Bepco, Inc. v. Allied-Signal, Inc.

• Decision Date: 24 February 2000
• Docket Number: No. Civ. 6:96CV00274.,Civ. 6:96CV00274.
• Citation: 106 F.Supp.2d 814
• Court: U.S. District Court — Middle District of North Carolina
• Parties: BEPCO, INC.; and Heavy Duty Recycling Corporation, Plaintiffs, v. ALLIED-SIGNAL, INC.; and Allied Signal Truck Brake Systems Co., Defendants.

106 F.Supp.2d 814

BEPCO, INC.; and Heavy Duty Recycling Corporation, Plaintiffs, v. ALLIED-SIGNAL, INC.; and Allied Signal Truck Brake Systems Co., Defendants.

No. Civ. 6:96CV00274.

United States District Court, M.D. North Carolina.

February 24, 2000.

COPYRIGHT MATERIAL OMITTED

Norman B. Smith, Smith James Rowlett & Cohen, Greensboro, NC, J. David James, Smith James Rowlett Cohen, Greensboro, NC, for BEPCO, Inc., Heavy Duty Recycling Corporation, plaintiffs.

W. Andrew Copenhaver, David Alan Shirlen, Womble Carlyle Sandridge & Rice, Winston-Salem, NC, Douglas L. Wald, Arnold & Porter, Washington, DC, for Allied-Signal Inc., Allied Signal Truck Brake Systems Co., defendants.

MEMORANDUM OPINION

BULLOCK, District Judge.

This matter is before the court on a motion for summary judgment filed by Defendants Allied-Signal, Inc., and Allied Signal Truck Brake Systems Co. (collectively "Allied Signal"). This action arises out of a complaint filed in the General Court of Justice, Superior Court Division, Forsyth County, North Carolina, by Plaintiffs Bepco, Inc., and Heavy Duty Recycling Corporation (collectively "Bepco") in which they asserted various claims against Defendants under North Carolina law. Defendants subsequently removed the suit to this court on the basis of diversity jurisdiction, at which time Plaintiffs amended their complaint to add federal antitrust claims.

Following the completion of discovery, Defendants moved for summary judgment, contending that no genuine issues of material fact exist as to any of Plaintiffs' claims, whether state or federal. For the reasons set forth below, the court will grant Defendants' motion with respect to Plaintiffs' federal claims. The court will deny Defendants' motion with respect to Plaintiffs' state law claims.

FACTS

The following facts are drawn from the pleadings, affidavits, depositions, and answers to interrogatories offered by the parties. Where disputes exist, each party's position is given.

A. Parties, Products, and Markets

Allied Signal manufactures truck airbrake systems and new valves and new compressors for use in truck airbrake systems. Allied Signal markets these products under the name "Bendix," and they are sold to manufacturers of new trucks, known as "original equipment manufacturers" or "OEMs." Volvo, Freightliner, and Mack are all OEMs.

The markets for these new airbrake systems and for the new compressors and valves are known as original equipment markets. Allied Signal faces little competition in the highly concentrated compressor and valve original equipment markets. The competing compressor manufacturers include Midland and Cummins, and Midland, Sealco, GT Development, and a few other companies compete for new valve sales. Bepco does not compete in the original equipment markets for compressors or valves. Allied Signal enjoys a dominant position in both the compressor and valve original equipment markets, with market shares which it concedes to have been seventy-six per cent (76%) and eighty-five per cent (85%) in 1995 for compressors and valves, respectively. These percentages reflect increases in Allied Signal's market share in each market over those observed in 1990.

When compressors and valves in a new airbrake system wear out or break down, they usually are replaced rather than repaired. The product installed as a replacement is either a new compressor or valve (known as "service new") or one that is used. The used compressors and valves are cheaper and represent over ninety-five per cent (95%) of all replacement products sold and are created by re-manufacturing the components of old compressors and valves. Because airbrake systems and new compressors and valves are not manufactured in a standard format, an expensive conversion process is required to replace a failed Bendix part with a non-Bendix replacement part. Thus, Bendix-manufactured compressors and valves are almost always replaced with new or re-manufactured Bendix products.

The markets in which these replacement products are sold are known as the aftermarkets for compressors and for valves. Allied Signal re-manufactures used compressors and valves, both Bendix and non-Bendix, for sale in their respective aftermarkets. Allied Signal markets its re-manufactured Bendix compressors and valves as "genuine" replacements. By so doing, it suggests to consumers that it can re-manufacture Bendix parts better than its competitors can, because it manufactured them in the first place. Allied Signal also sells service new Bendix compressors and valves in the aftermarkets. Bepco competes with Allied Signal in both the compressor and valve aftermarkets, re-manufacturing a host of used parts, including Bendix compressors and valves.¹ Because Bepco does not manufacture any new compressors or valves for the original equipment markets, it is unable to market any of its re-manufactured replacement products as "genuine," as Allied Signal can.

Allied Signal expanded its aftermarket presence in 1994 in response the expansion of a competitor. Prior to 1994, Allied Signal, Midland, and other manufacturers of new products in the original equipment markets re-manufactured only their own compressors and valves. Thus all of their replacement products were either service new or genuine re-manufactured products. Midland was the first company to sell re-manufactured compressors and valves which were originally manufactured by competitors like Allied Signal or Cummins. Midland introduced a line of re-manufactured Bendix products under the "Like Nu" label. In response to Midland's move, Allied Signal also began re-manufacturing non-Bendix compressors and valves for sale in the aftermarkets.

The compressor and valve aftermarkets are not highly concentrated markets. Although competitors of Allied Signal from the original equipment markets such as Midland compete in the aftermarkets, numerous independent firms like Bepco which do not manufacture new products also compete. In total, some forty (40) firms compete in the aftermarkets, primarily because little capital is needed to establish a business which can re-manufacture and sell replacement products. During the 1990's, the aftermarkets became more competitive, not only from the product expansion undertaken by Midland and Allied Signal, but also from the entry of new competitors. In 1996 Euclid, which previously had sold certain truck parts but not compressors and valves, acquired a heavy-duty brake re-manufacturing operation. Bepco sales personnel conceded that Bepco expects to face increased competition from Euclid in the future. Collett Dep. at 322-23; Atherholt Dep. at 244-46; Davis Dep. at 193-94.

Allied Signal does not enjoy the same position of dominance in the aftermarkets for compressors and valves that it enjoys in the corresponding original equipment markets. According to figures generated for purposes of this litigation by Allied Signal, it commanded twenty-eight per cent (28%) of the compressor aftermarket and less than twenty per cent (20%) of the valve aftermarket during the relevant time period. Bepco gained access via discovery to Allied Signal internal marketing documents which suggest that Allied Signal's market shares in the aftermarkets are in fact larger. According to one document, in 1995 Allied Signal had a market share of forty-three per cent (43%) in the compressor aftermarket and thirty-seven per cent (37%) in the valve aftermarket.²

Bepco holds a relatively small portion of the aftermarkets, with roughly 2.5 per cent (2.5%) market shares in both the compressor and valve aftermarkets. Bepco contends that its sales dropped during the relevant time period; some of its employees and officials testified in deposition, however, that Bepco's decline is more directly attributable to increased competition in the aftermarkets than it is to allegedly anti-competitive practices on the part of Allied Signal. Atherholt Dep. at 244-46; Collett Dep. at 312-13, 323; McFadden Dep. at 29-30.

B. Distribution Channels for Replacement Compressors and Replacement Valves

There are two channels through which replacement compressors and valves are distributed to ultimate purchasers. The first channel is made up of independent distributors and is known as the "IAM" channel. These independent distributors number 2,700 in the United States and Canada, a region which the parties agree is the relevant geographic market for this dispute. This figure does not include the substantial number of automotive stores, such as NAPA, which sell re-manufactured truck brake parts.³ In response to the competition Bepco faced from NAPA outlets, it explored the possibility of securing a similar distribution outlet in CarQuest which Bepco considered to be a viable source of Bepco products.

Allied Signal has written agreements with 300 independent distributors which obligate these distributors to sell only genuine Bendix replacement products — Bendix replacement products which are manufactured service new by Allied Signal or re-manufactured by Allied Signal. Allied Signal distributors may, however, carry non-Bendix replacement products which are manufactured service new by Allied Signal competitors or which are re-manufactured by Allied Signal competitors. The distributorship agreements contain a provision which requires the Allied Signal distributor to carry a full line of Bendix products, but, according to Allied Signal, this provision is not enforced. The agreements may be terminated at will by either party, so long as thirty (30) days notice is given. Another 200 distributors get Allied Signal products through its associate distributor program.⁴ Freiberger Aff. at ¶¶ 20, 22.

The second, and equally large, channel through which re-manufactured compressors and valves are distributed is known as the "OE dealer" channel. The OE dealers are also distributors who sell replacement products to ultimate consumers, but they are associated with OEMs, such as Volvo and...