Judge orders GM, Fiat Chrysler CEOs to meet over racketeering case

Breana Noble Kalea Hall
The Detroit News

Detroit — Calling the litigation of General Motors Co.'s racketeering lawsuit against Fiat Chrysler Automobiles NV "a waste of time and resources," a federal judge on Tuesday took the unusual step of ordering the companies' two CEOs to meet within the next week to reach a "sensible" resolution.

Last November, GM invoked federal racketeering law often associated with battles against organized crime to accuse Fiat Chrysler's late CEO, Sergio Marchionne, of orchestrating a bribery conspiracy to corrupt three rounds of bargaining with the United Auto Workers in a bid to harm and take over Detroit's largest automaker. GM says it lost "billions" from the arrangement, while Fiat Chrysler calls the allegations "meritless" and is seeking to dismiss the case.

Fiat Chrysler CEO Sergio Marchionne, left, and UAW President Dennis Williams  embraced  at the start of contract talks in 2015. GM charges that Marchionne orchestrated a bribery conspiracy to corrupt three rounds of bargaining with the UAW in an effort to harm and take over Detroit's biggest automaker.

During a motion-to-dismiss hearing, U.S. District Judge Paul Borman scrutinized the merits of GM's case and the prospect of continuing the dispute as the country faces challenges brought on by the coronavirus pandemic amid calls for reforms of the U.S. justice system. Borman ordered GM CEO Mary Barra and Fiat Chrysler CEO Mike Manley to "meet face-to-face, in good faith, and with goodwill" and provide an update to him at noon on July 1.

“If this case goes forward, there will be years of contentious litigation,” Borman said. “These legalities will not only divert and consume the attention of key GM and FCA executives from their day jobs … but also prevent them from fully providing their vision and leadership on this country’s most pressing social justice and health issues.”

Most judges seek to settle cases, said Erik Gordon, a former lawyer and professor at the University of Michigan's Ross Business School. But those negotiations typically are done between the parties' attorneys who are the experts on the case — not the CEOs.

"It is intrusive of the CEOs at a very critical time for them," Gordon said. "It's not just going to the meeting but preparing for this meeting. And they will want to be well-prepared for this meeting. For a judge to say to rearrange your schedule and make this your top priority is very intrusive" — and likely to interfere with vacations scheduled for the traditional July 4 shutdown.

"The fact that GM has not settled and that the judge has now resulted to a strong, almost desperate move on the judge’s part leads you to think that GM is just standing tough and that GM thinks it can prove its case," he added. "Otherwise, the judge would have an easier time because what is harder to prove than a RICO case?"

GM's accusations against Fiat Chrysler stem from a five-year federal investigation into payoffs from Fiat Chrysler executives to UAW officials dating to days after Chrysler Group LLC emerged in 2009 from bankruptcy with $12.5 billion in taxpayer money under the control of a foreign company, Italy's Fiat SpA.

"GM has a very strong RICO case and we look forward to constructive dialogue with FCA consistent with the Court’s order," the Detroit automaker said in a statement.

The federal investigation has resulted in the convictions of 14 people, including three former Fiat Chrysler executives, for bribing United Auto Workers officials with funds designated for training blue-collar workers. Fiat Chrysler and the training center it operates with the UAW have been designated co-conspirators in the government's probe into union corruption. The automaker is in negotiations to settle with the U.S. Justice Department, according to disclosures in Securities and Exchange Commission filings.

In a statement, FCA reiterated its belief that the lawsuit should be withdrawn: "We therefore acknowledge Judge Borman's concerns, and look forward to meeting to discuss them and ideally put this matter behind us."

Experts have said it would not be easy for GM to prove that Fiat Chrysler violated federal racketeering law, undermined collective bargaining in 2009, 2011 and 2015 and hurt GM's business. GM must show that a pattern of racketeering exists, that actions taken during union negotiations directly harmed GM, and that those actions weakened GM's profitability.

Steve Holley, Fiat Chrysler's attorney, echoed previous arguments made in filings by the automaker that GM's lawsuit does not meet the standards for the Racketeer Influenced and Corrupt Organization Act, or RICO. He cited a "lack of causation," stating it is speculative to assume $1.5 million in prohibited payments led to billions of dollars in damages for GM.

"The entire notion that FCA sought to increase GM's labor costs in order to somehow soften GM up for a merger defies economic logic," Holley said. "GM has not explained why having higher labor costs would make GM any more willing to merge with FCA, or why FCA would ever want its prospective merger partners to be saddled with unfavorable collective bargaining agreements for the next four years."

The automaker also argued that the rank-and-file are the direct victims of the alleged conspiracy, as RICO requires, not GM. FCA stated it did not execute proprietary control over the union that it argued is needed in such a case.

And the case, according to the Italian American automaker, falls outside the four-year statute of limitations because GM would have known it had higher labor costs in its 2015 contract before it was ratified. GM filed the suit on the four-year anniversary of the ratification of its 2015 contract — shortly after FCA shared its intentions to merge with French automaker Groupe PSA, maker of Peugeot and Citroën vehicles in a combination that would surpass GM in volume and create the world's fourth-largest automaker.

GM argued with frequent questions from Borman that it was the intended target of the scheme and that it's merely seeking the billions in damages it incurred because of increased labor costs resulting from the bribes.

“This was a pay-to-harm scheme implemented by defendants literally within weeks of entering the U.S. marketplace in 2009," GM Counsel Jeff Willian said. "Year after year, FCA bribed UAW leaders to provide FCA with certain structural labor advantages that were expressly denied to GM."

Borman questioned whether certain benefits FCA received were given to help the company stay alive after Fiat gained ownership of Chrysler Group LLC following the company’s 2009 bankruptcy. Willian told the judge the benefits granted to FCA came from bribing UAW officials, not through the bankruptcy agreements.

Willian said GM was a direct victim of the scheme as it had to follow the pattern set by FCA in 2015 when it bargained with the UAW first or else face a "very costly strike."

In the 2011 negotiations, when the UAW had no right to strike because of terms set by the federal bankruptcy agreement, GM asked for specific structural programs “that the UAW denied because it was being bribed," Willian said. "FCA instructed not to give those programs to GM, and GM was denied those savings programs incurring higher costs.”

In negotiations, the UAW holds "market power," Willian said. Only later, when the federal investigation discovered the bribery, would GM realize the denial of certain concessions by the union given to FCA was the result of that scheme and not good faith bargaining, he said.

Borman responded: “You're saying the UAW did it, but the UAW is not a defendant in this case, and they seem to be the one that everything is aimed at, their conduct, and yet they're not a defendant in this case.”

While the UAW might not be a defendant, Willian said the union is a “co-conspirator” that was “used as a tool to directly harm GM.”

GM added it could not have known about the injuries of the conspiracy until January 2018 when former FCA labor negotiator, Vice President Alphons Iacobelli, who is serving a 5½-year sentence in federal prison, detailed the scheme. GM’s defense remains flawed as its arguments open up a way for almost any automaker employing UAW members to be a direct victim, said Holley on behalf of FCA.

“GM’s entire argument is based on indictments, plea agreements and sentencing memoranda in cases with which the court is familiar,” he said.

“There is no mention of General Motors in any of those documents. How plausible can it be that GM was the target of this behavior when nobody is talking about General Motors?”

GM has not said how much it is seeking in damages, which could be tripled under RICO. Some analysts have estimated if GM is successful, payouts could be as high as $15 billion.