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Darrick Enterprises v. Mitsubishi Motors Corp.

September 28, 2007

DARRICK ENTERPRISES, D/B/A VINELAND MITSUBISHI, GREGORY A. MORRETT, RICHARD J. HESS, AND DARLENE J. HESS, PLAINTIFFS,
v.
MITSUBISHI MOTORS CORPORATION, MITSUBISHI MOTORS NORTH AMERICA, INC., AND MITSUBISHI MOTORS CREDIT OF AMERICA, INC., DEFENDANTS.



The opinion of the court was delivered by: Hillman, District Judge

OPINION

I. BACKGROUND........................ 3

II. ANALYSIS......................... 5

A. MITSUBISHI MOTORS OF NORTH AMERICA'S MOTION TO DISMISS . . 5

1. Whether Vineland has adequately pleaded common law fraud claims and RICO ................ 7

a. Common law fraud................ 7

b. RICO...................... 10

1. Whether Plaintiffs have adequately established an existence of an enterprise ............... 16

2. Whether Plaintiffs have adequately established the appropriate predicate acts and a pattern of racketeering activity by MMNA .................. 18

a. Predicate acts . . . . . . . . . . . 18

b. Pattern of racketeering activity . . 20

2. Whether the General Release Bars Plaintiffs' Claims 22

3. Individual Plaintiffs' Claims ........... 24

a. The individual plaintiffs' fraud claims . . . 25

b. The individual plaintiffs' RICO claims . . . . 32

c. The individual plaintiffs' statutory claims . 32

1. Franchise Practices Act . . . . . . . . . 33

2. Automobile Dealers' Day in Court Act . . 36

3. Consumer Fraud Act claims . . . . . . . . 43

4. The Corporation's Claims ............. 44

a. ADDCA .................... 45

b. FPA and Breach of Contract Claim . . . . . . . 47

5. Warranty Reimbursement .............. 51

B. MMCA'S MOTION TO DISMISS . . . . . . . . . . . . . . . . 54

1. RICO claims .................... 56

2. ADDCA claims ................... 59

3. Breach of implied covenant of good faith and fair dealing claim ................... 62

C. MMC-JAPAN'S MOTION TO DISMISS . . . . . . . . . . . . . 64

1. Whether Plaintiffs have asserted a viable RICO claim against MMC-Japan, and whether this Court may exercise personal jurisdiction over MMC-Japan ....... 64

2. Whether Plaintiffs' Alter-Ego claim is viable ... 75

III. CONCLUSION....................... 76

Presently before the Court are the renewed motions of Defendants Mitsubishi Motors North America, Inc. and Defendant Mitsubishi Motors Credit of America, Inc. to dismiss Plaintiffs' Complaint for failure to state a claim pursuant to Federal Civil Procedure Rule 12(b)(6). Also before the Court is the renewed motion of Mitsubishi Motors Corporation to dismiss Plaintiffs' Complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) and for failure to state a claim pursuant to Rule 12(b)(6). For the reasons expressed below, Defendants' motions will be granted in part, denied in part, and continued in part.

I. BACKGROUND

This case involves a failed Mitsubishi automobile dealership. Plaintiffs Gregory Morrett, Richard Hess, and Darlene Hess ("individual plaintiffs") owned and operated Vineland Mitsubishi, a Mitsubishi Motors automobile dealership incorporated under the corporate entity of Darrick Enterprises ("corporation plaintiff" or "Vineland"). The dealership opened in 2001, but closed in 2004. Plaintiffs blame the failure of their dealership on Defendants Mitsubishi Motors Corporation ("MMC-Japan"), Mitsubishi Motors North America, Inc. ("MMNA"), and Mitsubishi Motors Credit of America, Inc. ("MMCA").

Plaintiffs filed a Complaint against Defendants, claiming that they violated the New Jersey Consumer Fraud Act, the New Jersey Franchise Practices Act, and the Automobile Dealers' Day in Court Act. Plaintiffs also allege claims for fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing. Specifically, Plaintiffs claim that Defendants fraudulently induced them into opening the Mitsubishi franchise dealership by making various misrepresentations. Plaintiffs also claim that when they operated the dealership, Defendants required Plaintiffs to unnecessarily construct a new facility, they "dumped" unordered new cars on them, and they forced them to participate in a financially unsound financing program.

After Defendants filed motions to dismiss Plaintiffs' Complaint, Plaintiffs filed a First Amended Complaint, which added claims under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") and New Jersey state RICO statute. Defendants again moved to dismiss the added RICO claims, as well as all of Plaintiffs' other claims.

In a January 19, 2007 Opinion and Order, the Court dismissed without prejudice Defendants' motions, and directed that Plaintiffs file a RICO Case Information Statement and a Rule 12(e) more definite statement as to the individual plaintiffs' claims. The Court also directed the parties to brief the status and effect of concurrently pending bankruptcy and state court proceedings, both of which involve issues arising out the Mitsubishi dealership. Defendants renewed their motions to dismiss, and oral argument was held. Defendants' motions are now ripe for resolution.

II. ANALYSIS

Despite the voluminous briefing and lengthy oral argument that has been conducted in this case, it must not be forgotten that the Court has only been tasked to decide whether Plaintiffs' claims should be dismissed pursuant to Federal Civil Procedure Rule 12. Thus, the primary issue that must be determined is whether Plaintiffs' Complaint gives Defendants fair notice of their claims, and "'not whether [Plaintiffs] will ultimately prevail but whether [Plaintiffs are] entitled to offer evidence to support the claim.'" Bell Atlantic v. Twombly, 127 S.Ct. 1955, 1969 n.8 (2007). In doing so, the Court must accept all well-pleaded allegations as true and view them in the light most favorable to Plaintiffs. Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005). Furthermore, the Court must only consider the facts alleged in the pleadings, the documents attached thereto as exhibits, and matters of judicial notice. Southern Cross Overseas Agencies, Inc. v. Kwong Shipping Group Ltd., 181 F.3d 410, 426 (3d Cir. 1999).

With this standard in mind, each of the Defendants' motions will be addressed in turn.

A. MITSUBISHI MOTORS OF NORTH AMERICA'S MOTION TO DISMISS

Plaintiffs have asserted ten counts against MMNA for state and federal RICO violations (Counts I, II, VI, VII), fraudulent concealment and fraudulent misrepresentation (Count III), violations of the New Jersey Consumer Fraud Act ("CFA") (Count IV), violations of the New Jersey Franchise Practices Act ("FPA") (Count V), breach of contract (Count VIII), violations of the Automobile Dealers' Day in Court Act ("ADDCA") (Count XI), and declaratory relief (Count XIII).

Originally, MMNA moved to dismiss all ten counts for numerous reasons: 1) Morrett and the Hesses cannot assert claims for injuries that result from direct injury to the dealership corporation; 2) Morrett has no basis to pursue any claim because it has not been alleged that he had invested any assets in the dealership in 2001 when it was formed; 3) Plaintiffs' fraud-based claims are based on purported statements by MMNA concerning future performance; 4) Plaintiffs' RICO claims do not allege a pattern of racketeering activity; 5) Plaintiffs' fraud and RICO claims do not meet the heightened pleading standard of Fed. R. Civ. P. 9(b); 6) Plaintiffs' claim under ADDCA fails because Plaintiffs have not and cannot allege the required "threats, intimidation, or coercion"; and 7) Plaintiffs' Franchise Practices Act and breach of contract claims fail because they have not alleged any actionable conduct by MMNA.

On its renewed motion to dismiss, MMNA has also argued that Plaintiffs signed a general release, which bars all their claims against it. MMNA also contends that Vineland's warranty reimbursement claim must fail because it has not stated a valid claim under the Franchise Practices Act, and it is judicially estopped from asserting that claim.

1. Whether Vineland has Adequately Pleaded Common Law Fraud Claims and RICO*fn1

a. Common Law Fraud

The standard for establishing a claim of common law fraud, fraudulent misrepresentation, and fraudulent inducement is the same: a plaintiff must prove (1) a material misrepresentation of a presently existing or past fact, (2) with knowledge of its falsity and with the intention that the other person rely on it, and that there was in fact both (3) reasonable reliance and (4) resulting damages. Banco Popular N. Am. v. Gandi, 876 A.2d 253, 260 (N.J. 2005); Jewish Center of Sussex County v. Whale, 432 A.2d 521, 524 (N.J. 1981). MMNA argues that Vineland's fraud claims must fail because it has only alleged "future-looking" statements rather than actual facts, and statements of future intent are not actionable. Vineland argues that it has sufficiently pleaded its fraud claims.

In the RICO case statement, which also serves as a pleading, see Local Civ. R. Appendix O, and which was filed by order of the Court to more particularize Plaintiffs' claims, Vineland has alleged the following claims specific to MMNA:

MMNA fraudulently induced numerous prospective dealers, including Plaintiffs, to become part of the Mitsubishi Dealer Network through a practice of misrepresenting the potential for sales of Mitsubishi automobiles and light trucks in the market area for a dealership or proposed dealership point. For example, throughout 2001, while Morrett and the Hesses investigated opening a dealership in Vineland, MMNA's representatives, including Matt Kloda, represented to Morrett that the Vineland market could support the sale of over 400 new Mitsubishi motor vehicles on a yearly basis and at profitable rates. Further, on September 1, 2001, MMNA provided Morrett with a Dealer Sales Plan that represented that the Vineland market could support the sale of 447 Mitsubishi vehicles per year. However, MMNA's own internal documents reflected that the Vineland market would only support the sale of 166 new Mitsubishi vehicles per year.

MMNA fraudulently induced numerous prospective dealers, including Plaintiffs, to become part of the Mitsubishi Dealer Network through a practice of misrepresenting the health of the Mitsubishi brand. Specifically, in a national dealer meeting held in Las Vegas in the Spring of 2001, representatives of MMNA, including then President Pierre Gagnon and later President Greg O'Neill informed prospective dealers (including Morrett and Richard Hess) that Mitsubishi was the fastest growing Japanese brand on the market and that by 2005 MMNA would be selling 500,000 units per year in the United States. These MMNA representatives failed to disclose the fact that Mitsubishi was actively engaged in a fraudulent scheme to conceal significant defects in Mitsubishi products which took the form of, inter alia, conducting "secret recalls" whereby Mitsubishi service centers were informed to replace defective parts when Mitsubishi vehicles were brought in for routine service or for service unrelated to the affected parts, and by failing to disclose these defects to the proper authorities. When MMC's secret recalls and defects came to light, the Mitsubishi brand name suffered worldwide and particularly in the United States.

MMNA fraudulently inflated its reported operating profits by routinely "dumping" unordered Mitsubishi automobiles and light trucks on members of the Mitsubishi Dealer Network. Specifically, MMNA would systematically invoice members of the Mitsubishi Dealer Network for Mitsubishi motor vehicles that had not been ordered by the dealers. For example, on March 31, 2003, MMNA invoiced roughly twice the amount of automobiles it should have to the Mitsubishi Dealer Network. This amounted to billing by MMNA for approximately 30,000 automobiles to hundreds of dealers in a single day.

Between 2000-2004, MMNA fraudulently represented the overall sales of Mitsubishi motor vehicles in monthly Sales & Retention Results for Retail Sales that were mailed to members of the Mitsubishi Dealer Network by including in its summaries, the sales of Mitsubishi motor vehicles that were subject to fleet sales and/or wholesales. These inflated and misleading sales figures were also used to recruit new Mitsubishi dealers.

(RICO Case Statement at 1-2.)

These allegations, in conjunction with the allegations in Plaintiffs' First Amended Complaint, sufficiently state a claim against MMNA for fraudulently inducing Vineland to establish the dealership in 2001 with the Interim Dealer Sales Agreement, and to expand the dealership and enter into the June 2003 Dealer Sales and Service Agreement. MMNA's is correct that an "alleged fraudulent representation must relate to some past or presently existing fact and cannot ordinarily be predicated upon matters in futuro," Ocean Cape Hotel Corp. v. Masefield Corp., 164 A.2d 607, 612 (N.J. Super. App. Div. 1960), and Vineland has sufficiently pleaded "past fact." With regard to the 2001 Interim Dealer Sales Agreement, Vineland has sufficiently pleaded that (1) MMNA knowingly misrepresented the number of vehicles the Vineland market could support, (2) MMNA intended that Vineland rely on that number in determining whether to open a Mitsubishi dealership, (3) Vineland did rely on this representation, (4) and had damages as a result.*fn2 Vineland also has sufficiently alleged that with regard to entering into the 2003 Dealer Sales and Service Agreement, MMNA consistently misrepresented the health of the Mitsubishi brand to entice Vineland, to its detriment, to enter into a second dealership agreement, purchase land, and construct a new facility.

b. RICO

To prove a RICO case is more onerous than common law fraud, however. The RICO statute provides, It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c). It is also unlawful for anyone to conspire to violate § 1962(c). See 18 U.S.C. § 1962(d).

In order to adequately plead a violation of RICO, a plaintiff must allege: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity, and a pattern of racketeering activity requires at least two predicate acts of racketeering. Lum v. Bank of America, 361 F.3d 217, 223 (3d Cir. 2004) (citing Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985); 18 U.S.C. § 1961(5)). These predicate acts of racketeering may include, inter alia, federal mail fraud under 18 U.S.C. § 1341 or federal wire fraud under 18 U.S.C. § 1343. See 18 U.S.C. § 1961(1). The federal mail and wire fraud statutes prohibit the use of the mail or interstate wires for purposes of carrying out any scheme or artifice to defraud. See 18 U.S.C. §§ 1341, 1343. "'A scheme or artifice to defraud need not be fraudulent on its face, but must involve some sort of fraudulent misrepresentation or omission reasonably calculated to deceive persons of ordinary prudence and comprehension.'" Lum, 361 F.3d at 223 (citation omitted).

The Third Circuit has instructed that where a plaintiff relies on mail and wire fraud as a basis for a RICO violation, the allegations of fraud must comply with Federal Rule of Civil Procedure 9(b), which requires that allegations of fraud be pled with specificity. Id. In order to satisfy Rule 9(b), a plaintiff must plead with particularity "the 'circumstances' of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Id. at 223-24 (citation and quotations omitted). A plaintiff may satisfy this requirement by pleading the "date, place or time" of the fraud, or through "alternative means of injecting precision and some measure of substantiation into their allegations of fraud." Id. at 224 (citation omitted). A plaintiff must "also must allege who made a misrepresentation to whom and the general content of the misrepresentation." Id. (citations omitted).

As stated above, pursuant to the Court's order, Plaintiffs filed a RICO Case Information Statement, which explains with particularity Plaintiffs' RICO claims. Plaintiffs allege that MMNA violated 18 U.S.C. § 1962(c), and that all Defendants violated 18 U.S.C. § 1962(d) (conspiracy to violate § 1962(c)). With regard to Vineland's injuries, it claims the following, Vineland Mitsubishi was formed by Greg Morrett, Richard Hess and Darlene Hess to serve as a Mitsubishi dealership that became part of the Mitsubishi Dealer Network. As a result of Defendants' unlawful conduct, Vineland Mitsubishi became a Mitsubishi dealer, invested significant funds of roughly $1 million in operations, suffered significant losses and lost profits, and was ultimately forced out of business.

Vineland Mitsubishi would not have entered its relationship with MMNA and MMCA had Defendants disclosed MMC's 20 year pattern of deceit and corruption regarding the "secret recalls" of Mitsubishi motor vehicles. Vineland Mitsubishi also relied upon MMNA's false statements regarding its studies of the Vineland Mitsubishi market and MMNA's misrepresentations regarding the sale of Mitsubishi motor vehicles in the United States. All of these misrepresentations induced Vineland Mitsubishi to make its considerable investment in operating a Mitsubishi dealership.

Additionally, MMNA, in tandem with MMCA "dumped" unordered vehicles on Mitsubishi dealers, including Vineland Mitsubishi. Vineland Mitsubishi was forced to pay for the unordered vehicles, which it did not want or need and which it could not afford. These unordered vehicles then sat unsold on Vineland Mitsubishi's lot resulting in excess financing charges which increased the cost of the vehicles to Vineland Mitsubishi and, in turn, eroded or eliminated Vineland Mitsubishi's profit upon resale of the vehicles. MMCA also imposed financing charges and interest on Vineland Mitsubishi for cars that had not yet been delivered to Vineland Mitsubishi.

MMNA's "dumping" of vehicles on Vineland Mitsubishi not only significantly drove up Vineland Mitsubishi's costs of goods, but it also forced Vineland Mitsubishi to further discount its prices on new Mitsubishi vehicles in an attempt to sell vehicles more quickly and thereby minimize the finance charges incurred on such vehicles. The net result of these practices was enormous financial pressure on Vineland Mitsubishi. Ultimately, as was the case with many ...


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