Sixth Circuit Affirms Dismissal of RICO Lawsuit GM Filed Against Fiat and Others
December 15, 2022
By: Stephen B. Stern
In GM, LLC v. FCA US, LLC, 44 F.4th 548 (6th Cir. 2022), the United State Court of Appeals for the Sixth Circuit affirmed a trial court’s decision to grant a motion to dismiss the complaint filed by General Motors under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) because the complaint failed to allege RICO violations caused the injuries GM allegedly incurred.
In GM, executives at FCA US, LLC (“FCA”), and its parent company, Fiat Chrysler Automobiles N.V., allegedly engaged in a pattern of racketeering activity consisting of bribes and corrupt labor relations practices involving the United Auto Workers (“UAW”). At the time of the financial crisis in 2008, the federal government had provided substantial economic relief to GM and Chrysler through the Troubled Asset Relief Program. The government assistance was not enough, however, as both Chrysler and GM filed for bankruptcy. Fiat’s CEO at the time, Sergio Marchionne, separately determined that Fiat needed to secure a partnership with one of the major U.S. automakers in order to survive. As part of the effort to effectuate this partnership, Fiat cultivated a relationship with the UAW to get the UAW’s support for a merger between Fiat and Chrysler.
GM contends the scheme of bribes began shortly thereafter. Specifically, GM alleged, among other things, that FCA and one of its executives began to transfer hundreds of thousands of dollars of Chrysler funds to a UAW executive, paid for his wedding in Venice, and provided him and his wife (directly and through their charities and businesses) with various other gifts worth hundreds of thousands of dollars. In addition, FCA allegedly began a scheme of improper payments to certain UAW officials, which were funneled through the UAW-FCA National Training Center, in order to influence and obtain concessions in the collective bargaining process and not provide similar labor peace and concessions to GM. By securing these concessions, Chrysler had an advantage of substantially lower labor costs, which were recognized through various programs the companies had implemented with the union’s assistance. According to GM, these bribes gave FCA “a wage advantage to take FCA from worst to first among the Detroit-based automakers” with respect to its labor costs.
GM filed suit, contending it was the intended victim of the conspiracy, and it suffered billions of dollars in damages as a result. Its complaint included three counts under RICO, as well as various state law claims over which the trial court declined to exercise supplemental jurisdiction. The defendants filed a motion to dismiss the RICO claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The district court granted the motion finding that, even if FCA had committed the RICO violations alleged in the complaint, the alleged violations either were indirect or too remote to have proximately caused the injuries alleged by GM. GM appealed.
Before addressing the merits of the RICO claims, the Sixth Circuit first addressed whether the National Labor Relations Board (“NLRB”) had exclusive jurisdiction over the claims because they were based on conduct that arguably constituted unfair labor practices under the National Labor Relations Act (“NLRA”). The Sixth Circuit acknowledged that the NLRB was vested “with primary jurisdiction to determine what is or is not an unfair labor practice” under the NLRA, but it also noted there are exceptions to the NLRB’s primary jurisdiction. Among the exceptions is “federal courts may decide labor law questions that emerge as collateral issues in suits brought under independent federal remedies . . . as long as the statute does not conflict with [Section] 7 or 8 of the NLRA and . . . litigants do not circumvent the primary jurisdiction of the NLRB simply by casting statutory claims [under the NLRA] as violations of [other statutes].” The court further noted that RICO lists the Labor Management Relations Act (“LMRA”) as one of two labor laws that can constitute a predicate violation under RICO. Thus, the court had to determine “whether, by naming a labor law as a RICO predicate, Congress ‘expressly carved out an exception’ to the NLRB’s jurisdiction.” Recognizing that no federal appellate court had authoritatively addressed this issue, the Sixth Circuit concluded that the answer was yes, Congress did carve out an exception to the NLRB’s primary jurisdiction when claims involving a labor law named in RICO as a predicate act are involved.
Turning to the merits of the RICO claims, the appellate court focused primarily on whether the damages allegedly incurred were “by reason” of the alleged racketeering activity. This analysis requires both factual cause and proximate cause. According to the court, factual cause requires establishing a particular outcome would not have occurred “but-for” the wrongful conduct, and, with respect to proximate cause, in the context of a RICO claim, that involves an inquiry into whether “the alleged violation led directly to the plaintiff’s injuries.” The court described GM’s alleged damages as fitting into three categories: (1) FCA’s bribe of the UAW from 2009-2015 that allegedly secured “unique competitive advantages;” (2) FCA’s direction to the UAW during the same period to withhold benefits from GM; and (3) FCA weaponized the 2015 pattern-bargaining process to harm GM.
When analyzing the “competitive advantage injuries,” which involved FCA’s alleged bribes that “helped buy a wage advantage to take FCA from worst to first among the Detroit-based automakers[,]” the court found several shortcomings. To this end, the court noted that GM did not allege how FCA spent its wage savings nor did it allege what specific harm resulted. For example, GM did not allege that it lost sales or cut profit margins. Although the allegations allowed an inference that FCA’s labor advantage hurt GM in the marketplace, that was the same damages theory that was rejected by the United States Supreme Court in Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006). Following Anza, the Sixth Circuit noted that GM’s theory had an apportionment problem in that it could not identify which portion of GM’s marketplace injuries were attributable to FCA’s labor advantage and, even though GM’s reliance on an intermediary theory of damages did not alone preclude its claim, the intermediary in this instance, FCA’s workers, was the more immediate victim. As a result, the court could not identify how the damages were “directly” attributable to the plaintiffs’ alleged misconduct.
As for the alleged damages described as the “denial of similar labor advantages,” the Sixth Circuit found these allegations did not establish “but-for” causation. In this regard, although GM alleged that FCA’s bribes resulted in labor advantages for FCA, GM did not assert that it would have even received the same benefits or that it was entitled to the same benefits. While the court commended GM for “cleanly” recovering from “a once-in-a-generation economic downturn,” which stood in contrast to FCA’s method of relying on bribes, GM’s inability to recover based on FCA’s “illicit competitive advantage” would be consistent with the Supreme Court’s decision in Anza. In other words, GM failed to allege how the denial of such labor benefits “directly” caused it harm.
Lastly, with respect to the pattern bargaining damages (i.e., where the FCA workers rejected the first deal and ratified the second deal, leading GM to follow the second deal and cost it more money), there were two ways to look at these damages, both coming up short for GM. Under one view, FCA recognized it was in a financially weak position and wanted to be the first target of negotiations so it could lock in a favorable wage deal, but the employees rejected that proposal for not being “labor-friendly enough,” which is analogous to the “competitive advantage injuries” that failed to give rise to a claim for the reasons discussed above. Alternatively, GM’s pattern bargaining damages theory was too attenuated to state a claim in that too many intervening events had to break FCA’s way for it to achieve its alleged desired outcome. In this regard, FCA’s bribe had to assure FCA that it would be the first company to negotiate (this being the RICO predicate), but the workers rejected FCA’s proposal, leading it to renegotiate a more worker-friendly agreement, which then needed to be ratified by the UAW, then GM would have to negotiate an even more worker-friendly deal with the UAW as the more financially secure company, and the UAW had to ratify that deal. In other words, GM’s theory of increased labor costs hurting it required at least two independent parties to intervene and be involved – FCA’s workforce and GM’s workforce. When damages are allegedly caused by separate actions of separate parties, as alleged here, the court found that they were too indirect to give rise to a RICO claim.
The court’s decision in GM is significant because it gives a roadmap to litigants on potential obstacles they may face when bringing RICO claims involving complicated damages theories. RICO claims are filed regularly, but many are dismissed on preliminary motions for various reasons, including insufficient allegations to establish a direct link between the predicate act and the damages that were allegedly incurred. As illustrated in GM and the cases cited therein, complicated and intricate damages claims are not uncommon in RICO cases, but, when bringing such claims, litigants need to conduct an appropriate and critical analysis of how the damages will be proven prior to filing the lawsuit to try to avoid early dismissal on a preliminary motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.