The opinion of the court was delivered by: BROWN
This matter comes before the Court on the motions of defendants, Navistar International Transportation Company ("NITC"), Navistar Financial Corporation ("NFC") and Harco National Insurance Company ("Harco"), for summary judgment pursuant to FED. R. CIV. P. 56. Also before the Court is the motion by plaintiff Coast Cities Truck Sales, Inc. ("Coast Cities") for summary judgment on Count VI of the Second Amended Complaint. Additionally, counterclaim plaintiffs NFC and Harco seek summary judgment on Counts I and II of the Counterclaims, against counterclaim defendants Coast Cities Leasing, Inc., Douglas M. Gallagher, Arlene Gallagher, Thomas Gallagher and Dorothy A. Gallagher. For the reasons set forth in this Memorandum Opinion, the Court will grant defendants' motions for summary judgment against Counts I, II, III, IV, V, VII and VIII of the Second Amended Complaint, and will grant summary judgment in favor of counterclaim plaintiffs NFC and Harco on Counts I and II of the Counterclaims. As to Count VI of the Second Amended Complaint, which alleges that NITC violated the New Jersey Franchise Practices Act, the Court will deny the parties' cross-motions for summary judgment, and will abstain from adjudication of this matter pursuant to Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496, 85 L. Ed. 971, 61 S. Ct. 643 (1941).
Plaintiff Coast Cities has been a dealer of medium- and heavy-duty trucks for over thirty years, primarily serving central New Jersey. Defendant NITC assembles and sells medium-duty and heavy-duty trucks, sold under the "International" trademark, on a nationwide level. Defendant NFC is a wholly owned subsidiary of NITC that provides wholesale financing to NITC dealers and retail financing to retail purchasers of NITC dealers. Harco National Insurance Company is a wholly owned subsidiary of NFC that provides commercial insurance to truck dealers, and casualty and liability insurance to motor vehicle owners and operators.
Coast Cities was an authorized dealer of International trucks from 1962 to 1992. From 1980 to 1988, Coast Cities enjoyed tremendous success from its sales of new and used trucks, parts and warranty services. Its revenues climbed from $ 4.003 million in 1980, to $ 20.765 million in 1988. Between 1988 and 1991, however, the company's sales revenues sharply declined, falling to $ 6.614 million in 1991. The dropoff in revenue seemed to stem exclusively from the decline in truck sales, which declined dramatically from $ 18.587 million in 1988 to $ 7.968 million in 1990, rather than from parts and service sales, which increased from $ 2.177 million in 1988 to $ 2.367 million in 1990.
On November 9, 1987, NITC and Coast Cities entered into a Dealer Sales/Maintenance Agreement ("Dealer Agreement"). The Dealer Agreement provided that Coast Cities would continue as an authorized dealer of International trucks, and that Coast Cities in turn would pay for goods sold to it by NITC, in accordance with certain credit terms set by NITC and NFC. See Dealer Agreement, attached as Exh. C to Certification of Ronald J. Smith ("Smith Certif."), at 9. See also Retail Financing Agreement, attached as Exh. D to Affidavit of Robert D. Bradley ("Bradley Aff."). The Dealer Agreement also stated that NITC could terminate the agreement or place Coast Cities on cash-on-delivery ("C.O.D.") status if Coast Cities "defaulted in the payment of any obligations owing to Navistar or to any affiliate of Navistar, or upon demand fails to account for the proceeds of the sale of goods for which it is indebted to Navistar or to any affiliate of Navistar . . . ." Id. at 16. Pursuant to the Dealer Agreement, NFC maintained an Open Account, which is a running balance of credits and debits between NITC/NFC/Harco and each International dealer. Items such as accounts payments by the dealer to NITC, payments by NITC for parts and labor, payments for warranty work, and parts returns by the dealer would be posted as credits. Debits consisted of charges for goods and services purchased by the dealer from NITC. The balance due on the Open Account is payable to NFC every month.
Pursuant to the Dealer Agreement, NITC may elect to place a dealer on C.O.D. status if payment on a balance is not made by the end of the succeeding month. Id. C.O.D. status means that the dealer loses all credit privileges and that all purchases from NITC must be for cash.
Coast Cities' problems with falling revenues began to manifest in 1989. On July 21, 1989, NFC informed Coast Cities that the payable balance on its Open Account was $ 186,991.06, and warned that it would place Coast Cities on C.O.D. status unless the balance was completely satisfied by August 4, 1989. Smith Certif. Exh. A. On November 15, 1989, NFC advised Coast Cities that the latter had been placed on C.O.D. status, because two checks Coast Cities submitted to NFC, for a total of $ 59,208.88, had been returned for insufficient funds. Coast Cities was removed from C.O.D. status on February 27, 1990. Affidavit of Robert D. Bradley ("Bradley Aff.") P 15. On May 9, 1990, NFC again placed Coast Cities on C.O.D. status, until May 17, 1990. Id. P 16. On July 2, 1990, NFC again placed Coast Cities on C.O.D. status, until July 18, 1990. Id. P 17. On February 25, 1991, NFC again placed Coast Cities on C.O.D. status because of an Open Account balance of $ 218,448.75 and because two checks remitted by Coast Cities, in the amount of $ 80,000.00, had been returned for insufficient funds. See Exh. C to Bradley Aff. On April 29, 1991, Coast Cities' financier, Associates Commercial Corporation ("Associates"), advised NITC that a federal tax lien had been imposed against the dealership, and that Associates consequently had suspended wholesale and retail financing for Coast Cities. Smith Certif. Exh. B.
As of May 20, 1991, Coast Cities' Open Account balance was $ 196,712.86. On that date, NITC told Coast Cities that the latter's indebtedness to NFC constituted a breach of the Dealer Agreement, and gave Coast Cities thirty days within which to cure the breach. NITC also advised Coast Cities that failure to cure the breach would result in termination of the Dealer Agreement. On June 10, 1991, Coast Cities requested from NITC an additional 120 to 180 days to cure the breach. Ultimately, the parties agreed to extend the cure period to October 20, 1991.
However, Coast Cities' fiscal problems worsened. On October 22, 1991, NFC informed Coast Cities that its Open Account balance was approximately $ 300,000.00, and that NFC intended to pursue legal action. Coast Cities responded that it had retained an accounting firm to determine its business viability and that a formal report would be completed by November 25, 1991. NITC then agreed to extend the cure period, contingent upon Coast Cities submitting monthly financial and operating statements and a specific business plan by December 1, 1991. Smith Certif. Exh. K.
On January 13, 1992, NITC was advised that another tax lien had been filed against Coast Cities, and that Associates had again suspended Coast Cities' floor plan financing. Id. Exh. M. As of February 21, 1992, Coast Cities had not responded to NITC's January 3, 1992 request to discuss particulars of the business plan. Consequently, NITC notified Coast Cities that it was terminating the Dealer Agreement, effective April 27, 1992. Id. Exh. N. NITC asserts that the termination was due to Coast Cities' Open Account balance of $ 122,803.59, and miscellaneous debts totalling approximately $ 31,100.32. Id. See also Bradley Aff. P22.
Coast Cities sought to enjoin termination of the Dealer Agreement by filing a Complaint before this Court on February 25, 1992, and an application for injunctive relief on April 10, 1992. See Exh. P to Affidavit of Ezra D. Rosenberg ("Rosenberg Aff."), at 2-8 to 2-13; 2-25 to 3-5. The parties agreed to suspend actual termination of the Dealer Agreement pending the Court's decision on Coast Cities' application. Id. at 3-12 to 3-22. On May 14, 1992, the Court denied Coast Cities' application for injunctive relief. Id. at 24-20 to 25-25. The Dealer Agreement was therefore terminated. Coast Cities then filed for protection under Chapter 11 of the Bankruptcy Code, and brought an adversary action against NITC, again seeking injunctive relief to revive the Dealer Agreement. Specifically, Coast Cities sought declaratory judgment that the Dealer Agreement was an existing executory contract under 11 U.S.C. § 365, or in the alternative, recovery of the Dealer Agreement under 11 U.S.C. § 548 as a "fraudulent transfer."
The bankruptcy court issued temporary restraints and a preliminary injunction against NITC on July 6, 1992 and September 2, 1992, which essentially compelled NITC to continue to perform under the Dealer Agreement. However, this Court reversed the decision of the bankruptcy court on December 2, 1992. See In re Coast Cities Truck Sales, Inc., 147 Bankr. 674 (D.N.J. 1992). The United States Court of Appeals for the Third Circuit subsequently affirmed this Court's December 2, 1992 decision. See In re Coast Cities Truck Sales, Inc., 5 F.3d 1488 (3d Cir. 1993).
NITC competes on a nationwide level against several other manufacturers and assemblers of medium- and heavy-duty trucks, including Paccar (manufacturer of the Peterbilt and Kenworth brands), Freightliner, Volvo/White/GMC, Ford and Mack. Additionally, foreign manufacturers such as Mitsubishi, Isuzu, Nissan and Hino compete in the medium-duty truck market. Affidavit of Wayne Krzysiak P4. NITC has held between 25.4% and 29.9% of the market since 1981, while Ford has held between 15.8% and 24.4% and GMC has held between 10% and 23.4% of the market. Id. P 5. NITC avers that its trucks do not differ substantially from those of its competitors in terms of intended uses and the types of customers, but that a manufacturer's or assembler's success in the market depends on comparative features and prices, the proximity of the dealer, and the services they offer. Id. P 6.
NITC's nationwide distribution network is organized into five regional offices. Id. P 8. It uses the same Dealer Agreement for all dealers, and thus allows each authorized International dealer to use the tradename to sell new trucks, parts and warranty services. Id. P 9.
There are currently 400 International dealers. Id. P 10. Approximately 380 of these dealers are "private capital" dealers, which means that the dealerships are wholly owned and operated by individuals who, except for the Dealer Agreement, are not affiliated with NITC. Approximately sixteen of the other dealers are "dealcors." Id. A dealcor is an International dealership that is initially owned and funded entirely by NITC, and supervised in its daily operations by a private manager. Id. P 12. NITC retains ownership of all voting shares in the dealcor, while the manager is allotted a limited number of non-voting shares. Id. However, the manager usually has the option, or even a contractual obligation, of applying bonuses, which are based on the dealcor's profits, toward buying out NITC's interest in the dealcor. Id. NITC's predecessor, International Harvester, first established dealcors in 1956 to maintain a market presence in areas it considered potentially lucrative, but for which it was unable to find a private capital dealer. Id. P 13. The dealcors have also served as a means by which NITC can revive a previously financially failed dealership. Id.
NITC estimates that it has established approximately 300 dealcors. Id. P 14. "Of the approximately 400 private capital dealers in existence today, 100 of them were once dealcors." Id. NITC asserts that it now seeks to establish private capital dealerships rather than dealcors, and that it is likely to create a dealcor only if necessary to replace a financially failed dealership. Id. P 16. For example, NITC asserts, it is currently looking for a private capital dealer to replace Coast Cities and Faulkner International in Philadelphia, Pennsylvania, and will resort to establishing dealcors only if its searches are unsuccessful. Id. P 20.
NITC's presence in New Jersey has fluctuated over the past twenty years. While NITC at one time had thirty International dealerships in the state, it presently has six.
Moreover, while there were six factories in New Jersey in the 1970s, all of these had closed by 1994.
In New Jersey, the major fleet accounts consist of the State of New Jersey, National Freight, Biddle, RJR Nabisco, APA Leasing and Airco Gases. Affidavit of Michael Cancelliere P 7. NITC asserts that some sales to fleet accounts in New Jersey benefitted Coast Cities, because NITC gave monetary credits, called "Fleet Leader Credits," to the dealer in whose area of responsibility ("AOR") the national fleet account was headquartered and to the dealer in whose AOR the new trucks were delivered. See Rosenberg Aff. Exh. B. Therefore, Coast Cities would receive full fleet leader credits for sales to fleet accounts headquartered in Monmouth or Ocean County, if the trucks were delivered there, and would receive partial fleet leader credits if the fleet account was not headquartered in its AOR, but the trucks were delivered there.
Although NITC manufactures some of its own parts, it purchases most of the parts used in the assembly of trucks from hundreds of component manufacturers pursuant to non-exclusive licenses. NITC sells its parts wholesale to both private capital dealers and dealcors, which sell parts to end-users. Affidavit of Stephen Koch ("Koch Aff.") P 3. NITC also sells a small percentage of total parts directly to retail customers such as national fleet accounts and original equipment manufacturers. Id. There also exists a significant aftermarket-- i.e., manufacturers and distributors of replacement parts other than the original manufacturer -- for parts compatible with International trucks. Rosenberg Aff. Exh. B. In other words, the numerous manufacturers of parts sold to NITC also sell those parts to other distributors. Id. These observations reflect that many truck components and parts are interchangeable among different brands of trucks. Koch Aff. P 4.
NITC itself does not sell or provide warranty repair services. Instead, it remunerates its dealers, both private capital and dealcors, for performing warranty repair services. Krzysiak Aff. P 29. It is apparent that International customers requiring warranty repair work are most likely to bring the vehicle to the nearest authorized International dealer. See, e.g., Rosenberg Aff. Exh. B. But if a dealer is placed on C.O.D. status, and therefore can not obtain necessary parts within a reasonable time period, the customer may have to bring the vehicle to another dealer.
NITC sells its trucks to dealers at the same list prices nationwide. Dealers may seek, however, discounts from the list price by providing the identity of the prospective customer and the number and types of vehicles to be sold. These discounts are collectively termed "Special Price Assistance" ("SPA"), and NITC will provide the same SPA to any other dealers attempting to reach that same deal, regardless of the dealers' locations. See Krzysiak Aff. P 34.
The list prices at which NITC sells parts are also the same for all dealers nationwide. NITC does, however, negotiate separate deals for parts sold to certain fleet accounts, depending on the volume of parts purchased. NITC dealers also sell parts to the national fleet accounts at prices not to exceed the prices at which NITC charges the fleet accounts. Additionally, NITC dealers may seek SPA on parts sales. SPA on parts is provided to all dealers on the same basis, and again is contingent on the volume and types of parts to be sold. Koch Aff. P 8.
While there is no dispute that Coast Cities sold International new and used trucks and parts, and provided warranty repair services for which it was remunerated by NITC, the parties disagree as to the relevant product market. Plaintiff offers several inconsistent theories,
but essentially argues in each that NITC product by itself constitutes the relevant market. Defendant NITC disputes this definition, and contends that it competes with other manufacturers, including Ford, GMC, Paccar, and other national and international truck manufacturers and assemblers. The parties also disagree on the relevant geographic market of Coast Cities. Initially, Coast Cities' AOR consisted of all of Ocean County, New Jersey and southern Monmouth County, New Jersey. Rosenberg Aff. Exh. B. By the mid-1980s, NITC had closed or otherwise terminated two dealerships, L & H Truck Sales in Lakewood, New Jersey and Schwartz International in Red Bank, New Jersey, and assigned those areas to Coast Cities. See id. Thus, from 1986 until termination of the Dealer Agreement in 1992, Coast Cities' AOR consisted of the entirety of Monmouth and Ocean Counties. See id. See also Krzysiak Aff. P 12.
Defendants assert that during throughout the 1980s and until termination of the dealership, Coast Cities rarely competed outside of its AOR with other International dealers. Moreover, defendants aver that the Court can not look solely to New Jersey as the relevant geographic market, because NITC, the alleged antitrust infringer, competes with other manufacturers and assemblers of trucks and parts on a nationwide basis. Plaintiff asserts, however, that its relevant geographic market included all of Central and Southern New Jersey, because given the location of other authorized International dealers in New Jersey and Pennsylvania, prospective purchasers in the central and southern parts of New Jersey (in addition to Ocean and Monmouth Counties) and the surrounding Pennsylvania regions, would look to Coast Cities to buy International trucks and parts. Thus, while defendants characterize the relevant market on a nationwide level, and limit Coast Cities' scope to its AOR of Ocean and Monmouth Counties, plaintiff asserts that its scope expanded well beyond Monmouth and Ocean Counties, to include all of Central and Southern New Jersey, but that it would be erroneous to consider the relevant geographic market on a national level because its customers did not purchase International products nationally.
Other facts germane to the state law claims brought by plaintiff are discussed as necessary to resolve each of Counts III through VII. Similarly, the facts relevant to adjudication of the counterclaims are discussed in section II(J) of the Memorandum Opinion.
Count I of the Complaint alleges that defendants conspired to restrain trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 et seq. Second Amended Complaint PP 37-38. Count II of the Complaint alleges that defendants monopolized, attempted to monopolize and conspired to monopolize trade in violation of § 2 of the Sherman Act. Id. PP 40-43. Count III alleges that defendants deliberately interfered with plaintiff's contractual relations with its existing customers, and deprived plaintiff of the prospective economic advantages to be gained therefrom. Id. PP 45-50. This count further alleges that defendants conspired and acted to drive plaintiff out of business by: (1) allowing special bidding benefits to other Navistar dealers that were not provided to plaintiff in bidding for the business of General Engines and Sanitation Equipment; (2) instructing long-time Coast Cities customers, including Laidlaw and Consolidated Waste Company, to take their warranty repair work to "Navistar-invested dealerships"; (3) "causing plaintiff to finance its customers [sic] purchases of trucks with [NFC] and then refusing to do further business with plaintiff," thereby increasing plaintiff's limited liability penalty from 5% to 15%; (4) providing superior financing terms for plaintiff's customers, including Matthews Bus, for doing business with plaintiff's competitors, thereby preventing plaintiff from completing its contract with Matthews Bus; (5) refusing to issue bid and performance bonds to plaintiff, despite NFC's knowledge that plaintiff needed them and NFC's practice of providing such bonds to other dealerships under similar financial circumstances; (6) allowing Faulkner, Mid-Atlantic and Garden State to take repossessed vehicles to their own lots, thus allowing the dealerships to resell them before having to either pay the limited liability penalty or purchase the trucks outright, without affording plaintiff the same opportunity; (7) prohibiting plaintiff from purchasing trucks repossessed from its customers, but then selling those trucks to other dealers for less money than plaintiff could have sold them to willing customers; and (8) dissuading prospective customers from purchasing trucks and parts from Coast Cities, by informing those prospective customers that Coast Cities would be out of business by August 10, 1992. Id. PP 48(a)-48(i). Count IV of the Complaint alleges that defendants breached their implied contractual duties of good faith and fair dealing. Id. PP 52-54. Count V claims that defendants failed to dispose of collateral securing debts guaranteed by plaintiff, in violation of N.J.S.A. 12A:9-504. Id. PP 56, 58. This count also complains that defendants refused to allow plaintiff to redeem collateral, and that defendants subsequently sold that collateral at a price less than the amount plaintiff tendered for redemption, in violation of N.J.S.A. 12A:9-506. Id. PP 57-58. Count VI of the Complaint alleges that defendant NITC's sale of trucks directly to consumers, most notably national fleet accounts in New Jersey, violates the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 et seq. Id. PP 60-65. Count VII asserts that defendants' acts interfered with plaintiff's contractual relations, were intended to drive plaintiff out of business, constitute unfair competition, and are "a violation of established business ethics and customs in the truck dealership business." Id. PP 65-68. Finally, Count VIII seeks punitive damages pursuant to the Clayton Act, 15 U.S.C. § 15, for defendants' alleged violations of the Sherman Act.
Defendants now seek summary judgment as to each of the above claims. Additionally, defendants NFC and Harco move for summary judgment on the counterclaims, which seek judgment in the amount of $ 127,890.31, which sum they allege represents the unpaid balance on the Open Account, against Thomas Gallagher and Dorothy Gallagher. Plaintiff seeks summary judgment on Count VI of the Second Amended Complaint, which alleges that NITC has violated the New Jersey Franchise Practices Act.
The Court has original jurisdiction over plaintiff's Sherman Act claims pursuant to 28 U.S.C. § 1331 and 15 U.S.C. § 1 et seq., and over its claim for punitive damages pursuant to the Clayton Act, 15 U.S.C. § 15. It has supplemental jurisdiction over the state common law and statutory claims pursuant to 28 U.S.C. § 1367. The Court also has original jurisdiction over this action pursuant to 28 U.S.C. § 1332. Plaintiff is a corporation organized and existing under the laws of the State of New Jersey, and maintains its principal place of business in Neptune, New Jersey. Second Amended Complaint P 3. Defendant NITC is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Chicago, Illinois. Id. P 4. Defendant NFC is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Rolling Meadows, Illinois. Id. P 5. Defendant Harco is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Rolling Meadows, Illinois. Id. P 6.
A. STANDARDS FOR SUMMARY JUDGMENT
Summary judgment may be granted only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In a summary judgment motion, the non-moving party receives the benefit of all reasonable doubts and any inferences drawn from the underlying facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). If the non-moving party bears the burden of proof at trial as to a dispositive issue, Rule 56(e) requires him to go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324; Schoch v. First Fidelity Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990). Issues of material fact are genuine only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Additionally, Rule 56(e) requires that "plaintiff . . . must point to admissible evidence that would be sufficient to show all elements of a prima facie case under applicable substantive law." Clark v. Modern Group Ltd., 9 F.3d 321, 326 (3d Cir. 1993). There is, of course, no heightened standard for a plaintiff to survive a defendant's motion for summary judgment in the context of Sherman Act claims. See Eastman Kodak Co. v. Image Technical Service, Inc., 504 U.S. 451, 468-69, 119 L. Ed. 2d 265, 112 S. Ct. 2072 (1992); Advo, Inc. v. Philadelphia Newspapers, Inc., 51 F.3d 1191, 1195-97 (3d Cir. 1995).
B. COUNT I: SECTION 1 OF THE SHERMAN ACT
Section 1 of the Sherman Act provides in relevant part as follows: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C.A. § 1 (West 1973). The Sherman Act targets activity that adversely affects competition, not competitors. Brown Shoe Co. v. United States, 370 U.S. 294, 329, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962). See NCAA v. Board of Regents of University of Oklahoma, 468 U.S. 85, 107, 104 S. Ct. 2948, 82 L. Ed. 2d 70 (1984) (describing Sherman Act as a "'consumer welfare prescription'") (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 343, 60 L. Ed. 2d 931, 99 S. Ct. 2326 (1979)); Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 53 n.21, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977) ("An antitrust policy divorced from market considerations would lack any objective benchmarks."). See also J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1541 (3d Cir. 1990), cert. denied, 499 U.S. 921, 113 L. Ed. 2d 246, 111 S. Ct. 1313 (1991) ("'The Supreme Court has recognized that the price discrimination that results where buyers seek competitive advantage from sellers encourages the aims of the Sherman Act . . . while appellants point to injury to their particular business, they do not make the necessary showing of a substantially adverse effect on competition in the record market in general' to sustain a Sherman Act claim.") (quoting Zoslaw v. MCA Distributing Corp., 693 F.2d 870, 887 (9th Cir. 1982), aff'd in part and rev'd in part, 460 U.S. 1085 (1983)).
There are four elements to a Sherman Act § 1 violation:
(1) that the defendants contracted, combined or conspired among each other; (2) that the combination or conspiracy produced adverse anti-competitive effects within the relevant product and geographic markets; (3) that the objects of the conduct pursuant to that contract or conspiracy were illegal; and (4) that the plaintiffs were injured as a proximate result of that conspiracy.
Tunis Bros. Co. v. Ford Motor Co., 763 F.2d 1482, 1489 (3d Cir. 1985), vacated, 475 U.S. 1105, on remand, 823 F.2d 49 (1987), cert. denied, 484 U.S. 1060 (1988). See also Big Apple BMW, Inc. v. BMW North America, Inc., 974 F.2d 1358, 1364 (3d Cir. 1992), cert. denied, 507 U.S. 912, 122 L. Ed. 2d 659, 113 S. Ct. 1262 (1993) ("a plaintiff must prove 'concerted action,' a collective reference to the 'contract . . . combination or conspiracy'") (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434, 445 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 55 L. Ed. 2d 791, 98 S. Ct. 1280 (1978)).
1. The "Plurality of Actors" Requirement as to NITC, NFC and Harco
Defendants first contend that plaintiff's § 1 claim must fail because a corporation can not conspire with its wholly owned subsidiary to violate § 1 of the Sherman Act. Therefore, defendants conclude that NITC could not possibly conspire with NFC, its wholly owned subsidiary, or with Harco, the wholly owned subsidiary of NFC.
Defendants rely on the Supreme Court's decision in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984) and the Third Circuit's decision in Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 999 (3d Cir. 1994), cert. denied, 131 L. Ed. 2d 556, 115 S. Ct. 1691 (1995). In Copperweld, the United States Supreme Court held that a corporation and its wholly owned subsidiary, as well as a corporation and an unincorporated division, must be viewed as a single entity for purposes of § 1 of the Sherman Act, and therefore can not conspire with each other.
Copperweld Corp., 467 U.S. at 770-71. The Court noted that unlike concerted conduct among otherwise independent entities, which presents substantial anticompetitive risk and is therefore closely scrutinized by the Sherman Act, the internally coordinated conduct of a parent and its subsidiary presents no such risk because that conduct is basically assumed by one actor pursuing the economic interests of a single firm. The Court stated as follows:
Although this Court has not previously addressed the question, there can be little doubt that the operations of a corporate enterprise organized into divisions must be judged as the conduct of a single actor. . . . A division within a corporate structure pursues the common interests of the whole rather than interests separate from those of the corporation itself. . . . Because coordination between a corporation and its division does not represent a sudden joining of two independent sources of economic power previously pursuing separate interests, it is not an activity that warrants § 1 scrutiny.
The Court observed that the parent and its subsidiary "have a complete unity of interest[,]" including common objectives arising from the same corporate mission. 467 U.S. at 771. The Court further stated as follows:
Indeed, the very notion of an "agreement" in Sherman Act terms between a parent and a wholly owned subsidiary lacks meaning. A § 1 agreement may be found when the "conspirators had a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement." American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S. Ct. 1125, 1139, 90 L. Ed. 1575 (1946). But in reality a parent and a wholly owned subsidiary always have a "unity of purpose or a common design." They share a common purpose whether or not the parent keeps a tight rein over the subsidiary; the parent may assert full control at any moment if the subsidiary fails to act in the parent's best interests.
467 U.S. at 771-72. Therefore, to establish a violation of § 1 of the Sherman Act, plaintiff must provide evidence that two or more distinct entities conspired or combined to take anticompetitive action against it. Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1131 (3d Cir. 1995) (citing Weiss v. York Hospital, 745 F.2d 786, 813 (3d Cir. 1984), cert. denied, 470 U.S. 1060, 84 L. Ed. 2d 836, 105 S. Ct. 1777 (1985)).
This standard compels the Court to dismiss plaintiff's § 1 conspiracy claims against defendants. The defendants to this action are NITC, NFC and Harco. It is undisputed that Harco is a wholly owned subsidiary of NFC, which is a wholly owned subsidiary of NITC. Pursuant to the express mandate of Copperweld, the intra-corporate conspiracy doctrine can not apply to render these entities liable for conspiracy to violate § 1 of the Sherman Act. See also Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 999 (3d Cir. 1994), cert. denied, 131 L. Ed. 2d 556, 115 S. Ct. 1691 (1995).
Plaintiff asserts in opposition that it did not intend to limit Count I to the named defendants, but that Count I is most properly read to include the dealcors. Plaintiff states as follows:
The Defendants simply misread the Complaint in reaching the conclusion that the alleged conspiracy involves only the three Defendant affiliates. Since manufacturers are prohibited under New Jersey law from selling directly to customers, it was necessary for Navistar to effectuate the creation of the Dealcors to assist it in carrying out its scheme. Therefore, the Complaint alleges that (1) the Defendants and (2) the two Dealcors and (3) the two independent principals/operators of the Dealcors conspired to accomplish their unlawful scheme of driving Coast Cities out of business.
Plaintiff's Brief in Opposition to Defendant NITC's Motion for Summary Judgment at 34 (citing Second Amended Complaint P 24) (emphasis in original).
The pitfalls inherent in this reasoning are legion. Most significant, however, is that the Second Amended Complaint neither pleads the dealcors as defendants, nor alleges that they conspired with defendants to violate the Sherman Act. The single provision of the Second Amended Complaint upon which plaintiff relies states as follows:
Commencing sometime in 1980, the exact date being unknown to plaintiff Coast Cities, Navistar, in combination and conspiracy with all of the other defendants, began a campaign to monopolize the market for the retail sale of Navistar trucks, truck parts and repair services for Navistar trucks in the relevant geographic market.
Second Amended Complaint P 24. Within Count I itself, plaintiff pleads as follows:
Navistar's campaign to monopolize the market for the retail sale of Navistar trucks and truck parts and repair services for Navistar trucks, and the knowing participation of Navistar's co-defendants in the campaign of consolidation, are a conspiracy of consolidation, are a conspiracy and combination of in restraint of trade producing adverse anti-competitive effects within the relevant market in violation of Section 1 of the Sherman Anti-trust Act.
Id. P 37. Similar provisions impugning the conduct of NITC and its co-defendants, but not that of the dealcors or other dealerships, appear throughout the Second Amended Complaint. See, e.g., id. P 23 ("Commencing sometime in 1980 . . . Navistar, in combination and conspiracy with all other defendants, began a campaign to restrain trade in the markets for the retail sale of Navistar trucks, truck parts and repair services . . . ."); id. P 25 ("Navistar has attempted to drive Coast Cities and other privately-financed [sic] independent dealerships out of business by discriminating against them . . . .").
While plaintiff correctly asserts that the non-moving party is entitled to the benefit of all reasonable doubts and any inferences drawn from the underlying facts, its chameleon-like, eleventh-hour reinterpretation of its third version of the Complaint does not create a factual issue, and can not resuscitate an inadequately pleaded claim equally subject to dismissal pursuant to FED. R. CIV. P. 12(b)(6). The Complaint, viewed in any of its three versions, is wholly bereft of any allegation that the dealcors were actors in the alleged § 1 conspiracy, but instead repeatedly pleads that the conspiracy was solely among the co-defendants.
Moreover, even if the Second Amended Complaint had properly pleaded the dealcors as participants in the conspiracy, there is substantial precedent for the conclusion that they still could not have conspired with defendants. Although the Court in Copperweld limited its holding to parents and wholly owned subsidiaries, it instructed courts to examine the substance, rather than the form, of economic arrangements to determine the possibility for an intra-corporate conspiracy. Copperweld, 467 U.S. at 772-73. Since that decision, several courts have concluded that subsidiaries that are not wholly owned nevertheless can not be actors in conspiracy with their majority owners. See, e.g., Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1132-34 (3d Cir. 1995); Williams v. I.B. Fischer Nevada, 999 F.2d 445, 447 (9th Cir. 1993) ("To be capable of conspiring, corporate entities must be 'sufficiently independent of each other.' Whether corporate entities are sufficiently independent requires an examination of the particular facts of each case. . . . The evidence cited by the district court clearly demonstrates that [the franchisor and franchisee] comprise a common enterprise.'") (citations omitted); Bell Atlantic Business Systems Services v. Hitachi Data Systems Corp., 849 F. Supp. 702, 706 (N.D. Cal. 1994) (parent corporation can not conspire with subsidiary of which it owned 80%); Novatel Communications, Inc. v. Cellular Tele. Supply, Inc., No. C85-2674A, 1986 WL 15507 (N.D. Ga. Dec. 23, 1986) (parent corporation and subsidiary, of which parent owned 51%, could not conspire, as the "51% ownership retained by [the parent] assured it of full control over [the subsidiary] and assured it could intervene at any time that [the subsidiary] ceased to act in its best interests").
The Third Circuit's recent decision in Siegel Transfer, Inc. is instructive. In that case, plaintiffs were a motor contract carrier and companies leasing trucks and drivers to carriers. They alleged several separate conspiracies, including: (1) among Bethlehem Steel and its subsidiary, the Philadelphia Bethlehem and New England Railroad, of which Bethlehem Steel owned 99.92%; and (2) among Carrier Express, also a motor carrier, Carrier Express's agents, and Oak Management Inc., which managed the operations of Carrier Express and other motor carriers. Siegel Transfer, Inc., 54 F.3d at 1133-35. Heeding Copperweld's directive to examine the substance of the arrangement to determine whether there is unity of purpose or concerted action, the Third Circuit first held that the "plurality of actors" element of § 1 was not satisfied. The Third Circuit found that "although Bethlehem Steel did not own .08% of the Railroad's stock, the difference between its 99.92% ownership and the 100% ownership in Copperweld is de minimus." Id. at 1133. The Third Circuit concluded that by owning 8993 of the subsidiary's 9000 outstanding shares of stock, Bethlehem Steel maintained complete control over the Railroad. Id.
The Third Circuit reached a similar conclusion after scrutinizing Carrier Express's relationship with Oak Management. The court first observed that Oak Management had formally agreed to manage Carrier Express's daily operations, which conferred upon the former a contractual duty to safeguard and promote Carrier Express's economic interests. Id. Moreover, the court found that because Oak Management's fee was a percentage of Carrier Express's revenue, Oak Management's financial success was directly tied to that of Carrier Express. Id. "Hence, Carrier Express and Oak Management constituted one economic unit[,]" and could not conspire with each other under § 1. Id.
Copperweld and Siegel Transfer thus teach that § 1 of the Sherman Act focuses on concerted activity among otherwise independent actors. Courts examining the substance, rather than the form of the economic arrangement, may initially engage in a bright-line analysis of whether a subsidiary is wholly owned. However, if the subsidiary is not wholly owned, the court's inquiry does not end there. Instead, a court must next determine whether the parent and subsidiary are inextricably intertwined in the same corporate mission, are bound by the same interests which are affected by the same occurrences, and exist to accomplish essentially the same objectives. For example, a parent that does not wholly own a subsidiary but nevertheless asserts total dominion over its actions, by way of management control, contractual obligations, economic incentives, or otherwise, is probably incapable of conspiring with that subsidiary for purposes of § 1 of the Sherman Act. Williams, 999 F.2d at 447.
In this case, it is evident that NITC maintained nearly complete control over the two relevant dealcors, Mid Atlantic and Faulkner, and that those dealcors success was inextricably linked to that of NITC. First, NITC has owned all of the voting shares of Mid Atlantic since its inception in 1991. See Krzysiak Aff. P 26. NITC also owned all of the voting shares of Faulkner from its inception until July, 1991, when it owned 70% of the voting shares of Faulkner/Freedom, which changed in 1994, when NITC resumed total 100% ownership of the voting shares. Id. PP 23-24. Hence, by definition, NITC has owned at all relevant times enough of the voting shares in each dealcor to dictate the objectives and actions of each dealcor. Of course, NITC also has a substantial interest in the success of each dealcor, insofar as NITC incurs nearly all of the risks and startup costs in creating a dealcor. See supra page 6. For example, since 1991, it has invested approximately $ 2.8 million in Mid Atlantic. Krzysiak Aff. P 27.
That NITC and the dealcors have unified economic objectives and the same corporate purpose is manifest. As in Siegel Transfer, NITC's interests and those of the dealcors are closely knit and mutually dependent. NITC creates dealcors to serve its own purpose of either expanding the distribution of International product into potentially lucrative geographic areas, or of retaining a dealership in a particular area. See supra page 6 (citing Krzysiak Aff. P 13). Therefore, NITC relies on the dealcors, as well as the dealerships, to promote its own market presence against stiff competition from Ford, GMC and other manufacturers and assemblers.
On the other hand, a dealcor president presumably buys into the dealership with the expectation that it will succeed and that he will ultimately buy out NITC's shares. Whether he actually does so is contingent on the dealcor's performance, and the bonus allocated him by NITC. See supra page 6. Clearly, then, the economic objectives of NITC and the dealcors are nearly identical, and vary only to the extent that NITC's focus is national, while a dealcor's presumably is more regional.
Some modicum of independence might be found in the dealcor president's duty of running its daily operations. However, the dealcor itself is administered by a three-person board of directors, of which the dealcor president is a member. The board reports to NITC's Vice President for Dealer Operations, who reports to NITC's Group Vice President for Sales and Distribution. Krzysiak Aff. P 14. This corporate governance structure, coupled with NITC's retention of all or, at times, most, voting shares, makes it difficult to discern in this chain of command such independence as to materially distinguish the case sub judice from the facts of Siegel Transfer or Pink Supply.8 It follows that these shared objectives, as well the restrictive administrative control that NITC exercises over the dealcors, simply do not allow for the concerted, anti-competitive action contemplated by § 1 of the Sherman Act.
Accordingly, the Court concludes that defendants and the dealcors lacked the capacity to conspire with defendants in violation of § 1 of the Sherman Act.
3. The Relevant Product Market
The Court also must dismiss Count I in the absence of a relevant product market within which the alleged antitrust conspiracy or conduct could have occurred. At the outset of this section, the Court rejects plaintiff's suggestion that a genuine issue of material fact exists if plaintiff and defendant are unable to agree on a relevant product or geographic market, or if plaintiff is unable to define the parameters of the market. See Plaintiff's Brief in Opposition at 12. This proposition overemphasizes earlier courts' reluctance to grant summary judgment in complex antitrust cases, and is a misreading of the Rule 56 standard in the wake of Matsushita and Celotex. See, e.g., Town Sound and Custom Tops v. Chrysler Motors, 959 F.2d 468, 481 (3d Cir. 1991), cert. denied, 506 U.S. 868, 121 L. Ed. 2d 139, 113 S. Ct. 196 (1992) ("The plaintiffs nonetheless contend that the definition of the tying product market and the existence of market power therein are issues of fact that we should not weigh and should leave to the jury to decide. The question of market power is certainly dependent on factual findings, and some older cases did state that summary judgments against plaintiffs are particularly disfavored in complex antitrust cases. . . . But many courts, including the Supreme Court, have more recently held defendants entitled to summary judgment in antitrust cases. . . . It may be that because antitrust cases are so factually intensive that summary judgment occurs proportionately less frequently there than in other types of litigation, but the standard of F.R.C.P. remains the same."). In any event, the Court concludes that there is no genuine factual issue as to the relevant product market. As explained infra, the relevant product market, for purposes of this motion, consists of medium- and heavy-duty trucks, parts and warranty services.
Defining the market for purposes of antitrust claims requires defining the relevant product market and then the relevant geographic market. To determine the relevant product market, the Court must examine which commodities are "reasonably interchangeable by consumers for the same purposes." United States v. E.I. duPont de Nemours & Co., 351 U.S. 377, 395, 76 S. Ct. 994, 100 L. Ed. 1264 (1956); Fineman v. Armstrong World Indus., 980 F.2d 171, 189 (3d Cir. 1992), cert. denied, 507 U.S. 921, 122 L. Ed. 2d 677, 113 S. Ct. 1285 (1993). Defining the relevant product market calls into consideration factors such as price, use and qualities. Tunis Bros. Co., 952 F.2d at 722 (citing E.I. duPont de Nemours & Co., 351 U.S. at 404). "Accordingly, the products in a relevant market product would be characterized by a cross-elasticity of demand, in other words, the rise in the price of a good within a relevant product market would tend to create a greater demand for other like goods in that market." 952 F.2d at 722. See also E.I. duPont de Nemours & Co., 351 U.S. at 395 ("In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that 'part of the trade or commerce' monopolization of which may be illegal."); Fineman, 980 F.2d at 198-99 (quoting Tunis Bros. Co., 952 F.2d at 722). Additionally, submarkets may exist within the general product market. See, e.g., Brown Shoe Co., 370 U.S. at 325 (Submarket may exist where "such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.").
It is plaintiff's burden to define the market. See Pastore v. Bell Telephone Co. of Pennsylvania, 24 F.3d 508, 512 (3d Cir. 1994); Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 726 (3d Cir. 1991), cert. denied, 505 U.S. 1221, 112 S. Ct. 3034, 120 L. Ed. 2d 903 (1992). In this case, plaintiff offers three inconsistent explanations of the relevant product market. See supra note 4. First, it asserts that a separate individual product market exists for each of the following: (1) new International trucks; (2) used International trucks; (3) warranty and non-warranty service of International trucks; and (4) International parts. Plaintiff's Brief in Opposition to Defendants' Motion for Summary Judgment at 6. Second, plaintiff insists that these four components collectively comprise the relevant product market. See id. at 17. See also id. at 11 (citing Second Amended Complaint P 37). In this version of the relevant product market, plaintiff maintains that NITC products constitute their own market. Finally, plaintiff maintains that the relevant product market is NITC products as marketed with the "superior business skills" of Coast Cities. See, e.g., id. at 23.
First, for purposes of this motion, there is no reason to treat new International trucks as a product market distinct from parts or warranty service. The allegations underlying plaintiff's claims certainly treat new trucks, parts and warranty service as one market, insofar as the Second Amended Complaint does not plead distinct instances of Sherman Act violations as to parts sales and distribution. Moreover, NITC dealers are authorized to sell new trucks and parts, and to offer warranty services. Indeed, the parties agree that NITC warranty services are not a separate market from its trucks and parts, because customers generally base their purchase choices of trucks on the "whole package," including the truck itself, the comparative features and costs attendant to the truck, the warranty service package offered with it, and the location of the dealer. Douglas Gallagher, founder of the Coast Cities dealership, testified as follows:
Q. Now, based upon your experience in the business, what typically did the customer look for when that ...