Judge again tosses Napleton Auto Group's RICO claims vs Fiat Chrysler over dealer incentive plan

By Scott Holland | Jul 13, 2018

A federal judge in Chicago has curbed racketeering claims brought by the Napleton car dealership group, as the judge said the dealers still hadn’t presented enough evidence to back its claims accusing Fiat Chrysler of using a sales program to lean on dealers who refused to go along with an alleged scheme to falsify sales figures.

U.S. District Judge Virginia M. Kendall issued an opinion July 10 in the ongoing dispute involving a group of seven dealerships under the control of Edward F. Napleton against automaker Fiat Chrysler Automobiles US. The issue landed in court in January 2016 when the Westmont-based Napleton Automotive Group alleged FCA used a dealer incentive program to falsify vehicle sales figures, while also manipulating dealership market configurations to gain leverage on dealerships in wealthier metropolitan areas, including those where Napleton operates, by placing them at a competitive disadvantage.

In October 2016, Kendall granted dismissal without prejudice on two of 14 counts and with prejudice on four; she partially dismissed two others. Following 18 months of additional discovery, Napleton filed a second amended complaint in March to support its claims FCA violated the Racketeer Influence and Corrupt Organizations Act. FCA moved to dismiss those repleaded counts, saying Napleton failed to cure its deficiencies.

According to Kendall’s opinion, FCA created two incentive programs, a Volume Growth Program providing money and benefits to dealers that achieve discretionary sales targets and the “turn and earn” policy, which grants priority access to dealers that sell larger quantities of high demand models. Napleton’s RICO allegations accused FCA Business Center employees of fudging numbers reported to the public and conspiring with certain dealers to falsify data giving those dealers advantages over those outside the scheme.

Kendall said her previous dismissal was appropriate largely because Napleton’s complaint didn’t fully show how FCA’s conduct damaged its business, as opposed to other possible causes. The amended complaint didn’t cure those deficiencies, as Napleton made no allegations about their sales prior to the supposed illegal conduct, nor did it say its dealerships were meeting “program targets before refusing to participate in the scheme.”

She also said Napleton didn’t directly show how FCA’s actions led to it receiving fewer vehicles than other dealers. While the amended complaint “undoubtedly provides greater detail as to how the allocation system works and how by design, each false sales report automatically creates a potential for injury to non-conspiring dealers nationwide,” it remains possible those dealers “were consistently positioned at the end of the queue even before the alleged scheme began and would not have been better positioned than the conspiring dealers regardless of whether those dealers submitted false sales reports,” the judge said.

Further, even if Napleton had proved a scheme illegally deprived its network of as many vehicles as other dealers, it still didn’t allege how that caused the corporation any problems. Napleton said in 2015 and 2016 it lost out on more than 5,000 sales of vehicles diverted to other dealers, and that from 2013 to early 2016 the alleged scheme cost it 4,100 sales. But Napleton, Kendall wrote, pleaded “zero factual enhancements linking these figures directly to the scheme.” Without showing its higher prices or smaller inventory were directly responsible for lost sales, she explained, Napleton’s complaint is speculative and does not provide standing to file a RICO claim.

“It is telling that, despite having the Court’s explicit guidance and more than one year to conduct any necessary investigation,” Kendall wrote, Napleton still hadn’t “pleaded the facts necessary to show proximate causation.”

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, N.Y.; 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 Fiat Chrysler Automobiles Freeborn & Peters Hagens Berman Sobol Shapiro, LLP Napleton Automotive Group U.S. District Court for the Northern District of Illinois Wilmer Cutler Pickering Hale and Dorr

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