How much was General Motors hurt?
That's the one big question.
In fact, legal experts say, that's the only question that matters.
GM filed a lawsuit against Fiat Chrysler Automobiles in federal court in Detroit on Wednesday alleging that FCA labor negotiators conspired with corrupt United Auto Workers leaders during contract talks to cut a deal that gave FCA a competitive advantage over GM.
GM alleged that Sergio Marchionne, the late CEO of Fiat Chrysler, conspired with former UAW President Dennis Williams and others in a wide-ranging corruption scheme. In connection with the same scandal, Williams' successor, Gary Jones, resigned this week as a federal criminal investigation continues.
GM is claiming Fiat Chrysler went so far as to violate RICO – the Racketeer Influenced and Corrupt Organizations Act – a law created half a century ago to fight the mafia.
With RICO, criminal defendants can be charged as coconspirators and cases bundled when multiple crimes are committed. It is often used by federal prosecutors to pursue public corruption and white-collar fraud cases. It was used to prosecute imprisoned former Detroit Mayor Kwame Kilpatrick and his compatriots and has been used to prosecute cases involving corrupt police departments and the Gambino crime family, for example.
The law also permits civil cases if deceptive conduct can be proved, and a favorable verdict for the plaintiff can result in triple damages plus attorney’s fees.
Scandal investigation: UAW President Gary Jones resigns amid federal corruption allegations
Scandal ramifications: GM files racketeering lawsuit against FCA, saying it corrupted labor talks
"GM is saying here that, through bribery, FCA was getting much better terms with the UAW than GM. And that's how GM was hurt," said lawyer Thomas Ajamie, a RICO lawyer with offices in New York and Houston. "But how was General Motors hurt? Is there a legitimate gripe? Yeah. But there are going to be 10 or 20 reasons an auto company is more competitive in the market. Maybe their pricing wasn't as good or their advertising wasn't as good or they had more recalls."
That, said Ajamie, is the key. "The issue here is not the claim but the damages. General Motors has to prove what we call causation. Let's say all these things occurred with the UAW. FCA isn't going to say these things didn't occur. People have been convicted. But did it result in poor earnings for GM? What if their pricing stinks or it's a poorly run company? They can say people did illegal things and some went to jail but ... GM has got to show damage."
The difference between federal prosecutors claiming RICO and private parties claiming RICO is that federal officials only need to show that the actions were committed, while private parties must prove damage, legal experts said.
And that is a significant challenge.
Is GM injured?
John Floyd, an Atlanta-based RICO lawyer, called the strategy to file under RICO "innovative" and emphasized, "GM can only sue for an injury to itself. GM has to be injured in its business or property."
Proving damages can be difficult, Floyd said. "The only thing GM can sue for is an injury to business which it directly suffered based on misconduct.
"That can be difficult to establish," Floyd said. "It is one of the first hurdles GM will face. One argument that Fiat Chrysler can make is, basically, profitability is also impacted by things like financing and desirability of the cars. Just because one company may be able to make a car for less money doesn’t mean consumers will actually buy it. There are other issues like design and credit."
Lawyers for both GM and FCA will be talented and the fight will be brutal, experts said.
"GM's theory is somewhat innovative," Floyd said. "Let's just assume for the purpose of discussion that all the misconduct that GM alleges actually occurred. If it is all true, is that enough? That's the threshold. There will be some level of argument that even if this misconduct occurred, the relationship between the misconduct and financial injury to GM is not direct enough for the purposes of RICO."
Legal experts emphasized proving a conspiracy to financially imperil GM or take action that leads to a merger may be difficult, since GM never actually merged with anyone and its profit has been strong.
After reviewing the case, Floyd noted there are "very few detailed allegations stating how the alleged misconduct directly harmed GM. That is their hurdle."
The whole effort seems tenuous, said legal analyst Gary Klotz, a former labor lawyer in Detroit.
"It's an interesting lawsuit and legal theory, but proving that the criminal enterprise, not other factors, such as FCA’s weaker finances, resulted in lower labor costs could be difficult," Klotz said. "Plus, a lot of dead and hostile witnesses. It's hard to prove the GM allegations without witnesses. You need witnesses to demonstrate that FCA and the UAW conspired to give FCA more favorable terms ... that would seem to be essential."
Former Fiat Chrysler CEO Marchionne and the UAW's FCA Vice President General Holiefield, an early figure in the union's corruption scandal, are both dead.
GM sued VW, too
GM successfully used RICO in a suit against Volkswagen that resulted in a $100 million settlement in 1997. In that case, GM accused a former executive of stealing confidential documents and trade secrets and taking them to VW.
The German company did not admit to wrongdoing, but it did acknowledge the possibility that illegal activity had occurred. And, in addition to the settlement, VW agreed to purchase $1 billion worth of auto parts from GM.
"While many corporations do not like RICO suits because they are more often the defendant than the plaintiff," Floyd said, "this case shows that it is potentially an effective tool for a large corporation that believes it is the victim of a large fraud."
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This article originally appeared on Detroit Free Press: GM cites mafia law RICO in racketeering lawsuit against Fiat Chrysler