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Fiat Chrysler says GM's racketeering suit fatally flawed

Breana Noble Robert Snell
The Detroit News

Fiat Chrysler Automobiles NV asked a judge Friday to dismiss General Motors Co.'s multibillion-dollar racketeering lawsuit, saying its claims express "fatal flaws" and make "hyperbolic assertions."

In an unprecedented move in November, GM sued Fiat Chrysler under federal laws typically used to prosecute organized crime. GM alleged the Italian American automaker's late former CEO, Sergio Marchionne, orchestrated a multimillion-dollar conspiracy that corrupted three rounds of bargaining with the United Auto Workers to harm GM in an attempt to engineer a takeover. GM says the scheme cost it "billions."

In court filings, Fiat Chrysler argues General Motors' allegations do not meet the requirements of the Racketeer Influenced and Corrupt Organizations Act as it was not directly harmed by the alleged wrongdoing. FCA also denies that it exhibited the control over the union that GM says it did and that its claims make "no sense as a matter of basic economics." The UAW chose Fiat Chrysler as the first company with which it would negotiate contracts in 2015, forcing GM to follow its lead.

"It is ridiculous for GM to contend that FCA made large concessions to the UAW that harmed FCA itself without any corresponding benefit," FCA US LLC attorney Steven Holley wrote. "Even if FCA assumed those concessions would also harm GM, nothing in the Complaint explains why increased labor costs would make GM more amenable to merging with FCA, or why FCA would want to saddle both FCA and GM with unfavorable long term (contracts) if it hoped to run the merged company."

Fiat Chrysler Automobiles NV early Friday evening requested a judge dismiss General Motors Co.'s unprecedented racketeering lawsuit, denying allegations that Italian American automaker's late former CEO, Sergio Marchionne, orchestrated a conspiracy that corrupted three rounds of bargaining with the United Auto Workers to harm GM in an attempt to take over it.

The racketeering battle comes amid the continuing federal investigation into UAW corruption that has charged 13 union and FCA officials, convicted 11, implicated Marchionne and two former UAW presidents. Payoffs from Fiat Chrysler executives to UAW officials, according to federal prosecutors, began within days of Chrysler Group LLC emerging in 2009 from bankruptcy with $12.5 billion in taxpayer money under the control of a foreign company, Italy's Fiat SpA.

The findings in a years-long corruption probe into the union have tarnished the company's revival and the reputation of Marchionne, who has been held as a giant in the industry, as well as undermined the once-clean union's credibility and exposed it to federal takeover. GM's success in the feud would be another injury for FCA, though experts say the allegations will be difficult to prove.

"Today’s motion is no surprise," GM spokesman Jim Cain said in a statement. "It is a predictable tactic taken by the defendants, and we look forward to responding in court. We are confident in the legal and factual underpinnings of our case, which have already been documented in part through the guilty pleas and admissions of FCA executives made in connection with the government's ongoing criminal investigation."

Fiat Chrysler wants a judge to postpone further investigation into GM's claims until its request for dismissal is reviewed, saying the request for evidence is "massive" and expensive. And the federal investigation into union remains open, it notes, arguing "there is no reason to take the risk that discovery in this case will interfere with an ongoing criminal investigation."

Fiat Chrysler denies it had control of the UAW to further its intentions to merge with General Motors. And even if it had, based on GM’s argument, the direct victims would be FCA hourly workers who were paid, on average, lower hourly wages, and the U.S. government, which was defrauded by former UAW officials concealing illegal benefits and omitting them from tax forms, according to the filing Friday.

"The Racketeer Influenced and Corrupt Organizations Act authorizes civil actions only by '[t]he direct victim of th[e] [alleged]conduct' — meaning that persons who claim to have incurred harm 'beyond the first step' in the causal chain cannot assert a RICO claim," Holley wrote. "... At best, GM was third in line."

GM’s alleged damages are speculative and would be difficult to quantify, FCA’s lawyer wrote: “GM cannot simply point to the ‘labor cost disparity’ between FCA and GM, and then contend that the entire difference represents damages to GM."

Additionally, FCA takes issue with GM's timing. It argues that GM waited too long beyond the four-year statute of limitations, and that the Detroit automaker would have known its labor costs were greater than Fiat Chrysler's before Nov. 20, 2015 — the date when UAW members employed by GM ratified their contract with the automaker. Meanwhile, GM filed the lawsuit weeks after Fiat Chrysler said it intended to merge with French automaker Groupe PSA.

“Even if one could believe that GM’s intention was not to disrupt that transaction, its strategic delay is inexcusable,” Holley wrote.

GM says Marchionne schemed with UAW officials in an attempt to take over and merge with the Detroit automaker. The lawsuit portrays Williams, president of the UAW until last year and a longtime friend of Marchionne, as a willing participant in the conspiracy.

FCA's attempted takeover dates to 2009, GM says, when Fiat acquired the diminished Chrysler Group at the behest of the Obama administration's auto task force during the Great Recession. The attempts intensified, according to the lawsuit, in fall 2014 when Fiat and Chrysler merged into FCA, leaving Marchionne in control of the combined entity.

GM alleges FCA "corrupted the implementation" of UAW collective bargaining agreements in 2009 while exiting their federally induced bankruptcy. GM also says FCA under Marchionne "corrupted the negotiation, implementation, and administration of the 2011 and 2015 agreements."

The alleged end goal: to inflict high, unanticipated labor costs on GM and force the company to merge. Before the UAW selected FCA to lead 2015 negotiations, the union presented demands that cost under $1 billion on the 2015 contract. But it ultimately cost GM more than double that, according to the lawsuit.

Federal prosecutors have made reference to Marchionne's involvement in the bribery scheme. In August 2018, The Detroit News identified him as "FCA-1" in government filings. Sources revealed to The News that Marchionne gave an expensive Italian watch to UAW Vice President General Holiefield and failed to disclose the gift while being questioned by federal investigators. Marchionne was not charged before he died July 25, 2018, in a Zurich hospital at the age of 66.

GM has not said how much it is seeking in damages, which could be tripled under the Racketeer Influenced and Corrupt Organizations Act. Some analysts have estimated if GM is successful, payouts could be as high as $15 billion.

The threat has not had an effect on the Fiat Chrysler's intentions to combine with PSA. PSA CEO Carlos Tavares, who would lead the combined entity, has said he supports FCA's statement that the claims are meritless.


Twitter: @BreanaCNoble