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From Antitrust Law Daily, March 16, 2018

 Jeep, Dodge may be liable for using ‘defeat devices’ to pass emission tests in RICO suit

By Jody Coultas, J.D.

Purchasers of certain Jeep and Dodge diesel vehicles that were purportedly fuel efficient and environmentally friendly stated Racketeer Influenced and Corrupt Organizations Act and state consumer protection law claims against the vehicle manufacturers, the manufactures of the engines, and companies that supplied diesel control units, the federal district court in San Francisco decided. There was sufficient evidence to support claims that the defendants engaged in a joint enterprise with the goal of deceiving government emission agencies and consumers into believing that the diesel vehicles were eco-friendly and fuel efficient (In re Chrysler-Dodge-Jeep EcoDiesel Marketing, Sales Practices, and Products Liability Litigation, March 15, 2018, Chen, E.).

Purchasers of 2014-2016 Jeep and Ram 1500 model trucks with diesel engines that were branded "EcoDiesel" alleged that the defendants installed "defeat devices" that reduced the effectiveness of the emissions control system, making the vehicles not eco-friendly. The vehicles also allegedly contained eight auxiliary emission control devices that activated vehicle emission controls under test conditions. The purchasers brought class action claims against (1) the manufacturers of the cars and their chief executive (the FCA Defendants); (2) the companies who manufactured the EcoDiesel engines (the VM Motori Defendants); and (3) the companies who supplied the electronic diesel control (EDC) units that were used to control the emissions from the engines (the Bosch Defendants).

Standing. Allegations of overpayment satisfied the Article III injury-in-fact requirement for standing, according to the court. To support their claim of an injury for overpayment, the purchasers argued they paid between $3,120 and $5,000 more for the EcoDiesel option than for the comparable gasoline vehicles in return for the alleged promise by FCA of power, performance, fuel economy, environmental friendliness, and vehicles that were legal to drive. Specifically, the purchaser argued that they did not receive this collection of benefits because the vehicles "could not achieve the advertised towing power, performance, and/or fuel economy without cheating emission tests." Allegations of overpayment based on the failure to disclose a product’s limitations were sufficient to satisfy the injury-in-fact requirement.

The court also rejected Bosch Defendants’ argument that the purchasers’ alleged economic injury was not fairly traceable to Bosch. The purchasers alleged that the Bosch Defendants participated in a scheme and conspiracy with the FCA and VM Motori Defendants to develop, implement, and conceal software used in the Class Vehicles to cheat emissions tests. The hidden software was part of what rendered the vehicles defective and, consequently, worth less. Also, the economic injuries were fairly traceable to the Bosch Defendants’ knowingly concealing the software from regulators and consumers.

Dismissal of the state-law claims at this time was not warranted, according to the court. No named plaintiffs resided in or purchased or leased a vehicle in seven states or the District of Columbia. While not a per se rule, the Ninth Circuit had held that once the named plaintiffs demonstrated their individual standing to sue, the standing inquiry might be concluded and the issue of whether the claims can be sustained under state laws where putative class members live can be addressed in the context of class certification.

RICO injury. The alleged RICO injury of the full amount of the purchase or lease price was rejected by the court. It was not plausible that the purchasers were injured in an amount equal to the entire purchase price because they presumably used the vehicles and obtaining value from them. Even if the purchasers theoretically could not have purchased and leased the vehicles "but for" the fraud on the regulators, the purchasers did buy/lease the Class vehicles, and their use of the vehicles must be considered.

The purchasers did, however, sufficiently allege "a harm to a specific business or property interest" based on the overpayment at the time of purchase/lease of vehicles that did not have the advertised properties and did not meet federal emission standards. The court rejected Defendants’ argument that the alleged injury was an injury to an expectation interest, rather than an injury to "property." Allegations of an overpayment because of anticompetitive or deceptive conduct is an injury to "property," rather than an "expectation interests." Also, the purchasers alleged that they paid a premium for the vehicles, but they did not receive cars that actually perform as EcoDiesels. These allegations supported that they paid more than fair market value for the vehicles, which was an overpayment injury, distinguishable from an expectation injury.

The court also noted that the overpayment of money was a tangible injury. Defendants’ argument that overpayment, as compared to out-of-pocket costs to repair damaged property, is speculative and thus insufficiently concrete to support a RICO injury was rejected.

RICO proximate cause. The purchasers sufficiently alleged that Defendants’“ scheme to defraud the EPA and CARB led directly to their overpayment injury, according to the court. The Bosch Defendants’ argument that they did not proximately cause the alleged injury because they did not have a direct relationship with the purchasers was rejected. The court also rejected the Bosch Defendants’ argument that difficulty in apportioning damages between the FCA Defendants and them created the risk of double recovery. Finally, the court noted that, given the specific claim of damages and the direct causation theory alleged, the RICO claim was not barred by the fraud on the market theory.

RICO merits. The purchasers stated a Section 1962(c) RICO claim, according to the court. Plaintiffs allege that Defendants engaged in two or more acts of mail and wire fraud by, among other things, submitting applications to the Environmental Protection Agency (EPA) for Certificate of Conformities and the California Air Resource Board (CARB) for Executive Order that concealed defeat devices. Also, the allegations supported the argument that each Defendant knowingly participated in this scheme to defraud the EPA and CARB by installing hidden devices that tricked emission tests. There was sufficient evidence that the Bosch Defendants were actively involved in developing the hidden devices and not only concealed their use but also falsely touted to the market and lawmakers that "clean diesel" vehicles were compliant with emission standards. It was plausible that the VM Defendants were responsible not only for the nuts and bolts of the EcoDiesel engine, but also for how the EcoDiesel engine generated and treated emissions. Finally, there was sufficient evidence that employees at both FCA entities "worked closely with VM Italy and VM America and Bosch GmbH and Bosch LLC to customize the EDC Unit 17 to allow Class Vehicles to simulate ‘passing’ the EPA and CARB testing."

The allegations that plausibly support that Defendants committed multiple acts of mail and wire fraud also supported that they shared a common purpose to deceive regulators into believing that the vehicles were eligible for coverage by a COC and/or EO and compliant with emission standards. The purchasers also sufficiently pled that the enterprise had a "structure or organization." Based on the scheme spanning three model years, the purchasers satisfied the longevity requirement, as it was a sufficient amount of time to pursue the enterprise’s purpose of deceiving the EPA and CARB into certifying the vehicles so that the vehicles could be sold in the United States. Finally, the allegations that each Defendant took some part in directing the enterprise’s affairs was sufficient.

Additional RICO claim. The purchasers established a RICO conspiracy based on an alleged agreement to commit, or participated in, a violation of two predicate offenses. However, an aiding and abetting theory of liability was not available in the case against the Bosch Defendants.

Consumer protection claims. The purchasers alleged that Defendants violated the consumer protection law claims of all 50 states and the District of Columbia.

  • The consumer protection claims were not preempted, according to the court.
  • The purchasers did not dispute that damages are unavailable under the relevant Georgia and Minnesota law. However, the claims were not dismissed as the purchasers had standing to pursue injunctive relief under the laws given that they continue to suffer harm based on Defendants’ past conduct. The Vehicles likely need to be fixed, the court said.
  • The purchasers adequately alleged an intent to deceive. The court also found that some of the applicable laws did not require the purchasers to show an intent to deceive.
  • A claim under the North Carolina consumer protection law was not barred by the economic loss doctrine.
  • The court dismissed the Kentucky Consumer Protection Act claim because the law has a privity requirement that was not met because the purchasers did not have a direct contractual relationship with Defendants. However, the Idaho law did not have such a privity requirement.
  • The purchasers dismissed claims for punitive damages under Nebraska and West Virginia law, and conceded that Maryland, Maine, Minnesota, and South Dakota do not allow for punitive damages. The court found that the purchasers adequately alleged malice as required under Oklahoma law to obtain punitive damages.
  • The Mississippi and Iowa claims were dismissed with leave to amend so the purchasers may allege the approval of the respective state attorneys general.

Fraud claims. The fraud on the consumer claims, whether based on affirmative misrepresentation or fraudulent concealment, were not expressly preempted by § 209(a) of the (CAA), according to the court. There was also no implied field preemption, as the savings clause of the CAA suggested that Congress did not intend to occupy the entire field of motor vehicle regulation.

The court found that the purchasers sufficiently pled an intent to deceive on the part of all Defendants. Whether the "EcoDiesel" logo amounted to puffery was a question of fact that could not be decided at this juncture of the proceedings.

The purchasers adequately pled fraudulent concealment claim, showing a duty to disclose (or an active concealment rendering such a duty moot) and reliance, according to the court.

The court granted the purchasers leave to amend the common law fraud claims (as well as the consumer protection claims) to clarify that the claims are not purely fraudulent concealment claims but also affirmative misrepresentation claims and to include additional factual predicates for their fraud-on-consumer claims. The affirmative misrepresentation theory, as pled, applies only with respect to the FCA/VM Defendants, not to the Bosch Defendants. The fraudulent concealment theory, as pled, applies to all Defendants.

Warranty claims. The federal warranty claim was sufficient, but state law warranty claims were preempted, according to the court.

The case is No. 17-md-02777-EMC.

Attorneys: Jessica Thompson (Hagens Berman Sobol Shapiro LLP) for Jose Chavez. Amie Adelia Vague (Lightfoot Franklin & White) and Kyle Allen Niemi (Sullivan and Cromwell LLP) for FCA US LLC and Fiat Chrysler Automobiles N.V. Matthew D. Slater (Cleary Gottlieb Steen and Hamilton LLP) for Robert Bosch GmbH and Robert Bosch LLC. Robert J. Giuffra, Jr. (Sullivan and Cromwell LLP) for VM Motori S.p.A. and VM North America, Inc. Rebecca Jean Boyle (Dietze & Davis, PC) for Brandon Automotive, Inc. d/b/a Brandon Dodge on Broadway.

Companies: FCA US LLC; Fiat Chrysler Automobiles N.V.; Robert Bosch GmbH; Robert Bosch LLC; VM Motori S.p.A.; VM North America, Inc.; Brandon Automotive, Inc. d/b/a Brandon Dodge on Broadway.

MainStory: TopStory RICO StateUnfairTradePractices CaliforniaNews

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