Napleton's Arlington Heights Motors, Inc. v. FCA US LLC

• Decision Date: 04 October 2016
• Docket Number: No. 16 C 403,16 C 403
• Citation: 214 F.Supp.3d 675
• Parties: NAPLETON'S ARLINGTON HEIGHTS MOTORS, INC. et. al., Plaintiffs, v. FCA US LLC, et. al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

214 F.Supp.3d 675

NAPLETON'S ARLINGTON HEIGHTS MOTORS, INC. et. al., Plaintiffs,

v.FCA US LLC, et. al., Defendants.

No. 16 C 403

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

Signed October 4, 2016

Alexander S. Vesselinovitch, David C. Gustman, Dylan D. Smith, Jeffery Moore Cross, David J. Ogles, Jill Christine Anderson, Freeborn & Peters LLP, Thomas Mark Williams, Ulmer & Berne LLP, Chicago, IL, Thomas E. Loeser, Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Leonard A. Bellavia, Steven H. Blatt, Bellavia Blatt & Crossett, PC, Mineola, NY, Kevin M. Hyde, Westmont, IL, for Plaintiffs.

Caitlin W. Monahan, Felicia H. Ellsworth, Robert D. Cultice, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, Brandon C. Prosansky, Katherine Anne Neville, Owen H. Smith, Randall Lee Oyler, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL, for 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 Fed.Appx. 549, 550 (7th Cir. 2010).

The Plaintiffs are franchisee dealers¹ 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 FCA² (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 FCA³ 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 Agreement⁶ 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 calculates⁷ 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...