Nev. Fleet v. Fedex Corp.

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NEVADA FLEET LLC, Plaintiff, v. FEDEX CORPORATION, et al., Defendants.

No. 17-cv-01732-DAD-KJN

United States District Court, E.D. California

January 17, 2024

ORDER DENYING DEFENDANT AUTOMOTIVE RENTALS INC.'S MOTION TO DISMISS AND GRANTING IN PART AND DENYING IN PART DEFENDANT FEDERAL EXPRESS CORPORATION'S MOTION TO DISMISS

(DOC. NOS. 131 134)

DALE A. DROZD, UNITED STATES DISTRICT JUDGE.

This matter is before the court on defendant Automotive Rentals Inc.'s (“ARI”) May 31, 2022 motion to dismiss certain claims brought against it and defendant Federal Express Corp.'s (“FedEx”) June 2, 2022 motion to dismiss plaintiff's third amended complaint. (Doc Nos. 131, 134). On October 11, 2022, the pending motions were taken under submission on the papers.^[1](Doc. No. 158.) For the reasons explained below, defendant ARI's motion to dismiss will be denied and defendant FedEx's motion to dismiss will be granted in part and denied in part.

BACKGROUND

On April 22, 2022, plaintiff Nevada Fleet LLC filed the operative third amended complaint (“TAC”) in this action alleging that defendant FedEx and defendant ARI knowingly sold plaintiff 98 vehicles with double or triple the publicly advertised mileage. (Doc. No. 122.) In its TAC plaintiff alleges the following.

Plaintiff is an independent automotive dealer specializing in the wholesale purchase and sale of FedEx delivery vans, focusing on vans with lower mileage. (Doc. No. 126 at ¶¶ 17-18, 23.) Plaintiff buys these vans at commercial auctions around the country, as well as directly from defendant ARI. (Id. at ¶ 19, 21.) Plaintiff then refurbishes and resells the vans to third-party customers such as the individual Tonn Cummins and the companies KC Delivery Services, Inc., Millennium Express Home Delivery, Inc., and Van Tastic. (Id. at ¶¶ 22, 117, 228.) Defendant ARI is the largest privately held corporate fleet management company in the United States. (Id. at ¶ 25.) Defendant ARI provides vehicle services including acquisition, customization, maintenance, remarketing, sale, and disposal. (Id.) When fleet vehicles reach the end of life as defined under a fleet management agreement, defendant ARI takes possession of the vehicles and markets and sells them via its websites or through an auction house. (Id. at ¶ 28.)

Defendant ARI served as defendant FedEx's agent in remarketing and selling defendant FedEx's retired vehicles. (Id. at ¶ 157.) On June 1, 2009, at the latest, defendant ARI and defendant FedEx signed the Fleet Management Services Agreement (“FMSA”). (Id. at ¶ 37.)^[2]On or about July 11, 2013, defendants agreed to a ninth amendment of the FMSA (“the Ninth Amendment”). (Id. at ¶ 54.) Under the Ninth Amendment, defendant FedEx determined which retired vehicles would be resold. (Id. at ¶ 65.) For each such vehicle, defendant ARI would at some point execute an assignment of title on behalf of defendant FedEx, purporting to assign title to the vehicle from defendant FedEx to defendant ARI. (Id. at ¶ 66.) That is, one employee of defendant ARI would sign as defendant FedEx, and another ARI employee would countersign as defendant ARI. (Id.) When the vehicle was sold to a third-party buyer such as plaintiff, defendant ARI would execute another assignment of title from defendant ARI to that buyer. (Id. at 13.) Defendant ARI told plaintiff that it needed to check with defendant FedEx before it could “unwind” any vehicle sales to plaintiff. (Id. at ¶ 116.) Under the FMSA, defendant ARI receives a small and capped percentage of the profits from each vehicle it sells, while defendant FedEx receives the much larger remainder of the profits. (Doc. No. 117 at 9.)^[3] Moreover, § 11(D) of the FMSA expressly refers to “the transfer of ownership by ARI, as agent, from FedEx to the next succeeding owner.” (Doc. No. 117 at 8-9; see also Doc. No. 122 at 8.)

For several years, defendants conspired to resell retired vehicles while failing to disclose odometer changes and affirmatively misrepresenting vehicle mileage. (Id. at ¶ 203.) Mileage is the most important factor in determining a vehicle's sale price, with lower-mileage vehicles garnering higher prices. (Id. at ¶ 162.) Defendant FedEx kept meticulous records of odometer changes and overall mileage on each vehicle. (Id. at ¶¶ 70-73.) Defendant ARI was given access to these records. (Id. at ¶ 74.) Nevertheless, defendant FedEx routinely failed to affix a sticker to the left door frame specifying the true mileage of the vehicle or to disclose the true mileage in writing after an odometer replacement, as required by the Federal Odometer Act, 49 U.S.C. §§ 32701 etseq. (the “Odometer Act”). (Id. at ¶¶ 145, 147.) Defendant FedEx's employees also signed certifications attesting to inaccurate mileage. (Id. at ¶ 148.) In turn, defendant ARI would fail to disclose the true mileage when the vehicle was resold to third parties such as plaintiff. (Id. at ¶ 159.) Specifically, defendant ARI would turn the vehicle over to the auction house, which would then send defendant ARI a vehicle condition report. (Id. at ¶ 89.) Due to the lack of stickers or disclosures revealing the odometer change, as well as defendant ARI mailing the auction house title to the vehicle reflecting an inaccurate mileage figure, the auction house's condition report would state a far lower mileage figure than was accurate for the vehicle. (See, e.g., id. at ¶ 93, 137.) Defendant ARI would then use this condition report as the basis of its online marketing despite knowing the vehicle's mileage was two to three times higher than that reflected on the condition report. (Id. at ¶¶ 89, 93; see also id. at ¶ 135.) As a result of their disguised mileage, the vehicles would sell for nearly double their true value. (Id. at ¶ 102.)

Plaintiff alleges the following details in providing several examples of the alleged scheme. FedEx vehicle asset number (“Asset Number”) 221846, a 1998 Freightliner W700 walk-in delivery van with Vehicle Identification Number (“VIN”) 4UZA4FF40WC897670, received an odometer replacement on March 29, 2012. (Id. at ¶¶ 67-68, 75-76.) Neither defendant applied the sticker required by the Odometer Act specifying the accurate pre-replacement mileage. (Id. at ¶ 78.) Defendant ARI received an electronic request from defendant FedEx to pick up Asset 221846 on April 19, 2017; defendant ARI requested the title for that vehicle on the same day. (Id. at ¶¶ 85-86.) After defendant ARI mailed the title to the vehicle to an auction house, the auction house performed a cursory inspection and sent its condition report to defendant ARI. (Id. at ¶¶ 87-88.) Defendant ARI used this condition report as the basis of its online marketing of Asset 221846 even though the condition report disclosed the vehicle's mileage as only 106,349 miles, when defendant ARI knew from defendant FedEx's records that the asset had accrued 362,760 miles over the course of 20 years. (Id. at ¶¶ 89, 93-94.) Plaintiff purchased Asset 221846 on June 1, 2017 for $4,600, nearly twice what the price would be for a similar vehicle with 360,000 miles. (Id. at ¶ 96.) The bill of sale provided to plaintiff confirmed the odometer reading of only 106,349 miles. (Id.)

Other examples alleged by plaintiff include Assets 227217 and 232266. (Id. at ¶¶ 98, 100.) Asset 227217 was marketed as having only 86,115 miles when plaintiff bought it in May 2017 for $4,500; defendant FedEx's records show the true mileage as 346,967 miles. (Id. at ¶¶ 98-99.) Asset 232266 was marketed as having only 150,130 miles when plaintiff bought it in January 2017; defendant FedEx's records show the true mileage as 385,522. (Id. at ¶¶ 100-01.)^[4]Overall, plaintiff has confirmed that it bought at least 98 retired FedEx vans between 2013 and 2017 with undisclosed odometer changes, and likely more. (Id. at ¶ 97.) Plaintiff paid nearly double the true value for these vans because of the undisclosed odometer replacements. (Id. at ¶ 102.)

In 2017, plaintiff received a customer complaint from individual Tonn Cummins. (Id. at ¶ 117.) A scan of the engine revealed that the retired FedEx van Cummins had purchased from plaintiff with 188,000 miles on the odometer actually had been driven over 300,000 miles. (Id.) Plaintiff began investigating the odometer discrepancies and complained to the auction houses and defendant ARI. (Id. at ¶ 118.) After plaintiff filed this action in August 2017, plaintiff was locked out of all auction houses and defendant ARI's direct purchasing program. (Id. at ¶¶ 11921.) Defendant ARI and the auction houses informed plaintiff that it would need to drop its lawsuit against defendant FedEx in order to be readmitted to the auctions. (Id. at ¶ 122.)

Based on the above allegations, plaintiff asserts the following seven claims in its TAC, with the fifth claim asserted only against defendant ARI, while the remaining claims are asserted against both defendants: (1) odometer fraud in violation of the Odometer Act, 49 U.S.C. §§ 32701, et seq.; (2) intentional misrepresentation or omission; (3) negligent misrepresentation or omission; (4) racketeering in violation of 18 U.S.C. § 1962(c) and conspiracy to commit racketeering in violation of 18 U.S.C. § 1962(d); (5) intentional interference with prospective economic advantage; (6) breach of implied warranty of merchantability; and (7) unlawful, unfair, and fraudulent business practices in violation of California's Unfair Competition Law (“UCL”), California Business and Professions Code §§ 17200, et seq. (Doc. No. 126 at 24-37.)

On August 8, 2017, plaintiff filed its initial complaint against “FedEx Corporation” and unnamed defendants Does 1-50. (Doc. No. 1.) Plaintiff moved to amend its complaint on December 29, 2017; the motion was granted by the previously assigned district judge on ...