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RICO Claim on Mercedes Must Be Amended

SAN FRANCISCO (CN) - A federal judge Friday gave a putative class until March 8 to amend RICO claims accusing Mercedes-Benz of defrauding customers by having designated service shops install third-party parts at Mercedes prices.

Lead plaintiff Steve Ferrari filed the RICO class action against Mercedes and its authorized dealers, Autobahn Motors and Sonic Automotive, in September last year.

Ferrari et al. claim Mercedes knew Autobahn, with outlets in Los Angeles and San Mateo counties, used non-genuine parts for its repairs but hid it from customers.

U.S. District Judge Yvonne Gonzalez Rogers dismissed all claims against Mercedes with leave to amend, but let claims of fraud, false advertising and unfair competition stand against Autobahn.

"Plaintiffs have failed to state the required elements of a RICO claim against both the Autobahn defendants and MBUSA. Further, plaintiffs have failed to allege the state law claims against MBUSA," Gonzalez Rogers wrote. "Moreover, while plaintiffs have set forth minimally sufficient allegations on their state law claims against Autobahn, the Court encourages plaintiffs to amend their claims against these defendants as well, to eliminate redundant or wholly conclusory allegations and to streamline the pleading so that it states the claims with precision and economy, eliminating extraneous or irrelevant allegations.

Gonzalez Rogers said the civil RICO statute does not allow plaintiffs to pursue claims that Mercedes aided and abetted a scheme to make customers pay premium prices for non-original parts. She also dismissed claims that Mercedes actively concealed the fraud, finding the plaintiffs offered conflicting statements on the carmarker's knowledge of and role in the scheme.

At one point the lawsuit states that Mercedes engaged in an "actual overt cover up" and "learned of the practice and chose to keep silent about it." But it states later that Mercedes "took immediate efforts to require Autobahn Motors to stop the use [of] non-OEM parts."

OEM is auto industry jargon for original equipment manufacturer.

Rogers also tossed claims of wire fraud and mail fraud against Mercedes but let them stand against Autobahn, based on evidence that the dealer lied about its use of original parts in mailings, phone calls and emails.

The judge also rejected money laundering claims, finding the plaintiffs failed to show the defendants engaged in financial transactions to promote an illegal activity or hide illegal profits.

False advertising and unfair competition claims under California law were also dismissed against Mercedes, but Rogers refused to toss the claims against Autobahn.

"Plaintiffs' allegations - that they and similarly situated consumers were misled by Autobahn's advertising and conduct which continues to present - are sufficient to state a basis for seeking injunctive relief," Rogers wrote.

She gave the plaintiffs until March 8 to file a first amended complaint, and the defendants until March 29 to file a response.

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