Toledo MacK Sales & Service, Inc. v. MacK Trucks, Inc.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0602n.06
No. 10-3446 FILED
Aug 23, 2011
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT LEONARD GREEN, Clerk
TOLEDO MACK SALES & SERVICE, )
INC.; DAVID YEAGER; SALLY )
YEAGER, )
)
Plaintiffs–Appellants, ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
v. ) NORTHERN DISTRICT OF OHIO
)
MACK TRUCKS, INC., )
)
Defendant–Appellee.
Before: NORRIS, GIBBONS, and GRIFFIN, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. Plaintiffs-appellants Toledo Mack Sales &
Service, Inc., David Yeager, and Sally Yeager (together “TMSS”) appeal the district court’s decision
to dismiss their lawsuit against Mack Trucks, Inc. (“MTI”) pursuant to Federal Rule of Civil
Procedure 12(b)(6), for failure to state a claim upon which relief can be granted. On appeal, TMSS
argues that the district court erred by ruling: (1) that MTI did not breach its contract with TMSS by
paying for truck parts valued at approximately $828,000 in credit against a judgment instead of in
cash, (2) that TMSS’s claim for conversion of property was duplicative of its claim for breach of
contract, (3) that TMSS failed to state a claim for abuse of process, and (4) that TMSS failed to state
a claim under the Ohio Motor Vehicle Dealers Act (“OMVDA”). For the reasons that follow, we
affirm in full the judgment of the district court.
No. 10-3446
Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
I.
This case involves the latest in a string of lawsuits between TMSS and MTI. TMSS was a
franchised dealer of Mack Trucks in Toledo, Ohio, from 1982 to 2006. The two parties acted
according to a “Distributor Agreement” signed in 1986. Eventually, disagreement over TMSS’s
decision to compete with other MTI dealerships located beyond its assigned geographical “area of
responsibility” led TMSS to file a federal anti-trust lawsuit in the Eastern District of Pennsylvania.
MTI counter-claimed for misappropriation of trade secrets.
During discovery for the anti-trust case, MTI learned that TMSS had provided a database
known as MACSPEC 2001 to PAI, a rival manufacturer of replacement parts for Mack trucks. PAI
reverse engineers MTI parts to create imitation parts, and the MACSPEC 2001 database explained
how MTI parts fit together in custom-built Mack trucks. In light of this discovery, MTI issued a
letter to TMSS terminating its franchise relationship.
TMSS protested MTI’s action with the Ohio Motor Vehicle Dealers Board (“OMVDB”).
The OMVDB and the Franklin County (Ohio) Court of Common Pleas found that MTI did not have
“good cause” to terminate the relationship. On appeal, however, the Tenth District Court of Appeals
reversed this decision, finding TMSS’s divulging of MTI’s trade secrets gave MTI cause to terminate
the relationship. TMSS filed a motion for reconsideration in which it contended, among other
things, that MTI had misled the court. TMSS asserted that PAI was not a competitor of MTI; rather,
TMSS claimed the two parties routinely did business together. To illustrate this cooperative
relationship, TMSS submitted that once, when it had ordered a part from MTI, the part arrived in a
PAI box. The state appeals court rejected TMSS’s argument for reconsideration, finding, in relevant
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part, that TMSS’s new evidence was not admissible because the appeals court was “bound by the
record before it.” TMSS reiterated its new factual assertion when it filed a motion for relief from
judgment before the Common Pleas Court, but the court denied TMSS’s motion. After the Ohio
Supreme Court denied review, the Tenth District’s decision became final, and MTI terminated
TMSS’s franchise on December 13, 2006.
In the meantime, TMSS’s federal anti-trust suit moved forward. See Toledo Mack Sales &
Serv., Inc. v. Mack Trucks, Inc., No. Civ. A. 02-CV-4373, 2005 WL 724117 (E.D. Pa. Mar. 29,
2005). After the Ohio Court of Appeals judgment became final, the Pennsylvania district court
applied the doctrine of res judicata and found for MTI on its misappropriation of trade-secrets
counter-claim. See Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc., No. Civ. A. 02-4373, 2007
WL 5256959, at *1 (E.D. Pa. Feb. 16, 2007). MTI prevailed in the anti-trust case; on the counter-
claim, the jury—having been charged only with determining damages—awarded MTI more than $11
million, which the district court remitted to $1.6 million. Id. at *4.
On appeal, the Third Circuit affirmed the district court’s disposition of MTI’s counter-claim.
Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc., 530 F.3d 204, 229–30 (3d Cir. 2008.)
Following additional litigation, the Third Circuit also affirmed a jury’s verdict against TMSS on its
anti-trust claims. Toledo Mack Sales & Serv., Inc., v. Mack Trucks, Inc., 386 F. App’x 214, 216 (3d
Cir. 2010).
Following termination of the franchise, and pursuant to a provision within the Distributor
Agreement, MTI notified TMSS that it was repurchasing TMSS’s inventory of Mack vehicles and
parts. MTI took possession of, and paid cash for, the remaining vehicles that TMSS had in stock.
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Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
MTI also took possession of TMSS’s parts inventory and acknowledged a debt of approximately
$828,000. However, MTI did not pay TMSS in cash but rather credited the $828,000 against the
$1.6 million trade-secrets judgment.
In the present action, TMSS challenges MTI’s form of payment. TMSS alleges breach of
contract, conversion, abuse of process, and violation of the OMVDA. The district court dismissed
the lawsuit for failure to state a claim upon which relief can be granted.
This appeal followed.
II.
We review de novo a district court’s decision to dismiss under Rule 12(b)(6). Kottmyer v.
Maas, 436 F.3d 684, 688 (6th Cir. 2006). In assessing a complaint for failure to state a claim, we
construe the complaint in the light most favorable to the plaintiff, accept the plaintiff’s factual
allegations as true, and determine whether the complaint “contain[s] sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949 (2009) (internal quotations and citation omitted). A plaintiff’s complaint must provide
“more than labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Pursuant to its provisions, we
construe the contract according to Pennsylvania law. We decide TMSS’s tort claims under Ohio
law.
III.
TMSS’s first claim is that the district court erred in dismissing its claim for breach of
contract. To plead a breach of contract three elements are necessary: “(1) the existence of a contract,
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Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
including its essential terms (2) a breach of duty imposed by the contract and (3) resultant damages.”
Omicron Sys., Inc. v. Weiner, 860 A.2d 554, 564 (Pa. Super. Ct. 2004) (quoting J.F. Walker Co., Inc.
v. Excalibur Oil Group, Inc., 792 A.2d 1269, 1272 (Pa. Super. Ct. 2002)) (internal quotations and
alterations omitted). The district court found that TMSS failed to state a claim for breach of contract
because MTI fulfilled its contractual obligations by paying TMSS in credit, which the district court
found the contract permitted MTI to do. We agree.
First, we note that under Pennsylvania law a party may set off an obligation owed to another.
Beaver Valley Alloy Foundry, Co. v. Therma-Fab, Inc., 814 A.2d 217, 220 (Pa. Super. Ct. 2002)
(“[T]he common-law principle . . . allows a non-breaching party to set off its damages against the
contract balance.”); Am. Radiator Co. v. Modern Utils. Co., 164 A. 925 (Pa. Super Ct. 1933)
(“‘Where there is a special equity to be subserved, and no equity of third parties to be injured, a set-
off will be allowed upon equitable principles.’” (quoting Hibert v. Lang, 442 A. 1004, 1005 (Pa.
1895))). While we find no case law directly on point, we see no reason the common law doctrine
of set-off does not apply in this situation, where MTI is owed a definite amount from a valid
judgment and TMSS is insolvent. See Royal Bank of Penn. v. Selig, 644 A.2d 741, 744 (Pa. Super.
Ct. 1994) (“Immediately upon the maturity of a debt owed by a depositor, the bank’s right to set-off,
by operation of law, extinguishes the depositor’s rights to the account.”). Because the Distributor
Agreement does not prevent set-off, MTI followed common law principles permitted by the contract
when it credited the parts purchase against the judgment.1
1
When asked to respond to this point about set-off during oral argument, counsel for TMSS
spoke about “recoupment” and cited TMSS’s Reply Brief, as if recoupment and set-off are the same
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Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
Additionally, while the contract is constructed so that MTI will always be paid in cash, no
provision vests TMSS with a similar right. In § 20, the contract ensures that TMSS can never pay
MTI in any method other than cash. (“The Distributor agrees not to deduct from any payment to the
Company the amount of any credits for returned material or parts, warranty claims, [etc.] . . . or
otherwise without the Company’s prior written approval.”) (emphasis added). In contrast, the
contract provides in multiple provisions that MTI may pay in credit. The contract explicitly
provides, for instance, that when TMSS returns defective paid parts to MTI, MTI will satisfy the debt
by payment in credit. Other provisions governing payments further protect MTI’s right to pay in
credit, although MTI may choose to pay in cash. When MTI compensates TMSS as part of its
guaranteed price protection, it may pay in credit. A provision for credit to customers—in which
money is technically owed to customers but will be conveyed via TMSS—states that MTI may
reimburse customers in cash or credit and requires that TMSS disburse to customers any funds it
should receive within thirty days. Even the very provision at issue notes that repayment for parts will
have credits MTI has already extended to TMSS deducted. In all instances, therefore, TMSS is
obligated to pay MTI in cash while MTI reserves the right to pay in credit. The contract protects the
right of set-off but limits that right to MTI.
doctrine. They are separate doctrines. While TMSS is correct that a defense of recoupment must
arise out of the same transaction, see Black’s Law Dictionary 618, 1388 (9th ed. 2009), set-off
applies to “a transaction independent of the plaintiff’s claim.” Id. at 1496 (9th ed. 2009); see also
id. at 618 (9th ed. 2009). TMSS therefore offers no argument for why set-off should not apply in
this instance.
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Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
The district court found this arrangement was justified by MTI’s rightful concern with
“having to bear the risk of a distributor’s insolvency.” The contract is constructed to favor MTI in
the advent, which has now come to pass, of TMSS’s insolvency. Because TMSS never has the right
to receive cash, while MTI has the right to set off in credit, we find MTI acted within its common
law and contractual rights by paying TMSS in credit against the $1.6 million judgment.
IV.
TMSS’s second claim is that MTI converted the parts inventory. We find the district court
properly dismissed this claim as duplicative of the breach of contract claim.
Under Ohio law, “the existence of a contract action . . . excludes the opportunity to present
the same case as a tort claim. A tort claim based upon the same actions [as the contract claim] . . .
will exist . . . only if the breaching party also breaches a duty owed separately from that created by
the contract.” Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 684 N.E. 2d 1261, 1270 (Ohio Ct.
App. 1996) (quoting Wolfe v. Continental Cas. Co., 647 F.2d 705, 710 (6th Cir. 1981)) (internal
quotations and citation omitted). TMSS argues that MTI’s duty not to convert the parts inventory
is separate from the contractual duty, but the only reason MTI repurchased the parts inventory is
because § 28 of the Distributor Agreement requires MTI to do so. (“If this Agreement be terminated
by the Company, the Company will . . . repurchase [the parts] from the Distributor[.]”). Moreover,
the same section of the Distributor Agreement also requires that TMSS sell the parts back to MTI.
(“The Distributor agrees to resell [the parts] to the Company[.]”). Because the parts transaction took
place because the contract required that it take place, TMSS cannot argue that MTI had a duty
separate from the contract.
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Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
Once the district court correctly determined that “[MTI’s] obligation to purchase TMSS’s
parts inventory arose from the Distributor Agreement,” it was established that the conversion claim
is based on the same actions as the contract claim. The conversion claim is therefore duplicative of
the breach of contract claim and is not permitted under Ohio law. We therefore find that the district
court did not err in finding that TMSS has failed to state a claim for conversion of the parts
inventory.
V.
TMSS’s third claim is that MTI abused process in the distributorship termination litigation.
Under Ohio law, the elements of the tort of abuse of process are: “(1) that a legal proceeding has
been set in motion in proper form and with probable cause; (2) that the proceeding has been
perverted to attempt to accomplish an ulterior purpose for which it was not designed; and (3) that
direct damage has resulted from the wrongful use of process.” Yaklevich v. Kemp, Schaeffer & Rowe
Co., L.P.A., 626 N.E. 2d 115, 118 (Ohio 1994) (internal citation omitted). Because an “ulterior
purpose” is required, the tort does not apply “where the defendant has done nothing more than carry
out the process to its authorized conclusion, even though with bad intentions.” Id. at 118 n.2
(internal quotation omitted). The Ohio Supreme Court has clarified that abuse of process arises
when “someone attempts to achieve through use of the court that which the court is itself powerless
to order.” Robb v. Chagrin Lagoons Yacht Club, Inc., 662 N.E. 2d 9, 14 (Ohio 1996).
We find that TMSS failed to state a claim. TMSS alleges that MTI aimed to terminate the
distributorship via litigation; terminating this relationship, however, was the exact purpose of the
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first Ohio state lawsuit. There is no ulterior purpose when the matter at issue was the exact matter
“‘for which [the proceedings were] . . . designed.’” Yaklevich, 626 N.E. 2d at 118.
Although TMSS now argues that its abuse of process claim alleged more than just an end to
the distributorship—namely that MTI abused process so as to win its counter-claim in the anti-trust
suit, to destroy TMSS as a business, and to bankrupt the Yeagers—this argument is meritless. The
termination of the distributorship put TMSS out of business, but that result was the “authorized
conclusion” of the state court litigation. Moreover, the end result was not something the court was
“powerless to order” because the termination of the distributorship was the exact question at issue.
Similarly, the Ohio court was not powerless to find for MTI in its trade secrets counter-claim. See
Fred Siegel Co., L.P.A. v. Arter & Hadden, 707 N.E. 2d 853, 861 (Ohio 1999) (“Misappropriation
of trade secrets is a recognized tort in Ohio for which damages may be obtained.”). An abuse of
process claim arises only when “someone attempts to achieve through use of the court that which
the court is itself powerless to order.” Robb, 662 N.E. 2d at 14. Here, because the Ohio courts had
the power to end the distributorship—thereby putting TMSS out of business—and to grant victory
on a misappropriation of trade secrets claim, TMSS has failed to allege an abuse of process claim.
We therefore affirm the district court’s dismissal of the abuse of process claim.
VI.
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TMSS’s final claim is that MTI violated the OMVDA by failing to act in good faith, Ohio
Rev. Code § 4517.59(A), and by failing to pay TMSS within thirty days for warranty credits that
were owed. Ohio Rev. Code § 4517.59(J).2
We have previously held that under § 4517.59(A) a plaintiff “cannot complain that
[defendant] violated the duty of good faith simply because [defendant] exercised its clearly expressed
contractual rights.” Bill Call Ford, Inc. v. Ford Motor Co., 48 F.3d 201, 207 (6th Cir. 1995). On
appeal, TMSS restates its breach of contract and conversion arguments but offers no explanation for
why Bill Call Ford does not prevent an OMVDA claim in light of MTI’s exercise of its contractual
rights. TMSS also argues that the allegations in its abuse of process claim are enough to state a
claim for failure to act in good faith under the OMVDA, but an OMVDA claim was part of TMSS’s
federal anti-trust case and was explicitly rejected by a jury. Although TMSS now makes slightly
different allegations than it did in the anti-trust case, under Ohio law “‘an existing final judgment
or decree between the parties to litigation is conclusive as to all claims which were or might have
been litigated in a first lawsuit.’” Shimko v. Lobe, 790 N.E. 2d 335, 344 (Ohio Ct. App. 2003)
(quoting Grava v. Parkman Twp., 653 N.E. 2d 226, 229 (Ohio 1995)). TMSS’s § 4517.59(A) claim
is therefore barred by controlling case law and res judicata. We therefore find the § 4517.59(A)
claim was properly dismissed by the district court.
2
Since TMSS’s complaint was filed, Ohio Rev. Code § 4517.59(A) has been recodified at
§ 4517.59(A)(1) and Ohio Rev. Code § 4517.59(J) at § 4517.59(A)(11). Act of June 10, 2010, 2010
Ohio Laws File 42.
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Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.
As to its § 4517.59(J) claim, TMSS argues it sufficiently pled that MTI owes it money for
“warranty credits.” Section 4517.59(J) provides that a franchisor must pay a franchisee within thirty
days for any claim for labor under § 4517.52(B), which provides that a franchisor must compensate
franchisees for “labor and parts used to fulfill warranty . . . obligations.” TMSS argues that MTI
acknowledged owing money for “warranty credits” as part of the $828,000 owed. We find this
argument self-defeating. The “warranty credits” are part of the $828,000, which TMSS pled that
MTI paid in credit instead of cash. Because TMSS was allowed to pay in credit, by TMSS’s own
pleading, MTI has satisfied any debt it owes in warranty credits through its credit against the anti-
trust judgment. We therefore find that TMSS has also failed to state a claim under § 4517.59(J).
VII.
For the foregoing reasons, we affirm in judgment of the district court.
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