. Kendall, on Oct. 4 in Chicago, issued an opinion on FCA’s motion to dismiss the entire amended complaint from the Westmont-based Napleton Automotive Group, which alleged the automaker used a dealer incentive program to falsify its vehicle sales figures, while also jiggering its dealership market configurations to place dealers in wealthier metropolitan areas, including those Napleton operates, at a competitive disadvantage for leverage. 

On Jan. 12, two Napleton dealerships – Napleton’s Arlington Heights Motors Inc., doing business as Napleton’s Arlington Heights Chrysler Dodge Jeep Ram, and Napleton’s North Palm Auto Park Inc., doing business as Napleton’s Northlake Chrysler Dodge Jeep Ram, in Lake Park, Fla. – had filed suit in Chicago federal court against FCA US LLC, the North American arm of Fiat Chrysler Automobiles.

The Napleton dealers are part of a network of dozens of auto dealerships operated by the Westmont-based Napleton Automotive Group in Chicago’s suburbs, as well as elsewhere in Illinois, Florida, Indiana, Missouri and Pennsylvania. The dealerships sell vehicles spanning a range of automotive brands, but many Napleton dealers are affiliated with brands sold by FCA.

Kendall refused to dismiss six of the 14 counts in the Napleton lawsuit, but granted dismissal without prejudice on two counts and with prejudice on four; she partially dismissed two others. 

The lawsuit, originally filed in January, alleged FCA engaged in fraud, as well as violated the federal Racketeer Influenced and Corrupt Organizations Act and other federal and state laws in Illinois and Florida, through its execution of its so-called volume growth program, or VGP. Napleton’s said the automaker designed the VGP to “coerce” and “strong-arm” dealers to “falsely report sales” of vehicles so FCA could “create the appearance that FCA’s performance is better than, in reality, it actually is.” 

Napleton’s complaint relied on protections of the Automobile Dealers’ Day in Court Act. In response, FCA tried to argue Napleton failed to demonstrate a failure to perform terms of its dealer agreements. But Kendall noted Napleton did allege “two fraudulent schemes through which FCA harmed and continues to harm them” as well as a wrongful demand “in which sanctions would result from noncompliance.” Further, Kendall wrote, “FCA’s arguments are more appropriate at the summary judgment stage” after evidence is introduced. 

Kendall likewise sided with Napleton on the merit of its Robinson-Patman Act antitrust claims because the dealer sufficiently alleged FCA created a price difference between firms that did and did not go along with the VGP. The allegations detailed “two separate schemes each leading to $800 in price discrimination — and therefore, a $1,600 price difference” Napleton had to pay over the course of at least one year as opposed to other dealers. 

FCA found more success in its defense of the RICO claims, as Kendall wrote Napleton failed to allege sufficient facts showing alleged harm to be a direct cause of alleged FCA racketeering activity “because their alleged harm could have resulted by factors other than the alleged acts of fraud.” FCA, for example, could have passed over Napleton for certain popular vehicles “because they still had many on the lot.” 

Kendall also agreed to dismiss Napleton’s common law fraud and negligent misrepresentation claims, rejecting the dealer’s contention its allegations should be considered outside the Michigan law that governs dealer agreements and the related economic loss doctrine, writing Napleton could not argue it was tricked into signing the deal because it “had access to the Dealer Agreements and (was) fully aware of the obligations that each party carried” before signing. 

However, Napleton will be allowed to continue its breach of contract claim, sufficiently alleging FCA “arbitrarily created (minimum sales responsibility) baselines with the goal of threatening” compliance with the alleged schemes. 

FCA also failed to win dismissal on most of Napleton’s claims under state automobile dealer laws in Illinois, Florida, Missouri and Pennsylvania. Kendall did write Napleton failed to allege harm under an alleged violation of section seven of the Illinois Motor Vehicle Franchise Act. Kendall did dismiss Napleton’s claims of fraud in inducement and quantum meruit regarding an $18 million investment to relocate its Chrysler dealership from Des Plaines to Arlington Heights, citing a lack of details about the allegedly fraudulent misrepresentation that fueled the decision to invest. 

Following Kendall’s order, discovery will proceed on the remaining counts and the parties are to appear at a previously set status conference. 

Napleton is represented in the action by attorneys with the firms of Freeborn & Peters, of Chicago; Hagens Berman Sobol & Shapiro, of Seattle, Wash.; and Bellavia Blatt & Crossett, of Mineola, NY; and attorney Kevin M. Hyde, of Westmont. 

FCA is represented by the firms of Wilmer Cutler Pickering Hale and Dorr, of Boston; and Barack Ferrazzano Kirschbaum & Nagelberg, of Chicago.

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Organizations in this Story

Barack Ferrazzano Kirschbaum & Nagelberg LLP FCA US LLC Freeborn & Peters Hagens Berman Sobol Shapiro, LLP Napleton Automotive Group

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