United States District Court, N.D. Texas, Dallas Division
SECURITY DATA SUPPLY, LLC et al.
NORTEK SECURITY AND CONTROL LLC et al.
MEMORANDUM OPINION AND ORDER
GREN SCHOLER, UNITED STATES DISTRICT JUDGE
Order addresses Defendants Earnest Bernard's
("Bernard") Motion to Dismiss [ECF No. 104], Nortek
Security and Control LLC's ("Nortek") Motion to
Dismiss [ECF No. 106], and Wave Electronics Inc.'s
("Wave") (collectively, "Defendants")
Motion to Dismiss [ECF No. 108] (the "Motions").
For the following reasons, the Court grants in part and
denies in part the Motions.
Security Data Supply, LLC ("SDS") and its
franchisees ("SDS Franchisees") (collectively,
"Plaintiffs") filed this lawsuit on October 12,
2017, in the U.S. District Court for the Eastern District of
Louisiana alleging violations of the federal antitrust laws
and tortious interference. Resp. 1, 4, Defendants moved to
dismiss for lack of personal jurisdiction, and the Louisiana
District Court transferred the case to this Court on May 31,
2018. See ECF No. 62. During a hearing on September
20, 2018, Plaintiffs orally moved for leave to file an
amended complaint, which the Court granted. See ECF
No. 99. After Plaintiffs filed their Second Amended Complaint
on October 5, 2018, Defendants again moved to dismiss.
See ECF Nos. 102, 104, 106, 108. The parties through
their counsel appeared before the Court for oral argument on
the pending Motions on June 19, 2019.
is a leading manufacturer of security, home automation, and
personal security systems that distributes its products
through wholesale distributors such as SDS. Second Am. Compl.
¶¶ 17-18. Although Nortek maintains a 10% market
share of intrusion alarm systems overall, Nortek is the sole
manufacturer of 2GIG-"an intelligent connected system
for residential intrusion detection." Id.
¶¶ 19-20. Nortek sells its products to wholesale
distributors, who then sell it to retailers and installers,
who provide the equipment to the end user. Id.
¶ 18. Nortek manufactures and distributes its 2GIG
products from California and Colorado. Id. ¶
are wholesale distributors of CCTV, intrusion alarm systems,
access control, fire alarms, and home automation systems,
including Nortek's 2GIG and other products. Id.
¶¶ 3-15. Plaintiffs maintain outlets in Texas and
Louisiana, and have been distributing Nortek's products
since 2004. Id. ¶¶ 32-33, 37. Nortek's
prices were generally consistent and only varied in limited
circumstances, such as when Nortek sold to dealers in
extraordinary volume. Id. ¶ 44. Plaintiffs
contend that SDS and the SDS Franchisees operate as a single
enterprise, Id. ¶¶ 89-92. SDS and the SDS
Franchisees have entered into a "Cost Plus [sic]
Contract," whereby the SDS Franchisees purchase all of
their inventory from SDS for a set price based upon a
standard mark-up on the wholesale price, Id. ¶
90. Thus, "there is a functional or economic unity
between SDS .. . and its franchisees." Id.
¶ 91. Nortek also treated SDS and the SDS Franchisees as
a single enterprise. Id. ¶ 92.
began distributing Nortek's 2GIG products in 2015, and
has since been Plaintiffs' direct competitor, maintaining
outlets in Texas and Louisiana. Id. ¶¶ 18,
22-23, 35-37. By 2017, Wave became the largest purchaser of
2GIG products. Id. ¶ 38, According to
Plaintiffs, this was possible because Nortek and Wave entered
into a special pricing program called the "Four Star
Program." Id. ¶¶ 28, 38. Plaintiffs
also interviewed former Wave employees aware of the alleged
pricing scheme, who told Plaintiffs that the Four Star
Program was designed to attract customers to Wave.
Id. ¶ 68. This pricing program allegedly
involved special rebates that Wave's customers received
after the sale was complete. Id., ¶ 45.
According to Plaintiffs, the rebate was "kicked
back" to Wave, which allowed Wave to earn a significant
profit while selling Noitek's products up to 40% below
the wholesale price Nortek charged Plaintiffs and other
distributors. Id., ¶¶ 45-46, 97.
there were some requirements for a customer to obtain special
pricing, Wave provided the special pricing to nearly all of
its customers, allegedly with Nortek's tacit consent.
Id. ¶¶ 47-48. When Plaintiffs inquired
about entering into a similar arrangement, Nortek denied the
existence of the Four Star Program. Id. ¶ 49.
Bernard, Nortek's sales representative, purportedly told
Plaintiffs that they were receiving Nortek's best price
and that ail of the distributors were paying the same amount
for Nortek's products. Id.
allege that Bernard and other Nortek employees were receiving
"bribes . . . consisting of payments and American
Express gift cards" from Wave in exchange for
maintaining the pricing program. Id. ¶¶
26, 28, 38-39, 53, 70-75. As part of this scheme,
Nortek's employees would also identify Plaintiffs'
customers to Wave as potential "leads."
Id. ¶¶ 60-61. Once Nortek learned of these
employees' activities, Bernard resigned and the other
employees engaged in the alleged bribery were terminated.
Id. ¶ 54. Nonetheless, Plaintiffs allege that
even after Nortek discovered the pricing program and allowed
Plaintiffs to provide limited special pricing to a handful of
their customers, Nortek continued to give Wave preferential
treatment. See Id. ¶ 62. For example, two days
after Plaintiffs had Nortek approve Plaintiffs'
longstanding and largest client for special pricing, the
client was approached by Wave's branch manager and a
Nortek employee about switching to Wave for "even . . .
better pricing." Id. Nortek also extended
Wave's pricing program for an extra sixty days and
grandfathered in Wave's top thirty dealers, allowing Wave
to maintain an edge over Plaintiffs. Id. ¶ 81.
Nortek's outside counsel allegedly warned Nortek that the
pricing program was illegal. Id. ¶ 85.
Similarly, Nortek's executives and management allegedly
admitted in discussions with Plaintiffs' representatives
that the Four Star Program "provided for unfair
competition, was illegal and needed to be stopped."
Id. ¶¶ 76-85. Nortek's sales manager
further admitted that allowing Wave to grandfather in thirty
of its best dealers was unfair and "would have a
detrimental impact upon the relevant market."
Id. ¶ 81. Despite warnings from internal
advisers and outside counsel, Nortek allowed the rebate
program to continue until the end of 2017. Id.
¶¶ 55-56, 83-87.
Nortek phased out the pricing program, Wave entered into a
special pricing arrangement with Nortek's competitor,
Quolsys. Id. ¶ 57. Plaintiffs allege that all
of Wave's customers currently purchase Quolsys products
instead of Nortek's 2GIG products, Id. Although
the pricing scheme has stopped, Plaintiffs allege that it
injured competition. Id. ¶ 93. Plaintiffs
allegedly "lost a significant number of customers to
Wave, have been unable to compete with Wave for new potential
customers and have suffered significant financial losses
including the loss of sales, profits and market share."
Id. ¶94. By preliminary estimates, Plaintiffs
lost approximately 59 existing clients, or $9, 575, 000 in
"annual losses," and an unspecified number of
potential customers, Id. ¶¶ 95-98.
Nortek began offering Plaintiffs the pricing program,
Plaintiffs' sales of 2GIG products increased by 40%
between July and December 2017. Id. ¶ 99. In
January 2018, however, Nortek pulled its products from
Plaintiffs without providing them with the contractually
required notice. Id. ¶ 100. Although Plaintiffs
offered to pay all of the outstanding invoices for the unsold
inventory, Nortek refused to accept the return of unsold
merchandise and initiated a lawsuit in California seeking the
collection of the past due invoices. Id. ¶ 101.
response, Plaintiffs initiated the present action. In Count I
against Nortek and in Count II against Wave, Plaintiffs
allege that Nortek and Wave violated §§ 2(a) and
(f) of the Robinson-Patman Act ("RPA"), 15 U.S.C.
§§ 13(a) and 13(f), by knowingly inducing,
receiving, or engaging in price discrimination. Id.,
¶¶ 103-38. In Count III, Plaintiffs allege that
Defendants engaged in commercial bribery in violation of RPA
§ 2(c), 15 U.S.C § 13(c). Id. ¶¶
139-51. Finally, Plaintiffs assert claims for tortious
interference in Count IV, against Wave and Bernard, and in
Count V,  against all Defendants. Id.
defeat a motion to dismiss filed pursuant to Federal Rule of
Civil Procedure 12(b)(6), a plaintiff must plead "enough
facts to state a claim to relief that is plausible on its
face." Bell Atl. Corp. v. Twombty, 550 U.S.
544, 570 (2007); Reliable Consultants, Inc. v.
Earle, 517 F.3d 738, 742 (5th Cir. 2008). To meet this
"facial plausibility" standard, a plaintiff must
"plead factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged," Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). Plausibility does not require
probability, but a plaintiff must establish "more than a
sheer possibility that a defendant has acted
unlawfully." Id. The court must accept
well-pleaded facts as true and view them in the light most
favorable to the plaintiff. Sonnier v. State Farm Mut.
Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007).
However, the court does not accept as true "conclusory
allegations, unwarranted factual inferences, or legal
conclusions." Ferrer v. Chevron Corp., 484 F,
3d 776, 780 (5th Cir. 2007). A plaintiff must provide
"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 (internal
citations omitted). "Factual allegations must be enough
to raise a right to relief above the speculative level... on
the assumption that all the allegations in the complaint are
true (even if doubtful in fact)." Id. (internal
ultimate question is whether the complaint states a valid
claim when viewed in the light most favorable to the
plaintiff. Great Plains Tr. Co. v. Morgan Stanley Dean
Witter & Co., 313 F.3d 305, 312 (5th Cir. 2002). At
the motion to dismiss stage, the court does not evaluate the
plaintiffs likelihood of success. It only determines whether
the plaintiff has stated a claim upon which relief can be
granted. Mann v. Adams Realty Co., 556 F.2d 288, 293
(5th Cir. 1977).
moved to dismiss the portions of Counts I and II that are
asserted by the SDS Franchisees, arguing that the SDS
Franchisees lack standing to assert a claim for price
discrimination under RPA § 2. Standing in a private
antitrust action for damages arises under § 4 of the
Clayton Act. See 15 U.S.C. § 15; J. Truett
Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 562
(1981) ("[P]roof of a violation does not mean that a
disfavored purchaser has been actually 'injured'
within the meaning of § 4."); Feeney v.
Chamberlain Mfg. Corp., 831 F.2d 93, 95 (5th Cir. 1987)
(analyzing an RPA claim for damages under §§ 4 and
7 of the Clayton Act). "Standing to pursue an antitrust
suit [exists] only if [Plaintiffs] show:' 1)
injury-in-fact, an injury to [Plaintiffs] proximately caused
by [Defendants'] conduct; 2) antitrust injury; and 3)
proper plaintiff status, ..'" Waggoner v.
Denbury Onshore, LLC, 612 Fed.Appx. 734, 736 (5th Cir.
2015) (quoting Doctor's Hosp. of Jefferson, Inc. v.
Se. Med. All, Inc., 123 F.3d 301, 305 (5th Cir. 1997)).
For the following reasons, the Court finds that the SDS
Franchisees have standing to assert a violation of RPA §