I have written several pieces in this blog about cases that should, and should not, be brought as RICO disputes.  The Toyota litigation, in which thousands of Toyota owners are suing the manufacturer and its dealers for marketing and selling cars with braking defects causing the drivers to lose control of the vehicles, a phenomenon known as sudden unintentional acceleration (SUA), offers yet another high-profile example of the misuse of RICO.  A law firm in Cincinnati filed a would-be class action on behalf of all Toyota purchasers since 2002 on the theory that Toyota had made numerous misrepresentations to the purchasers and the National Traffic Highway Safety Administration (NTHSA) intended to cover up the vehicles’ defective braking system.  Viviano et al. v. Toyota Motor Engineering & Mfg. of North America, case 2:10-cv-24-WOB (E.D. KY. 2010).  The plaintiffs allege their vehicles were defective when sold and that Toyota concealed the defect from them.  Had they known the truth, they would not have purchased their cars.  They seek money damages, presumably the return of the purchase price of the cars, plus any property damage caused by the alleged defect.

Readers of this blog will know that RICO is a complex statute designed to address  harms caused by criminals perpetrating long-term crimes through “enterprises.”  It is not enough that person A commits a pattern of criminal activity and harms person B.  Person A must use an enterprise, a separate entity (such as the organized crime family envisioned by Congress), through which it commits the crimes which harm Person B.   While RICO allows the enterprise to be a legitimate business such as Toyota, it is hard to see how Toyota can be both the perpetrator of the crimes and the enterprise through which the crimes are committed.  This is so because section 1962(c) of RICO requires separateness between the RICO defendant and the RICO enterprise.  So to make the Toyota case fit into this double-entity box, the Plaintiffs’ lawyer, who as far as I can see has no experience in RICO cases, is alleging that the defendant is Toyota and the enterprise is the Toyota dealers.  Under this theory Toyota committed a pattern of fraudulent statements about the vehicles’ safety (violations of the federal mail and wire fraud statutes, which are RICO “predicate acts”) by participating in the affairs of its dealers.  The Seventh Circuit Court of Appeals, in an opinion by Judge Richard Posner, rejected this view in a case against Chrysler in 1997.  Fitzgerald v. Chrysler Corp., 116 F.3d 225 (7th Cir. 1997).  As Judge Posner saw it,  the car manufacturer and the dealers are not separate entities, as RICO requires, but are instead better viewed as a single corporate entity or family of related corporate entities under common ownership.  Thus, the fact that Chrysler had created separate corporate entities for its dealers and manufacturers rather than “vertically integrating” into a single corporation should not subject it to RICO liability.  Judge Posner concluded that “every manufacturer” operated that way, and Congress did not mean to subject them all to RICO.  Id. at 227.  The other federal circuits have taken essentially the same position, rejecting the proposition that a parent and subsidiary corporations are different for purposes of constructing a RICO case.  I do not necessarily agree with this view (know in antitrust cases as the Copperweld doctrinebecause the Supreme Court and the Seventh Circuit specifically held it does not apply to RICO.  (Judge Posner simply omitted this inconvenient holding from his Fitzgerald analysis.)  But this family-of-corporations- Copperweld view has tremendous appeal to federal judges who want to dispose of garden variety fraud actions masquerading as RICO cases.  The Toyota litigation, which is tailor-made for product liability and fraud theories of recovery asserted under state law, is such a case.  I cannot foresee that the federal judge entertaining the massive Multi-District Toyota Litigation in California (to which the Viviano class action was transferred) will want to complicate his assignment any further by allowing a RICO claim to proceed if he does not have to.

The Plaintiffs’ lawyer also contends that there is another enterprise through which Toyota committed its RICO violations: an association of Toyota, its dealers and the NHTSA.  The NHTSA was probably inserted into the mix to avoid the problem just discussed, i.e., that the defendant and the enterprise are one in the same.  And it’s conceivable that this week’s report by the NHTSA concluding Toyota’s electrical system was not at fault, could support the notion that the agency is conspiring with Toyota to harm consumers.  But to assert such a theory the Complaint must make it plausible.  It does not do so.  The mere statement that the NHTSA is covering up for Toyota’s design defects is implausible.  Presumably, as a U.S. government agency, the NHTSA would prefer to promote sales of American cars at the expense of Toyota.  And unless the Complaint can allege facts showing otherwise, it is no more worthy of acceptance by a federal judge on a motion to dismiss than the statement that the F.B.I. director rounded up Muslims after 9/11 for the purpose of harassment, not for national security reasons.  The Supreme Court found that suggestion implausible and refused to permit the case to make it past the motion to dismiss.

There are other fatal problems with the Viviano RICO Complaint against Toyota.  It does not provide enough details about the allegedly fraudulent mailings to the purchasers.  It seems that some of these mailings took place after the consumers purchased their cars, which would mean the mailings could not have induced them to make the decision to purchase a Toyota.  This would undermine the ability to show the injury was “proximately caused” by the RICO violation (fraudulent statements sent through the mail).  And other fraudulent statements are alleged very vaguely in the form of press releases by Toyota’s executives about the safety of its cars.  But again, I don’t see how the Plaintiffs can prove those long-ago statements induced them to buy their cars.  Similar allegations have failed in state court fraud cases.  Absent such a dependence on these statements, there is no proximate causation, and the decision to buy a Toyota was not fraud-induced.  Moreover, the task of showing proximate causation in a class action brought on behalf of all Toyota purchasers throughout the nation from 2002 to the present, likely over a million people, is more than daunting.  Courts will simply not certify such a case as a class action, aborting the whole theory early on.

So, in conclusion, I do not see a RICO claim in Toyota’s future regardless of the possible design defect in its braking system.  Plaintiffs have adequate remedies under state law.  This is yet another example of plaintiff’s lawyers overreaching with RICO.