The Racketeer Influenced and Corrupt Organization Act (RICO) is one of the most powerful and misunderstood anti-fraud tools available to private litigants. Originally enacted as a tool for government prosecutors to combat organized crime and biker gangs, the law contains potent remedies for ordinary civil litigants too. Courts are wary of RICO, however, and often interpret the law narrowly. A former California car dealer learned that lesson the hard way last week.
Crown Chevrolet says it was forced to sell two of its locations in 2008 to a competitor. The RICO statute has a four-year statute of limitations meaning claims must be filed within four years. Crown did not file its lawsuit until 2013.
A federal judge in San Francisco tossed Crown’s RICO lawsuit last year and said it was untimely. Crown appealed that decision, however.
Crown says the RICO four-year filing deadline did not begin to run until it discovered both the injury (harm) and the racketeering activity. To understand this concept better, more facts are necessary.
According to the complaint, GM conspired with Ally Financial and others to consolidate GM’s retail control of dealerships in the San Francisco East Bay area. To accomplish its goal, GM used Ally and several mangers to pressure the franchised dealers into selling their dealerships. If this seems a bit farfetched, GM was accused of engaging in a similar activity outside of Los Angeles.
Crown claims, “The overarching plan worked as follows, Randy Parker, Jim Gentry [GM managers], and Kevin Wrate [Ally manager] would use their position of authority at GM and Ally to coerce existing East Bay dealers to either sell their dealerships to [California Automotive Retailing Group – “CARG”], or surrender their dealerships altogether, eliminating [CARG’s] competition from the marketplace. [CARG] would then provide the managers with illegal kickbacks, and allow them to control the operations of the dealerships.”
California has tough laws designed to protect franchised dealerships. The only way to terminate a dealer is with “good cause.” That is where Ally entered the picture.
Ally is the old GMAC and financed the floorplan (inventory) of most GM dealers including Crown. When GM wanted to acquire control of a franchise dealership, Ally would suddenly and repeatedly audit the targeted dealer, cut back on financing and threaten immediate termination of the dealer’s credit line for any perceived infraction.
Crown claims that the conspiracy worked. Between 2008 and 2010, nine East Bay area dealerships sold to CARG. Crown Chevrolet is one of the dealerships that claims it was forced to sell.
Crown says that Ally’s act of terminating its floorplan meant the company had to be sold at far below its market value.
Crown filed suit in February of 2013. The trial court said that because Crown was forced to sell in the fall of 2008, it waited too long to file its lawsuit. Remember, RICO gives victims 4 years to file.
Crown appealed and claimed that although it sold out in 2008, it didn’t learn of the conspiracy until 2009. Crown claimed that even though CARG defaulted in its agreement to buy the dealership, CARG kept string along Crown well into 2009. They believe the four-year clock didn’t begin running until late 2009. That meant their complaint in February of 2013 was timely.
Unfortunately for Crown Chevrolet, a three judge appeals panel ruled last week that the trial court was correct in its interpretation of the law. The four-year time period began to run as soon as Crown was injured. Whether of not Crown knew of the conspiracy has no bearing on the statute of limitations.
Obviously, the defendants have admitted no wrongdoing. Because Crown’s case was dismissed, however, we may never learn whether Crown was the victim of a vicious RICO conspiracy designed to force legitimate car dealers out of business.
Businesses who believe that they have been the victims of a conspiracy should not wait to file claims. By the time you discover the conspiracy, it could be too late.
The court’s ruling puts businesses in a tough spot. Conspiracies by there very nature are hard to spot. Even if you can’t be sure, it may be better to file suit than to wait until all the facts are gathered. Unfortunately, here it appears that Crown had enough time to figure things out but just waited too long.
RICO claims are complex and often viewed by courts with suspicion. In the right circumstances, however, they are one of the most potent remedies available. RICO provides for triple damages and legal fees.
If you believe that two or more people or businesses conspired against you and caused injury, you may have a RICO claim. Because it is a fraud statute, the law requires certain predicate acts be found. Wire fraud and mail fraud are examples of allowable “predicate acts.” Since many conspiracies rely on email or cell phone, finding a wire fraud violation isn’t as difficult as one may think.
If you believe you are the victim of a RICO conspiracy, give us a call. Many lawyers dabble in RICO. We often find personal injury or real estate lawyers trying to assemble RICO claims. The lawyers at the law firms of Judge, Lang & Katers and MahanyLaw are different. We handle lender liability, RICO and fraud cases everyday. Because we are small national boutiques, we can handle cases at very reasonable rates and often with far less hours. (Other firms charge time for learning the law.)
Need more information? Contact attorney Chris Katers at (414) 777-0778 or by email at [hidden email]. The author of this post, attorney Brian Mahany, can be reached at [hidden email].
*Want to read a story where GMAC did get beat for a bad faith default? See our post on Donald Mente vs GMAC. Want to know more about RICO? Visit our Civil RICO page.
Judge, Lang & Katers and MahanyLaw – America’s Fraud and RICO Lawyers