By Kathy McCarron, Tire Business staff
NEWARK, N.J. (May 14, 2013) — Inter City Tire & Auto Center Inc., with its affiliated Inter City Retread Inc. business, are suing Michelin North America Inc. and Service Tire Truck Centers Inc. (STTC) over claims of a corruption scheme and unfair competition involving numerous dealerships and participants.
Elizabeth, N.J.-based Inter City said it uncovered a scheme involving former Michelin sales executives who allegedly used shell corporations to divert discounted tires intended for national fleet accounts and resell them to competitors of Inter City Tire, a Michelin-affiliated commercial tire dealer and Michelin Retread Technologies-licensed retreader. Inter City operates five commercial locations in New Jersey and New York.
Inter City's lawsuit, filed April 23 in the U.S. District Court for the District of New Jersey, alleges Michelin and/or Bethlehem, Pa.-based STTC violated the Racketeer Influenced and Corrupt Organizations (RICO) Act, among other commerce laws, in addition to fraud and breach of contract.
A Michelin spokesman said the tire maker typically does not comment on pending legal matters. "What I can tell you is that we have terminated two rogue employees who personally profited from a complicated scheme designed to enrich themselves," he told Tire Business. STTC did not return calls for comment.
The complicated scheme allegedly involved current and/or former employees of Michelin, Inter City and other dealerships that dated back to at least 2006.
Inter City said it contacted Michelin's general counsel with proof of the corruption scheme in 2011, which led to the termination of at least two Michelin sales executives in 2012 and disciplinary actions against several others.
However, settlement negotiations between Michelin and Inter City over the incident purportedly broke down April 19, with Michelin allegedly issuing a notice attempting to terminate Inter City as an affiliated dealer, according to the dealership, prompting it to file suit.
The lawsuit alleges:
- The former Michelin sales executives, STTC and others falsified documents to create the appearance that Michelin tires were purchased by and delivered to large fleet accounts when the tires allegedly were diverted to STTC and businesses controlled by the sales executives in order to undercut prices at which Inter City was able to offer customers;
- The former Michelin salespeople held undisclosed interest in corporate entities, including Tire Supply of New Jersey L.L.C., used to carry out the fraudulent diversion transactions and funnel kickbacks to themselves;
- Tire Supply of New Jersey sold tires at discounted fleet prices to STTC and other tire dealers that compete with Inter City;
- The defendants discouraged Inter City's customers from doing business with the dealership and redirected them to STTC and the shell companies; and
- The salespeople and senior Michelin management approved the appointment of associate dealers in close proximity to Inter City for the alleged purpose of diverting business away from Inter City.
Inter City said it reported evidence of unfair treatment for several years to Michelin sales management. "Notwithstanding Inter City's repeated efforts in this regard, no corrective action was taken by Michelin, until Inter City presented incontrovertible proof of the illegal practice to Michelin in early 2012," the lawsuit stated.
The lawsuit's RICO complaint in part refers to an incident in which Inter City Owner Morris Erbesh claims he complained to a Michelin sales executive about price discrimination. When the executive refused to take any action, Mr. Erbesh threatened to go to the executive's superiors and the executive allegedly threatened to kill him.
The lawsuit claimed that one of the participants in the scheme was a former Inter City employee with a vendetta against the company.
Inter City claims it has sustained "millions of dollars of damages stemming from the unfair, discriminatory and fraudulent business practices" and is seeking unspecified compensatory and punitive damages.
To reach this reporter: [email protected]; 330-865-6127.