The Racketeer Influenced and Corrupt Organizations Act is a federal law providing for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. The RICO Act, as its name implies, focuses on racketeering. So what does the RICO Act have to do with car dealers? Funny you should ask. Here’s a case involving a consumer’s use of the RICO Act to sue a dealer.

Valerie Moore went to It’s All Good Auto Sales, Inc. to buy a used car after seeing numerous advertisements by the dealership featuring its owner, Mark Goodfellow. The advertisements included a trademarked phrase by Goodfellow – “I don’t care about your credit, I care about you.”

Moore signed a contract to buy a used Toyota Camry. After leaving the dealership, she realized that she had paid a larger down payment than she had discussed with the salesman. The dealership attributed the extra amounts to sales tax.

Moore had many mechanical problems with the car and tried to return it, but the dealership refused. The vehicle was eventually inoperable, and the dealership agreed to repair it. After the dealership took possession of the car for repairs, Moore again attempted to rescind the sale of the vehicle.

Moore sued the dealership, Goodfellow and the salesman for violating numerous federal and state laws. The dealership and the salesman moved to dismiss the RICO Act claim. A magistrate judge entered a report and recommendation to deny the defendants’ motion to dismiss the RICO Act claim. Goodfellow also objected to the magistrate’s failure to dismiss a negligent misrepresentation claim against him. Unhappy, the dealership and Goodfellow objected to the magistrate’s recommendation.

The U.S. District Court for the Western District of Tennessee concluded that the magistrate judge correctly recommended that Moore’s claims alleging RICO Act violations not be dismissed. First, the court found that Moore properly pled the elements of wire fraud as the “predicate act” for purposes of RICO Act liability. (The RICO Act requires at least one illegal act on the defendant’s part – lawyers call that the “predicate act.”)

Moore alleged several instances of fraudulent statements by the defendants regarding the down payment for the vehicle and the repair of the vehicle. Moore also clearly identified the speaker in each instance, where and when the statements were made, and why the statements were fraudulent.

The court noted that an allegation of wire fraud requires that interstate electronic communication – in this case, the advertisements – be used in furtherance of a fraudulent scheme; the communication need not be fraudulent in and of itself. Moore claimed that the defendants’ use of advertisements was vital to their fraudulent scheme and described how the nature and timing of the advertising was designed to entice poor African-Americans into the dealership. 

The court also found that Moore adequately alleged a RICO enterprise and alleged a pattern of racketeering activity by showing a minimum of two acts of racketeering activity within 10 years of each other, a relationship between the predicate acts, and a threat of continuing activity.

The court also concluded that the magistrate judge correctly recommended that Moore’s negligent misrepresentation claim against Goodfellow not be dismissed. The court noted that it could not find at this stage of the litigation that Goodfellow’s trademarked phrase was mere puffery. The court added that his trademarked phrase was the type of faulty information that could give rise to a claim for negligent misrepresentation.

Moore also alleged that Goodfellow failed to display required Federal Trade Commission disclosures on vehicles for sale at the dealership and that a legal duty to provide information can lead to liability under a theory of negligent misrepresentation.

So the RICO Act claim stands. Yikes!

The use by plaintiffs’ lawyers of the RICO Act as the basis for claims isn’t new. We’ve seen RICO counts added to multi-count complaints filed on behalf of car buyers for years. Plaintiffs’ lawyers like the added pressure that the RICO Act brings to settlement discussions – it provides for tripling the plaintiff’s actual damages and provides that the court can award attorneys fees. Also, because Tennessee has no motor vehicle retail installment sales law that plaintiffs can base their cases on, a RICO Act claim makes a good substitute.

And you didn’t think car dealers were racketeers.

Moore v. It’s All Good Auto Sales, Inc., 2012 U.S. Dist. LEXIS 141190 (W.D. Tenn. September 30, 2012)