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Mercedes-Benz Ducks RICO Suit Over Car Parts

A federal judge tossed a racketeering suit against Mercedes-Benz that claimed the automaker’s service department routinely installed third-party parts at Mercedes prices.

SAN FRANCISCO (CN) – A federal judge tossed a racketeering suit against Mercedes-Benz that claimed the automaker’s service department routinely installed third-party parts at Mercedes prices.

U.S. District Court Judge Yvonne Gonzalez Rogers dismissed the case without leave to amend, meaning lead plaintiff Steve Ferrari and his 18 co-plaintiffs will not be permitted to adjust their claims and try again. The judge said the plaintiffs failed to meet the rigorous standards of a Racketeer Influence Corrupt Organization (RICO) violation.

In the RICO claim, the plaintiffs said Mercedes-Benz’s top-level executives engaged in mail and wire fraud when they created advertising that showed the superiority and longevity of auto parts manufactured by Mercedes-Benz, but instead used generic parts while charging premium prices.

“Even a liberal reading of the RICO pleading requirements is stretched to a breaking point with this theory,” Gonzalez Rogers wrote in the 9-page order.

The named CEOs of Mercedes-Benz USA, including Ernest Lieb and Steve Cannon, would have had to knowingly direct fraudulent behavior in order to be held liable under RICO claims, behavior that plaintiffs failed to adequately show, according to Gonzalez Rogers.

“The allegations do not describe conduct of any of the defendant CEOs,” she wrote. “Lieb himself is alleged to have ‘influenced’ MBUSA to undertake this conduct, no more. The allegations against Cannon are thinner: he is alleged to have ‘corruptly influenced’ MBUSA and to have been president and CEO of MBUSA from 2011-2015, with the remainder of the claim simply incorporating the same allegations as made against Lieb.”

The initial complaint also accused dealerships Autobahn Motors and Sonic Automotive of reselling original parts to third parties, using non-original parts to repair customer vehicles, and then charging customers Mercedes prices for non-genuine parts.

Earlier this year, Gonzalez Rogers dismissed the complaint with leave to amend, finding in part that the RICO does not authorize holding companies like Mercedes liable for allegedly "aiding and abetting" a fraud scheme.

She again granted Mercedes and its dealerships' motion to dismiss the lawsuit with leave to amend this past May.

Mercedes had argued that Ferrari's first amended complaint suffered from the same defects as its original lawsuit – namely that it was "rife with contradictions" on Mercedes' role in the alleged conspiracy.

For instance, the complaint said Mercedes knew of and actively concealed the scheme, but also that Mercedes "should have known" about the use of non-original parts and that it "could have found out all about the non-OEM fraud.”

Gonzalez Rogers’ dismissal centered on the inadequacy of the pleadings in terms of clearly demarcating how and to what extent Mercedes participated in the alleged scheme.

Autobahn said in its motion to dismiss that the plaintiffs failed to adequately allege the existence of RICO enterprise because there was no "distinct enterprise conduct" between Autobahn and its employees.

The dealerships also argued the plaintiffs failed to specify what representations the dealerships made to plaintiffs that led them to believe the replacement parts would be original equipment manufacturer, or OEM, parts.

Mercedes attorney Robert Hawk of Hogan Lovells in Menlo Park did not immediately return emails seeking comment Tuesday morning.

Autobahn attorney Bruce Nye of Adams Nye in San Francisco declined to comment, citing his client’s policy toward commenting on litigation.

Ferrari's attorney, Herman Franck of Sacramento, California, did not return an emailed request for comment.

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