Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Cal.: Automobile dealer’s RICO claim against GM barred by statute of limitations., (Jan 24, 2014)

By Edward L. Puzzo, J.D.

An automobile dealer’s federal RICO and state unfair trade practices claims against General Motors, arising from an allegedly coerced sale of the dealership, was time-barred by a four-year statute of limitations, the federal district court in San Francisco has ruled (Crown Chevrolet v. General Motors, LLC, January 22, 2014, Henderson, T.).

Background. Crown Chevrolet alleged that in 2008, General Motors schemed to force it and certain other GM franchisees to sell their dealerships to the California Automotive Retailing Group (CARG), allegedly because CARG would permit GM to control the operations of the dealerships. Crown alleged that GM used its finance affiliate Ally Financial to threaten the withdrawal of its crucial inventory financing if various financial demands were not met. These demands left Crown no choice, it alleged, but to sell the dealership to CARG for less than fair market value. To compensate, Crown entered into a separate side agreement with CARG, which was to make up for the loss in dealership sale price. However, CARG later defaulted on the side agreement, and Crown reached a settlement with CARG for its default.

Crown alleged that General Motors’s conduct in forcing the sale of the dealership at less than fair market value violated the Racketeer Influenced Corrupt Organizations Act (RICO) and California’s Unfair Competition Law (UCL). In response, GM moved to dismiss on grounds that the claims were barred by the civil RICO four-year statute of limitations. It alleged that the claims accrued in 2008 but the lawsuit was not brought until 2013.

Date of injury. Crown’s injury, the allegedly forced sale of its dealership, occurred in September and October 2008, but Crown argued that it had no reason to suspect that General Motors had entered into a racketeering scheme at that time. It was not until June 2009, when CARG defaulted on its side agreement, that it recognized it was injured, Crown maintained. Therefore, its lawsuit filed in February 2013 was timely. However, General Motors contended that the first default on the side agreement occurred in November 2008. Crown countered that it believed that the November 2008 breach was just temporary and it was not until June 2009 that it discovered that CARG did not intend to fulfill its obligations under the side agreements.

The court ruled for GM. Although Crown may not have realized the full extent of the alleged racketeering scheme until June 2009 or later, the court explained, it is the injury that starts the statute of limitations period. A plaintiff is not required to discover that the injury is part of a pattern of racketeering for the period to begin to run.

In this case, if the injury was the alleged forced sale, the claim accrued in October 2008, the court stated. If the injury were the side agreement breach, that first occurred in November 2008. In either case, Crown’s RICO claim, filed in February 2013, was barred by the four-year statute of limitations and must be dismissed. The statute of limitations for the UCL was also four years, and accrual of the limitations period is based on the underlying cause of action, which was the RICO claim. Thus the UCL claim was also barred by the statute of limitations, the court concluded.

The case is Civil Action No. 13-cv-01362-TEH.

Attorneys: Jonathan A. Michaels (Michaels Law Group, APLC) for Crown Chevrolet. Anne M. Bevington (Saltzman & Johnson Law Corporation) for Automotive Industries Pension Trust Fund. Gregory Richard Oxford (Isaacs Clouse Crose & Oxford LLP) for General Motors, LLC. Duane M. Geck (Severson & Werson, PC) for Ally Financial Inc.

Companies: Crown Chevrolet; General Motors, LLC; Ally Financial Inc.

Cases: FranchisingDistribution RICO StateUnfairTradePractices CaliforniaNews