Southern District of Florida Dismisses RICO Claims in Putative Automotive Class Action

King & Spalding

On March 30, 2021, the U.S. District Court for the Southern District of Florida entered an order dismissing all but one claim against Daimler AG and Mercedes-Benz USA, LLC (collectively, the “Mercedes Defendants”) in a putative class action arising from alleged defects in the “NECK PRO” active head restraints installed in certain Mercedes-Benz vehicles to prevent whiplash from accidents. The opinion, consistent with Eleventh Circuit law, found that plaintiffs had no standing to pursue state-law claims without a representative plaintiff from the relevant state and also concluded that plaintiffs’ allegations did not support a viable RICO claim. [Disclosure: King & Spalding represents the Mercedes Defendants in this litigation.]

  • The plaintiffs sued the Mercedes Defendants and Grammer AG (“Grammer”), the supplier of the headrests at issue, based on allegations that the Defendants knew, but concealed, the possibility that the active head restraints could spontaneously deploy, causing personal injury. Plaintiffs brought claims for alleged violations of the Racketeer Influenced Corrupt Organizations (“RICO”) Act, fraud, breach of warranty, unjust enrichment, and alleged violations of various states’ consumer protection laws.
  • The defendants moved to dismiss the plaintiffs’ claims in their entirety, arguing, among other things, that: (1) the plaintiffs lacked standing to represent individuals who were allegedly injured under different states’ laws; (2) the court lacked subject matter jurisdiction over the plaintiffs’ claims for alleged violations of the Magnuson-Moss Warranty Act (“MMWA”); (3) the court lacked personal jurisdiction over the defendants with respect to the claims of the out-of-state plaintiffs; and (4) the plaintiffs had not plausibly alleged a violation of the RICO Act (or any other of the claims asserted in their complaint).
  • As to standing, the court joined a long line of district court decisions that have interpreted Eleventh Circuit precedent in Prado-Steiman ex rel. Prado v. Bush, 221 F.3d 1266 (11th Cir. 2000), as requiring the dismissal of claims brought on behalf of putative class members from states where there is no class representative. In so holding, the court rejected plaintiffs’ argument that a named plaintiff’s ability to bring claims arising under other states’ laws is a matter of predominance under Rule 23, rather than a threshold issue of Article III standing that must be decided prior to the class certification inquiry.
  • Next, the court concluded that it lacked subject matter jurisdiction over the plaintiffs’ MMWA claims because the complaint did not name at least one hundred plaintiffs, as the plain text of the MMWA requires in putative class actions. In reaching this conclusion, the court cited the Ninth Circuit’s recent decision in Floyd v. Am. Honda Motor Co., 966 F.3d 1027 (9th Cir. 2020)—the first published circuit court decision to endorse this argument. (Read our prior reporting on the Floyd decision here.)
  • As to the RICO claim, plaintiffs alleged that the Mercedes Defendants, Grammer, and various Mercedes-Benz dealerships had engaged in an “association-in-fact enterprise” with the common purpose of maximizing their profits by selling allegedly defective vehicles. The court rejected this argument for multiple reasons.
    • First, the court determined that the plaintiffs’ allegations of an association-in-fact enterprise were insufficient because, to state a RICO claim, a plaintiff must allege more than a common purpose to make money. Instead, he or she must plausibly allege that the defendants “shared the purpose of enriching themselves through a particular criminal course of conduct.”
      • The complaint did not meet this standard because it was “devoid of allegations about ‘specific interactions’ between the various alleged participants in the alleged enterprise and utterly silent as to ‘the origins or scope of the alleged scheme.’” Instead, it “impermissibly ask[ed] the Court to ‘speculate’ that the alleged participants collectively decided at some unknown point to pursue fraudulent automotive sales.”
      • As the court explained, the complaint “alleged no facts that plausibly support[ed] the inference that the defendants [and their unnamed employees and associates] were collectively trying to make money in [automotive] sales by fraud, which is a common purpose sufficient to find a RICO enterprise, as opposed to the ‘obvious alternative explanation,’ that they were simply trying to make money in [automotive] sales, which is not ....”
      • The court’s ruling relied heavily on the Eleventh Circuit’s recent RICO decision in Cisneros v. Petland, Inc., 972 F.3d 1204 (11th Cir. 2020), which we reported on here.
    • Second, the court concluded that the plaintiffs’ RICO claim separately failed because they did not plausibly allege the necessary scienter—i.e., that the defendants knew of the purported defect at the time they allegedly committed the predicate acts of mail and wire fraud. Among other things, the court noted that plaintiffs alleged “just 12 examples of customer complaints regarding the headrests over a span of six years.” Although the court declined to adopt a “hard-and-fast rule” on how many consumer complaints can plausibly confer knowledge, the court concluded that a dozen complaints constituted an “exceptionally small number” relative to the “hundreds of thousands” of vehicles at issue—especially where plaintiffs failed to offer context showing how these complaints would be anything other than a mere “blip on [Defendants’] radar.”
  • Because the plaintiffs had not stated a plausible RICO claim, they could not take advantage of RICO’s nationwide service-of-process provision to establish personal jurisdiction over the defendants. And the non-Florida plaintiffs did not allege facts showing that their claims arose from or related to the defendants’ contacts with Florida. Given that no defendant was subject to general jurisdiction in Florida, the non-Florida plaintiffs’ claims were dismissed for lack of personal jurisdiction. Thus, only the Florida plaintiffs had potentially viable claims. And of the two claims the Florida plaintiffs asserted—one for alleged violations of the state’s consumer protection law and one for unjust enrichment—only the former claim survived the defendants’ motion to dismiss.
  • The case expands upon the increasingly strong case law within the Eleventh Circuit recognizing that RICO is “not a run-of-the-mill consumer protection statute.” To be sure, the plaintiffs’ bar frequently uses the threat of RICO liability—no matter how dubious the allegations—to increase settlement leverage by raising the specter of criminality and treble damages, or to provide a jurisdictional hook for state-law claims that otherwise could not be brought in a particular court. The Lewis case represents the latest example of courts rejecting such claims where plaintiffs plead nothing more than “routine business affairs” undertaken by entities acting in parallel for the common purpose to make money. As the court aptly put it, “not every products liability case is a RICO case.”
  • The case is Lewis v. Mercedes-Benz USA, LLC, No. 9:19-cv-81220 (S.D. Fla.). Read the court’s opinion here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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