Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ohio: Terminated tire dealer that alleged racial discrimination denied injunction preventing termination, (Mar 5, 2014)

By Peter Reap, J.D., LL.M.

A terminated tire dealer was denied its request for a preliminary injunction that would have enjoined the franchisor, Bridgestone Americas Tire Operations, LLC, from terminating the dealer and required reinstatement of the dealer as an authorized supplier of Bridgestone tires because the dealer failed to show a likelihood of success on the merits of any of its three “core” claims for racial discrimination, breach of contract, or promissory estoppel, the federal district court in Akron has decided (B&S Transport, Inc. v. Bridgestone Americas Tire Operations, LLC, February 27, 2014, Lioi, S.).

Background. Ronnie Harris is the founder and majority shareholder of plaintiff B&S Transport, Inc. (collectively, the “dealer”). B&S, a self-described African-American company, became an authorized dealer of Firestone tires sometime between 1977 and 1979 and of Bridgestone tires after Bridgestone acquired Firestone. The dealer B&S primarily serves government entities.

The dealer alleged that the parties’ relationship is governed by a 1988 or 1990 contract (exact year unknown) of indefinite duration that, by its own terms and through the parties’ course of performance, provided for termination only for good cause. The contract also allowed the dealer to seek tires sales without geographical restrictions, unlike most dealer agreements. Allegedly partly written and partly oral, this contract was not produced by either party.

After Bridgestone acquired Firestone, well after the creation of the parties’ contract, Bridgestone sought to have the dealer enter into Bridgestone’s authorized dealer agreement, which provided for termination by either party without cause on 30 days’ notice. The dealer pointedly and repeatedly refused to sign it.

In February 2013, the dealer received a letter from the franchisor stating “that Bridgestone has decided to terminate B&S Transport as an Authorized Dealer of all Bridgestone and Firestone brand product lines[.]” The letter further clarified that the dealer would remain an “Authorized Dealer” until December 31, 2013.

In October 2013, nearly eight months after it received the termination letter, the government exercised the third optional year on six tire supply contracts it had entered into with the dealer. All six contracts now run through October 2014. The dealer subsequently contacted the franchisor about the February 2013 termination letter and received a letter in response reaffirming the termination.

The dealer claims that, after Bridgestone sent the February 2013 letter, the dealer lost contract awards to competing dealer Pomp’s Tire Service, Inc. (“Pomp’s”), a non-minority tire distributor. The dealer filed a complaint in December 2013 against the franchisor. The complaint asserts the following causes of action: (1) violation of 42 U.S.C. § 1981; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; (4) promissory estoppel; (5) tortious interference with contract; and (6) fraud.

The court previously denied the dealer’s motion for a temporary restraining order. Before the court was the dealer’s request for a preliminary injunction.

In considering preliminary injunctive relief, a district court must weigh the following four factors: (1) the plaintiff’s likelihood of success on the merits; (2) whether the plaintiff will suffer irreparable harm without the injunction; (3) whether granting the injunction will cause substantial harm to others; and (4) the impact of the injunction on the public interest.

Likelihood of Success on the Merits

§ 1981 claim. Section 1981 prohibits intentional race discrimination in the making and enforcing of contracts involving both public and private actors, the court noted.

The dealer alleged that at the time it received the termination letter, it was the only African-American supplier of Bridgestone tires to the government. Because Bridgestone terminated the dealer but did not terminate Pomp’s, which is allegedly the sole (non-minority) supplier authorized to sell to the government, the dealer contended that it would succeed on the merits of the § 1981 claim. The dealer also claimed that, in April 2013, Pomp’s received “lower pricing” on tires than the franchisor would make available to the dealer.

In a similar contract termination case, a district court found a high likelihood of success on the § 1981 claim, the court observed. There, the state of Ohio hired plaintiff, a minority-owned company, to conduct a predicate study. D.J. Miller & Assocs., Inc. v. Ohio Dep’t of Admin. Srvs., 115 F. Supp. 2d 872, 874 (S.D. Ohio 2000). Plaintiff’s primary researcher left the company, and the state of Ohio rejected the qualified replacement candidate plaintiff submitted for approval. The state of Ohio instead awarded the predicate study to a majority-owned company. The court ruled that defendant’s “legitimate, non-discriminatory reason for terminating” plaintiff—that the replacement researcher was unqualified—was “a pretext for unlawful discrimination.” Id. at 881.

Unlike D.J. Miller, the § 1981 claim here did not present a high likelihood of success on the merits, the court determined. In the February 2013 letter, Bridgestone cited its “change in distribution and go to market solutions strategies” to justify terminating the dealer as a supplier. Specifically, Bridgestone now desires its suppliers to stock Bridgestone inventory in warehouses and provide full tire-related services to customers, neither of which the dealer was or is equipped to do.

Moreover, Bridgestone offered a legitimate, non-discriminatory reason for terminating the dealer while retaining Pomp’s: Pomp’s offered better services and, thus, the dealer failed to show a likelihood of success as to this issue. Nor, at this stage, did the dealer show a likelihood of success in establishing discrimination in the prices offered to the dealer versus Pomp’s, according to the court. Instead, the franchisor explained that the price discrepancy cited by the dealer resulted from comparing a 2012 contract price to a 2013 price quote.

Breach of contract claim. The dealer alleged that the parties’ contract provided for termination only upon good cause and that the Bridgestone breached that contract by terminating the dealer. According to the dealer, the February 2013 letter and the follow-up letter terminated the contract without good cause, constituting breach of contract.

Considering the parties’ evidence to date, the dealer showed that no specific termination-without-cause contract applied, the court explained. The dealer instead offered only an affidavit provided by Harris in support of an indefinite, termination-for-cause contract. Without a writing or a more definite expression that the parties assented to an indefinite “good cause” contract, it could be difficult for the dealer to overcome the general rule of Ohio law that indefinite contracts are terminable at will.

Further, even assuming that an indefinite “good cause” term applied, the dealer must also show that Bridgestone breached by lacking “good cause” to terminate. Bridgestone offered compelling reasons why it terminated the dealer: the dealer’s lack of warehousing capabilities and full tire-related services, according to the court. The dealer did not show, therefore, the requisite likelihood (1) that a termination-for-cause contract existed or (2) that it was breached. Depending on the contractual evidence produced in this case, the dealer could might succeed, but the court could not determine that the dealer was likely to succeed based on the evidence currently before it.

Promissory estoppel claim. The dealer alleged that it reasonably relied on Bridgestone’s promise to supply tires when making the six government contracts that had been extended through 2014.

However, there was no clear and unambiguous promise to supply tires appeared in the records submitted by the parties. Indeed, each piece of correspondence regarding tire pricing contained the following language: “This is not a guarantee to supply[,]” and “This is not a commitment to supply any of these tires.”

Further weakening the reasonableness of any reliance on Bridgestone supplying tires for the duration of the government contracts, Bridgestone, in February 2013, told the dealer in no uncertain terms that it would not supply tires after December 31, 2013. For the dealer to continue to rely on a purported promise to supply tires in 2014 in the face of both the written disclaimers and the termination letter weighed against the dealer at this stage. At the very least, the dealer did not establish the requisite likelihood of success on the merits, the court held.

The remaining claims. In support of their remaining claims—breach of implied covenant of good faith and fair dealing, tortious interference with contract, and fraud—the dealer offered the same proofs of success on the merits as set forth above. A separate analysis of these claims was unnecessary; moreover, the three claims examined above were the “central claims” in this case, according to the court.

Irreparable Harm

The dealer alleged the following irreparable harms: (1) ruination of the dealer’s relationship with its customers, particularly its government customers; (2) destruction of the dealer’s reputation; (3) inability to honor current contracts or obtain new ones; and (4) termination of the dealer’s employees. Given that the dealer mainly sold Bridgestone products and had no relationship with other major tire providers, the dealer had, pursuant to the case law, demonstrated irreparable harm upon losing Authorized Dealer status. This factor weighed in favor of the injunction; however, the dealer’s long delay in bringing this lawsuit lessened the importance of the irreparable harm factor, the court reasoned. The dealer could have used any part of the last ten months of 2013 to repair or mitigate the harm they currently suffer.

Substantial Harm to Others and the Public Interest

When plaintiffs have “successfully sold” defendants’ products “for many years” without complaint, one court agreed that little harm would come to defendants “by being required to continue to do business for a few more weeks in the manner in which they have been conducting business for years, the court observed.” Tri County Wholesale Distrib., Inc. v. Labatt USA Operating Co., LLC (S.D. Ohio Oct. 16, 2013).

Here, the substantial harm factor favored the dealer. Bridgestone has been conducting business with the dealer for 28 years. No substantial harm would result by continuing the relationship for a few more weeks or months, the court explained.

The public interest factor was murkier. The public’s interest in enforcing valid contracts does not favor either party because neither party produced an unassailable contract. The dealer did not show any likelihood of success on the § 1981 claim, so the public’s interest in a discrimination-free contracting process was not implicated. Finally, allowing the dealer to wait ten months before bringing this action also implicated the public interest. Granting a preliminary injunction after this enormous delay encouraged parties to sit on their rights.

The case is No. 5:13-cv-2793.

Attorneys: Glenn A. Crickenberger (Gary, Williams, Parenti, Watson & Gary ) for B&S Transport, Inc. David T. Moss (Hanna, Campbell & Powell ) for Bridgestone Americas Tire Operations, LLC and for Bridgestone Americas, Inc.

Companies: B&S Transport, Inc.; Bridgestone Americas Tire Operations, LLC; Bridgestone Americas, Inc.

Cases: FranchisingDistribution OhioNews