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Michelin North America, Inc. v. Inter City Tire and Auto Center, Inc.

United States District Court, D. South Carolina, Greenville Division

May 28, 2014

Michelin North America, Inc., and Michelin Retread Technologies, Inc., Plaintiffs/Counterclaim Defendants,
v.
Inter City Tire and Auto Center, Inc., and Inter City Retread, Inc., Defendants/Counterclaim Plaintiffs,
v.
Service Tire Truck Centers, Inc., Tire Centers, LLC, James Cavanaugh, William McCabe, William Schafer, Andrew Meurer, and Marc Pasquet, Counterclaim Defendants. Inter City Tire and Auto Center, Inc. and. Inter City Retread, Inc., Plaintiffs,
v.
Michelin North America, Inc., Michelin Retread Technologies, Inc., Service Tire Truck Center, Inc., James Cavanaugh William McCabe and Oscar Simoes, Defendants.

OPINION & ORDER

HENRY M. HERLONG, Jr., Senior District Judge.

The instant matter is before the court on the following motions: Service Tire Truck Center, Inc.'s ("STTC") two motions to dismiss Inter City Tire and Auto Center, Inc. ("ICT") and Inter City Retread, Inc.'s ("ICR") (collectively "Inter City"); Michelin North America, Inc.'s ("MNA") and Michelin Retread Technologies, Inc.'s ("MRT") (collectively "Michelin") motion to dismiss Inter City's second amended counterclaims; Andrew Meurer's ("Meurer"), Marc Pasquet's ("Pasquet"), and William Schafer's ("Schafer") motion to dismiss Inter City's second amended counterclaims; and Tire Centers, LLC's ("TCi") motion to dismiss Inter City's counterclaims. After a thorough review, the court grants in part and denies in part STTC's motion to dismiss; denies as moot STTC's motion to dismiss the first amended counterclaims; grants in part and denies in part Michelin's motion to dismiss; grants Meurer's, Pasquet's, and Schafer's motion and dismisses the claims against them without prejudice; and grants in part TCi's motion to dismiss.[1]

I. FACTUAL AND PROCEDURAL BACKGROUND

The instant litigation arises out of a variety of commercial dealer agreements and Michelin Americas Small Tire[2] retail agreements between MNA and ICT, and Michelin Retread Franchise Agreements between MRT and ICR.[3] On September 23, 2013, Michelin filed its second amended complaint. (Second Am. Compl., ECF No. 90.)[4] On November 26, 2013, Inter City filed its answer and alleged counterclaims against Michelin and joined STTC, TCi, James Cavanaugh ("Cavanaugh"), William McCabe ("McCabe"), Schafer, Meurer, and Pasquet as counterclaim defendants. (Ans. & Countercl., ECF No. 118.) On January 24, 2014, Inter City filed its first amended answer and counterclaims. (First. Am. Ans. & Countercl., ECF No. 147.) On March 13, 2014, Inter City filed its second amended answer and counterclaims. (Sec. Am. Ans. & Countercl., ECF No. 175.) (hereinafter referred to as the "SAC").

According to the SAC, the counterclaim defendants engaged in a complex scheme in which Michelin purported to sell tires to Inter City's competitors at prices designed to undercut Inter City's prices and drive Inter City out of business. (SAC ¶ 2, ECF No. 175.) The counterclaim alleges that Michelin sells tires to different purchasers at different prices depending on the status of the purchaser and the intended use of the tire. (Id. ¶ 31, ECF No. 175.) Michelin has three tiers of pricing, where original equipment manufacturers receive the lowest price, National Accounts customers receive the second lowest price, and commercial retail dealers receive the least-discounted level of pricing. (Id. ¶¶ 31-34, ECF No. 175.) ICT and STTC are commercial retail dealers. (Id. ¶ 34, ECF No. 175.)

Beginning around 1990 and through late May 2013, ICT was a dealer of new Michelin truck tires pursuant to commercial customer agreements with MNA. (Id. ¶ 36, ECF No. 175.) ICT also contracted with MNA to sell retail passenger tires pursuant to Michelin Americas Small Tires agreements. (SAC ¶ 41, ECF No. 175.) Beginning around 2000, ICR operated a Michelin franchised tire retreading plant pursuant to Retread Franchise Agreements with MRT. (Id. 44, 47, ECF No. 175.) ICR alleges that Morris Erbesh launched ICR on representations made by Michelin regarding the volume of business that would be generated by the venture. (Id. ¶¶ 45-46, ECF No. 175.) ICR also alleges that McCabe, a Michelin employee, required Erbresh to pay him or companies affiliated with McCabe in order to secure the promised business. (Id. ¶¶ 54-59, ECF No. 175.) ICR did not achieve the promised volume. (Id. ¶ 59, ECF No. 175.)

Inter City alleges that the complex scheme was composed of six parts. (SAC ¶ 60, ECF No. 175.) Pursuant to the "National Account Diversion Fraud Scheme, " Michelin diverted tires purchased at National Accounts prices to competitors of Inter City, including STTC, who then would resell the tires to retail customers at lower prices than would otherwise be available. (Id. ¶ 64, ECF No. 175.) As part of this scheme, McCabe, a Michelin employee, in conjunction with Steven Picciocchi ("Picciocchi"), established Tire Supply of NJ. (Id. ¶¶ 67-71, ECF No. 175.) Tire Supply of N.J. was designed to appear to be an Associate Dealer of STTC but purchased tires from National Accounts to be resold to dealers including STTC. (Id. ¶ 73, ECF No. 73.) STTC participated by processing these National Accounts sales, which also resulted in STTC receiving an additional $35 commission. (Id. ¶ 75, ECF No. 175.) Tire Supply of N.J. was designated STTC's Associate Dealer in order to provide a larger delivery commission to STTC, which was then passed on to McCabe and Picciocchi. (SAC ¶ 77, ECF No. 175.) McCabe further used his position at Michelin to provide "Sales Budget" credits to STTC in addition to the delivery commission to facilitate STTC's channeling of the commission to McCabe and Picciocchi. (Id. ¶ 78, ECF No. 175.)

Additionally, in 2006, Michelin hired Cavanaugh, a former Inter City employee, which, according to the counterclaim, was done to drive Inter City out of business. (Id. ¶¶ 86-87, ECF No. 175.) Around April 2010, Cavanaugh, McCabe, and Picciocchi, recruited ADA Tire Service ("ADA") and Michael Dolan ("Dolan"), ADA's owner to become an Associate Dealer of STTC, promising to use Cavanaugh and McCabe's power as Michelin employees to provide price supports that would be passed on to ADA. (Id. ¶¶ 88-89, ECF No. 175.) Additional retailers also participated in the scheme. (Id. ¶¶ 95-99, ECF No. 175.) Other Michelin managers also discouraged Inter City customers from doing business with Inter City. (SAC ¶¶ 101-02, ECF No. 175.)

Pursuant to the "National Accounts Credit Card Fraud" scheme, Michelin's National Account credit card program was manipulated to allow Inter City's competitors to charge National Accounts prices at the time of purchase to non-National Accounts customers. (Id. ¶ 103-14, ECF No. 175.) STTC participated in this scheme, allowing it to sell tires at prices below normal. (Id. ¶¶ 103-13, ECF No. 175.)

Michelin managers also allegedly used Sales Budget credits to subsidize the scheme to lower the prices of tires sold to dealers by Michelin. (Id. ¶¶ 114-18, ECF No. 175.) Michelin also allegedly approved additional Associate Dealers of STTC to compete with Inter City, which provided additional price support to STTC and allowed the Associate Dealers to undercut Inter City's prices. (Id. ¶ 122, ECF No. 175.) Michelin also offers higher delivery commissions to dealers within the Michelin Commercial Service Network, of which STTC is a member. (SAC ¶¶ 126-28, ECF No. 175.) Finally, Michelin is alleged to have provided tires to TCi at prices normally reserved for government entities, which allowed TCi to avoid federal excise taxes and offer tires for sale at a lower price in an effort to drive Inter City out of business. (Id. ¶¶ 129-30, ECF No. 175.)

After Inter City learned of evidence of these schemes, Inter City provided the evidence to Michelin, who commenced an internal investigation. (Id. ¶¶ 147-48, ECF No. 175.) Subsequently, Cavanaugh and McCabe, as well as other Michelin executives, were terminated, and Michelin terminated Action Tire as an authorized Michelin dealer. (Id. ¶ 148, ECF No. 175.) Inter City alleges that the price discrimination schemes continue to this day. (Id. ¶ 155, ECF No. 175.)

In late 2012, Inter City's counsel attempted to negotiate with Michelin regarding damages resulting from the scheme. (SAC ¶ 156, ECF No. 175.) On March 19, 2013, Inter City provided Michelin with a draft copy of a complaint it planned to file if a negotiated settlement was not reached. (Id. ¶ 157, ECF No. 175.) After Inter City's counsel expressed concerns regarding the level of service Inter City would receive from Michelin, Michelin's counsel provided assurances that Inter City would receive appropriate and reasonable service from Michelin. (Id. ¶ 158, ECF No. 175.) On April 19, 2013, Schafer sent a letter to ICT notifying it that MNA was terminating ICT's Commercial Customer Agreement effective 30 days from the date of the letter. (Id. ¶ 160, ECF No. 175.) On April 22, 2013, Meurer sent a letter to ICT notifying it that MNA was exercising its right to terminate the Commercial Customer Agreement effective 30 days from receipt of the letter. (Id. ¶ 164, ECF No. 175.) On April 22, 2013, Pasquet sent a letter to ICT notifying it that MNA was exercising its right to terminate the Passenger Tire Agreement effective 30 days from receipt of the letter. (SAC ¶ 167, ECF No. 175.) Inter City alleges that these terminations were done "in retaliation against Inter City for raising its claims against Michelin." (Id. ¶¶ 162, 166, 169, ECF No. 175.) Inter City alleges that the termination of ICT's contracts will negatively impact ICR's business and that Inter City has already lost a large fleet account as a result. (Id. ¶¶ 171-76, ECF No. 175.)

In the SAC, Inter City alleges the following causes of actions: Count I, Violation of Sections 2(d) and 2(e) of the Robinson-Patman Act, 15 U.S.C. §§ 13(d) and 13(e), against Michelin; Count II, Violation of Section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a), against Michelin; Count III, Violation of Section 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f), against TCi and STTC; Count IV, Violation of the South Carolina Unfair Trade Practices Act ("SCUTPA"), S.C. Code Ann. § 39-5-10 et seq., against Michelin, Schafer, Meurer, and Pasquet; Count V, Breach of Contract-Commercial Customer Agreement, against MNA; Count VI, Breach of the Implied Covenant of Good Faith and Fair Dealing-Commercial Customer Agreement, against MNA; Count VII, Breach of Contract Accompanied by a Fraudulent Act-Commercial Customer Agreement, against MNA; Count VIII, Breach of Contract-Passenger Tire Agreement, against MNA; Count IX, Breach of the Implied Covenant of Good Faith and Fair Dealing-Passenger Tire Agreement, against MNA; Count X, Breach of Contract Accompanied by a Fraudulent Act-Passenger Tire Agreement, against MNA; Count XI, Breach of Contract-Retread Franchise Agreement, against MRT; Count XII, Breach of the Implied Covenant of Good Faith and Fair Dealing-Retread Franchise Agreement, against MRT; Count XIII, Breach of Contract Accompanied by a Fraudulent Act-Retread Franchise Agreement, against MRT; Count XIV, Tortious Interference with Contractual Relations, against TCi, STTC, Cavanaugh, and McCabe; Count XV, Tortious Interference with Prospective Contractual and/or Business Relations, against Michelin, TCi, STTC, Cavanaugh, and McCabe; Count XVI, Common Law Fraud and Misrepresentation, against Michelin; Count XVII, Common Law Wrongful Termination, against Michelin; Count XVIII, Violation of New Jersey Franchise Practices Act ("NJFPA"), N.J. Stat. Ann. § 56:10-1 et seq., against Michelin; Count XIX, Violation of New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq., against Michelin, STTC, Cavanaugh, and McCabe; and Count XX, Violation of New York General Business Law, N.Y. Gen. Bus. Law § 349, against Michelin, TCi, STTC, Cavanaugh, and McCabe.

On February 4, 2014, STTC filed a motion to dismiss the first amended counterclaim. (STTC Mot. Dismiss, ECF No. 152.) Inter City filed the SAC on March 13, 2014. (Sec. Am. Ans. & Countercl., ECF No. 175.) On March 27, 2014, STTC moved to dismiss the SAC. (STTC Mot. Dismiss, ECF No. 182.) Inter City filed its response on April 14, 2014, and STTC submitted its reply on April 24, 2014. ...


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