A U.S. federal district court, on February 20, 2018, declined to dismiss class plaintiffs’ civil RICO claim against GM and a major automotive supplier, where plaintiffs alleged that GM and the supplier conspired to defraud emissions regulators and consumers by installing defeat devices in GM’s diesel trucks and then marketing them as “clean diesel” vehicles
While the court acknowledged that class plaintiffs sustain the ultimate burden in proving their claim, major automobile vehicle manufacturers, suppliers and original equipment manufacturers should be wary of potential civil RICO liability. Aside from the Volkswagen case, this is the first court to address a RICO claim, and thereby sets a potential precedent for other pending emissions violations class actions filed against major automobile manufacturers in the industry.
Further, as the ruling makes clear, suppliers may be liable for fraudulent claims involving emissions violations. So long as these suppliers both provided and manufactured components of an automobile engine enabling the use of a defeat device and worked in tandem with the automobile vehicle manufacturer in marketing such vehicles as “clean diesel,” they can face civil RICO liability.
The ruling was entered in a consolidated class action entitled, In re Duramax Diesel Litigation, Case No. 17-CV-11661, by Judge Thomas L. Ludington of the United States District Court, Eastern District of Michigan. The In re Duramex action is the consolidation of three class actions filed against General Motors LLC (“GM”), Robert Bosch GmbH and Robert Bosch LLC (“Bosch”).1
Each class plaintiff had purchased one of two specified diesel vehicle models—containing the Duramax engine—from an authorized GM dealer. In a consolidated complaint containing 54 counts brought under state and federal law,2 class plaintiffs allege that GM and Bosch conspired to conceal the defeat devices contained in GM’s Duramax diesel engine, which plaintiffs allege had been represented to the market as providing low emissions and high performance.
Class Plaintiffs’ Civil RICO Claim
Based on a theory of fraudulent omissions, class plaintiffs claim that GM and Bosch engaged in a common enterprise whose purpose was to deceive emissions regulators and the public into believing that the Duramax vehicles were environmentally clean. Plaintiffs contend that GM fraudulently concealed information related to the operation of the Duramax engine’s emissions technology—information that a reasonable consumer would have considered to be material in determining whether to purchase a Duramax vehicle. This concealment allowed GM to evade U.S. emissions requirements and trick consumers into paying a premium price for Duramax vehicles.
Plaintiffs further allege that Bosch was an active and knowing participant in that scheme to defraud. Bosch supplied components to GM’s diesel vehicles that enabled the use of the defeat devices and worked closely with GM in the development and marketing of such vehicles. Bosch also lobbied U.S. regulators to accept “clean diesel” vehicles, which plaintiffs allege contributed to the market demand for such vehicles in the United States.
GM and Bosch each moved to dismiss, arguing that class plaintiffs lacked standing to bring a RICO claim and further failed to state such a claim. The court, however, refused to find any of GM’s or Bosch’s proffered arguments sufficient to defeat plaintiffs’ RICO claim at the pleading stage.
Plaintiffs sufficiently alleged RICO standing: they alleged a cognizable direct injury that occurred at the time of purchase of a Duramax vehicle. Specifically, plaintiffs paid a premium, or more for a Duramax vehicle than they would have paid for a comparable gas vehicle. This overpayment was directly attributed to GM and Bosch’s fraudulent scheme to inflate the price of such vehicles. Moreover, plaintiffs plausibly alleged that Bosch’s joint activities with GM constituted a substantial factor in contributing to plaintiffs’ injuries.
Further, the court found that plaintiffs stated a RICO claim against GM and Bosch with sufficient specificity to put them on notice of their enterprise conduct. Plaintiffs plausibly alleged that GM and Bosch participated in an enterprise with the common purpose of defrauding consumers and regulators: GM and Bosch worked together to develop the vehicle component that enabled the use of defeat devices and that directly caused plaintiffs’ injury. To further their scheme to defraud, plaintiffs alleged that GM and Bosch relied on advertisements, as well as applications submitted to government regulators, and therefore sufficiently alleged that they engaged in a pattern racketeering activity involving various predicate acts of mail and wire fraud.
The ruling sets a potential precedent for other emissions violations cases involving major automotive players in the industry. Yet, what may have helped the Duramex class plaintiffs was the set of facts that seemed to be generally favorable to plaintiffs. Further, because allegations of omissions—as opposed to affirmative misrepresentations—will invariably be less specific, plaintiffs’ characterization of GM and Bosch’s conduct as one of fraudulent omission also appeared to be a successful strategic move. Whether such circumstances are present in other similar ongoing litigation is uncertain. Automobile manufacturers and suppliers that contributed to the manufacturing process should at least be wary of carefully-pled complaints alleging a conspiracy and/or fraudulent omission, as courts appear to be more willing to entertain various claims against automotive manufacturers and suppliers alike.