Trane U.S. Inc. v. Meehan, Case No. 3:07CV02377.

• Court: United States District Courts. 6th Circuit. United States District Court of Northern District of Ohio
• Writing for the Court: James G. Carr
• Citation: 563 F.Supp.2d 743
• Parties: TRANE U.S. INC., Plaintiff, v. Robert J. MEEHAN, Jr. et al., Defendants.
• Docket Number: Case No. 3:07CV02377.
• Decision Date: 29 May 2008

563 F.Supp.2d 743 TRANE U.S. INC., Plaintiff,
v.
Robert J. MEEHAN, Jr. et al., Defendants. Case No. 3:07CV02377. United States District Court, N.D. Ohio, Western Division. May 29, 2008.

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Beth A. Wilson, Gerald R. Kowalski, Cooper & Walinski, Toledo, OH, Daniel M. Reilly, Kent C. Modesitt, Larry S. Pozner, Reilly, Pozner & Connelly, Denver, CO, for Plaintiff.

Peter R. Silverman, Shumaker, Loop & Kendrick, Toledo, OH, for Defendants.

ORDER

JAMES G. CARR, Chief Judge.

In this dispute, plaintiff Trane U.S. Inc. ("Trane"), a manufacturer of heating, ventilating,

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and air conditioning ("HVAC") systems, claims that defendant Robert J. Meehan and his Trane franchise, Toledo Services, Inc. (collectively "Toledo Trane") of Toledo, Ohio, fraudulently failed to account for monies Toledo Trane owed to plaintiff. In addition to bringing the instant suit, Trane terminated its franchise agreement with Toledo Trane, providing thirty days notice as required by the agreement. Toledo Trane responded with several counterclaims, among them that certain guidelines on which plaintiff bases its fraud claims violate the Sherman Antitrust Act, 15 U.S.C. § 1, and the Clayton Act, 15 U.S.C. § 14. Jurisdiction is proper under to 28 U.S.C. §§ 1332, 1337(a), and 1367(a).

Trane now moves to dismiss six of defendant's counterclaims. (Doc. 46). The first four counterclaims relate to violations of federal antitrust laws: 1) a product tying violation of Sherman Act § 1 and Clayton Act § 3 (Count One); 2) a brand tying violation of Sherman Act § 1 (Count Two); 3) a resale price maintenance violation of Sherman Act § 1 and Clayton Act § 3 (Count Three); and 4) a horizontal restraint violation of Sherman Act § 1 and Clayton Act § 3 (Count Four). The remaining two counterclaims allege violations of state laws, namely, the Ohio Valentine Act (Count Five) and the covenant of good faith (Count Eleven).

For the following reasons, I grant the motion for dismissal with the exception of the defendant's counterclaim for breach of the covenant of good faith.

Background

In 1959, Meehan began working as a salesman for Trane. Thirteen years later, he expressed an interest in opening an independent Trane franchise center. After a series of meetings, Trane offered Meehan ah opportunity to establish a franchise in Toledo. Meehan accepted the offer and signed a franchise agreement.

The franchise agreement included two provisions pertinent to the current dispute. ' The first explained that either party could terminate the agreement on thirty days notice to the other party. The second stated that "no amendment, supplement or modification [of the contract] shall be of any force and effect unless it is signed in writing and signed by the party sought to be charged." (Doc. 11, Attach 1 at 5). The contract also provided that Wisconsin law governed all provisions.

Meehan alleges that when he began operating his franchise (after taking over from another franchisee), he found the business in dire circumstances. Realizing a substantial investment would be necessary to make Toledo Trane profitable, Meehan grew concerned about the thirty day termination clause. If Trane were to exercise the clause, Meehan feared he could lose his investment in the business. These concerns, Meehan alleges, caused him over the years to have several conversations with various Trane managers; all, according to Meehan, indicated that Trane protected its franchisees and would not terminate a franchise without cause.

Toledo Trane grew and prospered. In addition to selling Trane products, Toledo Trane sold parts for other manufacturers and managed a separate service division. Toledo Trane's income came primarily from sales of: new commercial HVAC systems (consisting solely of Trane parts); controls (90% of which Trane produced); and other Trane manufactured parts. Toledo Trane's service division generated about one-third of its income.

In March, 1992, Trane issued a "Manual of Policies and Procedures" ("MOPP") for its franchisees. These policies largely affected "bundled sales," which are sales of

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products that combine Trane and non-Trane components.

Two sections of MOPP provision 34b (MOPP 34b) were of particular importance to these sales: 1) a requirement that all Trane franchises report sales of non-Trane products to Trane and pay Trane a percentage of those sales; and 2) a provision setting, through a complicated incentive structure, minimums on the sale price of all Trane products and maximums on the sale price of all non-Trane products.

Toledo Trane alleges that these provisions set the resale price for non-Trane products so as to maximize Trane's return on bundled sales. As a consequence, Toledo Trane's cost to sales increased and its profit margin decreased. This hurt competition, according to Toledo Trane, because a "break even price on any job is set higher than it would be set absent the extra-contractual predatory restrictions Trane has imposed in MOPP 34b." (Doc. 59 at 13).

In other words, Toledo Trane alleges that, as a result of the mandates of MOPP 34b, it had to enter the marketplace with higher prices to be profitable than it would have had the provisions not been in place.

In addition to serving as a franchisee for Trane, Toledo Trane is a sales representative for TAC, another maker of HVAC controls. At approximately the same time as Trane issued the MOPP, it also imposed new rules regarding sales of such controls. According to defendant, Trane "coerced Toledo Trane not to sell TAC units except in jobs where TAC [was] already installed." (Id. at 14). This policy, by forcing Toledo Trane to use Trane controls where TAC controls would be suitable and less expensive, raised Toledo Trane's market prices for HVAC system Controls. Toledo Trane also alleges that the policy allowed Trane to inflate the price of products that compete with Trane-brand products.

Toledo Trane acquiesced in MOPP 34b and undertook to follow and implement the additional requirements. Meehan claims he had no other choice, as Trane could terminate Toledo Trane's franchise. Furthermore, given the time and money Meehan had invested in his business, the "cost of switching franchises would have far exceeded the incremental costs that Trane was assessing Toledo Trane and the other franchisees through MOPP 34b." (Id. at 9).

The events giving rise to this suit began when Trane audited Toledo Trane in June, 2005. Trane alleges the audit uncovered significant noncompliance with the MOPP by Toledo Trane and a resulting shortfall in payments to Trane of over $1,000,000. Trane thereon exercised the thirty day termination provision of the franchise agreement. In addition, it filed the instant suit seeking damages for the alleged fraud. Toledo Trane responded, in part, by filing its counterclaims.¹

Discussion A. Standard of Review

As with any motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, I deem all factual allegations in the complaint to be true. Tellabs, Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007). When ruling on a Rule 12(b)(6) motion, a court must also construe the complaint in a light most favorable to the

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nonmoving party. Block v. Ribar, 156 F.3d 673, 677 (6th Cir.1998).

The Supreme Court recently clarified this standard in Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In Twombly, the Court considered the standard for dismissing a complaint filed under § 1 of the Sherman Act, explaining that "a plaintiffs obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at ___, 127 S.Ct. at 1964-65 (citations omitted). Though the complaint need not contain "detailed" factual allegations, its "[fjactual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true." Id. at ___, 127 S.Ct. at 1965 (internal citations omitted); see also Ass'n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548 (6th Cir. 2007); NicSand, Inc. v. 3M Co., 507 F.3d 442, 460 (6th Cir.2007) (Martin, J., dissenting) (explaining that Twombly simply distinguished "between a bare-bones complaint asserting only the elements of a claim and a complaint asserting not only legal elements, but also facts to support those elements"). But cf. Weisbarth v. Geauga Park Dist., 499 F.3d 538, 541 (6th Cir.2007) (noting uncertainty about Twombly's "reach beyond the antitrust context" (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.2007))).

B. Antitrust Claims

Toledo Trane's antitrust counterclaims allege that, via several rules and policies, Trane violated § 1 of the Sherman Act, 15 U.S.C. § 1, and § 3 of the Clayton Act, 15 U.S.C. § 14.

Section 1 of the Sherman Act states that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States ... is declared to be illegal." 15 U.S.C. § 1. In a more specific manner, § 3 of the Clayton Act prohibits commercial actors from selling or contracting for the sale of goods "on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods ... of a competitor" of the commercial actor, where the effect of such an arrangement "may be to substantially lessen competition or tend to create a monopoly in any line of commerce." 15 U.S.C. § 14.²

The Supreme Court has provided two methods of analysis for judging agreements that allegedly violate antitrust laws: "the first employs a presumption that an agreement is an antitrust violation, thus invoking a per se illegality rule to classify the agreement." Betkerur v. Aultman Hosp. Ass'n, 78 F.3d 1079,...