Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.S.C.: Limitation of damages provisions in dealer agreements upheld, (Dec 30, 2014)

By Edward L. Puzzo, J.D.

In a terminated tire dealer’s action to obtain damages following termination of its dealership agreements, the limitation of damages provisions in the terminated agreements were enforceable and supported the manufacturer’s summary judgment motion, the federal district court in Greenville, South Carolina has ruled. While the parties disputed the proper amount of termination damages, the court declined to address the specific amount of damages at this time (Michelin North America, Inc. v. Inter City Tire and Auto Center, Inc., December 22, 2014, Herlong, H.).

Background. Inter City Tire and Auto Center had commercial retail dealership agreements with Michelin North America to sell Michelin tires. Inter City alleged that Michelin and certain competitors of Inter City engaged in a scheme in which the competitors would receive tires at lower prices than those offered to Inter City, allowing the competitors to undercut Inter City for the purpose of driving it out of business. Inter City provided evidence of the schemes to Michelin, which commenced an internal investigation. Subsequently, Michelin dismissed certain Michelin employees and executives and terminated one of the retailers involved in the scheme.

Inter City then attempted to negotiate with Michelin to recover damages for the scheme. Soon thereafter, Michelin terminated its agreements with Inter City, and then sought a declaratory judgment that it properly terminated its dealership agreements. Inter City moved to dismiss the declaratory judgment action, but on November 6, 2013, the court declined to dismiss the declaratory judgment action.

Inter City also filed counterclaims, alleging that Michelin violated the Robinson-Patman Act and the South Carolina Unfair Trade Practices Act (SCUTPA) by wrongfully terminating the dealer agreements it had with Michelin without good cause “in retaliation for blowing the whistle on Michelin’s corrupt sales practices.”

Limitation of damages. Michelin and Inter City had three dealer agreements between them: a 2009 authorized commercial customer agreement; a 2010 authorized commercial customer agreement; and a 2013 retail agreement. All three agreements had “limitation of damages” provisions specifying that neither party would be liable to the other for any punitive, consequential, or incidental damages or losses resulting from the termination of the agreements. In November 2014, on the basis of these provisions, Michelin moved for partial summary judgment, arguing these provisions precluded Inter City from entitlement to damages from termination of any of the dealership agreements.

South Carolina courts recognize limitation of liability and exculpation clauses, and generally will enforce them unless enforcement would be unconscionable. Unconscionability was defined as “the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.”

Inter City did not argue that the limitation of damages provisions were unconscionable, but claimed that they were not enforceable in connection with a wrongful contract termination. The court found otherwise, noting that South Carolina courts have recognized a cause of action for wrongful termination only when the supplier acted arbitrarily, maliciously, or in bad faith. The courts did not hold that a limitation of damages clause would be unenforceable when a party alleged wrongful termination of a contract.

Here, the limitation of damages provisions was not unconscionable, the court ruled, and there was no evidence that Michelin terminated the agreements arbitrarily, maliciously or in bad faith. There was no evidence that Inter City lacked meaningful choice when it entered into the dealership agreements. Moreover, the limitation of damages provisions was not so oppressive that no reasonable person would enter into the contract.

Partain case. The court further found inapplicable the recent South Carolina Supreme Court case of Partain v. Upstate Automotive Group, 689 S.E.2d 602 (S.C. 2010), which refused to enforce an arbitration clause due to the “outrageous” conduct of the party seeking enforcement. Inter City argued that limitation of damages provisions were narrowly construed, that Michelin’s conduct was not within the contemplation of the parties, and that Partain should apply to block enforcement of the limitation of damages provisions. The court disagreed, noting that the provisions were to be effective upon termination “however arising.”

Employment at-will. At-will employees in South Carolina have causes of action for wrongful termination when there has been a retaliatory termination in violation of public policy. Inter City argued that its relationship with Michelin was analogous to that of an at-will employee, and that Michelin’s conduct undermined public policies under the Robinson-Patman Act and SCUTPA, and thus provided the basis for an exception to enforcement of the limitation of damages provisions.

The court found that the situation was distinguishable from employment-at-will, which arises in the absence of a specific contract of employment. Here, Inter City and Michelin, both sophisticated business entities, entered into a series of agreements that specifically included limitation of damages provisions. Further, the court found that enforcement of the limitation of damages provisions would not prevent Inter City from pursuing damages for Michelin’s other alleged violations of the Robinson- Patman Act or SCUTPA.

Accordingly, the court found that the limitation of damages provisions contained in the dealer agreements did not violate public policy, and granted Michelin’s motion for partial summary judgment on the issue of termination damages.

The case is Civil Action No. 6:13-cv-02752-HMH.

Attorneys: Brian M. English (Tompkins, McGuire, Wachenfeld & Barry, LLP), Benjamin Edward Nicholson V (McNair Law Firm), and James L. Tuxbury (Hinckley Allen and Snyder) for Inter City Tire and Auto Center, Inc., and Inter City Retread, Inc. A. Marvin Quattlebaum, Jr. (Nelson Mullins Riley and Scarborough), Peter W. Herzog III (Bryan Cave), and Thomas R. Curtin (Graham Curtin, PA) for Michelin North America Inc., and Michelin Retread Technologies Inc. Beattie B. Ashmore (Beattie B. Ashmore Law Office) for Service Tire Truck Centers, Inc.

Companies: Michelin North America, Inc.; Michelin Retread Technologies, Inc.; Inter City Tire and Auto Center, Inc.; Inter City Retread, Inc.; Service Tire Truck Centers, Inc.

Cases: FranchisingDistribution StateUnfairTradePractices SouthCarolinaNews