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From Antitrust Law Daily, May 30, 2014

Tire retailer's price discrimination claims against Michelin allowed to proceed

By Edward L. Puzzo, J.D.

A tire retailer's federal antitrust and RICO claims against Michelin, based upon an alleged scheme giving favorable pricing to other retailers, were allowed to proceed by the federal district court in Greenville, South Carolina (Michelin North America, Inc. v. Inter-City Tire and Auto Center, Inc., May 28, 2014, Herlong, H.). The retailer's claims based on New Jersey and New York law, however, were dismissed.

Background. Inter City Tire and Auto Center, Inc. and Inter City Retread, Inc. (collectively “Inter City”) had commercial retail dealer agreements with Michelin North America, Inc. and Michelin Retread Technologies, Inc. (collectively “Michelin”) to sell Michelin tires.

Michelin had three tiers of pricing, the court explained. Original equipment manufacturers received the lowest price, national accounts customers received the second lowest price, and commercial retail dealers received the least-discounted level of pricing.

Inter City alleged that Michelin and certain competitors of Inter City, including Service Tire Truck Center, Inc. (STTC) and Tire Centers, LLC (TCi), engaged in a scheme in which the competitors would receive tires at lower prices than those offered to Inter City, allowing the competitors to undercut Inter City for the purpose of driving it out of business. One scheme allegedly involved a Michelin employee selling tires at improper discounts to Inter City competitors in exchange for the competitors channeling sales commissions back to the employee.

Inter City provided evidence of the schemes to Michelin, which commenced an internal investigation. Subsequently, Michelin dismissed certain Michelin employees and executives and terminated one of the retailers involved in the scheme.

Inter City then attempted to negotiate with Michelin to recover damages for the scheme, presenting Michelin with a draft complaint it was prepared to file if a negotiated settlement was not reached. Soon thereafter, Michelin terminated its agreements with Inter City, then sought a declaratory judgment that it properly terminated its dealer agreements. Inter City moved to dismiss the declaratory judgment action and filed various counterclaims. On November 6, 2013, the court declined to dismiss the declaratory judgment action.

Counterclaims. Inter City's counterclaims against Michelin alleged price discrimination in violation of the Robinson-Patman Act and the South Carolina Unfair Trade Practices Act (SCUTPA); violations of the New Jersey Franchise Practices Act (NJFPA) and the New York General Business Law; breach of contract and the implied covenant of good faith; wrongful termination; and fraud.

Michelin argued that its agent's conduct harmed the principal and therefore moved to dismiss on the ground that these allegations failed to state a claim for vicarious liability. The court found that Inter City had alleged valid claims for vicarious liability, and had stated claims upon which relief could be granted. The court therefore denied Michelin's motions to dismiss Inter City's claims, except for its claim of violation of the implied covenant of good faith and fair dealing. On that claim, the court found that South Carolina law did not provide a cause of action for implied covenant of good faith and fair dealing separate from breach of contract claims.

The court also found that a claim for common law wrongful termination had been made by Inter City Tire and Auto Center (ICT), but had not been made by Inter City Retread (ICR) because ICR was not a party to the agreements with Michelin and had not alleged that its agreement was terminated. The court therefore denied Michelin's motion to dismiss as to ICT but granted it as to ICR.

New Jersey and New York law claims. Inter City claimed that ICR had suffered constructive termination in violation of the NJFPA, and further alleged that Michelin's scheme selling tires to competing retailers at lower prices was a deceptive practice under the New York General Business Law. The court noted that the franchise agreements specified that the parties were to be governed by South Carolina law, without regard to the application of South Carolina conflict of law principles. Thus, claims brought under New Jersey or New York law had to be dismissed.

The case is No. 6:13-cv-01067-HMH.

Attorneys: Giles M. Schanen, Jr. (Nelson Mullins Riley and Scarborough) for Michelin North America Inc. and Michelin Retread Technologies, Inc. Christopher P. Kenney (Richard A. Harpootlian Law Office), Joseph Owen Smith (Roe Cassidy Coates and Price), and Laura B. Angelini (Hinckley Allen and Snyder) for Inter City Tire and Auto Center Inc. and Inter City Retread, Inc.

Companies: Michelin North America Inc.; Michelin Retread Technologies, Inc.; Inter City Tire and Auto Center Inc.; Inter City Retread, Inc.

MainStory: TopStory Antitrust FranchisingDistribution RICO StateUnfairTradePractices SouthCarolinaNews NewJerseyNews NewYorkNews

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