Watson Carpet & Floor Covering Inc. v. Mohawk Indus. Inc.

• Citation: 648 F.3d 452,2011 Trade Cases P 77505
• Decision Date: 22 June 2011
• Docket Number: Nos. 09–6140,09–6173.,s. 09–6140
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Parties: WATSON CARPET & FLOOR COVERING, INC., Plaintiff–Appellant/Cross–Appellee,v.MOHAWK INDUSTRIES, INC., Defendant–Appellee,Carpet Den, Inc.; Rick McCormick, Defendants–Appellees/Cross–Appellants.

648 F.3d 452

2011-1 Trade Cases P 77,505

WATSON CARPET & FLOOR COVERING, INC., Plaintiff–Appellant/Cross–Appellee,

v.MOHAWK INDUSTRIES, INC., Defendant–Appellee,Carpet Den, Inc.; Rick McCormick, Defendants–Appellees/Cross–Appellants.

Nos. 09–6140

09–6173.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 21, 2011.Decided and Filed: June 22, 2011.

ARGUED: R. Scott Jackson, Jr., Nashville, Tennessee, for Appellant. Randall L. Allen, Alston & Bird LLP, Atlanta, Georgia, Russell B. Morgan, Bradley Arant Boult Cummings, LLP, Nashville, Tennessee, for Appellees. ON BRIEF: R. Scott Jackson, Jr., Nashville, Tennessee, for Appellant.

Randall L. Allen, Rodney J. Ganske, Alston & Bird LLP, Atlanta, Georgia, Russell B. Morgan, Paul A. Alexis, Christopher E. Thorsen, Bradley Arant Boult Cummings, LLP, Nashville, Tennessee, Timothy L. Warnock, Riley Warnock & Jacobson, PLC, Nashville, Tennessee, for Appellees.Before: SILER, MOORE, and GRIFFIN, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Plaintiff-appellant Watson Carpet & Floor Covering, Inc. (Watson Carpet) is a carpet dealer in competition with Carpet Den, Inc. and its owner, Rick McCormick. Watson Carpet sued Carpet Den, McCormick, and carpet supplier Mohawk Industries, Inc., for conspiring to restrain trade in violation of Section 1 of the Sherman Act.

Watson Carpet alleges that, in 1998, the defendants explicitly agreed to force Watson Carpet out of business by slandering and refusing to deal to Watson Carpet. After Mohawk refused to sell carpet to Watson Carpet the next year, Watson Carpet brought state claims in state court against all three defendants. Carpet Den and McCormick settled the state-court action with Watson Carpet in March 2007, and Watson Carpet released all then-existing claims against those two defendants. While the state-court litigation was ongoing in 2005 and 2006, and in May 2007 after the litigation had ended, Mohawk again refused to sell to Watson Carpet. The 2005, 2006, and 2007 incidents form the basis of the present lawsuit. Despite Watson Carpet's detailed allegations of an agreement to restrain trade, the district court dismissed the complaint for failure to state a claim, invoking the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Watson has appealed. Carpet Den and McCormick have cross-appealed the district court's ruling that the settlement release did not cover the 2007 refusal to sell.

We REVERSE the dismissal of the complaint and hold that Watson Carpet adequately stated a claim for relief. Watson Carpet specifically alleged both an agreement to restrain trade and later acts that furthered the conspiracy. In response, Mohawk proffered alternative explanations for its refusals to sell to Watson Carpet. However, to survive a motion to dismiss, Watson Carpet needs to allege only that the defendants' agreement plausibly explains the refusals to sell, not that the agreement is the probable or exclusive explanation.

With respect to the cross-appeal, we AFFIRM the district court's determination that the 2007 refusal to sell is outside the scope of the settlement release. When they settled with Watson Carpet, Carpet Den and McCormick bargained away their liability for the 1999, 2005, and 2006 refusals to sell. They did not withdraw from the conspiracy, however, and conspiracies are presumptively ongoing. As coconspirators with Mohawk, Carpet Den and McCormick remain liable for Mohawk's post-release actions that furthered the conspiracy, including the 2007 refusal to sell.

I. BACKGROUND

According to the complaint, in 1998, McCormick met with Brad Matthaidess, Mohawk's Vice President and Senior Manager, and Fred Woods, a Mohawk sales representative. Mohawk is one of two suppliers that dominate 95% of Nashville's market for production-homebuilder carpet. Wielding that power, the men designed a plan to “run [Watson Carpet] out of business.” R. 1 (Compl.¶ 15).¹ To carry out the plan, Mohawk would refuse to sell to Watson Carpet. Meanwhile, McCormick, Carpet Den, and Woods “would maliciously make false derogatory accusations about [Watson Carpet and its owner] to Plaintiff's customers and potential customers and others in the industry.” Id. at ¶ 16.

The complaint does not make clear when the defendants began to follow through on their plan, but between paragraphs about events in 1998 and 1999, Watson Carpet claims that McCormick and other Carpet Den and Mohawk agents made “false derogatory accusations” about the company to potential customers, with the goal of hurting Watson Carpet's business. Id. at ¶¶ 16–17. Their accusations included “that [Watson Carpet's owner] used drugs, sold drugs, cheated his customers, slept with his employees, had financial problems, had trouble with the IRS, and was in the mob.” Id. at ¶¶ 18–19. McCormick also “instructed his sales people that if they were competing with Plaintiff for a sale they should ‘lowball’ the price ... to keep Plaintiff from getting the sale, even if it meant losing money on the sale.” Id. at 20. In 1999, McCormick told the president of Turnberry Homes, Watson Carpet's client, that Watson Carpet had stolen money “by pocketing rebates ... that should have been going to Turnberry Homes.” Id. at ¶ 21. The attempt to undercut Watson Carpet's business did not succeed: the president of Turnberry Homes believed that McCormick's accusations were false, and the client continued to purchase from Watson Carpet.

Watson Carpet had less success that same year when it tried to purchase Portico carpet from Mohawk to supply Centex Homes. “Pursuant to and in furtherance of the conspiracy, Defendant Mohawk refused to sell Plaintiff the Portico carpet needed to service Centex,” costing Watson Carpet the client, potential profits, and “almost” its own company. Id. at ¶ 22.

Although the complaint omits this fact, Watson Carpet sued Mohawk, Carpet Den, and McCormick in state court in 1999 for the Centex incident, alleging “tortious interference with business relationships and civil conspiracy.” Watson's Carpet & Floor Coverings, Inc. v. McCormick, et al., 247 S.W.3d 169, 173 (Tenn.Ct.App.2007). A jury found for Watson Carpet on both bases against all three defendants, awarding $1,384,180 in past damages and $249,314 in future damages. It also awarded $3,750,000 in punitive damages against Mohawk. On appeal, the Tennessee Court of Appeals reversed the judgment against Mohawk for tortious interference because Mohawk had a state-law supplier's privilege to make “decisions on what companies to deal with and what to sell them.” Id. at 179. Relying on Mohawk's privilege, the Tennessee Court of Appeals also reversed for all defendants on the claim of conspiracy to interfere tortiously with Watson Carpet's prospective relationship with Centex. However, the court upheld the verdicts against Carpet Den and McCormick for tortiously interfering with Watson Carpet's relationship with Mohawk.

The Tennessee Court of Appeals issued its decision in January 2007. In March 2007, Carpet Den and McCormick settled with Watson Carpet. In exchange, Watson Carpet released the two defendants “from and against any and all claims ... which [Watson Carpet] may have against them whether such claims are contingent or actual, anticipated or unanticipated, and of whatever kind or nature.” Settlement at ¶ 1. Rather than settling, Mohawk sought review from the Tennessee Supreme Court, which denied permission to appeal.

During the course of the state-court litigation, Mohawk had refused to sell to Watson Carpet for Newmark Homes in 2005 and Pulte Homes in 2006. After the settlement, in May 2007, Mohawk refused to fill Watson Carpet's order for Wieland Homes. According to the complaint, all three refusals were “[p]ursuant to and in furtherance of the conspiracy.” R. 1 (Compl.¶¶ 32, 40, 48).

Watson Carpet sued the defendants in the United States District Court for the Middle District of Tennessee in May 2009, alleging three violations of Section 1 of the Sherman Act based on the 2005, 2006, and 2007 refusals to sell. Mohawk filed a motion to dismiss for failure to state a claim, asserting that the claims were time-barred and that the complaint was inadequate under Twombly. The district court granted the motion to dismiss, holding that the claims were not time barred, but that the complaint was inadequately particular about whether the 2005, 2006, and 2007 events were related to the original conspiracy or were unilateral refusals to sell to a litigious customer. Carpet Den and McCormick filed a motion for summary judgment or, alternatively, judgment on the pleadings due to the same statute-of-limitations argument that Mohawk raised, and also alleging that the settlement release barred the claims. The district court granted the motion for summary judgment insofar as the settlement release applied to the 2005 and 2006 counts. However, the district court concluded that the settlement release did not apply to the 2007 count, which took place after the parties had signed the release. The district court also determined that the 2007 count fell within the four-year statute of limitations. Nevertheless, as it had done with respect to Mohawk, the district court dismissed the 2007 count against Carpet Den and McCormick for failure to state a claim.

The district court denied a motion for reconsideration in which Watson Carpet claimed that the district court had wrongly required “reaffirm[ation of] the conspiracy.” R. 48 (Dist. Ct. Order Denying Reconsideration) (internal quotation marks omitted). The district court clarified that it had “simply held that the Plaintiff failed to allege facts supporting its conclusory assertions that actions taken by [Mohawk] were related to or in furtherance of the conspiracy allegedly formed in 1998,” or that Carpet Den or McCormick had taken “any actionable steps in furtherance of the alleged conspiracy after the date...