Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Vehicle repair parts provider allegedly attempted to enforce covenant not to compete made with third-party, (Mar 27, 2014)

By Linda O’Brien, J.D., LL.M.

A vehicle repair parts provider and its wheel repair business subsidiary have engaged in anticompetitive conduct, in violation of the Sherman Act and the New York Donnelly Act, by attempting to enforce an invalid and unenforceable covenant not to compete contained in an asset purchase agreement with a third-party, according to a complaint filed in the federal district court of Brooklyn, New York (Wheels America LI Wheel Repair, LLC d/b/a FixRim Mobile Wheel Repair v. LKQ Corporation, March 26, 2014).

LKQ Corporation is the largest provider in the U.S. of alternative collision replacement parts used for auto and other vehicle repairs. Its subsidiary, Wheel Fix It Corp. (WFI) operates a wheel repair business.

The complaint alleges that Wheels America LI Wheel Repair, doing business as FixRim Mobile Wheel Repair, is preparing to open a fixed wheel repair facility in the New York City metropolitan area. In March 2014, FixRim received a letter from LKQ and WFI identifying a covenant not to compete contained in an asset purchase agreement dated July 2010 between WFI and Wheels America. The 2010 asset purchase agreement is between WFI and a third-party, Wheels America New York Ltd. (WANY). The covenant not to compete provided that WANY, or any successor, agreed not to engage in the business of fixed location wheel repair within the New York City metropolitan area for a period of seven years. However, WANY could engage in the business of mobile wheel repair in the same area. The letter demanded that FixRim cease all activities relating to the opening of the wheel repair facility because such activities would be in violation of the covenant not to compete.

FixRim was not a party to the asset purchase agreement. WANY ceased operating as a business concern in 2010. Formed in December 2013, FixRim is not a successor to WANY, according to the complaint.

The non-compete clause is an unreasonable restraint of trade given the seven-year restriction on competition in relation to the scope of the relevant product market, lack of goodwill transferred as part of the 2010 asset purchase agreement, public interest, and LKQ’s market power, the complaint alleges.

The complaint also alleges that the non-compete clause is an attempt to monopolize by attempting to enforce the covenant. LKQ and WFI possess sufficient market power to create a dangerous probability of achieving monopoly power in the wheel repair markets.

FixRim asserts claims for restraint of trade, monopolization, attempted monopolization, and violations of Section 1 of the Sherman Act and New York’s Donnelly Act. The action seeks declaratory relief and any other just and proper relief.

The case is No. 2:14-cv-01944.

Attorneys: Michael Tremonte (Sher Tremonte LLP) and Casey Griffith (Klemchuk Kubasta LLP) for Wheels America LI Wheel Repair, LLC.

Companies: Wheels America LI Wheel Repair, LLC; LKQ Corporation; Wheel Fix It Corp.

News: Antitrust NewYorkNews