Int'l Constr. Prods. v. Caterpillar Inc.

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INTERNATIONAL CONSTRUCTION PRODUCTS, LLC, Plaintiff, v. CATERPILLAR INC., et al, Defendants.

Civil Action No. 15-108-RGA

United States District Court, D. Delaware

April 15, 2024

Matthew D. Stachel, PAUL, WEISS, RIFKIND, WHARTON &amp GARRISON LLP, Wilmington, DE; William A. Isaacson, Amy J Mauser, and David E. Cole, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Washington, D.C. Attorneys for Plaintiff.

David J. Baldwin and Peter C. McGivney, BERGER HARRIS, Wilmington DE; Joseph A. Ostoyich and Danielle Morello, CLIFFORD CHANCE LLP, Washington, D.C.; Paul C. Cuomo, Heather Souder Choi, and Adam Dec, BAKER BOTTS LLP, Washington, D.C. Attorneys for Defendants.

MEMORANDUM OPINION

ANDREMS, U.S. DISTRICT JUDGE

Before me is Caterpillar's motion for summary judgment (D.I. 602). I held oral argument on March 19, 2024.1 have considered the parties' briefing (D.I. 603, 641, 660). For the reasons set forth below, Caterpillar's motion for summary judgment is DENIED-in-part and GRANTED-in-part.

I. BACKGROUND

A. Procedural History

Discovery was split into two phases in this case. (D.I. 320 at 2). Phase I was “limited to fact discovery on the issue of the existence of a conspiracy,” and Phase II “focus[ed] on expert discovery and the issues of market definition, antitrust injury, and damages.” (Id.). After Phase I discovery ended, Caterpillar filed a motion for summary judgment on the Sherman Act Section 1 claims, alleging there was no evidence of an agreement to threaten IronPlanet. (D.I. 391 at 27). Caterpillar also moved for summary judgment on the state law tortious interference claim, alleging that Caterpillar did not threaten or coerce IronPlanet and that Caterpillar's conduct was justified because it was an investor in AAS and IronPlanet. (D.I. 391 at 35-40). I denied Caterpillar's motion for summary judgment on all grounds. (D.I. 456).

Caterpillar also moved to exclude the opinions of ICP's expert economist, Dr. Leitzinger. (D.I. 392). Caterpillar argued, “Dr. Leitzinger (1) ignored the parties' used equipment data, (2) did not employ any peer-accepted economics methodology in forming his opinions, and (3) relied on dismissed allegations and considered as coconspirators parties who are not defendants and were not specifically alleged by ICP to be coconspirators.” (D.I. 456 at 47) (cleaned up). I denied this motion as well. (D.I. 456, 457).

Phase II of discovery concluded on October 10, 2023. (D.I. 590 at 2).

ICP moved to amend its complaint for the fourth time to add a new theory under Section 1 of the Sherman Act: negative tying. (D.I. 563). I denied ICP's motion (D.I. 680), so I will not address any arguments related to negative tying.

Two claims thus remain in this case, a Sherman Act Section 1 claim and a state law tortious interference claim. (D.I. 603 at 1). Now, Caterpillar moves for summary judgment on both ICP's Sherman Act Section 1 claim and tortious interference claim. (D.I. 603).

B. Factual Background

In 2013-14, Caterpillar was the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives, with 2013 sales and revenue totaling $56 billion. (D.I. 399-1 Ex. 4 at 1). The construction equipment Caterpillar manufactures includes wheel loaders and excavators. (D.I. 604 Ex. 4 at 6). Caterpillar, through its “Construction Industries” division, was the largest manufacturer of heavy equipment sold worldwide in 2013-14. (D.I. 399-1 Ex. 4 at A-107; D.I. 399-1 Ex. 6 ¶ 25). Caterpillar made 25-30% of the wheel loader and excavator sales nationally. (D.I. 604 Ex. 6).

Rather than sell directly to end-user customers, Caterpillar sold its new heavy equipment to a network of independently owned dealers. (D.I. 399-1 Ex. 4 at 7; D.I. 419-1 at 23:6-24, 25:19-21 (Levenick); D.I. 399-1 Ex. 8 at 182:3-20 (Guilford)). These dealers sold to end-users and offered them service and parts. (D.I. 399-1 Ex. 6 ¶ 33). In 2014, Ring Power was one of Caterpillar's largest dealers, with its headquarters in St. Augustine, Florida, and locations in north and central Florida. (D.I. 419-19 at 33:2-6 (Fowler); D.I. 396-1 Ex. 1 ¶ 17). Thompson Tractor (hereinafter, “Thompson”) was a Caterpillar dealer with locations in Alabama and the Florida Panhandle. (D.I. 419-20 at -69-70).

IronPlanet operated an exclusively online platform for selling and auctioning used heavy construction equipment. (D.I. 419-12 at -037). In 2013, IronPlanet reported a total revenue of $58 million and an EBITDA of-$3.4 million. (D.I. 399-1 Ex. 5 at -707).

Tim Frank and Eric Teague started ICP in 2013. (D.I. 644 Ex. 24 Tr.23:4-24:18). ICP's business model was to import equipment from LonKing, a Chinese manufacturer, and to sell the equipment directly to consumers using an online platform. (Id.). Chinese wheel loaders were priced 30-40% lower and excavators 15-20% lower than Caterpillar's wheel loaders and excavators. (D.I. 644 Ex. 16 at 85-87, 89). ICP expected to sell LonKing's equipment at prices “30% to 45% less” than the prices of other manufacturers' new equipment. (D.I. 644 Ex. 17 at 425). Before ICP's business model of selling equipment online direct to consumers, the only model for manufacturers to go to market was through local dealers. (D.I. 644 Ex. 39.)

In October 2013, Tim Frank first contacted IronPlanet about the possibility of IronPlanet assisting ICP in implementing its vision for an “online direct sales model” of distribution for Chinese-manufactured, new heavy construction equipment in North America. (D.I. 419-24).

Because ICP was a new entrant in the heavy construction equipment market and did not have an established network of equipment dealers, IronPlanet's online sales platform was “critical” to ICP's business. (D.I. 419-23 at 59:5-7 (Frank)).

On Monday, March 3, 2014, ICP and IronPlanet signed a Hosted Store Agreement in which IronPlanet agreed to “develop, operate, and maintain” a section of its website featuring and offering ICP's new equipment for sale directly to customers. (D.I. 399-3 Ex. 28 at 1). The Hosted Store Agreement had an initial term of one year, followed by automatic renewal for up to two successive one-year terms, unless either party gave ninety days' written notice prior to the start of the new term. (Id. at 5). The Agreement included a “Termination for Cause” provision, which allowed either party to terminate the Agreement upon giving thirty days' written notice “if the other party breaches any material provision of this Agreement and fails to cure such breach within such thirty (30) day period.” (Id.).

Prior to ICP's launch, ICP prepared a 5-year pro forma that estimated North America sales for 2014-2018. (D.I. 644 Ex. 66). ICP's Eric Teague helped prepare the pro forma. (D.I. 644 Ex. 40 Tr. 166:3-17). The pro forma assumed that ICP could comply with EPA requirements. (D.I. 644 Ex. 40 Tr. 173:19-176:11).

The parties dispute whether ICP would have complied with the EPA requirements. EPA and/or CARB^[1] emissions standards apply to new machines and non-road compression ignition (NR.CI) engines sold in the U.S. (D.I. 604 Ex. 7 ¶¶ 29, 32). “Section 203 of Title II of the Clean Air Act as well as 40 CFR 1068.101 and 1068.301 prohibit the importation and/or introduction into commerce of non-EPA certified NRCI engines and therefore construction equipment powered by non-certified engines. Similar prohibitions apply to non-CARB certified NRCI engines.” (Id. at ¶ 44). Engine manufacturers can apply for EPA/CARB certification by submitting an application electronically to EPA and CARB (Id. at ¶ 41). There are four sets of emissions standards that become progressively more stringent: Tier 1, Tier 2, Tier 3, and Tier 4. (Id. at ¶ 33). EPA has a transition program (TPEM) that allows equipment manufacturers to keep selling non-Tier 4 compliant engines during the transition period to Tier 4. (D.I. 644 Ex. 68 Tr. 68:8-23). ICP expected that LonKing would use Tier 4 compliant engines from Cummins, an engine manufacturer. (D.I. 604 Ex. 7 at ¶ 102; D.I. 644 Ex. 68 Tr. 64:20-65:2).

On March 4, 2014, ICP's store went live on IronPlanet's website and on March 5, ICP announced its partnership with IronPlanet publicly at ConExpo, a large industry trade show. (D.I. 399-3 Ex. 29; D.I. 419-39). After ConExpo, a trade publication reported, “The ICP strategy model could be very disruptive for the North American equipment business.” (D.I. 644 Ex. 53 at 4). Caterpillar's internal documents expressed that ICP's business strategy would be a way to “avoi[d] the time involved in building a traditional distribution network” and “the type of disruption [Caterpillar was] worried about.” (D.I. 644 Exs. 61 at 427, 62 at 736).

On April 1, Ring Power's Senior Vice President Frank Fowler sent an email with the subject line, “*Confidential: Iron Planet,” to Randy Ringhaver, Ring Power's CEO, and others, announcing, As I reported at the board meeting, Iron Planet is offering new Chinese equipment for sale on their web site.

I also have heard they are trying to sell to end users through their field salesmen. If so, not good. I spoke to Jerome [Guilford] last night and he indicated Cat is not happy with what they have seen and heard as well.

Jerome also told me Peter Blake from Ritchie was trying to set up a meeting with Cat to discuss how they could possibly work together.

As soon as I confirm all the rumors I will call Greg Owens to verify and find out what is going on. Probably tomorrow.

(D.I. 419-61).

The following day, Wednesday, April 2, kicked off a series of phone calls in quick succession among representatives from Caterpillar, its dealers, and IronPlanet.

At 12:14 pm, Ring Power's Frank Fowler spoke on the phone with Thompson's Used Equipment buyer, ...