Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App. Ct.: UCL derivative suit dismissed for failure to show competitor statements were unfair, fraudulent acts, (Mar 28, 2014)

By Jody Coultas, J.D.

Allegations that tire companies’ disseminated false statements that “noncompliant devices” could damage wheel assemblies in military vehicles failed to state California Unfair Competition Law (UCL) claims, a California appellate court has held (Runflat America Corporation v. Michelin North America, Inc., March 26, 2014, Chavez, V.). The manufacturer of an injected composite runflat tire insert did not show an unfair or fraudulent business practice or that the statements specifically referred to it or its products.

RAC developed an injected composite runflat tire insert for military use. Michelin, Goodyear, and Bridgestone disseminated a technical bulletin advising of “potential damage” from the use of “noncompliant devices” in wheel assemblies. The bulletin did not mention composite inserts, RAC, or their runflat inserts.

Runflat America LLC filed this shareholder derivative action nominally against RAC, to pursue claims against Michelin, Goodyear, and Bridgestone. The defendants filed separate demurrers to the complaint on the grounds that Runflat failed to allege that it had made a formal demand on RAC before filing a derivative action, as required by Corporations Code section 800, subdivision (b)(2), failed to allege facts sufficient to show that making such a demand would have been futile, and failed to allege that it had provided written notice of the proposed complaint to RAC’s board before filing suit. The trial court sustained the demurrers with leave to amend and rejected Runflat’s general allegation that a demand on RAC’s board was futile.

After Runflat filed a demand letter and an amended complaint, the trial court sustained the defendants’ demurrers on the ground that the demand letter was invalid, and that Runflat failed to state claims for trade libel, interference with contractual relations, or unfair business practices.

Unfair business practices. The UCL unfair prong claim was dismissed for failure to show that the defendants engaged in any conduct that was immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, according to the court. Regardless of the test used to determine whether the conduct at issue was unfair, Runflat failed to state an unfair business practice claim. Runflat failed to provide any factual support for this allegation that the defendants’ threatened an incipient violation of antitrust law, or how the bulletins violated any antitrust laws. Runflat could not show how the bulletins precluded RAC from competing with a third company, as both companies manufactured composite runflat inserts that were the subject of the technical bulletins. The complaint contained no allegation that defendants engaged in any conduct that was “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers” nor did it allege that any consumer was substantially injured by defendants’ conduct.

Fraudulent business practices. Runflat also failed to state a cause of action for a fraudulent business practice under the UCL, according to the court. To state a fraudulent act claim, Runflat was required to show that members of the public were likely to be deceived by the allegedly fraudulent practices. None of defendants’ technical bulletins referred to RAC or its products specifically.

The case is No. B246418 c/w B249242.

Attorneys: Michael John Avenatti (Eagan Avenatti LLP) for RunflatAmerica LLC. James J. Yukevich (Yukevich Calfo Cavanaugh) and Lisa Perrochet (Horvitz & Levy) for Michelin North America, Inc. Walter M. Yoka (Yoka & Smith LLP) for The Goodyear Tire & Rubber Co. Mark Lee Smith (Clyde Snow & Sessions) for Bridgestone Americas Tire Operations LLC.

Companies: Runflat America, LLC; Michelin North America, Inc.; The Goodyear Tire & Rubber Co.; Bridgestone Americas Tire Operations LLC

Cases: StateUnfairTradePractices CaliforniaNews