(Adds comment from Fiat Chrysler)
By Jonathan Stempel
NEW YORK Oct 5 A U.S. judge on Wednesday said
Fiat Chrysler Automobiles NV must face a lawsuit
claiming it defrauded shareholders by overstating its ability to
comply with vehicle safety laws.
U.S. District Judge Jesse Furman in Manhattan said the
automaker must face claims over statements in late 2014 that it
was "substantially" in compliance, even as it was being probed
by the National Highway Traffic and Safety Administration for
shortcomings tied to two recalls.
Furman dismissed claims accusing Fiat Chrysler of violating
accounting principles by failing to set aside enough money to
cover recalls it had reason to expect.
The judge also allowed shareholders to pursue claims over
the compliance disclosures against Chief Executive Sergio
Marchionne and the former safety chief of the automaker's FCA
U.S. unit, Scott Kunselman.
Fiat Chrysler, in a statement, said it was pleased that the
judge dismissed "several of the more significant claims," and
that it will defend itself against the surviving claims.
Lawyers for the shareholders did not immediately respond to
The shareholders accused the defendants of inflating Fiat
Chrysler's share price by hundreds of millions of dollars from
October 2014 and October 2015 by downplaying safety concerns.
They said the shortcomings materialized last year when the
automaker paid $175 million of NHTSA fines, and took a roughly
$670 million charge for recalls.
In a 26-page decision, Furman said reasonable investors
"could, and likely would" interpret Fiat Chrysler's statements
about its safety compliance as suggesting that it was in
substantial compliance with "all" applicable regulations.
He said that could be misleading, given how the NHTSA probes
had begun, the automaker had begun closer monitoring of safety
issues, and, "after all, only months later, FCA admitted to
But the judge said he would not allow a claim for what he
called "fraud by hindsight" for suggesting that Fiat Chrysler
underestimated the cost of its recalls.
"Misguided optimism is not a cause of action, and does not
support an inference of fraud," he wrote.
The case is Pirnik v. Fiat Chrysler Automobiles NV et al,
U.S. District Court, Southern District of New York, No.
(Reporting by Jonathan Stempel in New York; Editing by Steve
Orlofsky and Andrew Hay)