ATLANTA—A lot more than just tires is riding on a multimillion-dollar lawsuit pitting a small independent dealership against its tire supplier.
If successful, the pricing discrimination suit filed by Atlanta's DeKalb Tire Co. Inc. against Michelin North America Inc. could alter the way tire retailers do business. In the least, believes Ray Bennett, DeKalb Tire's owner, it might help level the playing field that he claims has, over the years, tilted precariously in favor of the industry's bigger players.
Retailing heavyweights including Wal-Mart Stores Inc. and its Sam's Club unit, Costco Wholesale Inc., Kmart Corp., Sears, Roebuck and Co., and its National Tire & Battery and former National Tire Warehouse subsidiaries and others have received preferential pricing treatment from Michelin, according to the DeKalb lawsuit. That has made it difficult and, in some cases, nearly impossible for many small, struggling dealers to compete, Mr. Bennett maintains.
DeKalb Tire operates four retail stores in the suburbs of Atlanta. It closed two others, in 1996 and 1997, after a precipitous drop in volume due to pricing discrimination, the dealer contends.
Since its filing Aug. 5, 1997, the case has been in discovery, snaking toward a showdown in federal court. That is scheduled to happen April 23 before a six-person jury in the U.S. District Court, Northern District of Georgia, Atlanta Division, courtroom of Judge Willis B. Hunt Jr.
DeKalb got the go-ahead for a trial after the judge denied Michelin motions for summary judgment to dismiss the case and ruled in favor of the dealership in five of six counts in its 21-page complaint.
Although Tire Business obtained a copy of that complaint, Michelin succeeded in convincing the judge to issue an order sealing a number of other documents the tire maker claimed contain data that are trade secrets and confidential business information. However, those facts uncovered by DeKalb during discovery—including sales figures to various distribution channels—could come to light during trial, an attorney for the company said.
Mr. Bennett is represented by the Chicago-based national law firm Lord, Bissell & Brook. He is hoping to recover more than $10 million in damages. But since the suit is covered by federal antitrust rules, if victorious the dealer would be awarded three times that amount plus attorneys' fees and court costs.
Defendant Michelin, based in Greenville, S.C., has in its corner lead attorney Michael "Mickey" Ross of King & Spalding, described as Atlanta's "premier" law firm. He did not return calls from Tire Business.
But a Michelin spokeswoman said the company is "just going ahead, business as usual.... We had asked that the suit be dropped as meritless. What the judge came back with is, `It's not meritless. Some of your arguments are valid, some we're not so sure about.' So that's why it's going ahead."
"...As always, we'll do whatever the court asks us to do."
Both sides met Feb. 26 for non-binding mediation aimed at a settlement, and although a dollar amount was explored, DeKalb and Michelin could not come to terms.
Terry Howell, who is among lawyers handling the case for Lord, Bissell & Brock, told Tire Business the fundamental allegations of the case are that Michelin's pricing policies violate the Robinson-Patman Act—a federal statute that, in essence, requires companies to make available the same discounts to smaller customers as given to large-volume customers.
>From the early 1970s until Jan. 19, 1996, DeKalb bought tires for resale directly from Michelin. But, Mr. Bennett claims, after the latter date his dealership was cut off and forced to order Michelin tires indirectly through firms such as Target Tire Inc. and Heafner Tire Group's ITCO Tire subsidiary, a wholesaler designated by the tire maker as its "Alliance" group supplier for DeKalb.
Because of a statute of limitations, DeKalb's case covers the years 1992 through the fall of 1996, though Mr. Howell alleges Michelin's pricing discrimination still continues.
Evidence he expects to present at trial will include what he called "extensive differences in the prices Mr. Bennett was charged vs. what other, bigger retailers were charged. DeKalb also claims it lost substantial profits off the lost sales because of these price differences.
"We have evidence that retailers were selling tires in the Atlanta market for less than what Mr. Bennett could purchase them for from Michelin. That price difference frequently was as much as $100 per set of tires."
According to charges outlined in DeKalb's complaint, beginning in January 1993 Michelin categorized its distribution outlets into three distinct "A," "B" and "C" channels. The A group consisted of national discount price clubs such as Costco and Sam's; the B distribution channel included large national retailers such as the Sears Tire Group; and the C channel comprised smaller independent dealer stores such as DeKalb.
Then in 1994, the suit continues, Michelin changed the designations for its channels and now distributes through two: a National Retail Group—consisting of former A and B retailers—and its National Dealer Group, which is former C channel retailers.
Since then, DeKalb has competed directly with both groups for sales of Michelins within the Atlanta market area.
In 1996, for example, Mr. Bennett told Tire Business that DeKalb expected to sell 33,000 units of Michelin tires, but instead sold only 8,000 vs. the 22,000 it sold in 1991. That translated to lost sales in 1996 of at least $1.25 million, the dealership contends.
"Through years of fostering customer relations, advertising, promotion and other efforts, DeKalb developed a customer base which was loyal to Michelin tires," the lawsuit states, and "derived a substantial part of its business" from the sale and services of those tires.
But the dealership—founded in 1964 by Mr. Bennett's father, Grady—also charges that Michelin not only sold its tires at lower prices to the A and B channels, but also favored those retailers "in payments for promotional services and in providing promotional services and facilities." It also claimed those groups received co-op funds "3 to 5 percent higher than the co-op allowances given to DeKalb."
The tire maker continued to discriminate against DeKalb and other C-group dealers, the suit charges, when it implemented a "Minimum Advertised Price" policy in the early 1990s "to control the resale prices of Michelin tires and to restrict the ability of independent dealers" in the C channel from competing against the larger retailers. That policy "effectively handcuffs and illegally restrains" resellers such as DeKalb that depend upon advertising low prices in order to compete.
The dealership asserts that by using wholesalers such as ITCO to make sales to DeKalb, Michelin is, in essence, controlling terms and prices. And while in 1990 Michelin had at least several thousand direct dealers, Mr. Bennett claims today that number is less than 300.
Asked what a favorable outcome for DeKalb might mean to other dealers, Mr. Howell stated: "Hopefully, it'll be the end of significant price discrimination against independent retailers," and will send a message that the court will not tolerate that kind of practice.
But he acknowledged "these antitrust cases are famous for being scorched-earth defenses. This case has been very strongly fought by Michelin," and he expects that approach to continue in the courtroom.
For Ray Bennett, the case has taken on biblical David vs. Goliath proportions.
After mulling over a confidential settlement offer from Michelin, he decided his quest was more than simply about money. "This case will shake the industry," he predicted. "It will affect an awful lot of dealers, and the tire business from top to bottom.
If he wins, Mr. Bennett said the Costco's and Wal-Mart's of the world will "all be paying the same price as we are, other than what they earn, and that'll cause the price of tires to drop considerably" for independent dealers.
Despite feeling like he's been "walking on a cloud" since his lawsuit got the green light for trial, he noted: "...A lot of people, a lot of tire dealers have been hurt. My family's been hurt. Michelin hurt people and they knew they were doing it.
"I want to see some justice, and if we don't go to court, we're not going to get it."
Though the 52-year-old dealer has persevered through what he calls this "ordeal," he's paid a stiff price to ensure the survival of the business he's loved and worked in since high school.
The lawsuit has cost Mr. Bennett better than a half-million dollars out of pocket thus far—his attorneys did not take the case on contingency—and he owes them at least another half-million.
During the four years the case has ground on, he's had to cut his salary and his family has "basically lived on a lot less."
"I don't want to save the world," he said. "When I walk away from this, I want to feel like I've done the right thing."
Since filing the suit, Mr. Bennett said he has been contacted by more than 100 independent dealers. Many offered moral support. Others merely wanted to commiserate with him.
But one in particular stuck in his mind: "He told me he just filed for bankruptcy... It's kind of hard to forget those guys."