Fiat Chrysler fired back against Illinois dealerships that filed a civil racketeering lawsuit alleging FCA paid dealers to improperly inflate sales, saying the allegations are “baseless” and an attempt to “publicly smear” the automaker.
The response, filed late Thursday in U.S. District Court in Chicago, is the first legal salvo from FCA since dealerships owned by the Napleton Automotive Group filed a suit on Jan. 12.
In its response Thursday, FCA seeks to have the Napleton dealerships’ suit dismissed entirely, saying it is “replete with conclusory allegations, substitutes vitriol for plausibility, and relies on wholly illogical theories devoid of any legal support.”
FCA’s response alleges that the Napleton dealerships had sued FCA after the automaker had notified Napleton’s “crown jewel” -- Napleton’s Arlington Heights Motors in Arlington Heights, Ill. -- that it had failed “to achieve the minimum level of sales that it had agreed to in its dealer agreements.”
FCA uses a metric it calls “minimum sales responsibility” to measure the effectiveness of its roughly 2,650 U.S. dealerships. A dealership’s minimum sales responsibility is roughly defined as a contractually agreed share of a region’s total sales, given FCA’s overall market share in that geographic region.
FCA said that when the automaker “refused to exempt Arlington Heights from its contractual undertakings, Arlington Heights doubled-down by filing an amended complaint where five more Napleton dealers suddenly discovered, after years of operating as FCA dealers, that they too are allegedly being driven out of business.”
Napleton Automotive Group, based in Westmont, Ill., is No. 36 on the Automotive News list of the top 150 dealership groups based in the U.S. The group reported total new retail unit sales last year of 22,670 and total group revenues in 2015 of $1.49 billion.
Ed Napleton, president of Napleton Automotive Group, said late Thursday that he had not yet seen FCA’s motion to dismiss the group’s lawsuit but that the response was not unexpected.
“These people at Chrysler are bad guys, and they do a lot of bad things under the guise of their sales agreements, default letters, termination processes,” Napleton told Automotive News. “They act badly and illegally, and I’m going to bring them to task.”
Though news of its filing rocked the auto industry, the original suit from January was never served on FCA or its officers after it was filed with the federal clerk of courts.
However, an amended complaint -- in part adding the names of the five other Napleton-owned Chrysler-Jeep-Dodge-Ram dealerships as plaintiffs and changing some of the original allegations -- was filed on March 4 and served on FCA this month.
Besides the additional plaintiffs, Napleton’s amended complaint also identifies for the first time when FCA regional sales executives allegedly offered incentives to falsely report vehicles as sold.
The dealership group alleges that FCA regional sales managers had sought on June 1, 2015, to entice Napleton River Oaks Chrysler-Jeep-Dodge-Ram to falsely report 23 vehicles as sold in exchange for $15,000 in direct incentives to dealers.
June 1 was the last day of sales for the May 2015 reporting period, during which FCA reported that its U.S. sales rose 4 percent, or by 7,806 vehicles, over May 2014.
Napleton’s amended suit also claims that an FCA representative offered $20,000 in incentives to Napleton River Oaks on June 30 -- the last day of the June sales reporting period -- to falsely report 40 vehicles as sold that had not been sold.
FCA reported July 1 that its June U.S. sales had risen 8.2 percent over June 2014, or by 13,949 vehicles nationwide.
Napleton’s amended complaint also includes allegations for the first time that the practice of reporting false sales was undertaken by regional FCA executives in the automaker’s Mid-Atlantic and Southeast business centers.
FCA said in a tersely worded statement in January that it had investigated Napleton’s allegations that it had paid its dealers to falsely report sales and found the allegations “baseless.” The company also said at the time that it had informed Napleton of the results of its internal investigation before the suit was filed.
“This lawsuit is nothing more than the product of two disgruntled dealers who have failed to perform their obligations under the dealer agreements they signed with FCA US,” the automaker said in January. “They have consistently failed to perform since at least 2012, and have also used the threats of litigation over the last several months in a wrongful attempt to compel FCA US to reserve special treatment for them, including the allocation of additional open points in the US FCA network.”
FCA's stock price fell by 16 percent in the eight days after the lawsuit was filed. Since then, FCA’s share price has traded in a broad price range but never rebounded to the $8.19 closing share price on Jan. 12.
In a motion to dismiss Thursday, FCA’s attorneys sought to tear apart the Napleton claims on a legal basis, arguing in part that they lack specificity, fail to show evidence of damage and don’t meet legal requirements for the claims that were made.
“Plaintiffs,” FCA’s attorneys wrote, “engage in little more than general mud-slinging, hoping that something will stick, without ever showing how their supposed harm was caused by the alleged fraud.”