Antitrust Law Daily Wrap Up, RICO—NDCal: Former Dealership Employees Compelled to Arbitrate RICO Claims, (Dec 6, 2012)

By Jody Coultas, J.D.

The federal district court in San Francisco granted a car dealership’s motion to compel arbitration of its claims, including Racketeer Influenced and Corrupt Organizations Act (RICO) violations, against former employees because the claims were within the scope of the arbitration agreement between the parties (Sonic Fremont, Inc. v. Ibraham Faizi, December 5, 2012, Cousins, N.).

Sonic Fremont, Inc. operated a retail automobile dealership. The former employees allegedly resold at a profit vehicles purchased from Sonic for personal use and misappropriated sensitive information about customer identities and financial data for a competing car dealership they formed. Sonic claimed that in violation of RICO, the former employees used wire transfers, financial institutions, and financial instruments in order to effectuate the sales of vehicles and to set up the competing dealership. Sonic moved to compel arbitration of its claims.

When considering a motion to compel arbitration, a court determines whether a valid agreement to arbitrate exists and, if it does, whether the agreement encompasses the dispute at issue.

The facts alleged in conjunction with the RICO claim conferred federal subject matter jurisdiction, according to the court. Sonic alleged that the former employees made a $15,000 profit on the improper resale of a vehicle he had purchased from Sonic through the use of wire transactions and used financial institutions and financial instruments to perpetrate the fraud. Wire fraud is one of the many offenses that constitute racketeering activity and the employees engaged or attempted to engage in a monetary transaction in criminal derived property of a value greater than $10,000.

Because the claims fell within the term of the arbitration agreement, the court granted the dealership’s motion to compel arbitration. The arbitration clause stated that the parties agreed to arbitrate any claim arising from, related to, or having any relationship or connection whatsoever with the employees’ seeking employment with, employment by, or other association with Sonic. The former employees allegedly profited from financial incentives and selling vehicles they had purchased at discounted prices available to them because of their employment with Sonic, formed a competing company, took kick-backs from competitors, and misappropriated customer data. Many of the harms alleged, were only actionable because the former employees were employees at the time of their actions. Therefore, the claims arose from and had a connection to employment with Sonic and were arbitrable.

The case is No. 12-cv-04537 NC.

John Phillip Boggs (Fine Boggs & Perkins LLP) for Sonic Fremont, Inc. J. Gary Gwilliam (Gwilliam Ivary Chiosso Cavali & Brewer) for Ibraham Faizi.

Cases: RICO CaliforniaNews