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Federal Judge Quashes GM’s Racketeering Suit Against Fiat Chrysler

A federal judge in Detroit ruled Wednesday that sweetheart deals motor conglomerate Fiat Chrysler got from the United Auto Workers by bribing their leaders hurt workers first and competitors second, dismissing a suit brought against the company by General Motors.

DETROIT (CN) — A federal judge ruled Wednesday that sweetheart deals motor conglomerate Fiat Chrysler got from the United Auto Workers by bribing their leaders hurt workers first and competitors second, dismissing a suit brought against the company by General Motors.

U.S. District Judge Paul Borman, a Clinton appointee, found that while Fiat Chrysler (FCA) had engaged in blatant corruption in its effort to undercut its competitors on labor costs, its ill-gotten gains were not a direct enough harm to General Motors to support its racketeering claims.

The suit stemmed from a bribery scheme dating back to Fiat’s 2009 acquisition of Chrysler. Executives at the Italian automaker made an entrance onto the Detroit scene by showering UAW executive General Holiefield and other union leaders with gifts, cash and mortgage payments. 

Those payments were at least partially taken from the UAW-Chrysler National Training Center, which Holiefield and FCA Vice President Alphons Iacobelli co-chaired. Iacobelli diverted over $1 million in funds from the center, not only for bribes but for personal expenses, including his daughter’s student loans, two pens totalling over $75,000 and a Ferrari.

Ten union officials and three FCA employees have been charged in relation to the scheme since it was revealed in 2017, and several have been convicted. Both Holiefield and FCA president Sergio Marchionne have died since it started, Holiefield in 2015 of pancreatic cancer and Marchionne in 2018.

GM brought its lawsuit to U.S. District Court in the Eastern District of Michigan in 2018 under the Racketeer Influence and Corrupt Organizations Act, a provision of the Organized Crime Control Act of 1970 most famous for helping federal authorities rein in the mafia.

“FCA Group betrayed our government’s and the U.S. auto industry’s trust and embarked on a systemic and near decade-long conspiracy to bribe senior union officials to corrupt the collective bargaining process and labor relations,” GM wrote in its complaint. It contended that FCA’s payments, meant to keep UAW leaders “fat, dumb and happy,” hurt its competitors in Detroit.

GM presented two theories for its contention that FCA caused it “proximate harm,” a requirement for a RICO case, neither of which convinced Borman. The first held that FCA had secured “unique competitive advantages” which were denied to GM through its bribery scheme. Borman, however, pointed out that GM was not alone in that regard.

“The facts alleged indicate that the UAW would not give most of the concessions at issue to any company that was not bribing its officials,” Borman wrote. “GM would never have had access to the same ‘unique competitive advantages’ unless it also bribed the UAW.”

“The direct victims of Defendants’ alleged bribery scheme,” he later added, “are FCA’s workers.”

The second theory, which alleged that FCA had used its bribes to secure the lead company position in collective bargaining agreement negotiations in 2015, fared no better. Collective bargaining in the Motor City follows a “pattern bargaining” system, in which the UAW selects one of Detroit’s three major companies — GM, FCA and Ford — to finalize its first deal with. 

The other two companies’ collective bargaining agreements typically largely follow suit with the first, since the UAW can leverage the first CBA as a template for the others.

FCA’s bribery compromised that process, GM alleged, and the company hurt its competitors by negotiating a CBA far more expensive to GM than it anticipated. Drawn-out contract negotiations between GM and the UAW led workers to the brink of a strike in 2015 before the company caved and signed on to an agreement that followed Fiat’s lead.

The union has continually denied any link between bribes and the contract negotiations, and FCA has denied directing payments.

Borman also found gaps in GM’s logic. He pointed out that at the time of negotiations, FCA and the UAW were already under a federal investigation and had an incentive to prove that they were negotiating in good faith - so any generosity of a collective bargaining agreement was not necessarily directly targeted at GM. 

Additionally, GM was able to reduce the cost impact of the pattern bargaining by about $400 million, damaging the idea that the “weaponized” bargaining was so powerful a tool as GM claimed.

He concluded that it simply wasn’t a direct injury. 

“Even though some of GM’s unanticipated additional labor costs may have resulted from FCA’s scheme to use ‘weaponized’ pattern bargaining to weaken GM,” Borman wrote, comparing those costs to the hypothetical costs of a GM- or Ford-led pattern bargaining process would extend too far into speculation for a RICO claim.

GM said in a statement that guilty pleas from former FCA executives provided enough evidence to show that it was involved in racketeering that harmed GM. FCA, meanwhile, praised the dismissal, saying that the case was meritless.

University of Michigan law and business professor Erik Gordon told the Associated Press that GM may have a shot on appeal despite the difficulty of proving RICO cases. 

“The harm seems like an unfair competitive advantage as a result of bribes,” he said. “If two gymnastics teams are competing and one bribes the judges, does it matter if the judges give the briber more points or give the other team less points?”

The dismissal of the GM suit is one of a very few victories for FCA related to the 8-year bribery scheme. In 2019, the Sixth Circuit affirmed an Ohio federal judge’s decision to dismiss a class action by UAW members working at FCA who alleged that the company’s bribes had incentivized the union to allow age discrimination.

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