Ervin Equipment v. Wabash National Corp.

Filing 65

OPINION AND ORDER: For the reasons set forth in the order, Ervin's motion to dismiss Wabash's counterclaims 56 is GRANTED and both counterclaims are DISMISSED WITH PREJUDICE. Signed by Chief Judge Philip P Simon on 1/31/2017. (jss)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
LAFAYETTE DIVISION
ERVIN EQUIPMENT INC.,

)
)
)
)
)
)
)
)
)

Plaintiff,
vs.
WABASH NATIONAL CORP.,
Defendant.

NO. 4:15-cv-104

OPINION AND ORDER
This case involves an attempted termination of a dealership agreement between a
manufacturer of semitrailers, Wabash National Corporation, and Ervin Equipment, Inc.,
one of its dealers. Ervin brought this action to stave off the impending termination.
Wabash has responded with two counterclaims: the first alleges that this is a “sham”
litigation brought for an impermissible purpose; relatedly, the second counterclaim is
for abuse of process. Ervin seeks the dismissal of these two counterclaims. Because
these counterclaims fail to state a claim under Federal Rule of Civil Procedure 12(b)(6),
the motion [DE 56] is granted.
Factual Background
I have already set forth the underlying facts of this case in my opinion and order
dated May 17, 2016, denying Ervin’s motion for preliminary injunction and granting in
part and denying in part Wabash’s motion to dismiss. [DE 36 at 2-6.] As such, I will
1

only briefly discuss the background for this motion.
Ervin originally filed a complaint and amended complaint asserting three claims
against Wabash for its alleged violation of various Indiana statutes related to the
manner in which it sought to terminate the Dealership Agreement. [DE 1, 16.] Wabash
responded with a motion to dismiss. [DE 20.] I dismissed two of Ervin’s three claims,
but found that Ervin’s complaint did state a proper claim under the Indiana unfair
practices statute, Ind. Code § 9-32-13-27. [DE 36 at 8-13.] In essence, I found that
Wabash needed to provide proper notice before terminating the dealership agreement
and that such a termination could only be based on good cause— both of which are
questions of fact to be determined by the jury. But I also found in that same order that
Ervin’s motion for a preliminary injunction did not meet the standards under Rule 65,
and thus I refused to force Wabash to continue the Dealership Agreement pending a
final determination in the case.
Ervin then filed a motion for leave to file a second amended complaint. Ervin
sought to add a claim under the Sherman Act alleging a conspiracy among Wabash and
certain Wabash dealers to terminate Ervin and impose illegal territorial restraints on
Wabash dealers. [DE 26.] Magistrate Judge Paul R. Cherry, applying the same standard
as on a Rule 12(b)(6) motion, held that Ervin alleged sufficient facts to state its antitrust
claim and thus allowed the second amended complaint to go forward. [DE 50.]
Wabash filed an answer to the second amended complaint, and also filed two
counterclaims. [DE 53, 54.] The document is entitled “Counterclaims of Defendant
2

Wabash National for Sham Litigation and Abuse of Process.” [DE 54.] The first
counterclaim—for sham litigation and violation of federal and state antitrust laws—
alleges that Ervin has used this litigation “to intimidate, harass and eliminate
competition in the market for used dry van semitrailers,” that Ervin’s conduct violates
15 U.S.C. § 2 and Ind. Code §24-1-1-1 et seq., and that the sham litigation has harmed
Wabash and competition. [DE 54 at 10-11.] The second counterclaim alleges that Ervin
has committed an abuse of process by asserting its claims “for an ulterior and improper
purpose” and its actions constitute a “misuse and misapplication of process.” [DE 54 at
11-12.]
Discussion
Ervin moves to dismiss Wabash’s counterclaims under Federal Rule of Civil
Procedure 12(b)(6). To survive the motion, the counterclaims “must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (internal quotation marks and citations
omitted); accord Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While I must
accept as true all factual allegations in the counterclaims and draw reasonable
inferences in favor of Wabash, I am not required to accept “threadbare recitals of a
cause of action’s elements, supported by mere conclusory statements.” Iqbal, 556 U.S. at
663; see also McCauley v. Chicago, 671 F.3d 611, 616 (7th Cir. 2011). Indeed, Wabash must
allege “more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555. Making the plausibility
3

determination is “a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Iqbal, 556 U.S. at 663-64.
Count 1 - Sham Litigation/Attempt to Monopolize
Count 1 is entitled “sham litigation in violation of federal and state antitrust
law.” [DE 54 at 10.] Wabash alleges that Ervin knew it had no basis to allege a breach
of contract, had little hope of surviving a dispositive motion on the related claims, and
made up fictitious “facts” to support the Sherman Act claim. [DE 54 at 2-7.] Wabash
also specifically alleges Ervin’s conduct has violated 15 U.S.C. § 2 and Ind. Code § 24-11-1 et seq. [Id. at 11.] This counterclaim fails for two main reasons: (1) Ervin’s claims are
not “objectively baseless” so as to constitute “sham litigation” outside the protection of
the Noerr-Pennington doctrine; and (2) Wabash did not plead plausible facts to show that
Ervin’s lawsuit constitutes an “attempt to monopolize.”
“Sham litigation” is not a claim by itself, but rather an exception to the NoerrPennington doctrine. Noerr-Pennington provides immunity under the First Amendment
to Ervin from having an antitrust claim asserted against it based on its petitioning this
court for relief. Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
127 (1961). However, the doctrine does not provide antitrust immunity to “sham”
lawsuits.
The Supreme Court outlined a two-part definition of sham litigation to
determine whether the party is entitled to immunity under Noerr-Pennington. First, to
be a sham, the suit “must be objectively baseless in the sense that no reasonable litigant
4

could realistically expect success on the merits.” Professional Real Estate Investors, Inc. v.
Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993). Second, “the court should focus on
whether the baseless lawsuit conceals an attempt to interfere directly with the business
relationships of a competitor, through the use of the government process —as opposed
to the outcome of that process—as an anticompetitive weapon.” Id. at 60-61 (emphasis in
original, citations and quotations omitted). “Only if challenged litigation is objectively
meritless may a court examine the litigant’s subjective motivation.” Id. at 60.
While the question of whether litigation is a sham could be a fact question for the
jury, as the Supreme Court explained in Professional Real Estate Investors, where “there is
no dispute over the predicate facts of the underlying legal proceeding, a court may
decide probable cause [and thus Noerr-Pennington applicability] as a matter of law.”
Professional Real Estate Investors, 508 U.S. at 63. The “classic” example of sham litigation
is “the filing of frivolous objections to the license application of a competitor, with no
expectation of achieving denial of the license but simply in order to impose expense and
delay.” City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 380 (1991) (citation
omitted).
Here, Ervin’s claims are not objectively baseless. While I dismissed two of the
three claims in the original complaint and denied the motion for preliminary injunction,
those rulings were not slam dunks. Rather, they required a significant amount of
research and analysis. And, in analyzing whether to grant Ervin’s motion to amend the
complaint, Magistrate Judge Cherry conducted an extensive analysis under the same
5

standard as Rule 12(b)(6), and found Ervin could properly amend the complaint and
state a claim for relief under the Sherman Act. Thus at this stage in the proceedings,
Ervin has two claims that were challenged and still remain pending (for violation of the
Indiana unfair practices statute and the Sherman Act). This fact alone strongly militates
against any conclusion that Ervin’s lawsuit is objectively baseless. Other courts are in
accord with this.
For example, in Arnett, the district court granted a motion to dismiss a claim of
sham litigation finding where “the trial court has twice rejected motions to dismiss” and
the state court allowed the filing of a third amended complaint, “[t]he suit, as a matter
of law, is not ‘objectively baseless.’” Arnett Physician Group, P.C. v. Greater LaFayatte
Health Servs., Inc., 382 F.Supp.2d 1092, 1097 (N.D. Ind. 2005). Similarly, in Icahn v.
Raynor, 2011 N.Y. Slip Op. 51416 (U), at *6 (N.Y. Sup. Ct. June 16, 2011), the court
reasoned because it already denied a motion to dismiss, “[t]his court has thus not found
the claims in the . . . lawsuit to be objectively baseless,” and in Krasnyi Oktyabr, Inc. v.
Trilini Imports, 578 F.Supp.2d 455, 475 (E.D. N.Y. 2008), the court reasoned because
“plaintiff’s claims had enough merit to survive defendants’ motion to dismiss,” they
were not objectively baseless even though they eventually failed to survive summary
judgment.
Only if I find that the lawsuit is objectively meritless (which I haven’t), may I
then inquire into Ervin’s subjective intent in an exploration of whether the intent was
not to win, but to interfere directly with the business relationships of a competitor.
6

Professional Real Estate Investors, 508 U.S. at 60-61. But let’s suppose for the moment that
the lawsuit was objectively meritless. Wabash has also failed to establish the second
element of sham litigation—that the litigation is being used to “conceal[] an attempt to
interfere directly with the business relationships of a competitor, through the use [of] the
governmental process—as opposed to the outcome of that process—as an anticompetitive
weapon.” Arnett, 382 F.Supp.2d at 1096-97 (emphasis in original) (internal citation and
punctuation omitted).
Wabash’s conclusory allegations that Ervin is using the litigation process as a
sham and wants to impose undue costs on Wabash and other Wabash dealers are not
supported by facts and just don’t make sense when I step back and look at this lawsuit.
It seems pretty clear that Ervin is suing to preserve its right to be a Wabash dealer and
to continue its relationship with Wabash. Ervin seems to be genuinely seeking the
outcome solicited in filing this lawsuit. It just doesn’t jibe that Wabash now asserts in
its counterclaim that Ervin is really only trying to intentionally hurt Wabash or other
competitors. For all of these reasons, Ervin’s lawsuit is not objectively baseless, and it is
entitled to the immunity provided by the Noerr-Pennington doctrine.
Wabash has also failed to state a proper antitrust claim. Wabash refers to the
Sherman Act, 15 U.S.C. § 2, and the corresponding Indiana statutes, Ind. Code 24-1-1-1
et seq. [DE 54 at 11.] The Seventh Circuit has warned that “section 2 must be used with
the greatest of caution” as “[a]ction that injures rivals may ultimately injure consumers,
but it is also perfectly consistent with competition, and to deter aggressive conduct is to
7

deter competition.” Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413
(7th Cir. 1989) (quotation omitted).
Section 2 of the Sherman Act prohibits monopolization and attempted
monopolization by a single firm. In its response, Wabash argues it has stated a
plausible counterclaim for attempted monopolization by Ervin engaging in predatory
conduct with a dangerous probability Ervin would achieve monopoly power through
its conduct. To show a Section 2 violation based on attempted monopolization, Wabash
must plead and prove: (1) Ervin has engaged in predatory or anticompetitive conduct,
(2) with a specific intent to monopolize, and (3) has a dangerous probability of
achieving monopoly power. Spectrum Sports v. McQuillan, 506 U.S. 447, 456 (1993).
Simply put, Wabash has failed to allege any facts in the counterclaims which, if proved,
would show that Ervin has engaged in exclusionary conduct with a dangerous
probability of achieving monopoly power if it were to remain a Wabash dealer.
Most glaringly, the counterclaim contains no facts alleging that Ervin currently
possesses monopoly power in the market for used dry van semitrailers, or a finding that
Ervin has a dangerous probability of achieving monopoly power if it were to remain a
Wabash dealer. The purpose of establishing market power is to find out whether Ervin
could control the market and therefore affect competition. As such, Ervin would need a
substantial percentage of the sales in the used dry van market to have market power. In
section 2 monopoly cases, “a substantial percentage of the sales is usually at least 50%.”
Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 666-67 (7th Cir. 1987); see also
8

Bailey v. Allgas, Inc., 284 F.3d 1237, 1250 (11th Cir. 2002) (“a market share at or less than
50% is inadequate as a matter of law to constitute monopoly power.”).
While Wabash argues it need only allege generalities at this stage of the
proceedings (not specific market share or probability of achieving a certain market
share), the caselaw cited by Ervin proves otherwise. The Seventh Circuit found,
“[plaintiffs] did not establish market power. They failed as a matter of law. This failure
makes every other element of the [tying] anti-trust case irrelevant.” Will v.
Comprehensive Accounting Corp., 776 F.2d 665, 671 (7th Cir. 1985). “To evaluate a
defendant’s market power, ‘at the very least it must be shown how much of the relevant
market a defendant controls.’” Nat’l Ass’n of Investors Corp. v. Bivio, Inc., No. 11-cv02435-WJM, at *5 (D. Colo. Jan. 28, 2013) (quoting Shoppin’ Bag of Pueblo, Inc. v. Dillon
Cos., Inc., 783 F.2d 159, 161-61 (10th Cir. 1986)); see also Rick-Mik Enters. v. Equilon Enters.,
LLC, 532 F.3d 963, 972-73 (9th Cir. 2008) (“A failure to allege power in the relevant
market is a sufficient ground to dismiss an antitrust complaint.”). “Without any
quantitative or qualitative allegations of market share, PNY may not pursue claims for
attempted monopolization of the flash memory devices or systems market.” PNY
Techs., Inc., v. Sandisk Corp., No. C-11-04689 YGR, 2012 WL 1380271, at *9 (N.D. Cal. Apr.
20, 2012); see also Arnett, 382 F.Supp.2d at 1094-95.
Wabash’s allegation that, upon information and belief, Ervin is the “largest seller
of used dry van semitrailers in the country” [DE 54 ¶ 39] is not enough because it gives
no information at all about Ervin’s market share in the nationwide market. Ervin could
9

be a top seller, and yet still hold a fraction of the market—this seems especially likely to
me since Wabash alleges the market for used dry van semitrailers is “an open market”
with many participants. [DE 54 ¶¶ 19, 26, 37.] Because Wabash has failed to identify
facts from which I can infer that Ervin has sufficient market power to create a
monopoly, or creating a dangerous probability of achieving a monopoly, the antitrust
counterclaim should be dismissed. 42nd Parallel North v. E. Street Denim Co., 286 F.3d
401, 406 (7th Cir. 2002).
There is yet another reason why Wabash’s claim under Section 2 of the Sherman
Act cannot go forward and that is it has not alleged there are high barriers to entry in
the used dry van market. The Seventh Circuit has “long held that low barriers to
competition demonstrate the absence of monopoly power.” Indiana Telecom Corp., Inc. v.
Indiana Bell Tel. Co., Inc., No. 97-1532-C, 2001 WL 1168169, at *11 (S.D. Ind. Sept. 25,
2001) (citing Am. Academic Suppliers, Inc. v. Beckley-Cardey, Inc., 922 F.2d 1317, 1320-21
(7th Cir. 1991)). Here, Wabash has alleged “the market for dry van semitrailers sold in
the United States is a demonstrably open market, with low barriers to entry and many
vigorous competitive participants. In such a market, holding a particular share of sales
is economically and legally irrelevant.” [DE 54 ¶ 19.] This is an admission that there
are low barriers to competition in this market which essentially means that Wabash has
pled its way out of court. In sum, the antitrust counterclaim is implausible and must be
dismissed.
Count 2 - Abuse of Process
10

Count 2 is titled “Abuse of Process” but because there is no federal cause of
action for abuse of process, I’ll look to state law abuse of process claims to evaluate that
count. Hart v. Mannina, 798 F.3d 578, 593-94 (7th Cir. 2015); United States Express Lines
Ltd. v. Higgins, 281 F.3d 383, 393 (3d Cir. 2002) (“victims of such misconduct may, in
appropriate circumstances, bring suit to recover damages under state causes of
action.”).
Under Indiana law, abuse of process requires proof of: “(1) an ulterior purpose,
and (2) a willful act in the use of the process not proper in the regular conduct of the
proceeding.’“ Hart, 798 F.3d at 593 (quoting Lindsay v. Jenkins, 574 N.E.2d 324, 326 (Ind.
Ct. App. 1991)). For an abuse of process claim:
“If a party’s acts are procedurally and substantively proper under
the circumstances then his intent is irrelevant.” Watson v. Auto
Advisors, Inc., 822 N.E.2d 1017, 1029 (Ind. Ct. App. 2005). “A party
may not be held liable for abuse of process if the ‘legal process has
been used to accomplish an outcome which the process was
designed to accomplish.’” Id. A party’s intent is irrelevant where
his acts are procedurally and substantively proper under the
circumstances. Reichart v. City of New Haven, 674 N.E.2d 27, 31. Id.
(citation omitted).
Apex Colors, Inc. v. ChemWorld Int’l., Ltd., Inc., No. 2:14-CV-273, 2015 WL 5311403, at *2
(N.D. Ind. Sept. 10, 2015). A “party may not be held liable for abuse of process if the
legal process has been used to accomplish an outcome which the process was designed
to accomplish, even though done with bad intentions.” Heartland Recreational Vehicles,
LLC v. Forest River, Inc., No. 3:11-cv-250-JD, 2012 WL 4050301, at *7 (N.D. Ind. Sept. 12,
2012) (quotation omitted). Furthermore, “the claim of abuse of process was not
11

intended to address allegations of a frivolous lawsuit.” Apex Colors, 2015 WL 5311403,
at *3 (citing Nat’l City Bank, Ind. v. Shortridge, 689 N.E.2d 1248, 1253 (Ind. 1997) (“This
standard contemplates something more on the part of an attorney filing suit than a
questionable belief as to the merits of a case, or the failure to fully investigate all the
facts prior to initiating suit.”)).
While it is true that Wabash has alleged that Ervin had an ulterior motive in
pursuing this litigation, [DE 54 at 11-12], the counterclaim is devoid of any allegation of
misuse of the legal process. There is no indication that Ervin has not complied with the
procedural rules, including filing the complaint, amended complaint, and the motion
for preliminary injunction. From my perspective, Ervin has not violated any procedural
rules, and I see no misuse of the legal process.
It seems to me that if it becomes clear that Ervin’s claims do lack support, or if it
comes out that Ervin intentionally falsified facts alleged in the amended complaint, then
the appropriate remedy for Wabash would be a claim for sanctions under Rule 11. Rule
11(b) provides that by presenting to the court a pleading, the attorney or party is
representing that it is “not being presented for any improper purpose, such as to harass,
cause unnecessary delay, or needlessly increase the cost of litigation” and the claims
“are warranted by existing law” and “the factual contentions have evidentiary
support.” Fed. R. Civ. P. 11(b)(1), (2), (3). If the Court were to determine that Rule
11(b) had been violated, it could then impose an appropriate sanction on a party or
attorney. Fed. R. Civ. P. 11(c)(1).
12

Conclusion
For the reasons set forth above, Ervin’s motion to dismiss Wabash’s
counterclaims [DE 56] is GRANTED and both counterclaims are DISMISSED WITH
PREJUDICE.

SO ORDERED.
ENTERED: January 31, 2017
s/ Philip P. Simon
PHILIP P. SIMON, CHIEF JUDGE
UNITED STATES DISTRICT COURT

13