PAUL E. VOLPP TRACTOR PARTS v. Caterpillar, Inc.

• Decision Date: 03 August 1995
• Docket Number: No. 86-2871-TUA.,86-2871-TUA.
• Citation: 917 F. Supp. 1208
• Parties: PAUL E. VOLPP TRACTOR PARTS, INC. d/b/a CEM Supply Company, Plaintiff, v. CATERPILLAR, INC., Defendant.
• Court: U.S. District Court — Western District of Tennessee

917 F. Supp. 1208

PAUL E. VOLPP TRACTOR PARTS, INC. d/b/a CEM Supply Company, Plaintiff, v. CATERPILLAR, INC., Defendant.

No. 86-2871-TUA.

United States District Court, W.D. Tennessee, Western Division.

August 3, 1995.

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H. Kenneth Kudon, Washington, DC, for plaintiff.

Gregory I. Baker, Washington, DC, for defendant.

ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

TURNER, District Judge.

Plaintiff Paul E. Volpp Tractor Parts, Inc. ("Volpp") d/b/a CEM Supply Company ("CEM"), filed this action alleging federal and state antitrust violations as well as several state common law claims against defendant Caterpillar, Inc. ("Caterpillar"). Volpp subsequently filed an amended complaint. The essence of the claim is that Caterpillar entered into unlawful arrangements with authorized Caterpillar dealers in which Caterpillar conditioned the sale of its machines upon dealers' agreements to purchase genuine Caterpillar parts, to the near exclusion of parts offered for sale by CEM and other competitors. The specific claims alleged in the amended complaint are as follows:

(1) Action pursuant to Sections 4 and 15 of the Clayton Act, 15 U.S.C. §§ 15 & 26, for treble damages, injunctive relief, and costs, including reasonable attorneys' fees, for injuries suffered as a result of unlawful "tying" arrangements, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 3 of the Clayton Act, 15 U.S.C. § 14;

(2) Unlawful combination and conspiracy, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1;

(3) Unlawful agreements made with a view to lessen full and free competition in importation of parts, in violation of Tenn.Code Ann. § 47-25-101; and

(4) Intentional interference with prospective business relations.

Caterpillar answered and counter-claimed, alleging false representation as to the quality and performance of its parts in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Both parties seek damages and injunctive relief.

Caterpillar filed a motion for summary judgment on each claim alleged by Volpp. On Volpp's tie-in claim (Count 1), Caterpillar argues: (a) that there is no evidence that it "tied" the sale of machines to the sale of replacement parts, (b) that there is no evidence of coercion, (c) that there is no evidence of antitrust injury, and (d) that Volpp cannot show antitrust damages. On Volpp's conspiracy claim (Count 2), Caterpillar argues that the claim merely duplicates the tie-in claim and that there is no evidence of a conspiracy. On Volpp's Tennessee antitrust claim (Count 3), Caterpillar maintains that (a) Volpp may not seek damages under the Tennessee Antitrust Statute, (b) that there is no evidence of an unlawful combination, and (c) that Volpp cannot show an anticompetitive intent or effect. Finally, on Volpp's claim for interference with prospective business relations (Count 4), Caterpillar argues that Tennessee law does not recognize the tort and that the claim should accordingly be dismissed.

The parties have filed extensive memoranda and several volumes of exhibits in support of their respective filings. The court heard oral argument on the motion for summary judgment on June 1, 1994.

I. FACTS

In considering the defendant's motion for summary judgment, the court will believe the evidence of the plaintiff and draw all justifiable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986); accord Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

1. Caterpillar, Inc.

Caterpillar is engaged in the business of designing, manufacturing and marketing earth-moving, construction, agricultural and materials-handling equipment, engines and replacement parts. Caterpillar sells its products and services through a world-wide network of independent dealerships. Each dealership enters into a contractual "Sales and Service Agreement" with Caterpillar, a portion of which provides as follows:

2. Primary Purpose and Caterpillar's Reliance on Principals

(a) Both Dealer's and Caterpillar's primary purpose in entering into this agreement is to develop and promote the sale of products and to provide a high standard of parts availability and mechanical service to insure satisfaction by users of products. Within the service territory described in Exhibit A, Dealer shall be primarily responsible for fully and adequately developing and promoting the sale to customers and prospective customers located within such territory and for the servicing of all of the products specified in Exhibit A.

(b) Caterpillar and Dealer agree that Dealer's effectiveness and ability in achieving such purpose could be adversely affected by Dealer's affiliation with another organization which is a substantial operator of products. Dealer agrees that during the life of this agreement it will avoid any such affiliation whether by way of capital investment, source of capital, common management, common ownership, or otherwise, except to the extent that Caterpillar may otherwise agree in writing.¹

The agreement may be terminated with or without cause on ninety days written notice.²

2. Paul E. Volpp Tractor Parts, Inc.

Volpp manufactures, assembles and distributes components and parts for off-road heavy construction, mining and logging equipment. These parts, commonly referred to as "non-genuine," "will-fit" or "gypo" are usually less expensive than genuine parts. Volpp distributes its products through two sales divisions, CEM and Heavy Equipment Parts. Through CEM, Volpp sells parts primarily to dealers for original equipment manufacturers ("OEMs"), including Caterpillar. The parts distributed by CEM for use in Caterpillar equipment include seals, gaskets and "O" rings. Volpp successfully cultivated several Caterpillar dealerships as its principal clients for its Caterpillar-compatible parts. According to Caterpillar, between January 1982 and July 1986, over ninety percent of CEM's aggregate sales of Caterpillar-compatible parts were made to fifteen Caterpillar dealers.³

3. Caterpillar's Goal To Regain Lost Parts Sales

Following Caterpillar's first three years of losses in its history, the Caterpillar Product Support Department announced plans to move all programs that contribute to short term profitable sales to "top priority."⁴ One such program was the sale of genuine Caterpillar parts to Caterpillar dealers.⁵ All district managers, sales managers, and parts and service sales representatives were instructed to "do all those things that we know will work to sell parts."⁶ Specifically, Caterpillar aggressively sought to recapture parts sales business which it lost to competitors when dealers sold "will-fit" parts instead of Caterpillar parts.⁷

4. The "Pilot Exercises"

Caterpillar developed a mathematical formula for the purpose of identifying dealers who were selling competitive parts.⁸ Caterpillar then conducted a "pilot exercise" focused on three dealers: (1) Mustang Tractor & Equipment Co. in Houston, Texas; (2) Taylor Machinery Co. in Memphis, Tennessee; and (3) Pape' Brothers, Inc. in Eugene, Oregon.⁹ This exercise confirmed the accuracy of Caterpillar's formula. Caterpillar "confronted" those dealers and sought to aggressively persuade them to purchase their parts almost exclusively from Caterpillar.¹⁰ Eventually, these dealers were persuaded to source almost exclusively from Caterpillar.¹¹

5. Spreading The Word

Caterpillar's pilot exercise had an effect beyond the three dealers directly involved. Word spread throughout the dealer network that Caterpillar was "getting serious" about the practice of selling non-genuine parts.¹² Caterpillar welcomed and encouraged this effect. Tom Headington at Caterpillar recommended that Caterpillar "take an official position strongly discouraging dealer sourcing non-genuine parts where a genuine Caterpillar part is available to the dealer from Caterpillar."¹³

The issue of non-genuine parts sales was addressed at a Caterpillar "Worldwide Marketing Management Meeting" in October of 1985 in Galesburg, Illinois. It was determined that dealers who "outsource" would be "personally contacted by district/region managers and reminded of their obligations to CTCo."¹⁴ It was further determined that if the personal contact produced no reaction from the dealer, "one or more persuasive measures could be employed: suspension of parts returns; 100 percent inspection of warranty parts; and a dealer requirement to identify non-genuine parts on customer invoices."¹⁵ Also at the Galesburg meeting, Caterpillar initiated a challenge to increase incremental parts sales worldwide by $200 million.¹⁶ The emphasis on "dealer sourcing loyalty" was expected to account for $40-$50 million toward this total.¹⁷ Caterpillar made the decision that local representatives would have a "`Woodshed' talk" with dealers "who are into nongenuine parts" and send out a "sourcing loyalty letter."¹⁸

Caterpillar's official position on the issue of non-genuine parts sales went out on May 12, 1986, in the form of a letter from Dave Lewis to all dealers, region managers and district managers. The position statement was as follows:

The basis of our agreements with dealers is our expectation that they will adequately represent the Caterpillar products designated in those agreements to our satisfaction. The use of genuine Caterpillar parts is essential to the performance of our dealers' obligation to support Caterpillar prime products and the fulfillment of their obligation to adequately represent the entire Caterpillar product line — including parts.¹⁹

The letter further informs the dealers that:

District Managers will be discussing this subject with you as appropriate. I encourage those of you affected by this position to review your current sourcing and sales practices and do what is necessary to ensure your

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