RED BARN MOTORS, INC. et al v. NEXTGEAR CAPITAL, INC. et al

Filing 186

ORDER ON DEFENDANTS' MOTION TO DISMISS - For the reasons stated herein, Defendants' Motion to Dismiss (Filing No. 126 ) is granted in part and denied in part. The Plaintiffs' breach of contract claim and constructive fraud claim ag ainst NextGear survive the Motion to Dismiss. The substantive RICO claim against NextGear, Cox Automotive, and Mr. Wick also survives dismissal. The claims for RICO conspiracy, unjust enrichment, and tortious interference are dismissed. The Court concludes, however, that these dismissals should be with without prejudice. Fed. R., Civ. P. 15 directs that courts should "freely" grant leave to amend a pleading "when justice so requires." Fed. R. Civ. P. 15 (a)(2). If in fac t, Plaintiffs' can plead sufficient facts to support their claims for RICO conspiracy, unjust enrichment, and tortious interference they are granted leave to file a Second Amended Complaint within fourteen (14) days of the date of this Entry. (See Order.) Signed by Judge Tanya Walton Pratt on 3/27/2017. (JLS)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
RED BARN MOTORS, INC., PLATINUM
MOTORS, INC., MATTINGLY AUTO SALES,
INC., and YOUNG EXECUTIVE
MANAGEMENT & CONSULTING SERVICES,
INC., individually and on behalf of other members
of the general public similarly situated,
Plaintiffs,
v.
NEXTGEAR CAPITAL, INC. f/k/a DEALER
SERVICES CORPORATION, COX
ENTERPRISES, INC., COX AUTOMOTIVE,
INC., and JOHN WICK,
Defendants.

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Case No. 1:14-cv-01589-TWP-DKL

ORDER ON DEFENDANTS’ MOTION TO DISMISS
This matter is before the Court on a Motion to Dismiss filed pursuant to Federal Rule of
Civil Procedure 12(b)(6) by Defendants NextGear Capital, Inc. (“NextGear”), formerly known as
Dealer Services Corporation (“DSC”), Cox Enterprises, Inc., Cox Automotive, Inc., and John
Wick (“Mr. Wick”) (collectively, “Defendants”) (Filing No. 126). In 2009 and 2011, NextGear
entered into agreements with Plaintiffs Red Barn Motors, Inc. (“Red Barn”), Platinum Motors, Inc.
(“Platinum Motors”), Mattingly Auto Sales, Inc. (“Mattingly Auto”), and Young Executive
Management & Consulting Services, Inc. (“Executive Auto Group”) (collectively, “Plaintiffs”).
These agreements provided lines of credit for financing the Plaintiffs’ used car dealership
operations. After the Plaintiffs discovered that they had been charged fees and interest on money
that had not yet actually been loaned, they initiated this litigation, asserting claims for breach of
contract, constructive fraud, tortious interference with business relationships, unjust enrichment,

violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961
et seq., and RICO conspiracy.

The Defendants move to dismiss the Plaintiffs’ Amended

Complaint on various grounds but primarily on the argument that the terms of the contracts allowed
the Defendants to charge fees and interest at the time that they did actually charge fees and interest.
For the following reasons, the Court grants in part and denies in part the Motion to Dismiss.
I. BACKGROUND
The following facts are not necessarily objectively true, but as required when reviewing a
motion to dismiss, the Court accepts as true all factual allegations in the Amended Complaint and
draws all inferences in favor of the Plaintiffs. See Bielanski v. County of Kane, 550 F.3d 632, 633
(7th Cir. 2008).
Defendant NextGear has its principal place of business in Carmel, Indiana, and is a whollyowned subsidiary of Defendant Cox Automotive. Cox Automotive in turn is a wholly-owned
subsidiary of Defendant Cox Enterprises. Cox Automotive is a world leader in vehicle remarketing
services and digital marketing and software solutions for automotive dealers and customers. In
addition to owning and operating NextGear, Cox Automotive also owns and operates Kelley Blue
Book and Autotrader among other companies. Defendant NextGear is an automotive financing
company that provides line-of-credit financing to used car dealers that purchase used automobiles
from auction companies throughout the United States. NextGear also owns and operates some
auction houses. NextGear operates throughout the United States by way of almost two hundred
account executives and eighteen regional directors. Defendant Mr. Wick is general counsel and
corporate secretary for NextGear. Mr. Wick oversees all corporate, legislative, and litigation
matters of NextGear. Mr. Wick also leads NextGear’s strategic and corporate development.

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Plaintiffs Red Barn, Platinum Motors, Mattingly Auto, and Executive Auto Group are used
car dealerships. Red Barn is a small, family-owned and operated used car dealership in Louisiana.
Platinum Motors is located in Chesapeake, Virginia. Mattingly Auto is located in Hardinsburg,
Kentucky, and Executive Auto Group is located in Kansas City, Missouri. Each of the Plaintiffs
was solicited by NextGear to enter into a contract whereby NextGear would issue a line of credit
to the Plaintiffs so that the Plaintiffs could purchase used vehicles at automobile auctions and the
vehicles would initially be paid for by NextGear. The Plaintiffs would then later pay NextGear
the amount NextGear paid the auction on behalf of the Plaintiffs as well as interest and other fees.
Each of the Plaintiffs entered into an agreement with NextGear, specifically called a “Demand
Promissory Note and Security Agreement.” These agreements provided to the Plaintiffs a
revolving line of credit—commonly referred to as a floorplan agreement—to purchase vehicles at
auctions, which would then be resold at their used car dealerships.
The Plaintiffs describe the typical auction and financing transactions in their Amended
Complaint:
Typically, Floorplan Agreements are used by used car dealers in conjunction with
vehicle auctions in the following manner: a) a new car dealer receives a trade-in
vehicle; b) the new car dealer then provides the trade-in vehicle to an auction
company to present to numerous used car dealers at auction on a particular date; c)
once a used car dealer’s bid is accepted, the used car dealer takes possession of the
vehicle; d) on the date of the auction, the used car dealer either pays the auction
company directly or employs an automotive financing company (such as a
NextGear/DSC) to pay the auction company on that day and provide financing by
means of a Floorplan Agreement with the used car dealer for the purchase of the
vehicle; e) the new car dealer delivers the title for the vehicle to the auction
company; f) the auction company forwards the title to whomever paid it - either the
used car dealer that paid the auction company directly, or the automotive financing
company that provided financing by means of a Floorplan Agreement. If the title is
forwarded to the automotive financing company that provided financing by means
of a Floorplan Agreement, the used car dealer pays the automotive financing
company fees and interest on the money loaned while the used car dealer attempts
to sell the vehicle to a new buyer. Once the used car dealer sells the car to a new
buyer, the used car dealer pays off the automotive financing company in full.
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(Filing No. 117 at 5.) The Plaintiffs explain NextGear’s deviation from this typical model;
“NextGear/DSC, however, does not pay the auction houses until NextGear/DSC receives the title
to the vehicles purchased, even though NextGear/DSC charges interest and curtailment fees to the
Red Barn Plaintiffs under the illusion that NextGear/DSC has already paid the auction house for
the vehicles.” Id. It can take as long as eight weeks for NextGear to receive title to a vehicle
purchased at an auction, at which point it pays the auction for the vehicle; however, NextGear
begins charging interest and fees at the time of the sale at the auction.
The Plaintiffs allege that the Defendants,
devised a scheme and artifice to defraud the [] Plaintiffs and others similarly
situated, and to obtain money and property by means of false and fraudulent
pretenses and representations by charging “interest” to the [] Plaintiffs and others
similarly situated, on money not lent from NextGear/DSC to the [] Plaintiffs.
(Filing No. 117 at 2).
In the case of Red Barn, in June or July 2011 at the Oak View Auto Auction in Baton
Rouge, Louisiana, Stuart LaBauve (“Mr. LaBauve”), a NextGear account executive, solicited Red
Barn through Devon London (“Mr. London”), Red Barn’s general manager, to enter into a
floorplan agreement. NextGear wanted to provide a revolving line of credit to Red Barn to allow
it to purchase used cars at auctions that would then be placed on its sales lot for resale. In June or
July 2011, following the initial meeting between Mr. LaBauve and Mr. London, Mr. LaBauve
visited Red Barn’s business in Denham Springs, Louisiana, to solicit Red Barn through its owner,
Donald Richardson, to enter into a floorplan agreement with NextGear.
On July 27, 2011, Red Barn and NextGear entered into a floorplan agreement, providing a
line of credit up to $200,000.00 to Red Barn. The agreement required payment of interest and
other fees as well as any principal amounts paid on behalf of Red Barn. After entering into the

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agreement, Red Barn occasionally used the floorplan agreement to purchase vehicles at auction in
order to sell them at the Red Barn used car lot.
In June 2012, Red Barn entered into a verbal agreement with multiple automobile auction
houses that gave Red Barn up to seven days to decide whether it wanted to use its NextGear line
of credit to pay for vehicles purchased at the auctions or whether it would pay for the vehicles
using some other method such as cash. Even when Red Barn delayed its decision to use the line of
credit provided by NextGear to purchase vehicles from these auctions, NextGear backdated the
withdrawal on the line of credit to the date of the purchase at auction, and NextGear charged
interest and fees from that backdated date.
Later in June 2012, Red Barn’s general manager discovered transactions in which Red Barn
had not used the floorplan agreement to purchase vehicles, so NextGear never actually loaned
money to Red Barn for the purchase of those vehicles. However, NextGear charged interest to
Red Barn as though NextGear had actually provided the financing for the vehicles.
Around November 2, 2012, Red Barn purchased a vehicle using the NextGear floorplan
agreement. The auction house was unable to obtain title to the vehicle after 180 days, and Red
Barn already had paid off its line of credit with NextGear for the purchase of the vehicle. NextGear
never paid the auction house for the vehicle, so it voluntarily reimbursed Red Barn all of the
interest and fees that it had been collecting from Red Barn over the span of 180 days on the vehicle
because the title was never delivered.
Between August 2011 and March 2013, Red Barn used NextGear’s floorplan agreement
for 524 transactions. NextGear electronically debited approximately $80,000.00 in interest from
Red Barn’s bank account. Much of the money NextGear electronically debited from Red Barn’s
account was based on money that was never actually loaned to Red Barn for the purchase of

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vehicles, or NextGear actually loaned the money for a much shorter period of time than the period
for which interest and fees were charged.
During the course of Red Barn’s nearly two-year lending relationship with NextGear, Red
Barn communicated regularly with Mr. LaBauve of NextGear regarding Red Barn’s floorplan
agreement through in-person, telephone, and email communications.

During all of these

communications, NextGear concealed the fact that NextGear did not pay the auction houses for
the vehicles purchased until it received the title, but it began charging interest and fees from the
date of the auction, sometimes as much as eight weeks earlier, even though no money had been
loaned. NextGear also concealed facts regarding the actual interest rates charged. NextGear
worked with several auction houses, including some auction houses owned and operated by
NextGear, to conceal these facts from Red Barn. The auction houses concealed NextGear’s
actions, allowing NextGear to continue its course of conduct.
NextGear intentionally interfered with the valid business relationships held by Red Barn
with various auction houses when it “blacklisted 1” Red Barn with these auction houses. As a
result, auction houses prohibited Red Barn from attending and participating in the routine sales of
used cars, which further damaged Red Barn financially.
In March 2013, Red Barn began experiencing financial difficulties, which resulted in an
inability to make payments on its floorplan agreement with NextGear. Because of this, in April
2013, NextGear began seizing Red Barn’s assets, including vehicles on the Red Barn sales lot. In
April 2013, Red Barn employees delivered between eleven and fourteen vehicles to Louisiana First
Choice Auto Auction (“First Choice”) with the intent to sell the vehicles and use the proceeds from
the sales to pay NextGear on the debt under the floorplan agreement. However, Red Barn was
A list of people, organizations, etc., that are disapproved of or that are to be punished or avoided. www.merriamwebster.com/dictionary/blacklist.
1

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unable to sell the vehicles because First Choice, without Red Barn’s knowledge or consent, seized
the vehicles and has held the vehicles since the time of seizure. On April 25, 2013, Red Barn filed
a Chapter 11 voluntary petition for bankruptcy.
In the case of Platinum Motors, in the spring of 2011 at the American Auto Auction in
Chesapeake, Virginia, a NextGear account executive solicited Nicol Zenia Perry (“Ms. Perry”),
Platinum Motors’ owner, to execute a floorplan agreement with NextGear. Later, Ms. Perry met
with a NextGear representative at a Manheim Auto Auction in Virginia.
On May 23, 2011, Platinum Motors and NextGear entered into a floorplan agreement,
providing a line of credit up to $35,000.00 to Platinum Motors. Similar to Red Barn’s agreement,
Platinum Motors’ agreement required payment of interest and other fees as well as any principal
amounts paid on behalf of Platinum Motors. After entering into the agreement, Platinum Motors
occasionally used the floorplan agreement to purchase vehicles at auction in order to sell them at
the Platinum Motors used car lot.
Similar to Red Barn’s experience with NextGear, Platinum Motors was charged interest
and fees based on the date of the purchase at auction even though payment was not made on
Platinum Motors’ behalf until NextGear received title from the auction houses—sometimes as long
as eight weeks later. Between May 2011 and June 2012, Platinum Motors used NextGear’s
floorplan agreement for approximately 1,000 vehicle purchases. NextGear electronically debited
interest and fees from Platinum Motors’ bank account on each of these transactions. Much of the
money NextGear electronically debited was based on money that was never actually loaned, or
NextGear actually loaned the money for a much shorter period of time than the period for which
interest and fees were charged.

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Throughout Platinum Motors’ one-year lending relationship with NextGear, Platinum
Motors communicated regularly with NextGear representatives, including account executive Sean
Tabb, regarding Platinum Motors’ floorplan agreement through in-person, telephone, and email
communications. During all of these communications, NextGear concealed the fact that NextGear
did not pay the auction houses for the vehicles purchased until it received the title, but it began
charging interest and fees from the date of the auction, sometimes as much as eight weeks earlier,
even though no money had been loaned. NextGear also concealed facts regarding the actual
interest rates charged.
Like Red Barn, Platinum Motors was blacklisted by NextGear with various auction houses,
thereby interfering with the valid business relationships held by Platinum Motors. As a result,
auction houses prohibited Platinum Motors from attending and participating in the routine sales of
used cars, which further damaged Platinum Motors financially.
In the case of Mattingly Auto, sometime before February 2009, NextGear account
executive Lourdes Givens solicited Barry Mattingly (“Mr. Mattingly”), Mattingly Auto’s owner,
to execute a floorplan agreement with NextGear. On February 5, 2009, Mattingly Auto and
NextGear entered into a floorplan agreement, providing a line of credit up to $100,000.00 to
Mattingly Auto.

Similar to the other floorplan agreements in this case, Mattingly Auto’s

agreement required payment of interest and other fees as well as any principal amounts paid on
behalf of Mattingly Auto. After executing the agreement, Mattingly Auto used the line of credit
to purchase vehicles at auction in order to sell them at its used car lot in Kentucky.
Mattingly Auto was charged interest and fees based on the date of the purchase at auction
even though payment was not made on Mattingly Auto’s behalf until NextGear received title from
the auction houses. Between February 2009 and May 2012, Mattingly Auto used NextGear’s

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floorplan agreement for approximately 320 transactions. NextGear electronically debited interest
and fees from Mattingly Auto’s bank account on each of these transactions. Much of the money
NextGear electronically debited was based on money that was never actually loaned, or NextGear
actually loaned the money for a much shorter period of time than the period for which interest and
fees were charged.
During Mattingly Auto’s more than three-year relationship with NextGear, Mattingly Auto
communicated regularly with NextGear representatives, including account executives Lourdes
Givens and Mark Holley, regarding Mattingly Auto’s floorplan agreement through in-person,
telephone, and email communications. NextGear concealed the fact that NextGear did not pay the
auction houses for the vehicles purchased until it received the title, but it began charging interest
and fees from the date of the auction even though no money had yet been loaned. NextGear also
concealed facts regarding the actual interest rates charged.
Similar to the other plaintiffs, Mattingly Auto was blacklisted by NextGear with auction
houses and had its business relationships interrupted, resulting in auction houses prohibiting
Mattingly Auto from attending and participating in the routine sales of used cars, which further
damaged Mattingly Auto financially.
In the case of Executive Auto Group, in the summer or fall of 2011, a NextGear account
executive solicited Executive Auto Group through its owner, Ronald Jerome Reid (“Mr. Reid”),
to execute a floorplan agreement with NextGear. On September 14, 2011, Executive Auto Group
and NextGear entered into a floorplan agreement, providing a line of credit up to $25,000.00 to
Executive Auto Group. Similar to the other floorplan agreements in this case, Executive Auto
Group’s agreement required payment of interest and other fees as well as any principal amounts

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paid on behalf of Executive Auto Group. Like the other plaintiffs, Executive Auto Group used the
line of credit to purchase vehicles at auction in order to sell them at its used car lot in Missouri.
Like the other plaintiffs in this case, Executive Auto Group was charged interest and fees
based on the date of the purchase at auction even though payment was not made on Executive
Auto Group’s behalf until NextGear received title from the auction houses. Beginning in 2011,
Executive Auto Group used NextGear’s floorplan agreement to finance approximately seven
transactions. NextGear electronically debited interest and fees from Executive Auto Group’s bank
account on each of these transactions. Much of the money NextGear electronically debited was
based on money that was never actually loaned, or NextGear actually loaned the money for a much
shorter period of time than the period for which interest and fees were charged.
During Executive Auto Group’s lending relationship with NextGear, Mr. Reid
communicated regularly with NextGear representatives regarding the floorplan agreement through
in-person, telephone, and email communications. NextGear concealed the fact that NextGear did
not pay the auction houses for the vehicles purchased until it received the title, but it began
charging interest and fees from the date of the auction even though no money had yet been loaned,
and it concealed facts regarding the actual interest rates charged.
Executive Auto Group also was blacklisted by NextGear with auction houses and had its
business relationships interrupted, resulting in auction houses prohibiting Executive Auto Group
from attending and participating in the routine sales of used cars, which further damaged Executive
Auto Group financially.
On December 3, 2013, Red Barn filed its Complaint against NextGear and First Choice,
asserting claims for breach of contract, unjust enrichment, and conversion and illegal seizure,
based on the facts noted above regarding Red Barn (Filing No. 1). On January 8, 2016, the

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Plaintiffs requested leave to file their Amended Complaint, which was granted. The Plaintiffs’
Amended Complaint, filed March 11, 2016, asserts claims for breach of contract, constructive
fraud, tortious interference with business relationships, unjust enrichment, violation of RICO, and
a RICO conspiracy (Filing No. 117). The Amended Complaint did not include First Choice as a
defendant but added Cox Enterprises, Cox Automotive, and Mr. Wick as defendants. The
Amended Complaint also added Platinum Motors, Mattingly Auto, and Executive Auto Group as
plaintiffs and removed Donald and Barbara Richardson as plaintiffs. The Defendants filed their
Motion to Dismiss on April 15, 2016 (Filing No. 126).
II.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) allows a defendant to move to dismiss a complaint
that has failed to “state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When
deciding a motion to dismiss under Rule 12(b)(6), the court accepts as true all factual allegations
in the complaint and draws all inferences in favor of the plaintiff. Bielanski, 550 F.3d at 633.
However, courts “are not obliged to accept as true legal conclusions or unsupported conclusions
of fact.” Hickey v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002).
The complaint must contain a “short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In Bell Atlantic Corp. v. Twombly, the
Supreme Court explained that the complaint must allege facts that are “enough to raise a right to
relief above the speculative level.” 550 U.S. 544, 555 (2007). Although “detailed factual
allegations” are not required, mere “labels,” “conclusions,” or “formulaic recitation[s] of the
elements of a cause of action” are insufficient. Id.; see also Bissessur v. Ind. Univ. Bd. of Trs., 581
F.3d 599, 603 (7th Cir. 2009) (“it is not enough to give a threadbare recitation of the elements of
a claim without factual support”). The allegations must “give the defendant fair notice of what the

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. . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555. Stated differently,
the complaint must include “enough facts to state a claim to relief that is plausible on its face.”
Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (citation and quotation marks omitted).
To be facially plausible, the complaint must allow “the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(citing Twombly, 550 U.S. at 556).
[T]he record under 12(b)(6) is limited to the language of the complaint and to those
matters of which the court may take judicial notice. The complaint cannot be
amended by the briefs filed by the plaintiff in opposition to a motion to dismiss. By
the same token, the defendant cannot, in presenting its 12(b)(6) challenge, attempt
to refute the complaint or to present a different set of allegations. The attack is on
the sufficiency of the complaint, and the defendant cannot set or alter the terms of
the dispute, but must demonstrate that the plaintiff’s claim, as set forth by the
complaint, is without legal consequence.
Gomez v. Illinois State Bd. of Education, 811 F.2d 1030, 1039 (7th Cir. 1987) (citation omitted).
However, “[courts] consider documents attached to the complaint as part of the complaint itself.
Such documents may permit the court to determine that the plaintiff is not entitled to judgment.”
Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 764 (7th Cir. 2010) (citations omitted).
Additionally, the court may consider documents that are referred to in the complaint and that are
concededly authentic and central to the plaintiff’s claim. Santana v. Cook County Bd. of Review,
679 F.3d 614, 619 (7th Cir. 2012). When a party attaches exhibits to its complaint and incorporates
the exhibits into the pleadings, if there are contradictions between the exhibits and the complaint,
the exhibits generally will control. Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013).
III. DISCUSSION
The Defendants have requested dismissal of the Plaintiffs’ Amended Complaint on
numerous grounds, but their argument for dismissal is premised on their claim that the
unambiguous terms of the floorplan agreements allowed the Defendants to charge fees and interest
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at the time that they did actually charge fees and interest. The Court will address each of the
arguments presented by the Defendants in their Motion to Dismiss.
A.

Res Judicata
The Defendants assert that the Plaintiffs’ claims arising from allegations of improper

interest—RICO, breach of contract, constructive fraud, and unjust enrichment—are barred by the
doctrine of res judicata between NextGear and Platinum Motors, Mattingly Auto, and Executive
Auto Group. Citing Hensley v. Jasper Police Dep’t, 163 F. Supp. 2d 1006, 1021 (S.D. Ind. 2001),
the Defendants point out that, under Indiana law, res judicata applies when there has been a
judgment on the merits between the same parties and their privies involving the same issue that
was or could have been determined in the prior litigation.
The Defendants explain that NextGear obtained default judgments against Platinum
Motors, Mattingly Auto, and Executive Auto Group for their failure to repay financing extended
by NextGear pursuant to the parties’ floorplan agreements. The Defendants argue that, because
these plaintiffs failed to raise the allegedly improper interest charges in the prior litigation under
the same floorplan agreements at issue here, they cannot bring claims arising out of those charges
now. Default judgments were entered in favor of NextGear and against Platinum Motors,
Mattingly Auto, and Executive Auto Group on February 12, 2014, June 6, 2013, April 11, 2013,
and January 14, 2015 on NextGear’s claims for breach of contract and breach of guaranty in the
Hamilton County (Indiana) Superior Court. The Defendants assert that res judicata applies here
because there have been judgments on the merits between the same parties and their privies
involving the same issue that was or could have been determined in the prior litigation.
Furthermore, the Defendants argue that a default judgment is a judgment on the merits for
purposes of res judicata, citing Eichenberger v. Eichenberger, 743 N.E.2d 370, 374 (Ind. Ct. App.

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2001), and “any matter within the issues of the [earlier] case that might have been alleged and
proven will be presumed to have been proven and adjudicated.” Stefansson v. Source One Mortg.,
2004 U.S. Dist. LEXIS 4458, at *4–5 (S.D. Ind. Jan. 29, 2004). Any affirmative defense or
compulsory counterclaim that a party was required to raise in the prior action, but failed to do so,
will be deemed proven and adjudicated for res judicata purposes. See id.; Hilliard v. Jacobs, 927
N.E.2d 393, 402 (Ind. Ct. App. 2010). The Plaintiffs’ claims against NextGear arising out of
allegations of wrongful interest could and should have been determined in the prior actions. Thus,
the claims are barred by res judicata.
In response to this argument, the Plaintiffs assert that the default judgments obtained by
NextGear do not constitute a judgment on the merits regarding the claims asserted in this lawsuit.
They point out that for claim preclusion to apply, four requirements must be met:
(1) the former judgment must have been rendered by a court of competent
jurisdiction; (2) the former judgment must have been rendered on the merits; (3)
the matter now in issue was, or could have been, determined in the prior action; and
(4) the controversy adjudicated in the former action must have been between the
parties to the present suit or their privies.
Angelopoulos v. Angelopoulos, 2 N.E.3d 688, 696 (Ind. Ct. App. 2013). The Plaintiffs assert that
the second and third requirements are not met.
The Plaintiffs explain that “[w]here a default judgment is entered, only those issues
presented by the complaint can be deemed concluded; the defaulting party cannot be charged with
admitting matters not within the complaint by his default,” quoting Van Den Biggelaar v. Wagner,
978 F. Supp. 848, 856–57 (N.D. Ind. 1997). The Plaintiffs argue that the default judgments were
based on complaints that were “extremely limited” and did not address the issues raised in their
Amended Complaint. The complaints contained few facts and only two claims: breach of contract
and breach of guaranty. The Plaintiffs assert that this lawsuit goes well beyond the few facts and

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basic claims of breach of contract and breach of guaranty, and thus, their claims in this litigation
cannot be deemed adjudicated by the default judgments.
Additionally, the Plaintiffs argue that the claims now asserted in this case could not have
been determined in the prior state court collection actions. They explain that the Defendants focus
on the “same transaction or occurrence” language of the trial rule regarding compulsory
counterclaims but fail to account for the important preceding language of the rule. The trial rule
governing compulsory counterclaims states,
A pleading shall state as a counterclaim any claim which at the time of serving the
pleading the pleader has against any opposing party, if it arises out of the transaction
or occurrence that is the subject-matter of the opposing party’s claim and does not
require for its adjudication the presence of third parties of whom the court cannot
acquire jurisdiction.
Ind. R. Trial P. 13(A) (Fed. R. Civ. Pro. 13(a) is similarly worded). Therefore, under the rule,
claims that had not accrued at the time of the original lawsuit cannot be considered compulsory
counterclaims. The Plaintiffs assert that their claims in this action were not compulsory
counterclaims because they had not yet accrued at the time NextGear’s collection suits were
initiated. The Plaintiffs had not and could not have discovered their claims at the time of
NextGear’s collection lawsuits.
As the Plaintiffs point out, “the cause of action of a tort claim accrues and the statute of
limitations begins to run when the plaintiff knew or, in the exercise of ordinary diligence, could
have discovered that an injury had been sustained as a result of the tortious act of another.”
Wehling v. Citizens Nat. Bank, 586 N.E.2d 840, 843 (Ind. 1992). Similarly, a breach of contract
claim “accrues, and the statute of limitations begins to run, when the plaintiff knew or, in the
exercise of ordinary diligence, could have discovered the breach of contract.” McFreen v. AlcatelLucent USA, Inc., 2014 U.S. Dist. LEXIS 170680, at *4 (S.D. Ind. Dec. 10, 2014).

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The Plaintiffs argue that the claims they assert in this case had not yet accrued at the time
of NextGear’s prior state court actions, and thus, the claims could not have been brought in those
cases and cannot now be barred on the basis of res judicata. They explain that the facts giving
rise to their breach of contract, tort, and other claims were fraudulently concealed by the
Defendants, thereby delaying the accrual of the claims. These facts include the actual interest rates
charged to the Plaintiffs, the timing of NextGear’s payments to the auction houses and when
NextGear began charging interest and fees, and NextGear’s interference of Plaintiffs’ business
relationships with auction houses. Because of the Defendants’ fraudulent omission and
concealment of material facts, the Plaintiffs assert that they did not know and could not have
discovered with diligence their injuries at the time NextGear sued them in 2012.
The Defendants suggest that the Plaintiffs could have discovered the facts giving rise to
their injuries by a diligent review of their own bank statements, which would show when interest
and other charges had been automatically debited from their accounts. However, this argument
overlooks the fact that the bank account statements would not have indicated the actual interest
rate charged or when NextGear actually paid the auction houses.

Without knowing when

NextGear actually paid the auction houses, the Plaintiffs could not have been apprised of the
alleged scheme to prematurely charge fees and interest on their accounts well before NextGear
paid the auction houses.
Res judicata and statute of limitations arguments are affirmative defenses. See Fed. R. Civ.
P. 8(c)(1). Quoting Seventh Circuit case law, another district court in this Circuit has explained
the interplay between affirmative defenses and motions to dismiss:
A statute of limitations is an affirmative defense. Fed. R. Civ. P. 8(c)(1).
Dismissing a claim as untimely at the pleading state is an “unusual step, since a
complaint need not anticipate and overcome affirmative defenses, such as the
statute of limitations.” Cancer Found., Inc. v. Cerberus Capital Mgmt., LP, 559
16

F.3d 671, 674 (7th Cir. 2009). “[A] federal complaint does not fail to state a claim
simply because it omits facts that would defeat a statute of limitations defense.”
Hollander v. Brown, 457 F.3d 688, 691 n.1 (7th Cir. 2006). A claim may be
dismissed as untimely, however, if “the allegations of the complaint itself set forth
everything necessary to satisfy the affirmative defense.” United States v. Lewis, 411
F.3d 838, 842 (7th Cir. 2005).
Goldberg v. Rush Univ. Med. Ctr., 929 F. Supp. 2d 807, 815–16 (N.D. Ill. 2013).
The Plaintiffs’ Amended Complaint alleges that Platinum Motors executed the floorplan
agreement with NextGear in May 2011 and used the agreement for financing through June 2012.
NextGear’s state court complaint was filed against Platinum Motors on June 21, 2012, and
Platinum Motors never responded to that complaint (Filing No. 127-2).
The Amended Complaint alleges that Mattingly Auto executed the floorplan agreement
with NextGear in February 2009 and used the agreement for financing through May 2012.
NextGear’s state court complaint was filed against Mattingly Auto on November 19, 2012, and
Mattingly Auto never responded to that complaint (Filing No. 127-4).
Finally, the Amended Complaint alleges that Executive Auto Group executed the floorplan
agreement with NextGear in September 2011 and used the agreement for financing at least
throughout the rest of 2011. NextGear’s state court complaint was filed against Executive Auto
Group on October 26, 2012, and Executive Auto Group never responded to that complaint (Filing
No. 127-6).
On a motion to dismiss, the Court accepts as true all factual allegations in the complaint
and draws all inferences in favor of the plaintiff. Bielanski, 550 F.3d at 633. A reasonable
inference from all the facts alleged in the Amended Complaint is that the Plaintiffs were not aware
and could not have been aware of their injuries during their ongoing business relationship with
NextGear, which relationship ended at or near the time when NextGear sued the Plaintiffs for
failing to pay the debts owed under the floorplan agreements. It is reasonably inferred from the
17

allegations of the Amended Complaint that the Plaintiffs could not have discovered their injuries
until after their relationship with NextGear had ended.
More importantly, a complaint need not anticipate and overcome affirmative defenses, and
a complaint does not fail to state a claim simply because it omits facts that would defeat a defense.
Cancer Found., 559 F.3d at 674; Hollander, 457 F.3d at 691 n.1. Because “the allegations of the
[Amended] complaint itself [do not] set forth everything necessary to satisfy the affirmative
defense,” see Lewis, 411 F.3d at 842, the Court determines that at the motion to dismiss stage of
this litigation, res judicata cannot be used to bar the Plaintiffs’ claims.
B.

Statutes of Limitation and Relation Back
The Defendants also assert that the Plaintiffs’ RICO claim and tortious interference claim

are barred by statutes of limitation. The Court will address each claim separately.
1.

RICO Claim

The Defendants argue that the Plaintiffs’ RICO claim against the new defendants added in
the Amended Complaint is untimely. Relying on Agency Holding Corp. v. Malley-Duff & Assocs.,
483 U.S. 143, 156 (1987) and Cancer Found., 559 F.3d at 674, the Defendants point out that RICO
claims have a four-year limitations period.
It begins to run when the plaintiffs discover, or should, if diligent, have discovered,
that they had been injured by the defendants. Limestone Dev. Corp v. Village of
Lemont, Ill., 520 F.3d 797, 800 (7th Cir. 2008). A plaintiff does not need to know
that his injury is actionable to trigger the statute of limitations--the focus is on the
discovery of the harm itself, not the discovery of the elements that make up a claim.
Rotella v. Wood, 528 U.S. 549, 555, 558, 120 S. Ct. 1075, 145 L. Ed. 2d 1047
(2000) (statute of limitations begins running even if the plaintiff is unaware of the
pattern of racketeering activity).
Cancer Found., 559 F.3d at 674.
Citing Klehr v. A.O. Smith Corp., 521 U.S. 179, 188, 190 (1997), the Seventh Circuit
explained that “a RICO claim cannot accrue at the time of the first predicate act. So if that act
18

happened to occur more than four years before the second act, the damage caused by the first act
would still be recoverable in a RICO suit.” Limestone Dev. Corp., 520 F.3d at 802. However,
“[a] plaintiff cannot use an independent, new predicate act as a bootstrap to recover for injuries
caused by other earlier predicate acts that took place outside the limitations period.” Id. But the
Seventh Circuit further explained, “[i]f the plaintiff doesn’t know or have reason to know that he
has been injured, the discovery rule clicks in and allows him to delay suing.” Id.
Based on this case law, the Defendants argue that, “[w]here, as here, the allegedly wrongful
interest charges were open and obvious through Plaintiffs’ bank statements and otherwise, the
statute of limitations began to run once the allegedly wrongful charge was made.” (Filing No. 127
at 13.) They assert that most of the bank account charges were made more than four years before
the filing of the Amended Complaint and would have been known immediately at the time of the
debit, and thus, the RICO claim related to charges made before January 8, 2012 (four years prior
to the Amended Complaint) are time barred.
The Plaintiffs add further case law when responding in opposition to the Defendants’ RICO
statute of limitations argument. They point to Barry Aviation, which clarifies the accrual of RICO
claims:
For both RICO claims and § 1983 claims, a cause of action accrues when the
plaintiff knew or should have known that it had sustained an injury. This rule is
referred to as the discovery rule because the accrual date is not determined when
the injury occurs but when it is discovered or should have been discovered. . . .
[S]elf-concealing frauds do not extend the limitations period through equitable
tolling but, instead, postpone the date of accrual by preventing the plaintiff from
discovering he is a victim of a fraud.
Barry Aviation, Inc. v. Land O’Lakes Mun. Airport Comm’n, 377 F.3d 682, 688 (7th Cir. 2004).
Furthermore, “‘[t]here must, of course, be a pattern of racketeering before the plaintiff’s RICO
claim accrues, and this requirement might delay accrual until after the plaintiff discovers her

19

injury.’” Limestone Dev. Corp. v. Vill. of Lemont, 473 F. Supp. 2d 858, 869 (N.D. Ill. 2007)
(quoting McCool v. Strata Oil Co., 972 F.2d 1452, 1465 (7th Cir. 1992)).
The Plaintiffs respond that the Defendants are simply wrong in arguing the “wrongful
interest charges were open and obvious through Plaintiffs’ bank statements and otherwise.” (Filing
No. 135 at 34.) The interest and fees debited from the bank accounts were charged under the false
pretense that NextGear had actually paid the auction houses at the time of the auction when in
reality NextGear did not pay until it received title to the vehicles, sometimes as long as eight weeks
later. NextGear committed multiple and continuous wire frauds against the Plaintiffs, and the
Plaintiffs had no cause to believe that they were being defrauded. Their bank account statements
would not have given them any indication that they were being fraudulently injured. The Plaintiffs
point out that, as to Red Barn, the Amended Complaint plainly alleges that there was no cause to
believe it was being injured until, at the earliest, June 2012 when its manager discovered charges
to its bank account for vehicles that were never financed through NextGear. The Amended
Complaint was filed in January 2016, within the four-year limitation period. The other Plaintiffs
had no reason to know or suspect that they were being injured by NextGear’s concealed fraudulent
activities during the course of their ongoing business relationship. Their bank account statements
would not have provided such notice.
The Plaintiffs’ argument is well-taken. As the Court discussed above, the Plaintiffs’ bank
account statements would not have indicated the actual interest rate charged or when NextGear
actually paid the auction houses. Without knowing when NextGear actually paid the auction
houses, the Plaintiffs could not have known of the alleged scheme to prematurely charge fees and
interest on their accounts well before NextGear paid the auction houses. Thus, the Plaintiffs could
not have known that they were being injured by NextGear’s actions by a simple review of their

20

bank account statements. According to the Amended Complaint, the earliest date that Red Barn
could have known of its injury was June 2012. As noted above, the reasonable inference regarding
when the other Plaintiffs should have known of their injury came at an even later date. Therefore,
the Plaintiffs’ RICO claim is not barred by the statute of limitations, and this argument cannot
serve as a basis to dismiss the Plaintiffs’ claim.
2.

Tortious Interference Claim

The Defendants explain that tortious interference claims have the same two-year
limitations period as general tort claims. See Martin v. Richey, 711 N.E.2d 1273, 1279 (Ind. 1999);
Graves v. Ind. Univ. Health, 32 N.E.3d 1196, 1214 (Ind. Ct. App. 2015). As noted above, a tort
claim accrues “when the plaintiff knew or, in the exercise of ordinary diligence, could have
discovered that an injury had been sustained as a result of the tortious act of another.” Wehling,
586 N.E.2d at 843.
The Defendants assert that the tortious interference claim in the Amended Complaint does
not arise out of the same conduct, transaction, or occurrence alleged in the original complaint.
They point out that the original complaint contained no allegations of any “blacklisting” or
coordination with auction houses to ban the Plaintiffs from doing business with any auctions. As
a result, the new allegations underlying the tortious interference claim do not relate back to the
date the original complaint was filed. See Fed. R. Civ. P. 15(c)(1). Thus, the Defendants argue,
any tortious interference claim is untimely where the alleged interference was or should have been
discovered by January 8, 2014, two years before the Plaintiffs moved to amend their original
complaint.
The Defendants then focus on their own relationship with the Plaintiffs, explaining that
each of the Plaintiffs’ relationship with NextGear ended well before January 2014, and the alleged

21

interference must likewise have occurred well before 2014. They point out that Red Barn declared
bankruptcy in April 2013. Platinum Motors’ relationship with NextGear ended in June 2012.
Mattingly Auto’s relationship with NextGear ended in May 2012, and Executive Auto Group does
not allege any interaction with NextGear after 2011.
Regarding Red Barn, the Defendants assert that, as a bankrupt entity, Red Barn could not
have had valid business relationships with auction houses or other companies after April 25, 2013,
which was over two years before the Amended Complaint was filed. The other Plaintiffs should
have discovered any “blacklisting” as soon as they were barred from participating in auctions.
“Since there are no allegations of interactions with NextGear or attempts to enter an auction later
than June 2012, well over two years before the Amended Complaint was filed, the other Plaintiffs’
claims are likewise time-barred.” (Filing No. 127 at 20.)
Responding to the Defendants’ argument, the Plaintiffs assert that the end of their
relationship with NextGear has no bearing on the interference by NextGear of their relationships
with auction houses and the timing of that interference. NextGear’s blacklisting was not based on
its own ongoing business relationship with the Plaintiffs. The Plaintiffs explain that “[t]here are
no allegations in the Amended Complaint that the end of the lending relationship between
Plaintiffs and NextGear (and similarly the bankruptcy filing by Red Barn) gave rise to the tortious
interference claims.” (Filing No. 135 at 21.)
The Plaintiffs then claim that there can be no dispute that the tortious interference claim in
the Amended Complaint relates back to the original complaint. Quoting Henderson v. Bolanda,
253 F.3d 928, 931 (7th Cir. 2001), the Plaintiffs explain, “an amended complaint in which the
plaintiff merely adds legal conclusions or changes the theory of recovery will relate back to the
filing of the original complaint if the factual situation upon which the action depends remains the

22

same and has been brought to defendant’s attention by the original pleading.” The Plaintiffs argue
that the conduct, transaction, or occurrence alleged in the original complaint regarding the
Defendants’ actions that led to Red Barn’s financial distress are the same basis for the
“blacklisting” tortious interference claim in the Amended Complaint. Thus, the claim should relate
back to the December 3, 2013 original complaint, and the possible dates that the claims could have
accrued, according to the Defendants, 2 fall within the two-year period from December 3, 2013.
The Defendants reply, and the Court agrees, that the tortious interference claim does not
relate back to the filing date of the original complaint because the factual situation alleged in the
original complaint is not the same as the factual situation alleged in the Amended Complaint. The
original complaint alleged facts to support breach of contract, unjust enrichment, and illegal
seizure claims. The allegations in the original complaint could not have brought to the Defendants’
attention a potential claim for tortious interference or even a factual situation giving rise to that
claim. Allegations that NextGear repossessed collateral after Red Barn defaulted on its floorplan
agreement do not put NextGear, Cox Enterprises, Cox Automotive, and Mr. Wick on notice of a
claim for tortious interference of a relationship between third-party auction houses and Red Barn,
Platinum Motors, Mattingly Auto, or Executive Auto Group. The claim for tortious interference
and the factual basis for that claim as alleged in the Amended Complaint do not relate back to the
date of filing of the original complaint. Therefore, the Plaintiffs’ claims must have accrued after
January 8, 2014, two years before the filing of the Amended Complaint, in order to survive the
Motion to Dismiss based on the statute of limitation.
All of the allegations in the Amended Complaint describe activities that occurred in 2011
and 2012, with the only outliers being Mattingly Auto’s execution of the floorplan agreement in
According to the Defendants, the claims could have accrued for Red Barn in April 2013, for Platinum Motors in
June 2012, for Mattingly Auto in May 2012, and for Executive Auto Group at the end of 2011.
2

23

2009 and Red Barn’s financial troubles, bankruptcy, and inability to sell cars through the First
Choice auction in April 2013. Under the factual circumstances alleged in the Amended Complaint,
using reasonable diligence, the Plaintiffs could and should have discovered their injuries regarding
any blacklisting and interference with their relationships with auction houses in 2012 and early
2013 when each of the Plaintiffs was prohibited from participating at routine auctions.
The Defendants assert,
[T]he alleged interference must have occurred at or near the end of each Plaintiff’s
lending relationship with NextGear, which was well before January 2014. It is
simply not plausible under Twombly to argue in Opposition [sic], without actually
alleging in the Amended Complaint, that NextGear would have waited until long
after Plaintiffs defaulted on their payment obligations to interfere with their auction
relationships.
(Filing No. 136 at 12). The Court agrees. The latest factual allegations in the Amended Complaint
concern events in April 2013. Most of the allegations concern events in 2011 and 2012. The
Plaintiffs could and should have discovered their tortious interference injuries well before January
2014. Having waited until January 2016 to file their Amended Complaint, the Plaintiffs’ claim for
tortious interference falls outside the two-year statute of limitations and is untimely. Therefore,
the Court GRANTS the Defendants’ Motion to Dismiss the tortious interference claim. Because
it may be possible that the Plaintiffs might have a viable claim for tortious interference under some
set of facts that have not been sufficiently alleged, this claim is dismissed without prejudice.
C.

Breach of Contract Claim
The breach of contract claim in the Amended Complaint centers on the Plaintiffs’ floorplan

agreements with NextGear. Those agreements allowed the Plaintiffs to purchase vehicles at
auctions in order to resell those vehicles at their used car lots while NextGear financed the auction
purchases. The Plaintiffs would then pay NextGear interest, fees, and later the principal amount

24

loaned. These agreements were memorialized in valid, binding written contracts (Filing No. 1171, Filing No. 117-3, Filing No. 117-4, Filing No. 117-5).
The Plaintiffs allege that the contracts were breached when NextGear fraudulently and
prematurely charged interest and fees before NextGear actually loaned money, and in some
instances, without NextGear ever loaning money on the Plaintiffs’ behalf. They allege that
NextGear charged interest and fees from the date of sale at auction even though NextGear did not
actually pay the auctions until it received title to the vehicles, sometimes eight weeks later.
The Defendants argue that the breach of contract claim should be dismissed because the
allegations and theories of recovery in the Amended Complaint contradict the plain language of
the parties’ agreements. Noting that a breach of contract claim requires the existence of a contract,
the defendant’s breach of the contract, and damages, the Defendants assert that the Court can
review the unambiguous terms of the contracts and plainly see that there has been no breach. The
Defendants claim that the contracts plainly allowed NextGear to charge interest and fees starting
on the date of the sale at auction even though NextGear did not pay the auctions until a later date.
The Defendants briefly argue that damages are not sufficiently pled because the Plaintiffs received
the benefit of obtaining vehicles through financing, and “[i]n light of such benefit, they were not
damaged by the minimal interest charged between the date of purchase and the date payment was
actually made by NextGear to the auction.” (Filing No. 127 at 23.)
Responding to the Motion to Dismiss, the Plaintiffs argue that the contractual terms do not
allow the premature charges that NextGear withdrew from their bank accounts. They further assert
that the terms of the contracts are ambiguous, and therefore, it would be improper to dismiss the
breach of contract claim at this stage of the litigation based on the ambiguous terms.

25

The contract terms the Defendants reply upon to argue that NextGear was plainly allowed
to charge interest and fees before actually paying money on the Plaintiffs’ behalf are as follows:
“Interest shall accrue on all Dealer Liabilities in accordance with” certain terms. (Filing No. 1171 at 3, § 3.) “‘Interest’ shall mean the aggregate rate of interest which accrues on all Liabilities
owed by Dealer to [NextGear] under or arising out of this Note by combining the Base Rate plus
the applicable Contract Rate, Risk Rate or Default Rate.” (Filing No. 117-1 at 2, § 1(w).)
“Liabilities” shall mean any and all Advances, debts, DSC Financed Inventory
Liabilities, financial obligations, DSC Administrative Fees, DSC Universal Fees,
Interest, Floorplan Fees, NSF fees, late fees, charges, expenses, attorney fees, costs
of collection, covenants, and duties owing, arising, due or payable from Dealer to
[NextGear] of any kind or nature, present o[r] future, under any instrument,
guaranty, or other document whether arising under this Note or any other
agreement, whether directly or indirectly (including those acquired by assignment),
absolute or contingent, primary or secondary, due or to become due, now existing
or hereafter arising and however acquired.
(Filing No. 117-1 at 2, § 1(y).)
Based on these contract provisions, the Defendants argue that the contracts expressly
contemplate that interest may accrue not only on advances actually made but also on other financial
obligations to pay in the future. Thus, when the Plaintiffs became obligated to pay for vehicles on
the date of auctions and NextGear became obligated to pay the auction houses on the Plaintiffs’
behalf, NextGear could start charging interest and fees on the date of the auctions even if NextGear
did not actually pay the auction houses until a later date.
The Plaintiffs assert that the above quoted language from the contracts does not allow
NextGear to prematurely charge interest and fees. They further explain that the Court must view
the contracts in their entirety, not in a vacuum. The contracts provide that interest could accrue
when NextGear made payments to the Plaintiffs or to a third-party on the Plaintiffs’ behalf. The
Plaintiffs’ point to the contractual definition of “Advance,” which “mean[s] any loan or payment

26

in any amount made pursuant to this Note by [NextGear] to Dealer or on Dealer’s behalf to any
third party.” (Filing No. 117-1 at 1.) Based on all the language of the contracts, NextGear was
not authorized to charge interest and fees before it actually paid the auction houses on the
Plaintiffs’ behalf. If nothing else, the Plaintiffs argue, the contracts do not unambiguously allow
NextGear to prematurely charge interest and fees.
Regarding the element of damages, the Plaintiffs explain that the Defendants are simply
wrong that the benefit of obtaining cars through financing negates the fact that they were damaged
by the improperly charged interest and fees. They assert that characterizing the interest and fees
charged as “minimal” is inaccurate where the allegations assert interest in the amount of
$80,000.00 and the period of time for improperly charging interest sometimes was eight weeks.
After reviewing the language of the parties’ contracts, the Court determines that dismissal
of the breach of contract claim is not appropriate at this stage of the litigation. The parties agree
that they entered into contracts. The contracts are not sufficiently clear to support the argument
that NextGear was plainly allowed to charge interest and fees before actually paying the auction
houses on the Plaintiffs’ behalf. Thus, there are sufficient allegations of a breach to allow the case
to proceed beyond the motion to dismiss stage. The Plaintiffs also have sufficiently pled damages
resulting from the alleged breach. Therefore, the Court DENIES the Defendants’ Motion to
Dismiss the breach of contract claim against NextGear. To the extent the Plaintiffs bring their
breach of contract claim against Cox Enterprises, Cox Automotive, and Mr. Wick, the Court
GRANTS the Motion to Dismiss that claim because those three Defendants were not parties to
the contracts.
D.

Unjust Enrichment Claim

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A claim for unjust enrichment requires “(1) a benefit conferred upon another at the express
or implied request of this other party; (2) allowing the other party to retain the benefit without
restitution would be unjust; and (3) the plaintiff expected payment.” Woodruff v. Ind. Family &
Soc. Servs. Admin., 964 N.E.2d 784, 791 (Ind. 2012).
The Defendants acknowledge that a party may plead claims in the alternative; however,
they point out “[w]hen the rights of parties are controlled by an express contract, recovery cannot
be based on a theory implied in law,” Zoeller v. E. Chicago Second Century, Inc., 904 N.E.2d 213,
221 (Ind. 2009) (citation omitted), and a party cannot seek equitable relief “just in case” its contract
claim fails unless it alleges that there was either no valid contract on point or the contract at issue
was unenforceable. CoMentis, Inc. v. Purdue Research Found., 765 F. Supp. 2d 1092, 1103 (N.D.
Ind. 2011). The Defendants assert that the parties agree that valid, enforceable contracts apply to
the claims in this case, and there are no alternative allegations that the contracts are not enforceable
or not on point. Thus, the Defendants argue, the Plaintiffs’ claim for unjust enrichment cannot
proceed against NextGear.

Additionally, they assert that the allegations of the Amended

Complaint do not support a factual basis for an unjust enrichment claim against the other three
Defendants. There are no allegations of payments made to or benefits conferred upon Cox
Enterprises, Cox Automotive, or Mr. Wick. Further, there are no allegations that these three
Defendants requested any payment or benefits from the Plaintiffs. As a result, the unjust
enrichment claim should be dismissed.
In response to the Defendants’ argument, the Plaintiffs explain that the Federal Rules of
Civil Procedure allow them to plead claims in the alternative. However, the Plaintiffs fail to
address the case law cited by the Defendants that pleading in the alternative for unjust enrichment
requires a factual basis of an unenforceable contract or that no contract was on point. The Plaintiffs

28

then argue that there was no contract between them and Cox Enterprises, Cox Automotive, or Mr.
Wick, so an unjust enrichment claim can proceed against these Defendants in addition to the
Plaintiffs’ alternatively pled claim against NextGear. They point to the following allegation from
the Amended Complaint to support their claim for unjust enrichment: “By charging and collecting
interest from the Red Barn Plaintiffs on money that was not lent, Cox Enterprises, Inc., Cox
Automotive, Inc., and NextGear/DSC were unjustly enriched at the expense of the Red Barn
Plaintiffs and other members of the Class.” (Filing No. 117 at 37 ¶ 151.)
Upon review of the entire Amended Complaint, this legal conclusion of unjust enrichment
is not supported by factual allegations against Cox Enterprises, Cox Automotive, or Mr. Wick.
There are no factual allegations of Cox Enterprises, Cox Automotive, or Mr. Wick receiving
payment or benefits. All the factual allegations in the Amended Complaint concerning benefits
and payments relate to NextGear. There simply is not a factual basis to support an unjust
enrichment claim against Cox Enterprises, Cox Automotive, or Mr. Wick. Furthermore, there are
no alternatively pled allegations in the Amended Complaint that the floorplan agreements between
the Plaintiffs and NextGear were invalid, unenforceable, or not applicable to the claims at issue.
As such, it appears that the unjust enrichment claim was not properly pled in the alternative but
rather was pled “just in case” the breach of contract claim fails. Therefore, the Defendants’ Motion
to Dismiss the unjust enrichment claim is GRANTED. Similar to the tortious interference claim,
because it may be possible that the Plaintiffs might have a viable claim for unjust enrichment
against some of the Defendants under some set of facts that have not been sufficiently alleged, this
claim is dismissed without prejudice.
E.

Substantive RICO Claim

29

RICO is an anti-fraud statute. Thus, RICO claims are subject to the heightened pleading
requirements of Federal Rule of Civil Procedure 9(b), which states, “[i]n alleging fraud or mistake,
a party must state with particularity the circumstances constituting fraud or mistake. Malice,
intent, knowledge, and other conditions of a person’s mind may be alleged generally.” See Crissen
v. Gupta, 994 F. Supp. 2d 937, 945 (S.D. Ind. 2014). However, “enterprise allegations necessary
to support a RICO claim need only meet the requirements of Fed. R. Civ. P. 8(a), and not the
heightened pleading requirements of Fed. R. Civ. P. 9(b).” Id. at 948; see also United Food &
Commer. Worker Unions & Emplrs. Midwest Health Bens. Fund v. Walgreen Co., 719 F.3d 849,
853 (7th Cir. 2013).
Under the RICO statute,
It shall be unlawful for any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such enterprise’s
affairs through a pattern of racketeering activity or collection of unlawful debt.
18 U.S.C. § 1962(c). Further, “[i]t shall be unlawful for any person to conspire to violate any of
the provisions of subsection (a), (b), or (c) of this section.” 18 U.S.C. § 1962(d). To state a RICO
claim under 18 U.S.C. § 1962(c), a plaintiff must allege “(1) conduct (2) of an enterprise (3)
through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496
(1985) (footnote omitted).
The Plaintiffs assert claims for violation of RICO and a RICO conspiracy based on
NextGear and the other Defendants devising a scheme and artifice to defraud the Plaintiffs to
obtain money and property by means of false and fraudulent pretenses and representations by
charging interest and fees to the Plaintiffs on money not actually paid by NextGear on behalf of
the Plaintiffs.

30

The Defendants argue that the Amended Complaint fails to allege any conduct or
participation in the conduct of an enterprise by the Defendants. They explain that the Supreme
Court has held that to be liable for “conduct[ing] or participat[ing] . . . in the conduct of [an]
enterprise’s affairs” under section 1962(c), a defendant “must participate in the operation or
management of the enterprise itself.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993). Thus,
it must be shown that defendants had “some part in directing [the enterprise’s] affairs,” although
“a formal position in the enterprise” is not necessary. Id. at 179. “[L]iability depends on showing
that the defendants conducted or participated in the conduct of the ‘enterprise’s affairs,’ not just
their own affairs.” Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 646 (7th Cir. 1995) (citation
omitted).
The Defendants assert that there are no allegations in the Amended Complaint that Cox
Enterprises, Cox Automotive, or Mr. Wick participated in the operation or management of the
alleged NextGear enterprise. While the allegations contain a general identification of these
Defendants, the factual allegations do not assert any involvement in an enterprise’s operations.
The Defendants further argue that the Plaintiffs have failed to allege a RICO enterprise
separate from a pattern of racketeering activity. An “enterprise” under RICO is “an ongoing
‘structure’ of persons associated through time, joined in purpose, and organized in a manner
amenable to hierarchical or consensual decision-making.” Jennings v. Emry, 910 F.2d 1434, 1440
(7th Cir. 1990). An “association-in-fact enterprise” is a “union or group of individuals associated
in fact although not a legal entity.” 18 U.S.C. § 1961(4). An enterprise “must be more than a
group of people who get together to commit a ‘pattern of racketeering activity.’” United States v.
Neapolitan, 791 F.2d 489, 499–500 (7th Cir. 1986). “The hallmark of an enterprise is a
‘structure,’” and there must be “a structure and goals separate from the predicate acts themselves.”

31

United States v. Korando, 29 F.3d 1114, 1117 (7th Cir. 1994). “[T]here need not be much
structure, but the enterprise must have some continuity and some differentiation of the roles within
it.” Richmond, 52 F.3d at 645 (citation omitted). The structure of a RICO enterprise should have
at least three features: “a purpose, relationships among those associated with the enterprise, and
longevity sufficient to permit the associates to pursue the enterprise’s purpose.” Panwar v. Access
Therapies, Inc., 975 F. Supp. 2d 948, 957 (S.D. Ind. 2013).
According to the Defendants, the Amended Complaint does not identify an enterprise with
a structure and purpose separate from the alleged fraudulent scheme, and the only allegation
regarding any purpose is to maximize the profits of the Defendants by fraudulently charging
interest and fees on money not loaned by NextGear. Additionally, the Defendants assert, the
allegations only describe NextGear’s own legitimate business affairs of loaning money and
collecting interest, not the conduct of a separate RICO enterprise.
Finally, the Defendants assert that the allegations are deficient because they do not allege
a RICO “person” separate and distinct from a RICO “enterprise.” They explain that a corporate
family, or an employer and its employees, cannot be a RICO enterprise. The Defendants rely on
Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001) and Fitzgerald v. Chrysler
Corp., 116 F.3d 225, 226 (7th Cir. 1997) for these propositions. The Plaintiffs cannot allege
management or operation of a RICO enterprise by Cox Enterprises, Cox Automotive, or Mr. Wick.
Thus, the only conduct they can allege is that of NextGear itself, but NextGear alone cannot be
both the RICO person and the RICO enterprise. As such, the Plaintiffs have not sufficiently alleged
a RICO enterprise that is distinct from the RICO person they are suing, so the RICO claims must
be dismissed.

32

Responding to the Defendants, the Plaintiffs point to the language of the RICO statute,
which prohibits conducting or participating in a pattern of racketeering activity by any person
employed by or associated with any enterprise. See 18 U.S.C. § 1962(c). A complaint must allege
at least two predicate acts of racketeering activity, which could include wire fraud.
The Plaintiffs assert that their Amended Complaint sufficiently alleges that each Defendant
participated in the affairs of the enterprise. The purpose of the enterprise was to defraud the
Plaintiffs, and others, to obtain money by charging interest and fees on money not actually loaned
by NextGear. The allegations explain that NextGear is a subsidiary of Cox Automotive, which
owns and operates some auction houses in the automotive industry. In order to carry out the
purpose of defrauding the Plaintiffs, NextGear utilized auction houses owned and operated by Cox
Automotive as well as other independent auction houses. The auction houses concealed
NextGear’s actions of charging interest and fees from the date of the auction while not actually
paying the auction houses until a later date when it received title to the vehicles.
Regarding Mr. Wick, the Plaintiffs assert that NextGear’s chief strategy officer led
NextGear’s strategic and corporate development as well as oversaw all corporate, legislative, and
litigation matters. The allegations explain that Mr. Wick knew of the practice of charging interest
and fees before any money was even loaned, and as such, Mr. Wick participated in the enterprise’s
affairs. The core of the alleged scheme and enterprise was to conceal the practice of charging
interest and fees without actually loaning money.
Concerning their allegations of a RICO enterprise, the Plaintiffs explain that they meet the
basic requirements of alleging an enterprise and structure. They point to the following allegations
from their Amended Complaint:
96. The NextGear/DSC Enterprise is an ongoing, continuing group or unit
of persons and entities associated together for the common purpose of maximizing
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profits by fraudulently charging and debiting money from accounts held by its
customer used car dealers on money not lent by NextGear/DSC. Further, the
members of the NextGear/DSC Enterprise concealed their fraudulent activity from
the Red Barn Plaintiffs and other members of the Class.
97. While the Defendants participate in and are part of the NextGear/DSC
Enterprise, the Defendants also exist separately and distinctly from the enterprise.
98. The NextGear/DSC Enterprise maintains a structure, in that the
executive management of NextGear/DSC (including John Wick, as detailed above)
knowingly established a uniform approach to secretly charge customers interest and
curtailment fees which NextGear/DSC itself was unauthorized to obtain because
NextGear/DSC had not provided any financing to the auction houses via Floorplan
Agreements. The NextGear/DSC Enterprise includes auction houses owned and
operated by the Defendants as well as other auction houses associated with the
Defendants where these auction houses concealed NextGear/DSC’s actions
allowing NextGear/DSC to conduct the pattern of racketeering activity. The
NextGear/DSC Enterprise executes and carries out individual, fraudulent
transactions on a daily basis, which are solicited by lower-level employees,
including Account Executives such as Stuart LaBauve and others throughout the
United States. The NextGear/DSC Enterprise maintains this common and shared
purpose of defrauding customers for the Enterprise’s unlawful financial gain. The
NextGear/DSC Enterprise maintains the same basic structure and personnel and
does not take another form from the racketeering activity versus other activity. In
addition to the fraudulent activity detailed herein, NextGear/DSC and the
NextGear/DSC Account Executives also conduct/facilitate legitimate automobile
resales and related financing which further conceal their fraudulent activity as they
continue to pose as legitimate industry participants.
(Filing No. 117 at 25–26).
The Plaintiffs assert that these allegations more than suffice to show the structure of a RICO
enterprise. They establish a purpose and relationships among those associated with the enterprise.
The allegations in the Amended Complaint further show longevity—a number of years, with daily
transactions—sufficient to permit the associates to pursue the enterprise’s purpose.
They explain that the NextGear enterprise existed, and still exists, by utilizing auction
houses, companies, and lower-rung employees such as Stuart LaBauve, Lourdes Givens, Mark
Holley, and Sean Tabb to execute its predicate acts of numerous wire fraud transmissions.
Concerning Red Barn, the Amended Complaint alleges 524 transactions between August 2011 and
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March 2013 where the NextGear enterprise electronically debited approximately $80,000.00 in
interest and fees from Red Barn’s account. The Amended Complaint alleges nearly 1,000
transactions with Platinum Motors from May 2011 through June 2012, 320 transactions with
Mattingly Auto from February 2009 through May 2012, and seven transactions with Executive
Auto Group beginning after the contract was executed in September 2011.
Concerning a pattern of racketeering activity that requires at least two predicate acts, the
Plaintiffs point to their allegations of predicate acts of wire fraud through obtaining money by
fraudulent means using interstate wire communications, charging interest and fees on money not
actually loaned.
104. NextGear/DSC charged interest and curtailment fees on purchases
made by the Red Barn Plaintiffs and others members of the Class without actually
loaning money against Plaintiffs’ line of credit.
105. NextGear/DSC paid the auction houses from the Red Barn Plaintiffs’
lines of credit when NextGear/DSC received title to the vehicles purchased by the
Red Barn Plaintiffs at auction, instead of paying for the vehicles at the time of the
auction.
106. NextGear/DSC back-dated payments made from the Red Barn
Plaintiffs’ lines of credit to the dates on which the Red Barn Plaintiffs were
successful in bidding on vehicles at auction. These actions caused interstate wire
communications to occur.
107. NextGear/DSC electronically debited payment for the interest and
curtailment fees it charged to the Red Barn Plaintiffs without loaning money to the
Red Barn Plaintiffs through electronic banking transactions.
108. The unearned payments debited by NextGear/DSC from the Red Barn
Plaintiffs’ accounts were accomplished through deceptive means as described
herein and constitute a scheme and artifice to defraud.
109. NextGear/DSC executed the scheme and artifice to defraud each and
every time it electronically debited money from the Red Barn Plaintiffs’ accounts
when NextGear/DSC had not actually provided any financing to the auction house
for the purchase of the vehicle.
(Filing No. 117 at 27–28) (emphasis in original).
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The Plaintiffs argue that they have also sufficiently alleged a RICO “person” separate and
distinct from the RICO “enterprise.” Contrary to the Defendants’ claim, “[a] parent corporation
can be a ‘person’ separate and distinct from its wholly-owned subsidiary, the ‘enterprise.’”
Wesleyan Pension Fund Inc. v. First Albany Corp., 964 F. Supp. 1255, 1275–76 (S.D. Ind. 1997)
(citation omitted). A corporate owner is distinct from the corporation because the corporation is
“a legally different entity with different rights and responsibilities due to its different legal status.”
Cedric Kushner Promotions, 533 U.S. at 163. The Plaintiffs point out that the allegations of their
Amended Complaint allege RICO persons not identical to the group making up the RICO
enterprise as the enterprise is not composed of only wholly-owned subsidiaries but also separately
owned entities and at least one individual, Mr. Wick. The Amended Complaint identifies
NextGear, Cox Automotive, auction houses owned and operated by Cox Automotive, independent
auction houses, and Mr. Wick.
The Plaintiffs allege that the enterprise is more than an association that conducts the normal
affairs of the Defendants. Specifically, the alleged enterprise carries out the Defendants’ scheme
by committing multiple acts of wire fraud by charging interest and fees on money never loaned.
This is separate and distinct from the Defendants’ regular business of providing legitimate
financing for purchasing used car or selling cars at auction.
Upon close examination of the Amended Complaint viewed in its entirety, and applying
the standards of Rule 12(b)(6) and Rule 9(b), the Court determines that the Plaintiffs have
sufficiently alleged a claim for a RICO violation under 18 U.S.C. § 1962(c) by alleging conduct
of an enterprise through a pattern of racketeering activity. The Plaintiffs’ arguments concerning
the substantive RICO claim are well-taken. Based upon the allegations noted above and pointed
out in the Plaintiffs’ argument, the Plaintiffs have alleged an enterprise, the Defendants’

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participation in the conduct of the enterprise, and a pattern of racketeering activity through multiple
predicate acts of wire fraud. The Amended Complaint alleges RICO “persons” separate from the
RICO “enterprise,” noting the participation of NextGear, Cox Automotive, auction houses owned
and operated by Cox Automotive, independent auction houses, and Mr. Wick. There are sufficient
details regarding the claimed fraudulent transactions, the timeframe of those transactions, and who
was involved in the transactions to provide sufficient notice to the Defendants.
Defendant Cox Enterprises is the exception to this determination. The only allegations
regarding Cox Enterprises is that it is the parent company of Cox Automotive. This fact standing
alone is not enough to make Cox Enterprises a RICO defendant in this matter. Therefore, the
Defendants’ Motion to Dismiss the substantive RICO claim is DENIED as to NextGear, Cox
Automotive, and Mr. Wick, but GRANTED as to Cox Enterprises.
F.

RICO Conspiracy Claim
“It shall be unlawful for any person to conspire to violate any of the provisions of

subsection (a), (b), or (c) of this section.” 18 U.S.C. § 1962(d). A RICO conspiracy claim must
allege: “(1) that each defendant agreed to maintain an interest in or control of an enterprise or to
participate in the affairs of an enterprise through a pattern of racketeering activity and (2) that each
defendant further agreed that someone would commit at least two predicate acts to accomplish
those goals.” Goren v. New Vision Int’l, 156 F.3d 721, 732 (7th Cir. 1998). “To state a conspiracy
claim under RICO, Plaintiffs must plead ‘facts indicating an act of agreement among the alleged
conspirators or what roles the various defendants would play in the conspiracy.’” Kuhn v. Asset
Acceptance Capital Corp., 2015 U.S. Dist. LEXIS 41391, at *17 (S.D. Ind. Mar. 31, 2015)
(quoting Lachmund v. ADM Investor Servs., Inc., 191 F.3d 777, 785 (7th Cir. 1999) (emphasis
added)).

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The Defendants assert that the Amended Complaint contains nothing more than conclusory
allegations of a conspiracy. They argue that there are no allegations of an agreement among the
Defendants to participate in the affairs of the alleged enterprise, to play a role in the conspiracy,
or to commit at least two predicate acts to further the enterprise.
In response to the Defendants’ argument, the Plaintiffs assert that courts have recognized
intra-corporate conspiracies because corporations and their subsidiaries and employees are distinct
legal entities, and, thus, agents may be liable for their own conspiratorial actions, pointing to
Ashland Oil v. Arnett, 875 F.2d 1271, 1281 (7th Cir. 1989) (“intracorporate conspiracies do
threaten RICO’s goals of preventing the infiltration of legitimate businesses by racketeers and
separating racketeers from their profits”). The Plaintiffs also point out that a “RICO conspiracy,
like all conspiracies, does not require direct evidence of agreement; an agreement can be inferred
from the circumstances.” United States v. Neapolitan, 791 F.2d 489, 501 (7th Cir. 1986).
The Plaintiffs assert that the allegations of their Amended Complaint factually support the
conspiratorial agreement among the Defendants. The allegations show that the Defendants agreed
to participate in the RICO enterprise and commit multiple predicate acts, and those involved
included the corporate Defendants, Mr. Wick, Stuart LaBauve, Lourdes Givens, Mark Holley, and
Sean Tabb, as well as numerous auctions houses, some of which were owned and operated by Cox
Automotive. The Plaintiffs assert that the Defendants and others conspired to blacklist the
Plaintiffs from participating at auctions.
After a close review of all the allegations in the Amended Complaint, the Court determines
that the Plaintiffs have failed to sufficiently allege a claim for a RICO conspiracy under 18 U.S.C.
§ 1962(d) because the only allegations regarding an agreement among the Defendants are
conclusory assertions of a conspiracy. While the Plaintiffs may have a valid claim for a RICO

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conspiracy, they have failed to allege sufficient details to support such a claim. The Court notes
that conspiring to blacklist the Plaintiffs from participating at auctions does not support a RICO
conspiracy claim because “blacklisting” from auctions is not a predicate act for a RICO claim.
Because it may be possible that the Plaintiffs might have a viable claim for a RICO conspiracy
against some of the Defendants under some set of facts that have not been sufficiently alleged, this
claim is dismissed without prejudice.
G.

Constructive Fraud
Finally, the Defendants assert that the Court should dismiss the Plaintiffs’ constructive

fraud claim because they owe no special duty to the Plaintiffs, and the Plaintiffs could not have
reasonably relied on any actions or representations of NextGear.
The elements of constructive fraud are: (i) a duty owing by the party to be charged
to the complaining party due to their relationship; (ii) violation of that duty by the
making of deceptive material misrepresentations of past or existing facts or
remaining silent when a duty to speak exists; (iii) reliance thereon by the
complaining party; (iv) injury to the complaining party as a proximate result
thereof; and (v) the gaining of an advantage by the party to be charged at the
expense of the complaining party. As such, plaintiffs’ claims for . . . constructive
fraud depend upon the existence of a duty running from defendants to plaintiffs. In
the absence of such a duty, plaintiffs cannot recover . . . .
Rice v. Strunk, 670 N.E.2d 1280, 1284 (Ind. 1996) (citations omitted).
The Defendants explain that a lender-borrower relationship does not impose a special duty
that could support a constructive fraud claim. They point to Wilson v. Lincoln Fed. Sav. Bank, 790
N.E.2d 1042, 1047 (Ind. Ct. App. 2003), which explains, “[a]bsent special circumstances, a lender
does not owe a fiduciary duty to a borrower.” Because the only relationship between the Plaintiffs
and NextGear is one of borrower and lender, a constructive fraud claim cannot be supported.
Additionally, the Defendants assert that the Plaintiffs cannot reasonably have relied on any
action or representation by NextGear because, “[i]n enforcing this requirement, Indiana courts

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reject fraud claims that could have been prevented by reading a document.” Lady Di’s, Inc. v.
Enhanced Servs. Billing, Inc., 2010 WL 1258052, at *4 (S.D. Ind. Mar. 25, 2010) (citing Weber v.
Costin, 654 N.E.2d 1130 (Ind. Ct. App. 1995)). The Defendants argue that the allegedly wrongful
interest charges were open and obvious because the Plaintiffs paid by contemporaneous debits
from their bank accounts, so they did not need to rely on representations by NextGear to know
about any allegedly wrongful interest charges. Because the Plaintiffs could have prevented the
alleged harm by reading their contracts and bank statements, they cannot show reasonable reliance
on NextGear. Thus, the constructive fraud claim should be dismissed.
The Plaintiffs respond that Indiana law allows for a duty to arise “where one party may
possess knowledge not possessed by the other and may thereby enjoy a position of superiority over
the other.” Strong v. Jackson, 777 N.E.2d 1141, 1147 (Ind. Ct. App. 2002). A duty may arise out
of confidential relationships or where a power of attorney exists. See id. at 1148.
The Plaintiffs assert that their Amended Complaint alleges NextGear possessed
information not known to the Plaintiffs regarding the floorplan agreements and NextGear’s
policies and practices. Only NextGear knew when it made payments to the auction houses, and it
concealed this fact from the Plaintiffs, even though NextGear was charging interest and fees at an
earlier date. At the initial meetings with the Plaintiffs and throughout the lending relationship,
NextGear concealed the actual interest rates that would be charged and the fact that the charges
would accrue before payments were made on behalf of the Plaintiffs. The Plaintiffs were required
to execute a broad power of attorney in favor of NextGear as well as a personal guaranty. NextGear
also had access to the Plaintiffs’ bank accounts and debited those accounts automatically. Based
on these facts, NextGear possessed superior knowledge and a superior relationship over the

40

Plaintiffs, giving rise to a duty to speak and not conceal the material facts set forth in the Amended
Complaint. Thus, the constructive fraud claim should survive dismissal.
Regarding the element of reasonable reliance, the Plaintiffs allege that they relied on
representations by NextGear in entering into the floorplan agreements and then using those
agreements to purchase numerous vehicles for their business operations. The Plaintiffs allege they
relied on NextGear’s representations to consummate thousands of transactions. They assert that
they reasonably relied on NextGear to accurately debit their bank accounts based on payments on
their behalf at the time of the auctions, not payments actually made weeks or months later. The
Plaintiffs argue that the Defendants’ assertion that the interest charges were open and obvious
based on the Plaintiffs’ bank statements is unavailing because their bank account statements did
not indicate the interest rates used or when NextGear actually paid the auction houses on their
behalf.
The Court determines that the allegations of the Amended Complaint are sufficient to
support a claim of constructive fraud. The allegations and the attached floorplan agreements
indicate that the Plaintiffs executed a very broad power of attorney in favor of NextGear that gave
NextGear far reaching authority over the Plaintiffs. The Plaintiffs also had to execute personal
guarantees, and the bank accounts of the Plaintiffs were made available to NextGear. NextGear
did in fact freely access the Plaintiffs’ bank accounts for numerous transactions. Based on all these
facts, the Court determines that the allegations support a special relationship giving rise to a duty
to support the first element of the constructive fraud claim. The allegations also are sufficient to
support the element of reasonable reliance. The Plaintiffs relied on NextGear when entering into
the floorplan agreements and when entering into numerous transactions based on the agreements.
As the Court discussed above, the Plaintiffs’ bank account statements would not have provided

41

the Plaintiffs with knowledge regarding the premature interest charges. Therefore, the Court
DENIES the Defendants’ Motion to Dismiss the constructive fraud claim against NextGear.
However, to the extent the Plaintiffs bring their constructive fraud claim against Cox Enterprises,
Cox Automotive, and Mr. Wick, the Court GRANTS the Motion to Dismiss that claim because
the allegations do not support a special relationship and duty between those three Defendants and
the Plaintiffs.
IV. CONCLUSION
For the reasons stated herein, Defendants’ Motion to Dismiss (Filing No. 126) is granted
in part and denied in part. The Plaintiffs’ breach of contract claim and constructive fraud claim
against NextGear survive the Motion to Dismiss. The substantive RICO claim against NextGear,
Cox Automotive, and Mr. Wick also survives dismissal. The claims for RICO conspiracy, unjust
enrichment, and tortious interference are dismissed. The Court concludes, however, that these
dismissals should be with without prejudice. Fed. R., Civ. P. 15 directs that courts should “freely”
grant leave to amend a pleading “when justice so requires.” Fed. R. Civ. P. 15(a)(2). If in fact,
Plaintiffs’ can plead sufficient facts to support their claims for RICO conspiracy, unjust
enrichment, and tortious interference they are granted leave to file a Second Amended Complaint
within fourteen (14) days of the date of this Entry.
SO ORDERED.
Date: 3/27/2017
DISTRIBUTION:
David J. Jurkiewicz
BOSE MCKINNEY & EVANS, LLP
[e-mail]

Catherine E. Lasky
JONES SWANSON HUDDELL &
GARRISON, LLC
[e-mail]

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Paul D. Vink
BOSE MCKINNEY & EVANS, LLP
[e-mail]

Gladstone N. Jones
JONES SWANSON HUDDELL &
GARRISON, LLC
[e-mail]

Steven D. Groth
BOSE MCKINNEY & EVANS, LLP
[e-mail]

Kerry A. Murphy
JONES, SWANSON, HUDDELL &
GARRISON, LLC
[e-mail]

Joshua P. Melder
CASSIE FELDER & ASSOCIATES, LLC
[e-mail]

Lynn E. Swanson
JONES, SWANSON, HUDDELL&
GARRISON, LLC
[e-mail]

Kathleen Ann DeLaney
DELANEY & DELANEY LLC
[e-mail]

Matthew M. Coman
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT LLC
[e-mail]

Jason S. McCarter
SUTHERLAND ASBILL & BRENNAN LLP
[e-mail]

Ryan D. Adams
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT LLC
[e-mail]

Tracey K. Ledbetter
SUTHERLAND ASBILL & BRENNAN LLP
[e-mail]

James M. Garner
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT, LLC
[e-mail]

Cassie E. Felder
LUGENBUHL, WHEATON, PECK, RANKIN
& HUBBARD
[e-mail]

Jacob A. Airey
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT, LLC.
[e-mail]

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