On The Case

In bid to revive RICO suit v. Fiat, GM hits trial judge for calling case ‘a waste of time’

(Reuters) - How much mileage can GM get from a lapse of discretion by U.S. District Judge Paul Borman of Detroit?

The automaker seems to be hoping, based on a new brief at the 6th U.S. Circuit Court of Appeals, that an intemperate (and eventually overturned) June 23 order - in which Judge Borman called GM’s multibillion-dollar racketeering suit against Fiat Chrysler “a waste of time and resources” and a “huge legal distraction” – will help persuade the appeals court that the trial judge was “patently wrong” when he dismissed GM’s case (2020 WL 3833058) in July.

GM’s 2019 suit is rooted in a three-year Justice Department investigation of a bribery scheme involving Fiat executives and UAW officials. (More than a dozen defendants, including a former UAW president and a former Fiat VP, have pleaded guilty to DOJ charges.) According to GM’s lawyers at Kirkland & Ellis, GM was a direct victim of the bribery conspiracy because Fiat’s payoffs to UAW officials were designed to raise GM’s labor costs and pressure GM to acquiesce to a merger with Fiat.

Fiat’s lawyers at Sullivan & Cromwell moved to dismiss the suit in January. The company denied knowledge of illegal payments. It also argued that GM failed to show it was a direct victim of the alleged conspiracy. The U.S. Supreme Court’s civil RICO precedent, Fiat argued, requires plaintiffs to allege that the racketeering scheme specifically targeted them. But GM’s own theories, Fiat said, portrayed it as an indirect victim of a conspiracy that primarily hurt UAW members.

Judge Borman gave the first hint of skepticism about GM’s case in an order in February denying GM’s motion to begin discovery. Ordinarily, the judge said, he allows discovery to proceed while dismissal motions are pending. But “this is not an ordinary civil case,” he said, citing GM’s nearly 100-page complaint. By pausing discovery until after a decision on dismissal, Judge Borman said, he was exercising his discretion to “discourage wasteful pretrial activities and to secure the just, speedy, and inexpensive determination of every action.”

Then at a June 23 hearing on Fiat’s dismissal motion, held by videoconference because of COVID-19 restrictions, the judge peppered GM lawyer Jeffrey Willian of Kirkland with questions about whether it had plausibly alleged a proximate link between the racketeering scheme and harm to GM.

But the end of the hearing was when the judge tipped his hand, to say the least. “If this case goes forward, there will be years of contentious litigation, motion hearings, multiple-day depositions of large numbers of key executives and former executives at GM and FCA, as well as UAW officials and other defendants and many third parties and a plethora of RICO, labor law and damages experts,” he said. All that time spent on litigation, he said, would divert the leadership of GM and Fiat from running their companies – and at a time when the U.S. desperately needs vision from corporate leaders to “rescue this country and its citizens from the plagues of COVID-19, racism and injustice,” Judge Borman said, specifically citing the COVID-19 pandemic and the killing of George Floyd.

“What a waste of time and resources now and for the years to come in this mega-litigation if these automotive leaders and their large teams of lawyers are required to focus significant time-consuming efforts to pursue this nuclear option lawsuit,” the judge said. He ordered the CEOs of Fiat and GM to meet in person “to reach a sensible resolution of this huge legal distraction.”

The judge read his order from the bench and later entered it in the docket in written form. GM, as you would imagine, filed an immediate mandamus petition at the 6th Circuit.

The appeals court stayed Judge Borman’s order on June 29 and granted mandamus on July 6, holding that Judge Borman had abused his discretion by ordering the CEOs to meet (and to meet in person). Judges have latitude, the appeals court said, to encourage parties to settle, but Judge Borman went too far – and, in mentioning COVID and the death of George Floyd, offered justifications that have nothing to do with the case.

The 6th Circuit refused, however, to disqualify Judge Borman from the case. And only two days after the mandamus ruling, the judge granted Fiat’s motion to dismiss, holding that GM had not made the requisite showing that the racketeering scheme led directly to its alleged injury. “The direct victims of defendants’ alleged bribery scheme are (Fiat’s) workers,” the judge wrote. “GM’s high labor costs were not an injury proximately caused by (Fiat’s) bribes, and any competitive injury that GM suffered as a result of (Fiat’s) advantage in labor costs is an indirect injury.”

In Tuesday’s brief, GM appellate lawyer Paul Clement of Kirkland argued that Judge Borman got the law wrong, disregarding 6th Circuit precedent from 2013’s Wallace v. Midwest Financial (714 F.3d 414) on the causation standard for civil RICO claims and improperly resorting to speculation about the plausibility of GM’s allegations.

But the company didn’t stop at legal analysis. It also contended that the judge had abused his discretion in his handling of the case. “From the outset, the district court’s treatment of the case was unusual, to say the least,” GM said. And the conclusion Judge Borman reached, GM argued, “betrayed the same impermissible prejudgment of the ultimate merits that led (him) to openly deride this litigation as a ‘waste of time and resources’ and a ‘huge legal distraction’ in committing mandamusable error.” The brief quoted Judge Borman’s June 23 order no fewer than five times.

Fiat counsel Steven Holley of S&C referred my email query to a Fiat spokeswoman who did not immediately respond.