Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—2nd Cir.: Dismissal of dealer’s RICO and common law claims upheld, (Apr 16, 2014)

By Peter Reap, J.D., LL.M.

A federal district court correctly dismissed all of the claims asserted against motor vehicle franchisor American Honda Motor Co. Inc., by one of its dealers, Willis Honda, and the dealer’s principal because the claims were barred by collateral estoppel, according to the U.S. Court of Appeals in New York City (W&D Imports, Inc. v. Lia, April 16, 2014, Per Curiam).

Willis Honda failed to adequately state claims against competing dealer Allstar Motors of L.I., Inc. and another entity and individuals because it failed to allege a pattern of racketeering activity, the appellate court ruled.

Background. The plaintiffs asserted numerous claims in connection with American Honda’s award of a new dealership in Hamilton, New York, to competing dealer Allstar and the denial of the plaintiffs’ application for the award of the new dealership. In 2004, Willis Honda filed an administrative protest with the New Jersey Motor Vehicle Franchise Committee against American Honda’s plan for the new dealership. Willis Honda challenged the legitimacy of the proposed dealership on the ground that there was an undisclosed de facto owner. A decision by an administrative law judge (ALJ), denying the protest, was adopted by the New Jersey Motor Vehicle Franchise Committee. Willis Honda’s appeals to the New Jersey Appellate Division and New Jersey Supreme Court were unsuccessful.

On August 25, 2011, the plaintiffs commenced this action, contesting American Honda’s decision to award the Hamilton dealership to All Star. The plaintiffs asserted various common law claims against American Honda. Against the RICO defendants, the plaintiffs claimed violation of the federal and New Jersey RICO laws, tortious interference with present and prospective economic advantage, and equitable estoppel. The district court dismissed the claims against all defendants.

On appeal, the plaintiffs contended that the district court erred in dismissing the claims against American Honda on grounds of collateral estoppel because the ALJ decision lacked adequate procedural and substantive safeguards. The plaintiffs also appealed the decision to dismiss its claims against the RICO defendants for failure to allege a pattern of racketeering activity.

American Honda. Under New Jersey law, the party asserting collateral estoppel must show that: (1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding.

The Second Circuit agreed with the lower court that the ALJ’s decision “demonstrates that the factual allegations forming the basis for each of plaintiffs’ claims against American Honda were fully litigated in the New Jersey administrative proceeding.” The plaintiffs’ argument that alleged perjury over the ownership status of All Star rendered inappropriate the application of collateral estoppel was without merit. As the district court acknowledged, All Star’s ownership specifics were not necessary to the determination, by the ALJ or the reviewing court, that Willis’s claims against American Honda failed, the appellate court ruled.

The RICO defendants. The district court dismissed the RICO claims for failure to establish that the alleged acts “amount[ed] to or pose[d] a threat of continuing activity,” as required to show a pattern of racketeering under RICO. It was not necessary to address American Honda’s arguments for dismissal based on res judicata, the Rooker-Feldman doctrine, or failure to state a claim, the appellate court noted.

On appeal, the plaintiffs asserted that they established an open-ended pattern by showing that, although “the enterprise primarily conducts a legitimate business,” the “nature of the predicate acts themselves implies a threat of continued criminal activity.” However, the alleged predicate acts all related to the finite goal of gaining approval of the All Star application for the Hamilton dealership. These acts did not imply a threat of continued criminal activity in the operation of the Hamilton dealership, the court held.

The plaintiffs also failed to establish a so-called closed-ended pattern in the form of a series of related predicates extending over a substantial period of time. The plaintiffs acknowledged that a “substantial period of time” was at least two years, and the complaint only identified acts over a one and a half year period. Bare allegations that such acts must have continued beyond that period were insufficient to plausibly allege a closed-ended pattern, according to the court.

The case is No. 13-1983-cv.

Attorneys: Eric Lewis Chase (Bressler, Amery & Ross, LLC) and Russell Pries McRory (Robinson Brog Leinwand Greene Genovese & Gluck, P.C.) for W&D Imports, Inc. Herve Gouraige (Sills Cummis & Gross, P.C.) for Don Lia, Mobile Management, LLC, and N.R. Automotive, Inc. Andrew Paul Cooper (Davidoff Hutcher & Citron LLP) for Allstar Motors of L.I. Inc., All Star Motors, LLC, DBA Hamilton Honda. Robert D. Cultice (Wilmer Cutler Pickering Hale and Dorr LLP) for American Honda Motor Co., Inc.

Companies: Mobile Management, LLC.; N.R. Automotive, Inc.; Allstar Motors of L.I. Inc.; All Star Motors, LLC, DBA Hamilton Honda; American Honda Motor Co., Inc.; W&D Imports, Inc.

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