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Suburban Buick, Inc v. Jerry D. Gargo

May 9, 2011

SUBURBAN BUICK, INC., PLAINTIFF,
v.
JERRY D. GARGO, GAIL A. GARGO, NICHOLAS G. GARGO, DANIEL J. GARGO CHARLES N. OWEN, INDIVIDUALLY AND AS PRESIDENT OF CHUCK OWEN AUTO BODY, INC., DAVID C. MORMAN, INDIVIDUALLY AND AS PRESIDENT OF DAVE'S AUTO BODY, GREG S. MELVIN, KATHERINE POLLACK,
ROSEMARY YOUNG, GARGO CUSTOM HOMES, AND GO SERVICE, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiff Suburban Buick, Inc. filed a six-count corrected second amended verified complaint against ten defendants,*fn1 alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964, based on wire fraud (Count I), mail fraud (Count II), and money laundering (Count III), and seeking injunctive relief (Count IV). Plaintiff also alleges state law claims for conversion (Count V) and civil conspiracy (Count VI). Plaintiff previously filed a first amended verified complaint, which this court dismissed pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6). Suburban Buick v. Gargo, No. 08-CV-00370, 2009 WL 1543709 (N.D. Ill. May 29, 2009). Defendants Jerry Gargo, Gail Gargo, Nicholas Gargo, and Daniel Gargo; Charles N. Owen and Chuck Owen Auto Body; and Greg S. Melvin have filed the instant motions to dismiss the complaint pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6). For the following reasons, the court grants defendants' motions to dismiss.

BACKGROUND

The following facts come from the complaint, and for purposes of evaluating defendants' motions to dismiss, the court takes them as true. Defendants engaged in an association-in-fact enterprise through which they conspired to defraud Suburban Buick, a General Motors car dealership in Wheaton, Illinois, of money and the honest value of its employees' services. Jerry Gargo, a manager and officer at Suburban Buick, was the central figure in the conspiracy. He hired his sons, Nicholas and Daniel Gargo, to work at Suburban Buick; Daniel Gargo served as a manager. Charles Owen was Suburban Buick's auto body shop manager, and when Suburban Buick dissolved its body shop, Owen became the owner and principal operator of Chuck Owen Auto Body, Inc. David Mormon, formerly a Suburban Buick employee, owns and operates Dave's Auto Body. Greg Melvin served as the Parts Department Manager of Suburban Buick. Katherine Pollack was Suburban Buick's Treasurer and Chief Financial Officer, and Rosemary Young was the Accounts Payable and Payroll Manager. Gargo Custom Homes is an entity through which the owners, Jerry Gargo and his wife, Gail Gargo, invested funds they fraudulently obtained from Suburban Buick. Jerry Gargo organized GO Service to facilitate the conspiracy.

Defendants conspired to engage in a pattern of racketeering activity by operating three kinds of scams: (1) an auto repair and auto body repair scam ("repair scam"); (2) an auto parts scam ("parts scam"); and (3) an unauthorized pay and salary scam.

Repair Scam

Defendants Jerry Gargo and Owen falsified work orders to defraud Suburban Buick of funds. To accomplish this scheme, they created work orders that requested unnecessary repairs for actual GM vehicles that were under warranty. Jerry Gargo, along with his sons, used vehicle identification numbers from cars they found in the lot of Gjovik Buick (a nearby Buick dealership) and from cars that were in their shop. To keep Suburban Buick customers satisfied when their cars were not promptly returned, Jerry Gargo gave them free loaner or rental cars. Suburban Buick paid for these loaner and rental cars.

Jerry Gargo and Owen outsourced this false "repair work" to Owen's company, Chuck Owen Auto Body. Owen provided Suburban Buick with invoices on his company's letterhead, and Suburban Buick paid Owen accordingly. Because the vehicles were under warranty, General Motors reimbursed Suburban Buick for its payments to Owen. Owen sent approximately half of his proceeds to GO Service, a company Jerry Gargo owned. Jerry Gargo and Owen had monthly meetings in furtherance of the scheme, and Jerry Gargo controlled the billing and money. As a result of the repair scam, Suburban Buick lost time, resources, and, because Jerry Gargo overpaid the service technicians "to keep [them] quiet about what he was doing," money. Suburban Buick also lost many of its customers when the scheme was uncovered and stopped.

Parts Scam

Jerry Gargo and Melvin sold auto parts to Owen at half of Suburban Buick's cost. They operated the scheme through the following series of exchanges: First, Owen called Jerry Gargo with a request for a specific auto part. Jerry Gargo redirected the call to Melvin (Suburban Buick's parts department manager), who then ordered the part using Suburban Buick's funds. As soon as Melvin received the part, he removed it from Suburban Buick's inventory and manipulated inventory records to conceal the theft. Jerry Gargo and Melvin then sold the part to Owen and split the proceeds. Owen, knowing the part had been stolen, sold it to a customer at full retail price.

Further, Melvin and Jerry Gargo sold David Mormon, a former Suburban Buick mechanic, transmissions for less than Suburban Buick's typical retail price. General Motors reimbursed Suburban Buick for the costs of these transmissions in reliance on Jerry Gargo's representations that the transmissions were for vehicles under warranty.

Unauthorized Pay and Salary Scam

Jerry Gargo (as general manager), Pollack (as office manager and treasurer), and Young (as Pollack's assistant) used their authority and positions to provide unauthorized pay increases and other compensation to themselves, the Gargo sons, and Melvin, without approval of Suburban Buick's board of directors. Jerry Gargo, Pollack, and Young had the authority to act as signatories on Suburban Buick's checks, and all three were signatories on direct deposit payroll checks. On at least ten occasions specified in the complaint, defendants gave and/or received unauthorized compensation from fall 2003 through summer 2004. Jerry Gargo also hired his sons without Suburban Buick's authorization, for the purpose of having them facilitate the repair scheme and to help him retrieve vehicle identification numbers from Gjovik Buick's used car lot. Additionally, because their compensation was partially based on a percentage of monthly sales, warranty repairs and ...


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