Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Suit driving ahead in dispute over alleged sale of Lamborghinis to resellers, (Oct 15, 2024)

By Seth Abrams, J.D., M.A.

Fraud was stated with the required specificity against all three of the defendants.

The federal district court in Chicago denied defendants Gold Coast Exotic Imports, LLC (Gold Coast), Joseph J. Perillo, Sr. and Tahir Ali Kanwar’s motion to dismiss claims of fraud and breach of contract brought by Automobili Lamborghini America LLC (ALA). ALA entered into an agreement with Gold Coast to serve as an authorized Lamborghini dealer. ALA alleges that, beginning in 2019, the defendants violated this agreement by selling Lamborghini vehicles to known resellers and misreporting the sales in Lamborghini’s online system. The court held that ALA’s fraud claim was not based on identical facts and conduct as its breach of contract claim. Also, the court found that ALA stated a fraud claim against all three defendants with the specificity required by Rule 9(b) (Automobili Lamborghini America LLC v. Gold Coast Exotic Imports, LLC, No. 1:24-cv-00162 (N.D. Ill. Sept. 30, 2024)).

Background. ALA, the U.S. importer and distributor of Lamborghini vehicles, prohibited its dealerships from selling new vehicles to anyone other than “bona fide retail customers.” This included a prohibition on selling a new vehicle to anyone that the dealer “knows or reasonably should have known intends to sell the vehicle to a wholesaler, an independent, a broker, or a dealer that is not an authorized Lamborghini dealer.” ALA’s Bonus Program provides for “thousands of dollars in bonus payments” for each car sold in compliance with their policies, which required the reporting of correct information and documenting delivery to the final customer. For its supposed compliance, ALA paid defendants more than $4 million in bonus payments since 2019.

In 2009, ALA entered into an agreement with Gold Coast to serve as an authorized Lamborghini dealer. ALA alleges that, beginning in 2019, the defendants violated this agreement by selling Lamborghini vehicles to known resellers and misreporting the sales in the Lamborghini Online Order Management (“LOOM”) system. ALA provided four examples of the fraud where internal records showed sales to resellers, but the sales were reported with false facts to ALA. It was also alleged that defendants were obstructing ALA auditing by not permitting access to internal records prior to 2022. Overall, the complaint alleges 32 vehicles that were sold in violation of the parties’ agreement. This information comes from the 2023 audit of defendants’ records since 2022.

In January 2024, ALA brought two counts under Illinois law. The first was for fraud; the second was for breach of contract. Defendants moved to dismiss the claims on two grounds. They argued that the ALA’s “fraud claim is based on identical facts and conduct as its breach of contract claim, and thus must be dismissed under Illinois law.” Second, the defendants argued that the fraud claim against each of them was not pled with the requisite particularity.

Not identical conduct underlying claims. ALA alleged that the defendant breached the dealer agreement by selling new vehicles to known resellers and by refusing access to their full records. The fraud claim, on the other hand, is not focused on the “actual sale of vehicles or access to records, but instead focuses on misrepresentations made by defendants to plaintiffs after the sales had been made.” The court concluded that ALA alleged that defendants “breached their contract by making the sales in the first place” and “committed fraud by misrepresenting those sales.” The concealment of the sales and LOOM submissions of false information both constituted “distinct facts” separate from the breach of contract claims. These alleged facts regarding the concealment and submission of false information “independently give rise to the fraud allegations.” The court also found that the fraud claim would not result in double recovery for the same harm. The court also determined that ALA sufficiently alleged reliance on the misrepresentations.

Particularity of fraud claims. Defendants alleged that ALA did not allege the “what” and the “who” of the alleged fraud by Gold Coast. Because ALA alleged a fraudulent scheme spanning at least four years and dozens of transactions, they can meet the heightened pleading standard of rule 9(B) by alleging representative examples of the fraud with sufficient particularity. The court noted that “the ‘what’ is clear.” For each vehicle, ALA alleged that the defendants sold the vehicle to “a known reseller, and subsequently falsely reported the sale though the LOOM system.” The court noted that the who is also clear as the complaint names Kanwar as the individual responsible for the submission of “sham buyer information to ALA.”

The court permitted the claims to proceed against Perillo. ALA claimed that he directed the fraudulent scheme with knowledge. Where the facts are not accessible to the plaintiffs and the plaintiff have grounds for suspicion, allegations based on information and belief may be sufficient under Rule 9(b). Given the long duration and large scope of the alleged scheme, Perillo “would be in a position to authorize” the alleged conduct. Permitting the claims to go forward met the purpose of Rule 9(b). The court also permitted the claims to proceed against Kanwar. The complaint states the misrepresentations by Kanwar. It also “states when they were made, explains their significance, and notes that they were made through the LOOM system.”

The Case is No. 1:24-cv-00162.

Judge: Pallmeyer, R.

Attorneys: Marlow Elizabeth Svatek (Barack Ferrazzano Kirschbaum & Nagelberg LLP) for Automobili Lamborghini America LLC. Ira M. Levin (Burke, Warren, Mackay & Serritella, PC) for Gold Coast Exotic Imports, LLC d/b/a Lamborghini Gold Coast.

Companies: Automobili Lamborghini America LLC; Gold Coast Exotic Imports, LLC d/b/a Lamborghini Gold Coast

Cases: FranchisingDistribution IllinoisNews