Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal: Undue restraint of trade provision did not render vehicle incentive contract unenforceable, (Apr 16, 2015)

By Michael Menzhuber, J.D., LL.M.

In an action by a motor vehicle manufacturer against a fleet purchaser for breach of an incentive program contract, the federal district court in Los Angeles determined that a contract provision that allegedly restrained trade did not preclude recovery for the breach of contract claim. Even if a contract provision prohibiting the export of purchased motor vehicles constituted an “undue restraint,” that provision could be severed from the contract, which would still be enforceable (Ford Motor Co. v. Titan Enterprise, Inc., April 13, 2015, Lew, R.).

Ford Motor Company entered into a Competitive Price Allowance Program (CPA) with Titan Enterprise Inc., under which the purchaser would receive discounts for its purchases. In exchange for the discounts, the purchaser was required to purchase 250 vehicles during the course of the program year. In the event that fewer than 250 vehicles were purchased, the purchaser would be required to reimburse the discounts that it had received. The CPA contract also required that the purchased vehicles be registered and operated “solely in the United States.”

Restraint of trade. The manufacturer alleged that the purchaser breached the CPA contract because it failed to purchase the minimum required number of vehicles and exported some of the purchased vehicles to China. The purchaser argued that the “export prohibition” in the CPA contract was unenforceable because it was an “undue restraint of trade,” which prevented the purchaser from disposing of lawfully-acquired vehicles. The court determined that, even if the purchaser were correct, this provision would not render the CPA contract unenforceable because it could be severed from the contract. Since the rest of the contract would be enforceable, the purchaser would still be liable for breach of contract for failing to purchase the required minimum number of vehicles.

Meaning of contract term. The purchaser sought an affirmative defense to the contract by challenging the meaning of the CPA contract term “vehicles must be registered and operated solely in the United States.” The court found that it was unnecessary to consider this defense. It determined that, even if the purchaser’s interpretation of the contract term was correct, the manufacturer could still recover under its breach of contract claim because of the alleged failure of the purchaser to purchase the minimum number of vehicles required under the CPA contract.

The case is No. 2:14-cv-07701-RSWL (JCx)

Attorneys: Jennifer B. Wieland (Berkowitz Oliver Williams Shaw and Eisenbrandt LLP), and Justin H. Sanders (Sanders Roberts and Jewett LLP) for Ford Motor Co. Barry S. Jorgensen (Barry Jorgensen Law Offices) for Titan Enterprise Inc.

Companies: Ford Motor Co.; Titan Enterprise Inc.

Cases: Antitrust CaliforniaNews