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TRUCK COMPONENTS, INC. v. K-H CORP.

October 8, 1991

TRUCK COMPONENTS, INC., Plaintiff,
v.
K-H CORPORATION, doing business as THE KELSEY-HAYES GROUP, and KELSEY-HAYES COMPANY, Defendants



The opinion of the court was delivered by: NORDBERG

 JOHN A. NORDBERG, UNITED STATES DISTRICT JUDGE

 The parties to this action are involved in selling component parts to the trucking industry. The present dispute arises from the demarkation between the heavy-duty truck and light truck markets. The plaintiff, Truck Components, Inc. (TCI), sells brake parts and other wheel components for heavy-duty trucks and trailers through its wholly-owned subsidiary, Gunite Corporation. Until September of 1987, Gunite was a subsidiary of the defendants, Kelsey-Hayes Company and its holding company, K-H Corporation. In September, 1987, TCI purchased Gunite for fifty million dollars. The agreement to sell contained a covenant not to compete. It is the alleged breach of this agreement that is the basis for the four-count complaint filed with this Court. Count I contains a breach of contract claim, Count II an unfair competition claim under § 43 of the Lanham Act, 15 U.S.C. § 1125, Count III raises unfair competition claims under Illinois state law, and Count IV charges the defendants with interference with business relationships. The defendants are before the court on a motion to dismiss. The defendants contend that Count II fails to state a claim, and, therefore, the entire complaint must be dismissed for lack of subject matter jurisdiction. For the following reasons, this Court agrees.

 BACKGROUND

 For purposes of ruling on the pending motion, the Court accepts as true all of the plaintiff's well-pleaded factual allegations, as well as all reasonable inferences that may be drawn from them. Martin v. Youngstown Sheet & Tube Co., 911 F.2d 1239, 1241 (7th Cir. 1990). A rule 12(b)(6) motion to dismiss may be granted only if the plaintiff can prove no set of facts that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-6, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The well-pleaded facts are as follows.

 Defendant K-H, like its subsidiary, Kelsey-Hayes, is a Delaware corporation with its principle place of business in Romulus, Michigan. The capital stock of Kelsey-Hayes comprises the principle assets of K-H. Kelsey-Hayes is primarily involved in the manufacture and sale of brake and wheel components for automobiles and light duty trucks. Until September 4, 1987, Kelsey-Hayes had a presence in the heavy-duty truck market through its wholly-owned subsidiary, Gunite. At that time, K-H sold Gunite to TCI for fifty million dollars. To protect the value of its investment, TCI insisted that a non-compete agreement be signed by K-H. The agreement specified that K-H would not compete with TCI in the heavy-duty market for five years, with certain exceptions. For example, because K-H was not selling its Canadian operations to TCI, Kelsey-Hayes retained the right to continue manufacturing certain heavy-duty brake parts outside the United States.

 Two years after selling Gunite to TCI, K-H was acquired by and merged into Varity Corporation through an exchange of stock. Varity is a Canadian corporation headquartered in Toronto. At the time of its acquisition of K-H, Varity was already competing with TCI in the heavy-duty truck parts business through its subsidiaries Dayton-Walther Corporation and Dayton Parts. Dayton-Walther is Gunite's principle competitor in the North American market for heavy-duty truck brake parts and other wheel-end components for sale to original equipment manufacturers (OEMs) and the secondary or after-market. After the merger Varity organized its core businesses into three groups, each named after one member of the group. As a result, K-H, Kelsey-Hayes and Dayton-Walther, among others were placed in the automotive parts group, which does business as the Kelsey-Hayes Group. While TCI does not suggest that the merger of K-H with Varity violated the non-compete agreement, it claims that from that point forward it was on the alert to protect the value of its investment in Gunite from encroachment by Kelsey-Hayes.

 On June 12, 1991, the day before the opening of the International Truck Show in Anaheim, California, one of the largest trade shows for the heavy-duty industry, K-H circulated a package of promotional materials announcing that the "Kelsey-Hayes group had recommitted itself to the trucking industry for the long haul," by forming a Heavy Duty Truck and Trailer Brakes Business. This new business, according to one of the press releases, "combines medium- and heavy-duty wheel-end and brake operations of Romulus, Michigan-based Kelsey-Hayes and Dayton, Ohio-based Dayton Walther. This new business wad formed in January of 1991 and is based in Dayton, Ohio, where Varity's existing heavy-duty operations are located. The division's new president announced to the trade press that projected sales for the new business were $ 88,000,000 for its first year in operation. This projected success was attributed, in part, to the commitment to invest more than 4% of sales in new plant and equipment, and more than 3% in research and development. In addition, according to comments made to the heavy-duty trade press by the vice president of product engineering, "the Heavy Duty Truck and Trailer Brake Business of the Kelsey-Hayes Group is the only wheel-end supplier in the industry with total 'concept to customer' capability, from design and engineering to testing to manufacturing to customer service."

 These press releases, according to TCI, herald the return of Kelsey-Hayes to the heavy-duty components market, two years before the expiration of the non-compete agreement. This premature move allegedly violates the parties' agreement, undermining TCI's attempt to secure a competitive place in the heavy-duty market. The threat to TCI's competitive position in the heavy-duty market was allegedly garnered through a comprehensive media campaign representing that the Kelsey-Hayes Heavy Duty Truck and Trailer Brakes Business may lawfully compete against TCI. The four-count complaint filed with this Court seeks damages for breach of contract, for interference with business relationships, and for false advertising, under both federal and Illinois law.

 ANALYSIS

 Section 43(a) of the Lanham Act reaches a wide array of unfair competitive practices. While fundamentally the act provides trademark protection, its scope was broadened by judicial interpretation to include unfair competition. In 1988, Congress amended § 43 to codify the judicial interpretation. See S. Rep. No. 100-515, reprinted in 1988 U.S. Code Cong. & Admin. News, 5577, 5603. The 1988 version of § 43(a) reads, in relevant part:

 
(a) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which --
 
(2) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,
 
shall be liable in a civil action by any person who believes that he or she is or is likely to ...

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