General Motors claims union bribes made by competitor Fiat Chrysler led to increased labor costs that represent a direct harm and give it standing to pursue racketeering claims.
CINCINNATI (CN) — General Motors argued on Thursday before the Sixth Circuit that nearly a decade of bribes by competitor Fiat Chrysler to a union shared by both automakers are sufficient to support racketeering claims, despite a federal judge’s ruling to the contrary.
The Detroit-based auto giant called the lower court’s decision to dismiss its suit “wrong at every turn,” and argued in a brief to the Cincinnati-based appeals court that the billions of dollars in losses it suffered as a result of Fiat’s conduct constitutes a direct harm in support of its suit.
GM sued Fiat Chrysler Automobiles, or FCA, in November 2019, and alleged the Italian-based competitor not only made direct payments to union officials with the United Auto Workers, or UAW, but also lavished gifts and mortgage payments on them to earn more favorable labor deals.
The suit claimed FCA’s scheme dated back to 2009, shortly after Fiat and Chrysler merged, and GM said in its brief that the bribes began with direct payments to then-UAW Vice President General Holiefield.
“These payments,” the brief says, “kicked off a years-long, multimillion-dollar scheme to bribe UAW officers and keep them ‘fat, dumb, and happy.’”
GM said the bribes were used as part of FCA’s negotiating process with the union, and led directly to the European conglomerate getting “sweetheart deals” that left GM at a disadvantage.
U.S. District Judge Paul Borman disagreed, however, and dismissed the suit after he determined the primary victims of any bribery scheme were the union workers whose collective bargaining agreements were altered by the corruption.
Borman, a Bill Clinton appointee, called GM’s allegations “vague and conclusory,” and said the complaint lacked “any specific facts supporting the allegation that a condition of [FCA’s] payments to the UAW officials was denial of concessions and benefits to GM.”
“GM’s high labor costs were not an injury proximately caused by FCA’s bribes, and any competitive injury that GM suffered as a result of FCA’s advantage in labor costs is an indirect injury,” the July 2020 ruling states.
In its brief to the Sixth Circuit, GM said Borman’s decision “rests on a fundamental misunderstanding of the law of proximate cause and pleading,” and pointed out the Racketeer Influenced and Corrupt Organizations Act, or RICO Act, does not allow FCA to “escape liability … just because the scheme corrupts an intermediary.”
FCA disputed GM’s claim the company suffered billions in damages by way of increased labor costs. It pointed out in its brief that not only have several union workers brought individual suits to recover damages, but the federal government has also engaged in a criminal investigation into the bribery scheme.
That investigation, pending at the time FCA’s brief was filed, has since concluded with a plea deal that requires the company to pay a $30 million fine.
Attorney Paul Clement argued Thursday on behalf of GM and told the panel of judges his client was “the direct and intended victim” of FCA’s bribery scheme.
Clement pointed out that GM’s complaint is not about its competitor lowering its labor costs, but its systemic plan to “corrupt their shared union,” the UAW.
U.S. Circuit Judge Jane Stranch, a Barack Obama appointee, asked the attorney about the validity of his client’s claims if FCA had used bribes only to secure more favorable deals for itself.
Clement answered that GM’s proposed amended complaint – which was never accepted by the lower court – included a “powerful, specific allegation” that FCA bribed the UAW official who was in charge of the GM account.
Stranch seemed unconvinced and pointed out later in the virtual hearing that a large portion of GM’s claims rest on speculation.
Clement reminded the panel that no discovery has taken place in the case and disputed Stranch’s point of view.
“We allege very specifically,” he said, “they were in a position to inflict higher labor costs on us … and that they controlled the union.”
Attorney Steven Holley argued on behalf of FCA, telling the court GM’s claims fail because the actions that caused its alleged harm are separate from the actions that form the basis of its RICO complaint.
The attorney said the alleged bribery scheme did not directly harm GM, but rather only affected the collective bargaining agreement signed by the UAW and auto manufacturers. The numerous intervening events between the two, Holley argued, prevents GM from establishing proximate cause.
“You have to show a direct causal connection between the predicate acts … and the alleged harms, which are increased labor costs,” the attorney argued.
He added, “This is not a tort case, this is a RICO case, [and] the proximate cause requirement is applied very strictly in these cases.”
In his rebuttal, Clement told the court “FCA had an obsession with GM and wanted to take it over,” which provided a “direct incentive” for the bribery scheme to saddle his client with increased labor costs.
U.S. Circuit Judges John Nalbandian and Joan Larsen, both appointees of Donald Trump, also sat on the panel. No timetable has been set for the court’s decision.