GM accuses Fiat Chrysler of corrupt bargaining with UAW

Detroit — Fiat Chrysler Automobiles NV's late CEO Sergio Marchionne orchestrated a multimillion-dollar racketeering conspiracy — including bribes — that corrupted three rounds of bargaining with the United Auto Workers and harmed General Motors Co., according to a lawsuit filed Wednesday by GM.

In the federal racketeering lawsuit against the Italian American automaker, GM says "clear admissions of wrongdoing" by FCA executives amid a continuing federal investigation into the union exposed a multi-year pattern of corruption that FCA used to cause GM "massive monetary damage."

"GM was chosen as a target by FCA,” said Craig Glidden, GM's executive vice president and general counsel. "We were denied benefits that FCA received. They were in a position to obtain benefits through those labor relationships which were procured through fraud and bribery.”

He added: "Something's wrong when a foreign company can come to the United States and obtain ownership and control of a key, iconic automaker and say they will abide by the laws of the United States. And then intentionally ... violate those laws. We believe that happened in this case, and we also believe that Sergio Marchionne was aware of it, sponsored it and participated in it."

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The lawsuit promises an unprecedented public fight between two titans of the U.S. auto industry, each just a decade removed from nearly $82 billion taxpayer-funded bankruptcies that enabled both of them to close plants, cut jobs and winnow brands, especially GM.

The legal confrontation comes as FCA is locked in national contract talks with the UAW and is negotiating a transatlantic merger with Groupe PSA of France, maker of Peugeot and Citroën cars. PSA shares slumped 2.2% in Paris, while FCA shares dropped more than 3.7% on the New York Stock Exchange.

The lawsuit seeks to put a price tag on damage related to crimes committed by FCA executives who have been convicted in federal court during a years-long corruption crackdown in federal court. The probe has produced 10 convictions, charges against 13 and implicated Marchionne, UAW President Gary Jones and Dennis Williams, Jones' predecessor atop the union.

FCA's top leadership, meeting in London for their monthly Global Executive Council, learned of the GM lawsuit from a news headline pushed Wednesday to one of the executive's phones, according to a source who was in the conference room. The headline was then forwarded to CEO Mike Manley, who told the company's top management.

In a statement, FCA said: "We are astonished by this filing, both its content and its timing. We can only assume this was intended to disrupt our proposed merger with PSA as well as our ongoing negotiations with the UAW. We intend to vigorously defend against this meritless lawsuit and pursue all legal remedies in response to it."

And in a letter to FCA employees, Manley said GM's "complaint rehashes a collage of salacious public allegations from the pending (UAW-FCA joint-training center) matter, and at first review, beyond unsupportable speculation, does not include any new factual allegations. We will not be slowed down by this act."

In a statement, the union said: "The UAW is focused on continuing to implement ethics reforms and greater financial controls to make sure the misconduct which has been uncovered will never happen again. Those contracts, which were ultimately ratified by our membership, were negotiated with the involvement of both local and international representatives, and the process had multiple layers of checks and balances to ensure their integrity."

The scheme’s goal involved Marchionne conspiring with UAW officials in an attempt to take over GM via a merger, according to the lawsuit. The lawsuit portrays Williams, president of the UAW until last year and a longtime friend of Marchionne, as a willing participant in the conspiracy.

The attempted takeover dates to 2009, when Fiat SpA acquired the diminished Chrysler Group at the behest of the Obama administration's auto task force during the Great Recession. The effort intensified in fall 2014 when Fiat and Chrysler merged into FCA, leaving Marchionne in control of the combined entity, according to the lawsuit.

“In 2014, with certain UAW officials’ cooperation secured through corruption, Marchionne turned for support to the new UAW President, longtime friend and merger ‘wingman,’ Dennis Williams,” according to the lawsuit.

“Williams was a willing participant in Marchionne’s bribery and takeover scheme, especially given the UAW’s finances,” the lawsuit added. “In 2013, the UAW’s financial circumstances were so dire that it sold $47 million in assets and “raid(ed) its strike fund to pay operating expenses.”

GM alleges FCA was a "clear sponsor of pervasive wrongdoing, paying millions of dollars in bribes to obtain benefits, concessions, and advantages in the negotiation, implementation and administration of labor agreements over time. FCA's manipulation of the collective bargaining process resulted in unfair labor costs and operational advantages, causing harm to GM."

Marchionne's role in the federal corruption scheme has been unclear since the scandal emerged in 2017. For the first time, the lawsuit portrays him as a central figure in a conspiracy to weaken GM and expand his control of the global auto industry, including an attempted takeover of the automaker that was repeatedly rebuffed by GM CEO Mary Barra and GM's directors.

GM alleges FCA "corrupted the implementation" of UAW collective bargaining agreements in 2009 coming out of their federally induced bankruptcy. GM also says FCA under Marchionne "corrupted the negotiation, implementation, and administration of the 2011 and 2015 agreements."

GM says Marchionne “schemed to use the collective bargaining process to harm GM by becoming the lead in negotiations and attempting to force a merger of the companies.” GM rejected Marchionne’s request for a merger with FCA in spring 2015.

With the help of Williams, the former UAW president, Marchionne “proceeded to orchestrate a negotiation of the 2015 CBA designed, through the power of pattern bargaining, to cost GM billions,” according to the lawsuit.

The alleged end goal: to inflict high, unanticipated labor costs on GM and force the company to merge. Before the UAW selected FCA to lead 2015 negotiations, the union presented demands that cost under $1 billion on the 2015 contract. But it ultimately cost GM more than double that, according to the lawsuit.

The lawsuit alleges "Marchionne-directed fraud was not isolated to labor relations." It says FCA "began to systematically overstate its month-end sales figures," setting a "record-breaking 71-month streak" — a scheme in which Marchionne was "intimately involved."

The lawsuit seeks unspecified damages that could total in the billions, money that GM says it would reinvest in its U.S. operations. GM sued FCA US LLC and its Netherlands-based parent company along with three executives convicted of federal crimes, most notably Vice President Alphons Iacobelli, the former chief labor negotiator now serving a 5 1/2-year sentence in federal prison.

This is not the first time Marchionne has been linked to the corruption scandal.

Federal prosecutors have left clues to Marchionne's involvement in hundreds of pages of criminal filings that referenced, but never publicly identified, the chief executive. Instead, the government identified Marchionne only as "FCA-1" as the investigation widened and prosecutors secured convictions against three Fiat Chrysler officials.

The Detroit News exclusively identified Marchionne as “FCA-1” in August 2018. Sources revealed to The News that Marchionne gave an expensive Italian watch to UAW Vice President General Holiefield and failed to disclose the gift while being questioned by federal investigators.

The sources described a dramatic "gotcha" moment during a secretive July 2016 meeting between Marchionne and investigators. It ended with the auto executive exposed to the possibility of federal charges. Flanked by his white-collar criminal defense lawyer, William Jeffress, at the U.S. Attorney's Office in Detroit, Marchionne was asked by investigators whether he had given UAW leaders valuable items.

Marchionne said no, the sources said.

Investigators then confronted Marchionne with evidence he had given Holiefield a custom-made Terra Cielo Mare watch in February 2010. The Italian watchmaker has produced custom-made, limited-edition timepieces with the Fiat logo emblazoned on the dial since at least 2006. A 2014 model featuring the Fiat logo and a mustard-yellow dial retailed for $2,245.

The watch given to Holiefield came with a hand-written note from what documents identify only as an unnamed FCA executive: “Dear General, I declared the goods at less than fifty bucks. That should remove any potential conflict. Best regards, and see you soon,” according to federal court records obtained by The News.

It is unclear whether investigators showed Marchionne the watch and note or just photographs of them, and it is unknown whether federal agents have the watch. Marchionne, 66, was never charged before he died July 25, 2018, in a Zurich hospital.

khall@detroitnews.com

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daniel.howes@detroitnews.com