Watson Carpet & Floor Covering, Inc. v. Mohawk Indus., Inc.
| Decision Date | 02 September 2014 |
| Docket Number | No. 3:09-cv-0487,3:09-cv-0487 |
| Court | U.S. District Court — Middle District of Tennessee |
| Parties | WATSON CARPET & FLOOR COVERING, INC., Plaintiff, v. MOHAWK INDUSTRIES, INC., Defendant. |
MEMORANDUM
Defendant Mohawk Industries, Inc. filed a motion for summary judgment (Docket Entry No. 116), to which Plaintiff Watson Carpet & Floor Covering, Inc. filed a response in opposition (Docket Entry No. 168). Defendant filed a reply (Docket Entry No. 189), and Plaintiff filed a sur-reply (Docket Entry No. 197).1
Plaintiff Watson Carpet & Floor Covering, Inc. ("Plaintiff" or "Watson" or "Watson Carpet") is a local floor covering dealer with facilities in Brentwood, Tennessee, where it has been in business for 25 years. (Third Decl. of Johnny Watson, ¶ 2).2 Plaintiff sells floor coverings, such as carpet, wood, and ceramic tile, to large production homebuilders, and installs the products in their homes. (Id.). Johnny Watson is the President and sole shareholder ofWatson Carpet. (Id.). Plaintiff purchases carpet from carpet manufacturers such as Defendant Mohawk Industries, Inc. ("Defendant" or "Mohawk") and another manufacturer called Shaw Industries ("Shaw").3
Defendant Mohawk is a Georgia corporation that does business in Tennessee and throughout the United States. Mohawk supplies the carpet used in homes built by production homebuilders in the area. Mohawk markets a particular brand of carpet called — Portico exclusively to homebuilder customers. In the past, dealers carried Portico and pitched it to homebuilder customers just as they would pitch other Mohawk brands to individual consumers. In the 1990s, however, Mohawk and other carpet manufacturers also began directly negotiating to provide specialty homebuilder brands like Portico to large homebuilders on a regional and nationwide basis. Instead of dealers making these sales pitches on a local level, Mohawk makes the sales directly by pitching Portico to builders' regional or national offices.
When Mohawk makes contract sales to large national homebuilders, it still uses its dealer network to receive and install the Portico carpet for the homebuilders. Unlike traditional sales, the contract sales to large homebuilders are actually completed by the local dealer under Mohawk's national contract. The homebuilder selects which local Mohawk approved dealer will install the carpet. Dealers sell both Mohawk and Shaw carpet.
According to Defendant, in 1998, Mohawk contracted with Watson Carpet for one of its large homebuilder contracts - Newmark Homes. After noticing that Watson Carpet consistently supported Shaw and never brought any new homebuilder business to Mohawk, Mohawk decided to not sell it any new lines of Portico carpet. (Woods Decl. at ¶ 11). Watson Carpet couldcontinue to service Newmark, but it would not receive any new homebuilder business that Mohawk generated. (Id.; Woods Depo., pp. 257-259).
In December 1998, Watson signed an agreement with Shaw to have Watson's sales of Shaw carpet produce 80% of its soft-floor covering purchases. However, according to Watson, the contract was for the purpose of participating in Shaw's rebate program. But when Watson learned that it would preclude him from participating in the FloorExpo rebate program in which Mohawk participated, the contract was quickly rescinded and Watson chose to keep participating in rebates with Mohawk rather than Shaw. (First Decl. of Watson at ¶ 11).
In December 1998, the same month Watson signed his 80% agreement with Shaw, Mohawk secured a national contract to provide Portico to Centex Homes that became effective in January 1999. Mohawk told Centex it would not sell Portico through Watson for the Nashville region. Centex instead used two other local Nashville dealers, Metro Carpets and Carpet Den, to install Mohawk's Portico carpet. According to Mohawk, this decision was made because it perceived Watson to be a Shaw dealer that would try to switch Centex from Mohawk Portico to Shaw Home Foundations. (Id.). Watson, in contrast, believed Rick McCormick ("McCormick"), the owner of Carpet Den,4 met with Defendant Mohawk's Vice President and Senior Manager, Brad Matthaidess ("Matthaidess"), and Mohawk sales representative Fred Woods ("Woods"), and devised a plan to run Plaintiff out of business and eliminate Plaintiff from the market. (Docket Entry No. 1 at ¶ 15). As part of the plan to run Plaintiff out of business, Mohawk would refuse to sell carpet to Plaintiff. By shutting off Plaintiff's carpetsupply, Plaintiff would be unable to service its homebuilder customers who used Mohawk carpet. (Id.).
Watson Carpet ultimately 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). Out of an abundance of caution, because of the allegations, Mohawk completely removed Woods from any consideration of any decisions having to do with Watson in 1999. Other than conversations relating to the previous litigation, McCormick never discussed Watson with Woods or anyone else at Mohawk at any time between 2000 and 2008. (McCormick Depo., pp. 49-50).
According to Plaintiff, during the course of the state-court litigation, Mohawk had refused to sell to Watson 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.5According to the Complaint, all three refusals were "[p]ursuant to and in furtherance of the conspiracy." (Docket Entry No. 1 at ¶¶ 32, 40, 48).
In the mid-1990s, Watson was one of the Nashville subcontractors for a company called Newmark Homes. In 2000, Watson was unable to compete on price with Carpet Den, and voluntarily dropped Newmark's carpet, hardwood, and vinyl business. In 2005, Newmark's warranty manager was James Rohling. Rohling used Watson for warranty work and tried to convince Newmark's area managers and purchasing managers - the Newmark employees who select flooring subcontractors for subdivisions - to try Watson again. (Docket Entry No. 119-14, First Decl. of Rohling, ¶ 3 - 4). Someone at Newmark approached someone at Mohawk aboutNewmark using Watson for some carpet installation. Mohawk's regional manager for Portico, Larry Brookshire ("Brookshire"), testified that Mohawk told Newmark that it would not sell Portico to Watson.
Newmark Homes had no formal company policy of using a single dealer for all flooring types (tile, carpet, hardwood, vinyl, etc.). Between 2005 and 2008 Newmark Homes was using both Watson (for tile and warranty repairs in other scopes) and Carpet Den (for other scopes of work including carpet). If Newmark was not satisfied with Mohawk's dealer selection, it had the ability to switch to using Shaw carpet, which it eventually did anyway in 2008.
In 2006, Mohawk, Shaw, and other carpet manufacturers competed to secure business from Pulte Homes, and after that competition and negotiation, Pulte entered a national agreement to only use Mohawk's Portico in Pulte subdivisions nationwide. Up until the time that Pulte entered into a national agreement with Mohawk, Watson supplied Pulte with Shaw carpet. Pulte's sales manager, Chad Nichols ("Nichols"), called Fred Woods to see if Mohawk would sell Portico thru Watson. Because Woods had been removed from any decision impacting Watson, he immediately told Nichols he could not discuss the issue with Nichols and that he would have someone else call. Ultimately, because of Mohawk's past history with Watson, Jonathan England ("England"), Mohawk' s regional manager for Portico carpet, called Nichols back and told him that Mohawk would not sell Portico to Watson. (First Decl. of Nichols at ¶ 6; England Depo., pp. 26 - 27, 38 - 39). Mohawk's contract with Pulte ended on January 1, 2011.
Watson brought a law suit against Mohawk, Carpet Den, and Rick McCormick in the United States District Court for the Middle District of Tennessee on May 27, 2009, alleging three violations of Section 1 of the Sherman Act based on the 2005 (Newmark), 2006 (Pulte), and2007 (Wieland) refusals to sell. (Docket Entry No. 1). 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 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). (Docket Entry No. 14). The Honorable Thomas Wiseman granted the motion to dismiss, holding that the claims were not time barred, but that the Complaint was not 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.6 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. Judge Wiseman granted the motion for summary judgment insofar as the settlement release applied to the 2005 and 2006 counts. However, Judge Wiseman concluded that the settlement release did not apply to the 2007 count, which took place after the parties had signed the release. Judge Wiseman also determined that the 2007 count fell within the four-year statute of limitations. Judge Wiseman dismissed the 2007 count against Carpet Den and McCormick for failure to state a claim.
Watson Carpet filed a motion for consideration, to which Judge Wiseman denied. Watson Carpet appealed to the Sixth Circuit Court of Appeals. Carpet Den and McCormick cross-appealed Judge Wiseman's determination that the settlement agreement did not bar the 2007 count. The Sixth Circuit reversed the dismissal of the Complaint and held that Watson Carpet adequately stated a claim for relief. With respect to the...
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