By Ronald Miller, J.D.
GM’s alleged injuries were not proximately caused by FCA’s alleged violations of the RICO Act.
A federal district court in Michigan dismissed General Motor’s Racketeer Influenced and Corrupt Organizations Act (RICO) claim that it was injured by a bribery scheme carried out between Fiat Chrysler Automobiles (FCA) and the United Auto Workers in an effort to force a merger between the automakers, and which resulted in labor concessions that benefited FCA. The only credible inference from the facts alleged was that the defendants’ bribes were intended to secure some advantage for FCA from the UAW that would not otherwise be available, the court determined. Accordingly, the direct victims of the alleged bribery scheme were FCA’s workers. GM’s high labor costs were not an injury proximately caused by FCA’s bribes (General Motors LLC v. FCA US LLC, July 8, 2-020, Borman, P.).
Chrysler/Fiat merger. As a result of the 2008 financial crisis, both GM and Chrysler filed for bankruptcy protection. European automakers were also hit by the crisis. Fiat determined that it needed a partner in the U.S. in order to survive, and targeted Chrysler. However, Fiat’s plans were complicated by the involvement of the U.S. government, which had given both GM and Chrysler emergency loans.
Fiat’s CEO enlisted the help of the UAW leadership to generate support for a Fiat-Chrysler partnership before negotiations with the government began. Under the Fiat-Chrysler deal, Fiat was not required to provide any financing. Fiat received control of Chrysler in June 2009, receiving a 20 percent stake and the right to purchase 40 percent of the 55 percent stake that the UAW owned after Chrysler emerged from bankruptcy. For its part, Fiat gave the UAW’s trust a $4.6 billion note, and gave the UAW the right to appoint a director to Chrysler’s board.
As Fiat secured control of Chrysler, it began negotiations with the UAW on a post-bankruptcy UAW-Chrysler CBA. Fiat demanded a program that broke down the rigid union classification system and gave Chrysler more flexibility in assigning jobs to different workers, which made its overall labor cost structure more efficient and less costly. It also asked the union for permission to hire more temporary employees, and to lift the hiring cap on less senior and lower-cost Tier Two workers. The UAW agreed.
Bribery scheme. GM filed a complaint alleging RICO violations against FCA. It alleged that FCA bribed UAW officials and that, in return, FCA received benefits and concessions in the negotiation and administration of CBAs governing FCA’s labor practices. GM alleged that the bribery scheme began as Fiat took control of Chrysler, starting with gifts to the VP of the UAW’s Chrysler Department. FCA also allegedly paid for a watch and the wedding of the UAW official. According to GM, the bribery scheme expanded, with Fiat/FCA/Chrysler and the UAW using their joint National Training Center (NTC) to distribute funds. The complaint alleged that FCA used the NTC to conceal over $1.5 million in payments and gifts to UAW officials.
In return, according to the complaint, FCA secured five specific concessions or advantages over the years through bribery, including (1) lifting a 25-percent-of-the-workforce limit on cheaper Tier Two employees; (2) the UAW leadership did not enforce limits on the hiring of temporary workers on FCA, but did enforce the limit against GM; (3) UAW officials pursued grievances less zealously because of the bribes; (4) FCA and UAW agreed, outside the bargaining process, to a prescription drug formulary that would increase the use of more widely available prescriptions, thereby reducing health care costs; and (5) UAW committed to support FCA’s labor efficiency program.
GM alleged that the concessions secured by FCA’s bribes resulted in lower labor costs for FCA, and that the bribery scheme was intended to damage GM in order to force a merger between the two automakers.
Direct injury rule. Assuming without deciding that the defendants committed the alleged RICO violations, the court had to determine whether GM’s alleged injuries occurred “by reason of” the defendants’ violations of § 1962. The phrase “by reason of” in RICO’s private right of action provision requires proof that the defendant’s violation of § 1962 was both the “but for” and proximate cause of the plaintiff’s injury. Accordingly, a plaintiff must allege facts that support its claim that its injury would not have occurred absent the § 1962 violation, as well as facts that show a “direct relation between the injury asserted and the injurious conclude alleged.”
The Supreme Court created the direct-injury rule based on three primary concerns. First, “the less direct an injury is, the more difficult it becomes to ascertain the amount of plaintiff’s damages attributable to the violation, as distinct from other, independent factors.” Second, if plaintiffs are “removed at different levels of injury from the violative acts,” courts would be forced to “adopt complicated rules apportioning damages… to obviate the risk of multiple recoveries. Third, the directly-injured victims in a racketeering scheme, where they exist, “can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely.”
Competitive advantages. Here, GM alleged two separate injuries, supported by two separate theories of causation. First, it alleged that the bribes secured unique competitive advantages for FCA that were denied to GM. Second, it alleged that the bribes secured FCA’s position as the lead company in 2015 CBA negotiations, which enabled FCA to use concessions and pattern bargaining to impose “over $1 billion” in unanticipated labor costs on GM. However, neither theory succeeded.
While FCA’s lower labor costs may have given it a competitive advantage over GM, any loss of market share or other harm attributable to FCA’s labor cost advantage was an indirect harm. Moreover, GM alleged that the defendants directed the UAW to deny concessions to it. The facts alleged indicated that the UAW would not give most of the concessions at issue to any company that did not bribe its officials. GM’s labor costs were not any higher than they would have been absent FCA’s bribes, the court observed; FCA’s labor costs were just lower than they would have been. It was FCA’s UAW workers who were the direct victims of the bribes because they were paid less, and GM suffered only an indirect competitive harm.
Moreover, GM could not argue that it was entitled to the three advantages obtained by FCA—(1) non-enforcement of the hiring cap on temporary workers; (2) poor advocacy for workers in the grievance process; and (3) assurances regarding the Tier Two workers cap—or that it would have gotten them if not for the defendants’ bribes. Thus, any labor costs GM paid as a result of adhering to the terms of its CBA cannot be described as harm proximately caused by defendants’ bribes.
Accordingly, the court granted the defendants’ motions to dismiss GM’s complaint.
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