A significant New Jersey tire dealer and retreader is suing Michelin North America and another area dealer, alleging corruption and collusion on tire pricing that favored the second dealer.
Elizabeth, N.J.-based Inter City Tire & Auto Center Inc. and its retread arm filed suit in the U.S. District Court for New Jersey against both MNA and Service Tire Truck Centers Inc. Inter City Tire has multiple locations and truck centers in New Jersey and New York.
According to a news release by Inter City Tire and its attorney, the “lawsuit alleges Inter City uncovered an illicit corruption scheme involving Michelin sales executives, who, in collusion with STTC and others, used shell corporations to divert deeply discounted tires, intended for large fleet customers, and resell the tires in direct competition with Inter City. The Michelin sales executives allegedly lined their pockets with profits from the scheme, while they were on Michelin’s payroll and responsible for supporting Inter City.”
And, according to Inter City Tire, at some point owner Morris Erbesh was physically threatened by an unnamed MNA sales executive. “When Mr. Erbesh threatened to escalate the issue to the executive’s superiors, the executive threatened to kill Mr. Erbesh,” the release stated.
A MNA spokesman told Tire Review that the tiremaker “does not comment on pending legal matters,” but offered that the company “terminated two rogue employees who personally profited from a complicated scheme designed to enrich themselves.”
Inter City Tire claims that it uncovered and documented the scheme back in 2011, and brought it to the attention of MNA’s general counsel. This, the dealer said, “led to the termination of at least two Michelin sales executives in 2012 and disciplinary actions against several other Michelin executives.”
However, settlement negotiations between Inter City and MNA apparently broke down on April 19, at which time “Michelin retaliated against Inter City by issuing a notice attempting to terminate it as a dealer on grounds that, Inter City maintains, are fabricated and will be immediately contested,” the dealer said.
Inter City’s suit alleges violations of RICO (Racketeer Influenced and Corrupt Organizations Act), Robinson-Patman Act, the New York Consumer Protection Statute, the New Jersey Consumer Fraud Act, and the New Jersey Franchise Practices Act, as well as “breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and misrepresentation.”
Inter City’s suit, which seeks compensatory damages, statutory treble damages, punitive damages and attorneys’ fees and costs, formally alleges that MNA sales executives, STTC and others:
• “Falsified invoices and other documents to create the appearance that Michelin tires were purchased by and delivered to large fleet accounts, when the tires were actually diverted to STTC and other corporate entities controlled by Michelin sales executives, in order to undercut the prices at which Inter City was able to offer Michelin tires to its customers;
• “Violated state tax laws by falsifying records as to the true location of truck tire sales, and thereby underpaid taxes legally owed, through the use of a complex credit card scheme;
• “Awarded grossly disproportionate price discounts to STTC and other competitors of Inter City in which the Michelin sales managers held undisclosed ownership interests, in an effort to drive Inter City out of business;
• “Aggressively discouraged Inter City’s retail customers from continuing to do business with Inter City and redirected those customers to STTC and other companies in which the Michelin sales executives held undisclosed ownership interests; and
• “Otherwise competed against and undermined Inter City’s prices and sales efforts when Michelin was legally obligated to support and assist Inter City’s new tire and retread business.”
