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Coalition for a Level Playing Field, L.L.C. v. Autozone

September 16, 2010

COALITION FOR A LEVEL PLAYING FIELD, L.L.C., ET AL., PLAINTIFFS,
v.
AUTOZONE, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard J. Holwell, District Judge

MEMORANDUM OPINION AND ORDER

This is a price discrimination action brought under the Robinson-Patman Act, 49 Stat. 1526, 15 U.S.C. § 13 (2006) ("Robinson-Patman" or the "Act"). Plaintiffs are solely owned auto parts stores (the colloquial "mom and pop" shops, called "jobbers" in the industry); warehouses that act as middle-men between such stores and the manufacturers of the parts they sell; and Coalition for a Level Playing Field, L.L.C., a trade association apparently formed by plaintiffs' counsel to conduct this litigation.*fn1 Defendants are parts manufacturers as well as national "big box" retail chains that they sell to, like Wal-Mart, Sam's Club, and Autozone. The complaint alleges that defendants are engaged in anticompetitive price discrimination in violation of the Robinson-Patman Act, and that through that discrimination they are: destroying competition in the United States, resulting in fewer choices, the destruction of companies such as plaintiffs that provided better service to its customers, the destruction of jobs without any equivalent job being created by the Defendant Retailers, and a steady deterioration of the nation's economy in its present direction toward third-world status if the defendants' activities are not stopped. (Second Amended and Supplemental Complaint [77] ("Compl." or "complaint") ¶ 89F.)

In support of its allegations, the complaint includes factual appendices demonstrating that these large chain stores charge low retail prices, sometimes even beating the prices that the plaintiff jobbers are charged by their wholesale middle-men distributors (some of whom are also plaintiffs). Defendants have moved to dismiss on two principle grounds: (i) because this action is precluded by Coalition for a Level Playing Field v. Autozone Inc., No. 00 Civ. 953 (E.D.N.Y., filed Feb. 16, 2000) ("Coalition I"), a nearly identical action resolved in defendants' favor by a 2004 jury verdict; and (ii) for failure to state a claim, implicating the plausible pleading requirement set forth in Bell Atlantic v. Twombly, 550 U.S. 544, 554, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007). For the reasons that follow plaintiffs' complaint is dismissed in its entirety.

I. BACKGROUND

The complaint alleges that defendants engaged in anticompetitive conduct in the market for "aftermarket" auto parts-parts, such as windshield wipers and oil filters, that are designed to be installed in a vehicle after it is manufactured. In this section, the Court describes those allegations, then outlines the procedural history of this litigation, beginning with Coalition I. Because the case is before the Court on defendants' motion to dismiss, the Court takes the well-pled factual allegations of the complaint as true and draws reasonable inferences in plaintiffs' favor. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).

A. The Complaint's Allegations

Each of the parties is, or was, involved in the auto parts industry. Plaintiffs, as noted, are 133 independent auto part distributors or retailers and a trade association, the Coalition for a Level Playing Field, L.L.C. ("Coalition"). (Compl. ¶ 6.) Coalition is a New Hampshire corporation that was formed for the purpose of "eliminating the discriminatory pricing system in the auto parts aftermarket." (¶ 3.)

The defendants include both parts manufacturers and large vertically integrated distributor-retailers. The manufacturer defendants include major U.S. parts manufacturers such as Dana Corp., Ford Motor Co., Standard Motor Products, and Cardone Industries, among others. (¶¶ 27-57A.) The retailer defendants are AutoZone, Inc., Wal-Mart Stores, Inc., Sam's West Inc. (a Wal-Mart affiliate), Advance Auto Parts, and various of their affiliates. (¶¶ 7-26A.) For convenience, the Court refers to manufacturer defendants who participate in AutoZone's "pay on scan" program as the "AutoZone defendants," and to manufacturer defendants who participate in Wal-Mart's Radio Frequency Identification ("RFID") technology development program as the "Wal-Mart defendants." More on those programs is to follow.

The auto parts market operates through two primary distribution channels: one in which wholesalers perform traditional distribution and inventory functions, and one in which vertically-integrated retailers perform those functions, as well as advertise and promote auto parts and sell at retail. Plaintiffs operate in the first distribution channel. In this channel, manufacturers sell parts to independent warehouse distributors or "WDs," who either resell the parts to end users in a two-step distribution system or sell the parts in a three-step system to a "jobber"- for example, an auto parts store or a gasoline station-that then resells the parts to end users. (See ¶¶74B, 73N.) Defendants operate in the second distribution channel. In this channel manufacturers sidestep the distributors and sell parts directly to major retailers, such as Wal-Mart or AutoZone, who in turn sell to end users. (¶ 74A.)

Whether selling to a WD in the first channel or one of the defendant retailers in the second channel, manufacturers do not sell parts on a part-by-part basis. Instead, the manufacturers enter into complex supply contracts with individual distributors and retailers through which the buyers obtain access to one or more "product lines," groups of related parts such as engine parts or batteries. (¶¶ 60A, 70L.) The contents of a product line are defined in a "blue sheet," which lists each part in the line and an undiscounted list price nominally charged to WDs. (¶ 70L.) Plaintiffs allege that the price they pay for a particular part can be calculated by reference to the blue sheet and a specific part. (¶ 94.) On the other hand the price the retailer defendants pay in the second channel is concededly the product of a complex, multivariable formula defined in a "vendor agreement" that the retailer enters into with a parts manufacturer. (¶ 95.)

Plaintiffs allege that the vendor agreements utilize a number of provisions, which are not available to them, to lower the effective net price the retailer defendants pay for auto parts. These include: early buy allowances; defective merchandise allowances, obsolescence allowances; back haul allowances; volume discounts; deferred payment agreements unrelated to the retailers defendants' creditworthiness; free trucks; private brands; unjustified deductions from invoices; rebates and other payments representing a return of all or part of the purchase price paid by the defendants for goods of the manufacturer without return of the goods; and "other fees and allowances" paid by the manufacturers to the defendant retailers and not paid to the plaintiff WDs at all or in a proportionate amount. (¶ 90.) Plaintiffs believe that these deductions do not represent bona fide discounts for the value of services provided by defendants. But aside from formulaic accusations of illegality, plaintiffs provide scant factual material to support this view. (See, e.g., ¶ 90(E) ("[v]olume discounts given to the Major Retailers . . . and not made available to the plaintiffs"); ¶ 90(J) "[d]eductions without justification from invoices sent by the Manufacturers to the defendants for goods sold to the defendants, representing cancellation of such invoices to the extent of the deductions and resulting free goods for the defendants".)

In count I of the complaint, plaintiffs allege that the manufacturer defendants have sold parts and lines to the retailer defendants at discriminatorily low prices. Specifically, the complaint alleges on information and belief that the manufacturer defendants sell to the retailer defendants below their variable cost of production (¶ 80), and that on a net basis, the defendant retailers pay forty to fifty percent less for parts than plaintiffs. (¶ 97; see also ¶ 99.)

Counts II and III are directed at two specific programs: AutoZone's "Pay on Scan" ("POS") Program and Wal-Mart's Radio Frequency Identification ("RFID") Technology Development Program. Under the POS program, a manufacturer supplies parts to AutoZone at no cost until a particular part is scanned and sold at an AutoZone cash register. (¶ 115B.) Although AutoZone maintains dominion and control over the parts in its store, the manufacturer assumes the risk of loss if a part is lost, destroyed, or becomes obsolete. (¶ 115C.) Title to a part passes to AutoZone the instant before it is sold to an end user, but then only momentarily and for tax reasons. (¶ 115D.)

Plaintiffs contend that the POS program gives AutoZone an unjustified competitive advantage in the aftermarket parts market. Because of the program, AutoZone can carry slower-moving parts within a product line without paying for them, whereas plaintiffs are required to pay defendants for such parts, usually within thirty days after receiving them. (¶ 118.) By reducing AutoZone's capital costs, the POS system also allows AutoZone to expand costlessly, thereby "driv[ing] all of the plaintiffs and other independent auto parts wholesalers, jobbers and retailers out of business . . . ." (¶ 123.) The complaint alleges that the POS program constitutes an unlawful form of price discrimination that is prohibited by the Robinson-Patman Act. (¶¶ 115C, 126A.)

Under Wal-Mart's RFID program, parts manufacturers must include an RFID chip in each pallet of goods shipped to a Wal-Mart warehouse. (¶ 135.) These chips allow Wal-Mart to closely monitor the location of parts using a computerized inventory-control system; the RFID program thus increases the probability that the appropriate quantity, size, color, and type of inventory will be available to meet consumer demand. (Compl. ¶ 142A; see generally D. Zachary Hostetter, When Small Technology Is a Big Deal: Legal Issues Arising From Business Use of RFID, 2 Shidler J. L. Com. & Tech. 10 (2005).) Plaintiffs allege that the program will enable Wal-Mart and Sam's Club to increase their domination of retailing and purchasing in the United States and make those companies "further untouchable" in the market for aftermarket auto parts. (¶¶ 140A, 143.) Again, plaintiffs contend that the program constitutes an unlawful form of price discrimination, prohibited by the Robinson-Patman Act. (¶¶ 142, 147.)

In count IV, plaintiffs allege that the manufacturer defendants have provided an advertising and promotional program to the retailer defendants without making an equivalent program available to them. The elements of the program are the elements of the vendor agreements that the parts manufacturers enter into with the retailer defendants. They include: multi-year vendor agreements; display and endcap allowances; promotional allowances; fees and discounts; advertising allowances and discounts; "gathering allowances" paid by the manufacturers to AutoZone; warehouse and store changeover allowances; "slotting allowances" for making retail shelf space available; specials, markdowns, and guaranteed profit margins; guaranteed lowest price protection; deferred-payment arrangements of 157 months or more; allowances for the return of goods; payments for services not provided or in an amount in excess of the cost of those services; honoring lifetime warranty programs of competing retailers; unjustifiably returning "cores" (non-working auto parts) to the manufacturer for refund or credit; and providing lengthy delays for payment to be made after delivery of goods. (¶ 159.) Plaintiffs allege, again on information and belief, that the cost of the advertising and promotional program amounts to 25% of the suggested retail price of each respective retailers' product line sales.*fn2 (¶ 160.)

B. Procedural History

1. Coalition 1: Pretrial*fn3

Coalition, joined by approximately 245 jobbers and WDs, initially filed suit against the retailer defendants in the Eastern District of New York on February 16, 2000. (¶ 223; see Compl., Coalition I, No. 00 Civ. 953 (E.D.N.Y., filed Feb. 16, 2000).) Plaintiffs' attorney in this action, Mr. Carl Person, also represented all 245 plaintiffs therein, and substantial portions of the complaint in that action are identical to the complaint here. (See Appendix to Defs.' Mem., Aug. 10, 2005 (Docket No. 31).) The Coalition I complaint, however, did not assert claims against the parts manufacturers (just purchasers/retailers); nor did it assert claims arising out of AutoZone's POS and Wal-Mart's RFID programs. The district court denied a motion to dismiss, reasoning under the standard of Conley v. Gibson, 355 U.S. 41 (1957), that it did not appear beyond doubt that plaintiffs could not prove any set of facts that would entitle them to relief. See Coalition for a Level Playing Field L.L.C. v. AutoZone, Inc., No. 00-CV-0953, 2001 WL 1763440, *2 (E.D.N.Y. Oct. 18, 2001) (Mishler, J.).

During pretrial proceedings, the parties and the Court attempted on three occasions to reduce the complexity of the litigation. On May 16, 2002, the parties stipulated to the dismissal of all but nineteen plaintiffs. With respect to the dismissed plaintiffs, the stipulation drafted by the parties and "so ordered" by the Court provided:

2. Each of the plaintiffs in the 2nd Amended Complaint who or which is not in the caption above is hereby dismissed without prejudice, and without loss of any claim for relief asserted by any of them in the 2nd Amended Complaint, and without loss by any such plaintiff of any right to assert a claim for any damages which have resulted therefrom for such plaintiff from four years preceding the commencement of this action to the date this stipulation is so-ordered by the Court.

3. After completion of any trial (or after any settlement) of the claims of the above-captioned plaintiffs has taken place, the remaining plaintiffs . . . have a period of six (6) months in which to reactivate their claims in the 2nd Amended Complaint, by the service and filing of a notice of reactivation of their claims . . . with proof of service.

Through its language disclaiming "loss of any claim for relief," the stipulation appears to have contemplated that the judgment in Coalition I would have no preclusive effect as to the dismissed plaintiffs.

On November 25, 2002, the remaining plaintiffs in Coalition I voluntarily limited their claims to twenty-five specific parts. (Br. of Defendants-Appellees, Coalition for a Level Playing Field L.L.C. v. Autozone, Inc., No. 03-7225, 2003 WL 24132909, at 6 (2d Cir. Aug. 11, 2003) ("Defs.' Circuit Br."); see also Br. of Plaintiffs-Appellants, Coalition for a Level Playing Field L.L.C. v. Autozone, Inc., No. 03-7225, at 13-15 (July 9, 2003) ("Pls.' Circuit Br.").) Then, on the day before trial began, the court (Wexler, J.) issued a verbal order limiting evidence and testimony to five specific parts sold by two retailers, AutoZone and Advance. Apparently by agreement of the parties, the jury's verdict as to these parts was to determine the defendants' liability for all the parts at issue in Coalition I. (Coalition I Tr. 146-47.)*fn4

2. Coalition I: Trial

Trial commenced on January 22, 2003. Plaintiffs presented live or deposition testimony from eleven witnesses, and expert testimony from an economist. Defendants presented two fact witnesses and three expert witnesses.

The centerpiece of plaintiff's case was testimony by representatives of five WDs. This testimony tended to show that the WDs competed with AutoZone and Advance, that AutoZone and Advance undercut their prices, and that the WDs' business suffered as a result. For example, the president of Prevatte Auto Supply, Inc., a three-step WD located in Lumbarton, North Carolina, testified that before AutoZone and Advance opened stores in North Carolina, his company was "very healthy economically." (Coalition I Tr. 52.) After AutoZone and Advance appeared, however, Prevatte had to lower its profit margin on auto parts to approximately 221/2 %. (Id. at 71.) This made it difficult to run a business; Prevatte was forced to terminate its insurance program, lay off employees, and take additional measures to control costs, such as installing a high-capacity fuel tank. (Id.)

On the question of pricing, the witness testified that one manufacturer, Fel-Pro, offered Prevatte "a menu of services and support that we could in effect give up and receive additional discounts." (Id. at 73.) For instance, if Prevatte stopped using the services of a Fel-Pro field service representative, or agreed to limit its ability to return defective merchandise, it would receive an additional discount on parts it ordered. (Id.) "Overall, there were about five or six elements that increased the discount and by giving up other economic benefits that worked up to approximately 35 percent." (Id. at 73-74.) Prevatte took advantage of some of these functional ...


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