General Motors sues Fiat, alleging it bribed union leaders

General Motors Co. hit Fiat Chrysler Automobiles with a blockbuster racketeering lawsuit Wednesday, alleging that a bribery and corruption scheme cost GM billions of dollars and tainted labor contracts as far back as 2009.

Also on Wednesday, United Auto Workers union President Gary Jones — who had gone on leave after reports linked him to the scandal — resigned hours after the union took steps to oust him. Jones was not charged in the case.

GM filed suit in federal court in Michigan seeking to recoup unspecified damages from Fiat Chrysler, which has in the past denied being aware that three former executives conspired with UAW officials to undermine labor law. GM strikes at the heart of that defense, alleging that the late Fiat Chief Executive Sergio Marchionne himself authorized bribes with the ultimate aim of weakening a competitor and forcing a merger with GM.

Fiat Chrysler said it was “astonished” by the suit and speculated that GM may be trying to undercut Fiat’s plan to merge with France’s PSA Group and active negotiations with the UAW over a new labor contract. “We intend to vigorously defend against this meritless lawsuit and pursue all legal remedies in response to it,” the company said in a statement.

GM shares fell 3%. Fiat Chrysler’s U.S.-traded shares slid 3.7%.

GM alleges that Marchionne, who died last year, and the former company executives corrupted the collective bargaining process between the UAW and Detroit’s three automakers in 2009, 2011 and 2015. That resulted in unfairly high labor costs for GM, putting the company at a competitive disadvantage, Craig Glidden, the automaker’s general counsel, told reporters during a briefing at the company’s Detroit headquarters.

“The multiyear bribery scheme FCA led undermined the integrity of the collective bargaining process and caused GM substantial damages,” Glidden said, referring to Fiat Chrysler Automobiles. The attempted merger with PSA has no bearing on GM’s complaint, he said.

The suit targets Fiat Chrysler and former company officials who pleaded guilty and were sentenced to prison for their roles in the corruption scandal, including Al Iacobelli, who had served as vice president and lead UAW negotiator.

Competitive advantages provided to Fiat Chrysler but denied to GM included a higher portion of lower-paid workers, a streamlined grievance process and looser limits on use of temporary employees, according to GM. The company is not suing the UAW.

In a statement after the suit was filed, the union denied that past contracts were tainted and said that there were “multiple layers of checks and balances” to ensure their integrity. “We are confident that the terms of those contracts were not affected by Iacobelli’s misconduct, nor that of any UAW officials involved in the misuse of Joint Program funds at FCA,” the union said.

Former UAW President Dennis Williams made the surprise choice in 2015 to target Fiat Chrysler as the first company the union would negotiate a new contract with, even though it was the smallest and least profitable of the Detroit automakers. This was done at the behest of Marchionne to inflict higher costs on GM and force it to accept the then-CEO’s proposal to merge, GM alleges.

In a speech announcing the 2015 agreement with FCA, Marchionne said that the costs of the UAW contract “pale in comparison given the magnitude of the potential synergies and benefits,” according to the lawsuit. GM alleges that Marchionne was referring to his proposed merger with GM, which GM CEO Mary Barra rebuffed.

Federal prosecutors have said that Fiat Chrysler executives provided gifts aimed at keeping union officials “fat, dumb and happy” as part of a widening investigation that dates back at least two years.

This month, UAW’s Jones took an indefinite leave of absence after reports tied him to the scandal. Federal agents raided his Detroit-area home in August.

The UAW has said previously that Jones was not involved in any wrongdoing.

Iacobelli, who unexpectedly left Fiat Chrysler in June 2015 just before the start of UAW contract talks, has said that while serving as the automaker’s head of labor relations, he helped funnel $1.5 million from a worker training center to union officials, who spent the money on lavish gifts — including jewelry and designer clothing — for themselves. Shortly after Iacobelli pleaded guilty early last year, the UAW’s then-president, Williams, denied that the negotiations with Fiat Chrysler had been influenced by the diversion of funds.

Williams famously accepted a hug from Marchionne at the start of negotiations in 2015, an episode GM mentions in its suit. The union traditionally seeks to deal first with the strongest automaker to set a pattern for the others to follow.

That deal included across-the-board raises and a path to senior-level pay for entry-level workers. It came after an earlier, less generous proposal was rejected by union members almost 2 to 1, and as the UAW attempted to claw back concessions it was forced to make after Chrysler filed for bankruptcy in 2009.

Coppola writes for Bloomberg.