Polar Express School Bus, Inc. et al v. Navistar, Inc. et al
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 12/16/2016:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
POLAR EXPRESS SCHOOL BUS,
INC., and LAKEVIEW BUS
Case No. 16 C 5769
Judge Harry D. Leinenweber
NAVISTAR, INC., NAVISTAR
INTERNATIONAL CORP., and IC
MEMORANDUM OPINION AND ORDER
Plaintiffs’ Complaint [ECF No. 13].
For the reasons stated herein,
If the Plaintiffs do not amend their Complaint
within twenty-one (21) days from the date of this Memorandum Opinion
and Order, the dismissal will convert automatically into a dismissal
The Plaintiffs are an Illinois school bus company, Polar Express
School Bus (“Polar”), and a second company that leased buses from
Polar, Lakeview Bus Lines (“Lakeview”).
The Plaintiffs claim that the
“Navistar”) manufactured and sold buses to Polar knowing that the
buses contained defective parts.
Polar alleges that from 2007 to 2009, it purchased from Navistar
control technology and defective brake systems.
The Plaintiffs’ only
claims under federal law are for civil violations of the Racketeer
§§ 1962(c) and 1962(b), perpetrated through acts of mail and wire
through an enterprise that included Navistar’s authorized dealers, who
facilities, who serviced the vehicles.
The Plaintiffs also bring
claims for fraud under Illinois state law.
According to the allegations, the defects in the engines arise
from an “exhaust gas recirculation” system that failed to meet U.S.
efforts to redesign the engines to meet the applicable EPA standards
actually led to worse performance, Plaintiffs claim, which in turn led
to “control failures and other malfunctions.”
Ostensibly for support, the Plaintiffs highlight a civil action
against Navistar, in which the SEC claims that Navistar made several
misleading public statements to investors from the years 2010 to 2012,
violating the federal securities laws.
Plaintiffs believe that when
deliberately deceived its customers.
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See, Compl. ¶ 11.
COUNT II – RICO CLAIM UNDER 18 U.S.C. § 1962(c)
The Court first addresses Count II, the Plaintiffs’ RICO claim
under Section 1962(c).
That section “makes it unlawful for any person
activities of which affect, interstate or foreign commerce, to conduct
activity. . . .”
Rao v. BP Products North America, 589 F.3d 389, 399
Plaintiffs therefore must allege facts showing “(1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity.”
In addition, because the Plaintiffs’ claims of racketeering are
premised on mail and wire fraud (“predicate acts” under RICO), the
heightened pleading standard of Federal Rule of Civil Procedure 9(b)
underlying the fraud.
DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th
The Defendants argue, and the Court agrees, that the
Plaintiffs’ Complaint fails to meet the Rule 9(b) threshold.
“‘An act of wire fraud requires a showing that (1) Defendants
Triumph Packaging Group v. Ward, 877 F.Supp.2d
629, 643 (N.D. Ill. 2012) (quoting Kaye v. D’Amato, 357 Fed. Appx.
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706, 710 (7th Cir. 2009)).
Mail fraud requires the same, except as to
the third element, which requires the defendant to have used the mails
in furtherance of the fraud.
See, id. (citing United States v. Boone,
628 F.3d 927, 933 (7th Cir. 2010)).
A “scheme to defraud,” in turn,
concealment of a material fact.”
Williams v. Aztar Indiana Gaming
Corp., 351 F.3d 294, 299 (7th Cir. 2003).
misrepresentations were made well after Polar purchased any buses from
statement from, say, 2012, when they purchased or leased a bus in
Indeed, the SEC action that the Plaintiffs highlight deals with
alleged misrepresentations and omissions all occurring from 2010 to
The SEC portrays Navistar as having difficulty developing an
engine that would meet impending EPA emissions standards; as a result,
the SEC says, Navistar covered up its problems through misleading
statements to its investors in violation of various provisions of the
federal securities laws.
ECF No 1.
See, Civil Docket Case No. 1:16-cv-03885,
Absent from the SEC complaint are any allegations regarding
misrepresentations to Navistar’s investors prior to 2010, as well as
other words, it is hard to see how the SEC’s 2016 suit is relevant to
the present matter.
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Regardless, the Plaintiffs are not free to piggy-back on an SEC
They must state allegations in their own Complaint that would
form a plausible claim.
In an effort to do so, the Plaintiffs attach
several exhibits that they believe contain fraudulent statements.
example, they provide several Form 8-Ks (forms Navistar was required
developments) from the relevant time period:
See, Compl. Exs. A, C, D and E.
2006, 2007 and 2008.
These disclosures from Navistar
contain optimistic predictions about its engine development efforts –
The Plaintiffs counter that their RICO claim is not based on a
misrepresentation about Navistar’s engines, but instead based on a
failure to disclose the known defects in the engines.
A failure to
disclose does not automatically constitute fraud, but it may amount to
503, 507 (7th Cir. 2005).
United States v. Stephens, 421 F.3d
But the Plaintiffs’ Complaint is also short
on any allegations of concealment that aren’t conclusory.
In the section of their Complaint describing the Defendants’ wire
misrepresentations by Navistar, but they do not explain how Navistar
actively concealed defects.
Again and again, the implication from the
several public statements about their engines’ quality that turned out
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to be wrong, they must have known it all along.
If that were enough
to meet Rule 9(b)’s requirement of pleading fraud with particularity,
it is hard to imagine a claim that wouldn’t meet the threshold.
It’s true that the Plaintiffs allege (in conclusory fashion) that
throughout the Complaint, but in particular, see, Compl. ¶¶ 96-98.)
fraudulent concealment – substantially less detail than, for example,
a similar RICO complaint dismissed in In re Testosterone Replacement
Therapy, 159 F.Supp.3d 898 (N.D. Ill. 2016).
The problem of lack of detail is magnified when considering the
entire RICO enterprise and not just Navistar’s statements.
Navistar worked in concert with its dealers and service facilities to
conceal defects, and to run up the costs for customers seeking repairs
and replacement parts.
More precisely, the Plaintiffs must allege
facts that would establish three things:
“a purpose, relationships
among those associated with the enterprise, and longevity sufficient
to permit these associates to pursue the enterprise’s purpose.”
589 F.3d at 399.
There must also be allegations suggesting that the
enterprise then engaged in a pattern of racketeering activity:
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“sufficiently related to constitute a pattern.” Id.
Aside from more
conclusory statements, the Complaint contains nothing suggesting any
coordination between the Defendants.
The relationship between the different Defendants in the supposed
Lakeview sent its buses to be serviced, the service centers knew the
engines were defective but never revealed this fact, and so profited
statement does not suggest that all Defendants shared in the profits
of the same scheme; the service centers may have just been the happy
Guaranteed Rate, Inc. v. Barr, 912 F.Supp.2d 671, 687 (N.D. Ill. 2012)
assert that “RICO Defendants had any interest in the outcome of the
alleged scheme beyond their own individual interests”).
There are no
example, suggesting they were conspiring to rip off their customers;
engines, it is wholly unclear how the dealers and service centers
would have knowledge of the defects as well.
Cf. In Re Testosterone
Therapy, 159 F.Supp.3d at 921 (fraudulent concealment claim failed to
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meet Rule 9(b)’s threshold in part because of a lack of “details about
meetings or communications” related to the concealment).
The Defendants make one other material argument for dismissal:
The applicable period for RICO claims is four years, and
the period begins to run when the plaintiff knows or should know that
that he has been injured by the defendant.
See, Cancer Foundation v.
Cerberus Capital Mgmt., 559 F.3d 671, 674 (7th Cir. 2009).
Defendants point out that the Plaintiffs arguably should have known
about the injury (the purchase of the defective engines and subsequent
costs) by as early as 2007, when they began to notice problems.
Defendants may have a strong argument, but the Plaintiffs have not
pled themselves out of court on this issue.
More facts are required
to determine conclusively when the Plaintiffs knew of their injury and
when they knew the Defendants were the parties responsible.
Plaintiffs rightly point out, they are not required to plead facts
Independent Trust Corp. v. Stewart Information Services, 665 F.3d 930,
935 (7th Cir. 2012).
The statute of limitations is not a basis for
dismissal at this juncture, although if the Plaintiffs attempt to
amend the Complaint, they should be mindful of the issue.
COUNT I – RICO CLAIM UNDER 18 U.S.C. 1962(b)
indirectly, any interest in or control of any enterprise which is
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engaged in, or the activities of which affect, interstate or foreign
The primary difference between § 1962(b) and § 1962(c) is
that § 1962(c) focuses on prohibition of racketeering activity, while
§ 1962(b) focuses on the prohibition of any interest in or control
over the racketeering enterprise.
But that difference is immaterial
for purposes of the motion to dismiss.
The Plaintiffs’ claim under Section 1962(b) contains the same
deficiencies as their claim under § 1962(c).
Section 1962(b), like
§ 1962(c), still requires allegations that would support “a pattern of
racketeering activity,” or in other words, at least two predicate
See, Starfish Inv. Corp. v. Hansen, 370 F.Supp.2d 759, 780
(N.D. Ill. 2005).
As the Court has explained, the allegations to
support with particularity a plausible claim for underlying mail and
wire fraud are insufficient.
Section 1962(b), like § 1962(c), also
requires facts that would demonstrate an “enterprise,” and as the
Court has already pointed out, the Complaint is short on such facts.
The claim under Section 1962(b) fails.
For the reasons stated herein, the Court grants the Defendants’
Motion to Dismiss [ECF No. 13], dismissing Counts I and II of the
Plaintiffs’ Complaint without prejudice.
Because the Plaintiff has
failed to state a federal claim, the Court relinquishes supplemental
jurisdiction over Count III, the Illinois fraud claim.
§ 1367(c)(3); RWJ Mgt. Co., Inc. v. BP Prods. N. Am. Inc., 672 F.3d
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Complaint within twenty-one (21) days from the date of this Memorandum
Opinion and Order, this dismissal will convert automatically into a
dismissal with prejudice.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Dated: December 16, 2016
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