Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—EDNY: Dealer’s RICO and Other Claims Against American Honda and Competing Dealer Dismissed , (Apr 24, 2013)

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

Motor vehicle franchisor American Honda Motor Co. Inc., was entitled to dismissal of all of the claims asserted against it by one of its dealers, Willis Honda, and the dealer’s principal, because the claims were barred by collateral estoppel. In addition, the non-monetary claims asserted by the plaintiffs against Don Lia, Mobile Management, LLC, and N.R. Automotive (the "Lia parties") and against competing dealer Allstar Motors of L.I., Inc. and another entity and individuals (collectively, the "RICO defendants") were barred by the Rooker-Feldman doctrine. The RICO claims themselves, asserted against the RICO defendants, were dismissed for failure to adequately state claims (W&D Imports, Inc. v. Lia, April 22, 2013, Feuerstein, J.).

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 Lia was an undisclosed de facto owner.

An administrative law judge (ALJ) decision denied the protest and was adopted by the Franchise Committee. Willis Honda’s appeals to the New Jersey Appellate Division and New Jersey Supreme Court were unsuccessful.

The RICO Defendants

The Rooker-Feldman doctrine. The Rooker-Feldman doctrine provides that federal district courts lack subject matter jurisdiction to review final judgments of state courts. The doctrine applies if: (1) the federal court plaintiff lost in state court; (2) the plaintiff complains of injuries caused by a state court judgment; (3) the plaintiff invites district court review and rejection of that state court judgment; and (4) the state court judgment was rendered before the federal proceedings commenced.

According to the RICO defendants, all of plaintiffs’ claims against them were barred because the final decision of the Franchise Committee upheld American Honda’s decision to establish the Hamilton dealership and to award the franchise to Allstar, and the Franchise Committee’s decision was affirmed by the New Jersey Appellate Division.

The non-monetary relief requested by plaintiffs would, if granted, require the court to void the state court judgment authorizing American Honda’s award of the Hamilton dealership to Allstar and which remains in full effect. Therefore, the court lacked subject matter jurisdiction: (1) to declare that the administrative decision was procured unlawfully; (2) to order the RICO defendants to divest themselves of any interest in the Hamilton dealership; (3) to enjoin American Honda from continuing its relationship with the RICO defendants; and (4) to award Willis Honda the Hamilton dealership, the court determined. Thus, plaintiffs’ non-monetary claims for relief against the RICO defendants were dismissed with prejudice.

However, the Rooker-Feldman doctrine did not deprive the court of jurisdiction over claims that alleged fraud in the procurement of a state court judgment. The plaintiffs alleged that the RICO defendants conspired to commit fraud upon American Honda during the dealer selection process and that such conduct preceded the state court judgment. Thus, the Rooker-Feldman doctrine did not bar plaintiffs’ monetary claims based on the alleged fraud against the RICO defendants.

Section 1962(c). A plaintiff alleging a 1962(c) violation must allege conduct of an enterprise, through a pattern of racketeering activity, as well as injury to business or property as a result of the RICO violation, the court noted.

Here, the plaintiffs failed to adequately allege an open-ended pattern of racketeering, the court held. The plaintiffs were required to show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed.

The RICO defendants’ underlying business activity, operating a Honda dealership, was not inherently illegal, and therefore a threat of continuing criminal activity was not presumed. Moreover, the plaintiffs failed to allege that the unlawful predicate acts in the complaint were the RICO defendants’ regular way of conducting business or that there was an implied continuing threat of criminal activity. Thus, plaintiffs’ 1962(c) RICO claim was dismissed.

Section 1962(d). Under Section 1962(d) of RICO, it was illegal for any person to conspire to violate Section 1962(c). A RICO conspiracy required evidence that a defendant participated in the enterprise through a pattern of racketeering activity, or, agreed to do so.

Since the plaintiffs failed to adequately allege a pattern of racketeering activity, their RICO conspiracy claim was also dismissed, the court ruled.

State law claims. Given that all of the plaintiffs’ federal law claims against the RICO defendants were dismissed, the court declined to exercise supplemental jurisdiction over plaintiffs’ pendent state law claims against the RICO defendants.

American Honda

Collateral estoppel. The doctrine of collateral estoppel prevented parties or their privies from relitigating in a subsequent action an issue of fact or law that was fully and fairly litigated in a prior proceeding.

Here, the sufficiency of the dealer selection process and American Honda’s basis for the selection of Allstar for the Hamilton dealership were addressed at length in the ALJ’s opinion, and the findings were reviewed and affirmed by the Franchise Committee and the Appellate Division, according to the court.

The plaintiffs argued that they were not able to assert in the administrative proceeding the causes of action asserted here and that therefore the decision in that proceeding should not be given preclusive effect. However, it was clear that the same issue of fact, the propriety of American Honda’s rejection of Willis Honda’s application and award of the dealership to Allstar, was fully and fairly litigated in state court. Further, the plaintiffs failed to show that they were deprived of a fair opportunity to litigate the issues due to limitations on discovery in the administrative proceeding, the court held.

Thus, the plaintiffs’ claims against American Honda were barred by the doctrine of collateral estoppel and were dismissed.

The case is No. 11-CV-4144(SJF)(ETB).

Attorneys: Eric L. Chase (Bressler Amery & Ross, P.C.) for W&D Imports, Inc. Daniel Esrick (Wilmer Hale LLP) for American Honda Motor Co., Inc.

Companies: W&D Imports, Inc.; American Honda Motor Co., Inc.

Cases: FranchisingDistribution RICO NewYorkNews