In re American Honda Motor Co. Dealerships Litig.

941 F.Supp. 528

In re AMERICAN HONDA MOTOR CO., INC. DEALERSHIPS RELATIONS LITIGATION.

Civil No. MDL-95-1069.

United States District Court, D. Maryland.

August 30, 1996.

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Richard B. McNamara, Wiggin & Nourie, Manchester, NH.

William A. Kershaw, Kronick, Moskovitz, Tiedemann & Gerard, Sacramento, CA.

Robert B. Green, Baltimore, MD.

James Ulwick, Kramon & Graham, Baltimore, MD.

Robert A. Van Nest, Keker & Van Nest, San Francisco, CA.

Jeremiah T. O'Sullivan, Choate, Hall & Stewart, Boston, MA.

Harvey G. Sanders and Tammy McKnew, Leatherwood, Walker, Todd & Mann, P.C., Greenville, SC.

Michael M. Baylson, Duane, Morris & Heckscher, Philadelphia, PA.

Norman C. Hile, Orrick, Herrington & Sutcliffe, Sacramento, CA.

Christopher J. Hunt, Bartko, Zankel, Tarrant & Miller, San Francisco, CA.

Lawrence Silver, Lawrence Silver & Associates, Long Beach, CA.

Andrew W. Stroud, Orrick, Herrington & Sutcliffe, Sacramento, CA.

Mark P. Rapazzini, Rapazzini & Graham, San Francisco, CA.

Daniel G. Clodfelter, Moore & Van Allen, Charlotte, NC.

Price O. Gielen, Neuberger, Quinn, Gielen, Rubin & Gibber, P.A., Baltimore, MD.

Thomas X. Glancy, Jr., Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, MD.

OPINION

MOTZ, Chief Judge.

The plaintiffs in this multidistrict litigation case are current and former Honda dealers seeking recovery for losses suffered as the result of fraudulent schemes involving the sale and distribution of Honda and Acura automobiles during the 1980's and early 1990's. The four core defendant groups are: (1) American Honda Motor Co., Inc. and Honda North America, Inc., the domestic companies responsible for the distribution of Honda and Acura automobiles to dealers;¹ (2) Honda Motor Company, Ltd., a Japanese company and the corporate parent of the domestic Honda entities ("Honda Japan")²; (3) a number of current and former Honda dealers, including Richard Brooks, Dah Chong Hong Ltd. and affiliated entities, Peter Epsteen, Joseph Hendrick, Henry Khachaturian and Mid-Peninsula Motors, the estate of Martin Lustgarten, Cliff Peck, John Rosati, and WESH, Inc.; and (4) Lyon & Lyon, American Honda's law firm. Four "representative" complaints have been filed.

The Borman complaint is the central complaint in this case. It has been individually brought by a handful of dealers, including Borman Motor, a New Mexico dealer. It also seeks relief on behalf of a broad class of plaintiff dealers, although plaintiffs have not yet sought class certification. Borman asserts claims against all of the defendants, including American Honda, Honda Japan, a number of dealers, a number of current and former Honda executives, and Lyon & Lyon. The complaint alleges a number of illegal acts involving these defendants, including:

• that Honda wrongfully misallocated cars on the basis of bribes paid by dealers (the "misallocation scheme") • that Honda pressured dealers to participate in sales training seminars offered by a vendor that paid kickbacks to Honda executives (the "sales training scheme")

• that Honda pressured dealers to participate in group advertising activities provided by an advertising firm that paid kickbacks to Honda executives (the "dealer ad group scheme")

• that Honda awarded "Letters of Intent" for new dealerships on the basis of bribes and kickbacks

• that Honda executives, prompted by attorneys at Lyon & Lyon, committed perjury, tampered with witnesses and otherwise obstructed criminal investigations of Honda that took place in the early 1990's

• that Honda falsified tax records to cover up the bribery activities of executives

Borman asserts a total of 19 counts. Of these, ten are federal claims:

Counts 1-4: RICO §§ 1962(a)-(d) against "all defendants"

Counts 5-6: RICO §§ 1962(c), (d) against Lyon & Lyon

Count 7: Dealers Day in Court Act against the Honda entities

Count 8: Robinson-Patman § 2(c) against "all defendants"

Count 9: Sherman Act § 1 against "all defendants"

Count 10: Sherman Act § 2 against the Honda entities³

The remaining claims are for common law fraud, negligence, breach of contract, tortious interference and conspiracy.

Breakaway is a complaint filed by a South Carolina dealer, Breakaway Honda. Unlike Borman, this complaint names only two sets of defendants: (1) individuals and entities affiliated with Joseph "Rick" Hendrick, a South Carolina dealer (Hendrick); and (2) the Honda defendants. Breakaway otherwise mirrors Borman. Like Borman, this complaint brings claims against Honda for violations of RICO; the Dealers Day in Court Act; the Robinson-Patman Act; and the Sherman Act. In addition, Breakaway brings claims specifically against Hendrick under RICO sections 1962(a)-(d). Breakaway also asserts nine South Carolina law counts, including common law fraud, negligence, breach of contract, estoppel and violations of the state Unfair Trade Practices and Manufacturers, Distributorships and Dealers Acts.

Austin Motors is a complaint brought individually by Austin Motors, Inc., a New York dealer. The complaint is similar to Breakaway in that it names both the Honda defendants and a competing New York/New Jersey dealer, Dah Chong Hong Trading Corp. Unlike Breakaway, however, Austin Motors also names Lyon & Lyon and a number of Honda executives. Austin Motors also offers some additional factual allegations about specific ways that cars were misallocated in the New York/New Jersey area. Like the other complaints, however, Austin Motors asserts claims for violations of RICO; the Dealers Day in Court Act; the Robinson-Patman Act; and the Sherman Act. The complaint also states seven common law counts, one count for violation of New York's Franchised Motor Vehicle Dealer Act and one count for unfair business practices under California law.

Trans-Oceanic is a complaint brought individually by Trans-Oceanic Motors, a Connecticut dealer doing business as "Cardinal Honda." This complaint names only the three Honda entities. It refers to the broad nationwide bribery activities discussed in the other complaints, but Trans-Oceanic focuses on Honda's role in placing a competing dealership fifteen miles from Cardinal's location. The complaint states only three federal claims: violations of RICO sections 1962(a) and (c), and of section 2(c) of the Robinson-Patman Act. These claims are identical to those against Honda in the Borman complaint. Trans-Oceanic also brings four Connecticut law claims.

Currently at issue are fourteen motions to dismiss. In keeping with my directive that the parties focus their energies on the "heartland" issues in this complex case, these motions seek dismissal only of the various federal counts — including those arising under RICO, the Sherman Act, the Robinson-Patman Act and the Dealers Day in Court Act. Hearings were held on May 3, 1996 and May 17, 1996.

I have divided this opinion into five parts. The first addresses several general issues related to matters of pleading form and procedure. The second considers defendants' argument that plaintiffs lack standing to bring their federal claims. The third discusses the RICO claims against the various defendants, as well as the question of plaintiffs' claims against Honda Japan. The fourth addresses the antitrust claims. The fifth considers claims brought under the Dealers' Day in Court Act.

I.

A. General Form of Pleading

I begin by addressing two problems of form that are present throughout the representative complaints. Defendants argue that the Borman and Breakaway complaints have impermissibly pled that "Defendant Honda" — "consisting of Defendant Honda Ltd., Honda North America, and American Honda" — is a "person" that can be liable under RICO or the antitrust laws. See, e.g., Borman Compl. at ¶¶ 231, 253, 267, 282; Breakaway Compl. at ¶¶ 225, 249, 264, 280. Defendants argue that the three corporate Honda defendants cannot be aggregated as a single "person" with shared RICO liability.

The Borman and Breakaway plaintiffs essentially concede this point. Case law also supports defendants' position. See United States v. Bonanno Org. Crime Family of La Cosa Nostra, 879 F.2d 20, 27-28 (2d Cir.1989). In any event, plaintiffs later state that they intend this allegation only as a shorthand way of stating that each of the three Honda defendants is a RICO "person" individually, something that defendants do not dispute. This shorthand approach is inappropriate. Plaintiffs accordingly should amend their complaints to delineate the specific allegations against each of the named Honda entities, with particular attention to distinguishing the nature of plaintiffs' claims against Honda America from those against Honda Japan.

The dealer defendants note a second, related problem. The Borman complaint, which is the broadest complaint in this action, contains a number of claims which, according to their titles, purport to state claims against "all defendants." These claims in Borman, however, are substantively addressed only to the Honda defendants. For example, the paragraphs of Borman's section 1962(c) count, see Borman Compl. at ¶¶ 281-90, are devoid of any allegation against any non-Honda defendant. This count cannot be construed as implicitly stating claims against the dealer defendants; every sentence of each paragraph specifically makes claims about the conduct of "defendant Honda," not "all defendants." I therefore dismiss these counts as to the non-Honda defendants as a matter of basic pleading specificity. Plaintiffs remain free to amend their complaints, however, to delineate specific RICO claims against the dealer defendants.⁴

B. Choice of Circuit Law

A pending issue throughout the early stages of this multidistrict case has been the question of which circuit's law I should apply. Appendix A to American Honda's memorandum in support of its motion to dismiss...