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Inc. v. FCA U.S. LLC

United States District Court, N.D. Illinois, Eastern Division

October 4, 2016

Napleton's Arlington Heights Motors, Inc. et. al. Plaintiffs,
v.
FCA U.S. LLC, et. al. Defendants.

          MEMORANDUM OPINION AND ORDER

          Virginia M. Kendall United States District Court Judge Northern District of Illinois

         Plaintiffs, a group of seven automotive dealers under the common control of Edward F. Napleton (“Napleton”), sued Defendants Fiat Chrysler Automobiles US, LLC (“FCA”) and FCA Realty, LLC f/k/a Chrysler Group Realty Company, LLC (“FCAR”) (collectively, “Defendants”) on federal and state grounds alleging that Defendants took a number of illegal actions to drive the Plaintiffs out of business. Defendants move to dismiss the entirety of Plaintiffs' Amended Complaint. After accepting all well-pleaded allegations in the Amended Complaint as true and drawing all reasonable inferences in Plaintiff's favor, Defendants' motion to dismiss is granted in part. Specifically, the motion is denied with respect to Counts I, II, III, VIII, X, and XII. The motion is granted without prejudice as to Counts IV and V and granted with prejudice as to Counts VI, VII, XIII, and XIV. Finally, the motion is granted in part with regards to Counts IX and XI.

         BACKGROUND

         This Court takes the following allegations from the Amended Complaint and treats them as true for the purposes of the Defendants' motion. See Gillard v. Proven Methods Seminars, LLC, 388 F. App'x 549, 550 (7th Cir. 2010).

         The Plaintiffs are franchisee dealers[1] of Defendant FCA, the seventh largest automobile manufacturer in the world. (Dkt. No. 21 at ¶ 1.) According to the parties' contractual agreements, the Plaintiffs were required to invest substantial capital to start, operate, and maintain dealerships aimed toward marketing and selling vehicles that the FCA[2] (and only the FCA) produces. (Id.) To incentivize the appearance of a continual increase in sales volume growth - i.e. “the semblance of ever-increasing retail sales by dealers” - the FCA created two incentive programs: 1) the “Volume Growth Program” which provided monies and other benefits to dealers who achieved sales targets that were set by the FCA in its sole discretion; and 2) the “turn and earn” policy through which dealers who sold greater numbers of high demand models were granted priority access to those same models over other competitors. (Id. at ¶¶ 2-4.) In addition, the FCA employed the Minimum Sales Responsibility metric (“MSR”) through which it measured the sales effectiveness of the dealers. (Id. at ¶ 6.) The dealers did not have any input in how the metric was imposed or the methodology underlying the metric. (Id.) Plaintiffs allege that through two principle schemes, the FCA solicited fraudulent sales reports from certain dealers (“Conspiring Dealers”), who through posting inflated sales numbers are allocated more high demand vehicles, allowing the Conspiring Dealers to net more sales and divert sales from dealers who refuse to participate in the fraudulent practice, including Plaintiffs (collectively the “Non-Conspiring Dealers”). (Id. at ¶ 9.) Plaintiffs further allege that the FCA perpetuated these practices nationwide and the cumulative effect of the conduct caused Plaintiffs millions of dollars in lost sales and business value. (Id. at ¶¶ 10-11.)

         Scheme One - Scheme to Defraud Dealers and Public by Reporting Fictitious Vehicle Sales

         Plaintiffs allege that beginning no later than early 2015 and continuing until at least the end of 2015, the FCA and its agents devised and executed a scheme to falsely inflate the reported retail sales of the FCA vehicles. (Id. at ¶ 35.) As part of this scheme, the FCA[3] provided incentives and subsidies to Conspiring Dealers who posted fraudulently inflated sales numbers through the creation of false New Vehicle Delivery Reports (“NVDRs”). (Id. at ¶¶ 35-36.) The FCA additionally, through the “turn and earn” allocation process, would reward the Conspiring Dealers who transmitted false NVDRs with the FCA's most desirable models, thus enabling the Conspiring Dealers to maximize their competitive edge by receiving more of the desirable vehicles.[4] (Id. at ¶ 37.) In addition, the FCA allegedly encouraged false reporting of sales by directly rewarding the District Managers and Business Center Directors with monetary and quarterly bonuses tied directly to the number of reported vehicle sales. (Id. at ¶ 40.) Plaintiffs allege that the FCA benefitted directly from the scheme as the artificial inflation of the monthly sales created the appearance that the FCA was performing at a higher level than it was in reality. (Id. at ¶ 42.)

         Plaintiffs discovered the FCA's scheme to falsely report sales when an FCA Business Center Director called a Napleton Dealer-Principal offering him $20, 000 and extra allocations of high demand vehicles if Napleton's River Oaks falsely reported forty new vehicle sales. (Id. at ¶ 43.) The Business Director allegedly stated that the monies would be transferred under the guise of co-op payments or advertising support monies, that the scheme was “no harm, no foul, ”[5] and that Napleton's River Oaks would only receive the extra vehicles and monies if it falsified its reports. (Id.) The Napleton Dealer Principal rejected the offer, and despite his subsequent statements to the FCA that its actions were improper, the FCA continued to solicit the Plaintiffs. (Id. at ¶¶ 44-45.) The FCA would additionally solicit Conspiring Dealers to report false NVDRs at month's end for two reasons: 1) it permitted Business Center Directors to calculate the gap between their bonus target sales and the legitimate sales reported for the month, and then fill the gap through soliciting the required number of fraudulent sales; and 2) the Conspiring Dealers could back out of the sale on the first of the following month, before the factory warranty of the vehicles could be processed and start to run. (Id. at ¶¶ 47-48.)

         Scheme Two - Scheme to Defraud Plaintiffs by Impairing Their Businesses and Depriving them of Monies

         From early 2015 to present, Plaintiffs allege that the FCA induced Plaintiffs to invest substantially into the dealership facilities and property while also setting the Plaintiffs' MSR baseline at an unrealistic level based upon the FCA's fraudulent manipulation of market sales data. (Id. at ¶ 56.) The FCA allegedly perpetuated the scheme by threatening to terminate Plaintiffs' dealership agreements based upon skewed assessments of the Plaintiff's performance against improperly high MSR baselines. (Id.)

         All dealers, in order to become a franchise dealership, are required to enter into a Dealer Agreement[6] with the FCA. (Id. at ¶ 58.) The Agreements require the dealer to use its best efforts to promote and sell FCA vehicles. The FCA then measures the dealers' performance against the MSR, which it calculates[7] based on a proprietary metric that is completely under its control. (Id.) Plaintiffs are not permitted to provide any input into how the MSR or CC Sales Zone are calculated, which Plaintiffs allege render the calculation process completely illusory. (Id. at ¶ 59.) Plaintiffs allege one specific example of this scheme. At some point in 2013, Napleton's Arlington Heights invested approximately eighteen million dollars in the land and dealership facility that it currently operates in Arlington Heights, Illinois, based upon the FCA's representations that it would have meaningful input in how the FCA defined its applicable market (and the CC Sales Zone) and calculated its MSR baseline. (Id. at ¶¶ 60-61.) However, contrary to those representations, Napleton's Arlington Heights was never provided with any data and was never allowed to participate in the FCA's determinations. (Id. at ¶ 62.) Arlington Heights's loss in revenue due to the subsequent creation of an unfair market area was additionally exacerbated when the FCA permitted a competing dealer, Fields Chrysler Jeep Dodge Ram (“Fields”), to relocate into its Arlington Heights's market area, contrary to the FCA's previous representations. (Id. at ¶¶ 64-65.) Plaintiffs allege that the FCA knew that its representations were false at the time they were made. (Id. at ¶ 65.)

         The FCA would deceptively and misleadingly assess Plaintiffs' sales performance against unrealistic MSR baselines as a way to control and intimidate the Plaintiffs, who, by falling short of those baselines, were under threat of termination. (Id. at ¶ 66.) For example, the FCA would allegedly compare Plaintiffs' sales of non-luxury sport utility vehicle models against other manufacturers' luxury and non-luxury models in order to artificially inflate the size of the market, thus driving down the Plaintiffs' market shares and increasing the likelihood that Plaintiffs would fail to meet their MSR baselines. (Id. at ¶¶ 67-68.) Although the Plaintiffs notified the FCA of this flaw in their calculations, the FCA continued to calculate the Plaintiffs' MSR in the same way so as to intimidate the Plaintiffs with termination. (Id. at ¶ 72.) Due to this scheme, Plaintiffs lost substantial amounts of sales revenue and profits, among other harms. (Id. at ¶ 73.)

         LEGAL STANDARD

         A complaint must contain sufficient factual matter to state a claim to relief that is plausible on its face to survive a 12(b)(6) challenge. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is plausible on its face when the complaint contains factual content that supports a reasonable inference that the defendant is liable for the harm. Id. The complaint should be dismissed only if the plaintiffs would not be entitled to relief under any set of facts that could be proved consistent with the allegations. See Visiting Nurses Ass'n of Southwestern Indiana, Inc. v. Shalala, 213 F.3d 352, 354 (7th Cir. 2000). In making the plausibility determination, the Court relies on its “judicial experience and common sense.” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011) (quoting Iqbal, 129 S.Ct. at 1950). For purposes of this motion, this Court accepts all well-pleaded allegations in the complaint as true and draws all reasonable inferences in the non-movant's favor. See Yeftich v. Navistar, Inc., 722 F.3d 911, 915 (7th Cir. 2013).

         DISCUSSION

         I. Count I - Automobile Dealers' Day in Court Act

         In Count I of their Amended Complaint, Plaintiffs assert that the FCA violated the Automobile Dealers' Day in Court Act, 15 U.S.C. § 1221 et seq. (“ADDCA”). (Dkt. No. 21 at ¶¶ 103-114.) The ADDCA authorizes automobile dealers to bring suit against “any automobile manufacturer” who has failed “to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise.” 15 U.S.C. § 1222. The ADDCA defines “good faith” as the:

duty of each party to any franchise … to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats or coercion or intimidation from the other party: Provided, That recommendation, endorsement, exposition, persuasion, urging or argument shall not be deemed to constitute a lack of good faith.

15 U.S.C. § 1221(e) (emphasis in original). The statutory definition of “good faith” is literally construed. Lawrence Chrysler Plymouth, Inc. v. Chrysler Corp., 461 F.2d 608, 610 (7th Cir. 1972), cert. denied, 409 U.S. 981 (1972). The “failure to exercise good faith within the meaning of the Act has a limited and restricted meaning … It does not mean ‘good faith' in a hazy or general way, nor does it mean unfairness.” Autohaus Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901, 911 (9th Cir.), cert. denied, 436 U.S. 946 (1978). Instead, “an indispensable element of a cause of action under the Dealer Act is a lack of good faith in which coercion, intimidation, and threats thereof exist.” Ed Houser Enterprises, Inc. v. General Motors Corp., 595 F.2d 366, 369 (7th Cir. 1979). To be successful, “a plaintiff must allege facts showing coercion.” Ed Houser Enterprises, Inc., 595 F.2d at 369; see also Lawrence Chrysler, 461 F.2d at 610 (“the existence or nonexistence of ‘good faith' must be determined in a context of actual or threatened coercion or intimidation.”).

         Here, Plaintiffs allege that the FCA violated the ADDCA by demanding that the Plaintiffs submit false NVDRs in bad faith and threatening Plaintiffs with sanctions, including denying them access to popular vehicles and thus hurting the Plaintiffs' bottom line, if the Plaintiffs failed to comply. (Dkt. No. 21 at ¶¶ 35-37, 43, 50-52.) Plaintiffs also allege that when they blew the whistle on false reporting, [8] the FCA threatened to terminate the Plaintiffs' dealerships. (Id. at ¶¶ 45, 111.) The FCA argues this claim should be dismissed because: (1) Plaintiffs “do not sufficiently allege how FCA failed to perform the terms of the Dealer Agreements, ” and (2) Plaintiffs insufficiently plead a lack of good faith, which has a limited and specialized meaning under the ADDCA. (Dkt. No. 41-1 at 16.) Despite FCA's contentions, Plaintiffs identified two fraudulent schemes through which FCA harmed and continues to harm them. (Dkt. No. 21 at ¶¶ 34-55, 56-74.) Plaintiffs allege that they were asked to falsify records in exchange for payment of incentives from FCA, which Plaintiffs refused. (Dkt. No. 21 at ¶¶ 38, 44.) Plaintiffs further allege that this fraudulent scheme resulted in the creation of a de facto multiple-tiered pricing system, through which Non-Conspiring Dealers, such as the Plaintiffs, paid FCA significantly more for motor vehicles than did the Conspiring Dealers who complied with FCA's request to falsify records. (Dkt. No. 21 at ¶¶ 50.) Moreover, Plaintiffs allege that FCA induced Plaintiffs to invest in their dealership facilities and properties and then intentionally discriminated against them in terms of setting unachievable MSR levels and threatening termination of their agreements. (Dkt. No. 21 at ¶¶ 56.)

         In regards to the failure to exercise good faith element, for coercion or intimidation to exist, the FCA's alleged actions must incorporate a wrongful demand in which sanctions would result from noncompliance. See, e.g., N. Broadway Motors, Inc. v. Fiat Motors of N. Am., Inc., 622 F.Supp. 466, 471 (N.D. Ill. 1984) (collecting cases); see also Autohaus Brugger, Inc., 567 F.2d at 911. Some courts have held that an unfair allocation of automobiles may support a cause of action under the ADDCA. See e.g. Autohaus Brugger, Inc., at 914; American Motors Sales Corp. v. Semke, 384 F.2d 192, 195 (10th Cir. 1967). As such, that demand alone, even without considering the alleged requirement that the Plaintiffs falsify records, may meet the elements of coercion or intimidation. In addition, based on the facts alleged, it is plausible that the FCA wrongfully demanded Plaintiffs to falsify their sales records or else be denied popular vehicles, which could result in harm to their businesses. Plaintiffs have alleged that the FCA demanded that they either comply with false reporting or be sanctioned, constituting coercion. (See, e.g., Dkt. No. 52 at 2.) This alleged coercion, combined with the threats to terminate their agreements, is a sufficient cause of action against FCA under the ADDCA.[9] Similarly, the FCA's position that the Plaintiffs failed to allege “any follow-on allegation that their Dealer Agreements were terminated, that FCA even threatened ‘termination' as alleged, or that all Plaintiffs even received alleged ‘default letters, '” is contrary to the Amended Complaint. (See Dkt. No. 21 at ¶¶ 8, 74, 111, 112 (allegations specifically related to receipt of default letters).)

         Moreover, the FCA's arguments are premature at this stage of the proceedings because determining whether the FCA's behavior constituted coercion would depend “upon the circumstances arising in each particular case and may be inferred from a course of conduct.” Autohaus Brugger, Inc., 567 F.2d at 911; Nissan Motor Acceptance Corp. v. Schaumburg Nissan, Inc. 1993 WL 360426, at *5 (N.D. Ill. Sept. 15, 1993) (quoting Fox Motors, Inc. v. Mazda Distrib. (Gulf), Inc., 806 F.2d 953, 959 (10th Cir. 1986)). Rather, the FCA's arguments are more appropriate at the summary judgment stage of litigation after evidence is introduced to support or deny the alleged claims. The FCA's sole contention in opposition to this argument is found in a footnote in which it argues that the claim is not premature “as evidenced by the fact that courts regularly dismiss such claims when coercion is not sufficiently plead.” (Dkt. No. 53 at 9 n. 8.) Not only does the FCA fail to provide any of the referenced case law, but its position is belied by the fact that the FCA itself cites to cases in the summary judgment posture. See, e.g., Ed Houser Enterprises, 595 F.2d at 366 (appeal for review of summary judgment decision); TLMS Motor Corp. v. Toyota Motor Distributors, Inc., 1998 WL 182475, at *6 (N.D. Ill. Apr. 15, 1998) (district court review of motion for summary judgment). The FCA's motion to dismiss Count I is denied.

         II. Counts II-III - Robinson-Patman Act Claims (Antitrust claims)

         In Counts II and III, Plaintiffs assert that the FCA violated Sections 13(a) and (d) of the Robinson-Patman Act of 1936, codified as part of the Clayton Act, 15 U.S.C. § 13 et. seq (“RPA”). (Dkt. No. 21 at ¶¶ 115-129.)

         A. Count II -Section 13(a)

         Section 13(a) of the RPA prohibits sellers from discriminating in price between different purchasers in interstate commerce of products of like grade and quality to the injury or destruction of competition. 15 U.S.C. § 13(a). Price discrimination may fall within one of three categories: primary, secondary, or tertiary. Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 176 (2006); Dynegy Mktg. & Trade v. Multiut Corp., 648 F.3d 506, 513, 521-22 & n.2 (7th Cir. 2011).[10] To establish a secondary-line violation, applicable here, four requirements must be met: (1) relevant sales made in interstate commerce; (2) sales were of products of “like grade and quality”; (3) seller discriminated in price between plaintiff and another purchaser; and (4) discrimination may have injured or prevented competition to the favored purchaser's advantage.[11] See Volvo Trucks, 546 U.S. at 176-77; see also Dynegy, 648 F.3d at 522 (citing ABA Section of Antitrust Law, 1 Antitrust Law Developments 490 (6th ed. 2007)). The “competitive injury prong of this showing may be inferred from evidence that a favored competitor received significantly better prices over an extended period of time; the hallmark of such injury is the diversion of sales or profits from a disfavored purchaser to a favored purchaser.” Dynegy, 648 F.3d at 522 (citing Volvo Trucks, 546 U.S. at 177).

         Plaintiffs allege that the FCA created a price difference between the vehicles sold to the Plaintiffs and those sold to the Conspiring Dealers through the incentives and subsidies offered to Conspiring Dealers. (See Dkt. No. 21 at ΒΆΒΆ 75-76.) The FCA argues that the allegations in the Amended Complaint are too vague to state a violation of the RPA because Plaintiffs fail to identify any of the other FCA dealers with whom they allegedly compete, any vehicles they lost to these competitors, or any price differences that occurred over a sufficiently long period of ...


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