California Court Rejects Dealership’s RICO Claims

 

             A start-up car dealership sued its lender and manufacturer claiming violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), breach of contract, misrepresentation, mail and wire fraud, and other state law violations in connection with a loan evidenced by a motor vehicle inventory loan agreement.  In this case, Ukiah Automotive Investments, entered into a franchise relationship with Mitsubishi Motors of North America pursuant to a sales and service agreement. Under a loan agreement, Mistsubishi Motor Credit of America, Inc. agreed to provide financing for Ukiah’s acquisition of new and used vehicles. During operation of the dealership, Ukiah had several disputes with Mitsubishi Motors, including a claim that Mitsubishi had delivered vehicles that were not ordered or requested by the dealership, which is a violation of California law. Ukiah ceased operations and filed suit against Mitsubishi Motors and Mitsubishi Credit.

 

             Ukiah claimed that Mitsubishi Motors engaged in violations of RICO, specifically through mailings, telephone conversations, faxes, and e-mails to defraud Ukiah into investing substantial sums of money into a dealership product that was worthless. Ukiah alleged that several employees made false statements concerning Mitsubishi Motor’s profits and manufacturing plans as well as the profitability of the dealership. Mitsubishi Motors argued that any claims of this nature were extinguished by reason of the general release provision in the loan agreement.  Ukiah further claimed that the release provision and loan agreement signed was unenforceable as Ukiah was induced by fraud to enter into the agreement with Mitsubishi Motors. In this instance, Ukiah alleged that Mitsubishi Motors fraudulently represented that Ukiah would receive additional financial assistance from the lender with regard to a mortgage to purchase the dealership’s real estate.

 

             The Court ruled that Ukiah did not establish a RICO claim on the grounds that it provided no evidence under the RICO statute that Mitsubishi Motors engaged in racketeering activity. In addition, the Court ruled that Ukiah did not establish that Mitsubishi Motors fraudulently induced it to enter into the loan agreement.  It also found that any state laws that were violated prior to its execution were not actionable, but any state law violations after the execution would be actionable.

 

             Ukiah also claimed that Mitsubishi Credit engaged in violations under the RICO statute through numerous mailings, faxes, emails, and telephone conversations, conspired with Mitsubishi Motors and engaged in an orchestrated plan to defraud Ukiah under the loan agreement.  The Court held that Ukiah did not establish that Mitsubishi Credit violated RICO and failed to identify any false statements, representations or fraudulent activity upon which Ukiah could have reasonably relied.  The Court also held that, while the two entities are related, there was no evidence that they conspired together to commit fraud against Ukiah or that Mitsubishi Credit was aware of any purported misstatements made by Mitsubishi Motors.

 

             While the Court acknowledged that Ukiah could have viable state law claims against Mitsubishi Motors and Mitsubishi Credit, all RICO claims were dismissed. The Court noted that in order to have a successful RICO claim, a plaintiff must identify the misstatements and racketeering activity, which Ukiah failed to do.  Although the bar of establishing a RICO claim is very high, the courts under appropriate circumstances will consider the award of substantial monetary damages for a RICO violation.

            

             This case is cited as Ukiah Automotive Investments v. Mistsubishi Motors of North America, 2006 WL 2067059 (N.D. Cal 2006).