Ruling Opening Door to RICO Claims Against GM Could Drive Other Emissions Cases
A federal judge has refused to dismiss racketeering claims in a case over GM's diesel trucks, potentially bolstering cases against other automakers that, like Volkswagen, have been accused of cheating emissions tests.
February 21, 2018 at 07:06 PM
4 minute read
General Motors.
A federal judge has refused to dismiss racketeering claims in a case over GM's diesel trucks, potentially bolstering cases against other automakers that, like Volkswagen, have been accused of cheating emissions tests.
In a ruling on Tuesday, U.S. District Judge Thomas Ludington of the Eastern District of Michigan refused to dismiss a class action against General Motors and parts supplier Robert Bosch GmbH alleging they installed “defeat devices” in about 705,000 2011-16 GMC Sierra and Chevrolet Silverado trucks that use Duramax diesel engines. The most significant claim to go forward involved allegations that GM and Bosch conspired under the U.S. Racketeer Influenced and Corrupt Organizations Act to fraud consumers into buying “clean diesel” vehicles at premium prices.
“Resale value and brand devaluation theories are clearly speculative,” Ludington wrote. “But, here, GM allegedly sold Duramax vehicles, for a premium, which did not perform as a reasonable consumer would expect.”
Plaintiffs plausibly alleged that GM and Bosch used applications to government regulators and advertisements to further their racketeering scheme, he wrote.
Plaintiffs attorney Steve Berman, who brought a host of “clean diesel” emissions cases against other carmakers following Volkswagen's $14.7 billion class action settlement in 2016, said the ruling sets a “huge precedent” for other cases, primarily against Mercedes, Fiat Chrysler AV and Ford Motor Co., which he sued last month.
“This is the first court to tackle the RICO claim in the non-Volkswagen cases, and it was a resounding victory for us,” Berman said.
GM lawyers Michael Cooney of Dykema Gossett and Renee Smith of Kirkland & Ellis, and Bosch attorneys Carmine Boccuzzi of Cleary Gottlieb Steen & Hamilton and William Jansen of Warner Norcross & Judd, did not respond to requests for comment.
Unlike Volkswagen, other automakers haven't admitted that they installed emissions cheating devices in their vehicles. In court, they have fought the allegations with motions to dismiss based largely on standing and federal pre-emption grounds.
In 2016, U.S. District Judge Jose Linares of the District of New Jersey dismissed much of the consolidated case against Mercedes after concluding that plaintiffs suing over BlueTec clean diesel vehicles had failed to allege that Mercedes' conduct caused their injuries. Plaintiffs lawyers have amended their complaint, adding RICO claims.
On Sunday, Reuters reported the German newspaper Bild am Sonntag said U.S. investigators had discovered a defeat device in Mercedes vehicles, made by Germany's Daimler. Berman said that report “helps establish plausibility because now you've got a third party confirming what we've alleged.”
In a separate class action against GM over 2014 Chevrolet Cruze diesel vehicles, Ludington found that the plaintiffs had standing to sue—despite the earlier decision in the Mercedes case.
But Tuesday's ruling is the first to address the RICO Act, Berman said.
“That's what ties Bosch and all the car manufacturers together,” he said.
The ruling acknowledged that other courts had found future damages or profits too speculative to uphold RICO claims. But the GM Duramax case alleged financial injuries that occurred at the time consumers bought the cars—in particular, $9,000 over what they would have paid for a comparable gas car.
“Plaintiffs thus identify a specific payment attributable directly to the vehicle component at issue which they opted to purchase on the basis of fraudulent conduct,” Ludington wrote. “Plaintiffs experienced a financial property loss at that moment, which distinguishes the present case from others where the overpayment or diminution in value had not yet occurred.”
The ruling also could be relevant in multidistrict litigation over Chrysler's Jeep Grand Cherokee SUVs and Dodge Ram 1500 pickups. In that case, U.S. District Judge Edward Chen in San Francisco has appointed Kenneth Feinberg as settlement master to resolve the litigation. One of the lawsuits is a case the U.S. Department of Justice brought against Chrysler in May that it has offered to settle for substantial fines and recalls, according to a Bloomberg LP report earlier this month.
Chrysler and Bosch have filed motions to dismiss a consolidated complaint, which includes RICO claims. On Tuesday, plaintiffs lawyers in the litigation flagged the GM ruling in a statement of decision.
Berman, who serves on the plaintiffs steering committee, said the Chrysler case is ”moving on both fronts.”
“It's moving on the path that we're talking about settlement, but if that doesn't work, we won't have to wait around forever,” he said.
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