Eleventh Circuit Affirms Dismissal With Prejudice of Auto Shops’ RICO Complaint Against Insurers

The Eleventh Circuit has affirmed the dismissal with prejudice of a putative class action brought by auto body collision repair shops against dozens of insurers and alleging RICO violations, fraud, and unjust enrichment.  Crawford’s Auto Center, Inc. v. State Farm Mutual Automobile Insurance Co., 2019 WL 6974428 (Dec. 20, 2019).

The plaintiffs alleged that the defendant insurers entered into “direct repair program,” or “DRP,” agreements with some repair shops, and that those “DRP shops” agreed to “certain uniform standards and procedures” in making covered repairs to autos insured by the insurers in return for repair referrals.  The plaintiffs, all non-DRP shops, claimed that the amounts the defendants paid them for covered repairs were “artificially suppressed” because the rates were based on third-party pricing data that was itself based largely on repair work done by DRP shops contractually bound to accept lower rates.  The result, the plaintiffs claimed, was a “feedback loop” yielding artificially low “prevailing rates” cited by the defendants as the maximum they would pay.

The defendants had moved to dismiss the plaintiffs’ initial complaint, but later stipulated to an amendment.  After the plaintiffs filed their amended complaint, the defendants moved to dismiss again, and the court granted the motion with leave to amend.  The plaintiffs filed another amended complaint, including federal RICO claims and claims for fraud and unjust enrichment under Pennsylvania and North Carolina law.  The defendants filed a third motion to dismiss, and the district court granted the motion and dismissed the plaintiffs’ claims with prejudice.

The Eleventh Circuit, in an opinion written by Judge Martin and joined by Judge William Pryor and Judge Gregory G. Katsas visiting from the D.C. Circuit, affirmed.  The RICO claim was properly dismissed, the court held, because the plaintiffs failed to allege at least two qualifying predicate acts, as required to allege a “pattern” of racketeering activity.  The plaintiffs claimed to have pled predicate acts of wire fraud and extortion.  But the complaint’s allegations lacked the particularity Rule 9(b) requires for fraud claims.  “None of Plaintiffs’ allegations—or the documents attached to their pleadings—identify ‘the manner in which the[se alleged statements] misled’ Plaintiffs.”  Indeed, the allegation that the defendants conveyed their “prevailing rates” to the plaintiffs before work was performed “forecloses any finding of misrepresentations,” even though the rates were alleged to be artificially low.  And the defendants were not liable for any alleged omissions of material fact, because they had no duty to disclose.

The claims of extortion in violation of the Hobbs Act, based on the allegation that the plaintiffs accepted lower rates from the defendants for fear of losing the defendants’ business, fared no better.  The plaintiffs failed to allege that they parted with property gained by the defendants, as required for a Hobbs Act claim.  And the insurers’ market power did not amount to extortion—“at most, these Defendants drove a hard bargain.”

The state law claims failed for similar reasons.  The fraud claim failed to meet the pleading standard imposed by Rule 9.  The allegation that the defendant insurers refused to pay more than allegedly artificially low amounts did not amount to a claim of unjust enrichment in light of the fact that the plaintiff shops agreed to accept those amounts.

The court also affirmed the district court’s dismissal of the complaint without leave to amend.  Not only did the court find no error in the district court’s determination that further amendment would be futile, but the court also determined that the plaintiffs, who claimed to have requested leave to amend in their briefs, had not properly made the request:  “Assuming that Plaintiffs’ requests amount to ‘the functional equivalent of a motion,’ we still ‘affirm the district court’s rejection thereof because [they] failed to include the proposed amendment of the substance thereof’” as required under this Circuit’s precedent.”

Posted by Valerie Sanders.

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