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Remy Holdings International LLC v. Fisher Auto Parts, Inc.

United States District Court, W.D. Virginia, Harrisonburg Division

October 18, 2019

REMY HOLDINGS INTERNATIONAL, LLC Plaintiff,
v.
FISHER AUTO PARTS, INC., Defendant.

          MEMORANDUM OPINION

          Elizabeth K. Dillon United States District Judge.

         Plaintiff Remy Holdings International, LLC (Remy), a manufacturer and supplier of automotive parts and accessories, alleges claims for breach of contract and unjust enrichment against defendant Fisher Auto Parts, Inc. (Fisher). Remy alleges that Fisher wrongfully withheld payment of more than six million dollars due and owing pursuant to two types of contractual arrangements in the automotive aftermarket--the “core return” program and the “core devaluation credit” program. Remy also alleges that Fisher wrongfully terminated the parties' contracts. Finally, Remy brings an alternative claim for unjust enrichment. Fisher moves to dismiss for failure to state a claim. (Dkt. No. 13.) The court held a hearing on this motion on June 19, 2019. (Dkt. No. 31.)

         For the reasons stated below, the court concludes that Remy has plausibly alleged claims for breach of contract, and in the alternative, for unjust enrichment. Fisher's motion will therefore be denied.

         I. BACKGROUND [1]

         A. The Parties

         Remy is a Delaware limited liability company with its principal place of business in McHenry, Illinois. Remy and its parent company, BPI Acquisition Company, Inc., are manufacturers and suppliers of automotive parts and accessories. Fisher is an auto parts warehouse distributor incorporated under the laws of the Commonwealth of Virginia, with its principal place of business in Staunton, Virginia.[2]

         B. Remy's Business

         Remy and BPI primarily serve the automotive aftermarket, developing and distributing products for a wide variety of vehicle makes and models. Remy specializes in the manufacture and supply of rotating electrical products, including starters, used to initiate an engine's operation, and alternators, used to power the electrical system while the engine is running. Electrical products like starters and alternators have a “core” component that can be recycled and remanufactured for future sale. When Remy receives a recycled core back from one distributor, it can fill another distributor's purchase order by remanufacturing a starter or alternator using that core.

         Remy sells both new and remanufactured products to distributors. The distributor, in turn, sells the finished products to its customers with a core deposit on the units sold. As these customers install the product, they bring the old core back to the distributor to receive the core deposit, and the old cores are subsequently recycled back to Remy.

         In the automotive aftermarket space, suppliers like Remy traditionally supply finished products to distributors without charging for the core component of the products. The distributor thus receives the core without initially paying for it, with the understanding that the supplier has the right to receive a core (or equivalent value) back in the future. Generally, the distributor regularly returns cores back to the supplier during the commercial relationship, and periodically performs an inventory reconciliation with the supplier, ultimately paying out on any core shrinkage. This industry practice is known as the “cashless core right of return” program.

         C. Remy and Fisher's Commercial Relationship

         In 2014, a Remy affiliate acquired USA Industries (USA), who for many years had sold rotating electrical products to Fisher. The relationship between Fisher and USA was memorialized in a series of Letters of Understanding (LOUs). A December 2012 LOU between Fisher and USA stipulated that “should USA sell part or all of their business . . . all aspects of this contract . . . shall continue forward, ” and “in no way will Fisher be penalized . . . in the event of a sale, merger or any other type of M&A activity.” (December 12, 2012 LOU ¶ 11, Dkt. No. 14-2.)

         In January 2015, Fisher and Remy executed a LOU Amendment. (Compl., Ex. B, Dkt. No. 1-3.) In the 2015 LOU Amendment, Remy represented that it “wishe[d] to continue to fully support Fisher with all aspects of past Fisher/USA agreements and [LOUs], except as specifically included in this Amendment.” (Id. ¶ 1.) Fisher re-designated Remy as its “primary supplier” and “confirm[ed] their relationship for an additional five-year period” running from January 1, 2015 through January 1, 2020. (Id. ¶ 2.) The parties executed a subsequent LOU Amendment in May 2016 with nearly identical terms. (See Dkt. No. 14-1.) Both LOU Amendments between Fisher and Remy included identical language regarding Fisher's right to terminate the parties' relationship. Specifically, the LOUs stated that “Remy shall take best efforts to ensure that Remy provides competitive products to Fisher, ” but provided that “if this doesn't occur in Fisher's opinion then Fisher can change suppliers and end this contract with as little as 60 days of advance notice.” (Compl., Ex. B ¶ 2.)

         Fisher is also a leading member of a large purchasing group called the Automotive Parts Services Group (APSG or the Group). Among other activities, the Group negotiates and enters into contracts with suppliers such as Remy. Remy refers to one such arrangement as the April 2015 Group Contract. (See Compl., Ex. A, Dkt. No. 1-2.) Fisher considers this document to include the terms and conditions of Remy's buying program (the Program). As discussed below, Fisher maintains that it is not a party to this purported contractual arrangement, and that the Program is not an enforceable contract.

         Remy contends that, pursuant to the April 2015 Group Contract, the Group agreed to purchase products from Remy as a “preferred vendor” for a period of five years. This contract includes multiple provisions, including clauses related to invoice pricing, price guarantees, shipping, payment, rebates, and warranties. In addition to these provisions, the April 2015 Group Contract also has a provision for “Core Pricing, ” which sets forth the terms of a specific pricing concession (among others) given to Fisher and other Group members in exchange for their agreement to use Remy as a preferred vendor. Under this arrangement, Remy alleges that Fisher knew that Remy did not--and would not--charge for the core component of any purchased product at the time of the sale. Rather, Fisher and Remy agreed to conduct a “core reconciliation” every six months, in order to track the core balances and determine any payables owed to Remy. This agreed-upon Core Pricing Provision memorializes the industry-standard “cashless core right of return” program--a program in which Fisher knowingly participated for years, both with Remy and its predecessor suppliers. The Group Contract also contains a “keep competitive clause.” Remy alleges that under this clause, Fisher agreed that if it “determines and documents that the market has shifted, we will work closely with [Remy] in order to take corrective action. A time period of 60 days will be allocated for such measures.”

         Fisher and Remy also signed several agreements concerning core ledger balance liability between the parties. During the parties' relationship, when Fisher acquired a warehouse distributor that, unlike Fisher, had an agreement to “repay REMY for cores, ” it became necessary to resolve the acquired company's core balance. (See Rotating Electrical Core Acquisition Payment Agreement (Oct. 24, 2017) (the Core Acquisition Agreement) ¶ a(ii)(i), Dkt. No. 14-3.) This industry practice is known as the “core devaluation credit” program. The parties' express understanding was that, after the acquired company's core balance was addressed, “all future purchases by the acquired company w[ould] be governed ...


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