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Superior Services, Inc. v. Universal Warranty Corp.

United States District Court, D. Nebraska

May 20, 2016

SUPERIOR SERVICES, INC., Plaintiff,
v.
UNIVERSAL WARRANTY CORP., and ALLY INSURANCE HOLDINGS, INC., Defendants. ACI DEVELOPMENT CORPORATION, Plaintiff,
v.
UNIVERSAL WARRANTY CORP., MIC GENERAL INSURANCE CORP., and ALL INSURANCE HOLDINGS, INC., Defendants. M.S.E. DISTRIBUTING, INC., Plaintiff,
v.
UNIVERSAL WARRANTY CORP., and ALLY INSURANCE HOLDINGS, INC., Defendants. THOMAS HANLON, d/b/a Dealer Direct, Plaintiff,
v.
UNIVERSAL WARRANTY CORP., and ALLY INSURANCE HOLDINGS, INC., Defendants. AUTOMOTIVE DEVELOPMENT SERVICES, INC., Plaintiff,
v.
UNIVERSAL WARRANTY CORP., and ALLY INSURANCE HOLDINGS, INC., Defendants.

          MEMORANDUM AND ORDER

          Joseph F. Bataillon Senior United States District Judge.

         This matter is before the court on the defendants' motions to dismiss, Filings No. 17 in Superior Services, Inc. v. Universal Warranty Corp. and Ally Insurance Holdings, Inc., No. 15-v-396 ("Superior Servs." case); ACI Development Corp. v. Universal Warranty Corp., Mic General Insurance Corp., and Ally Insurance Holdings, Inc., No. 15-cv-398 ("ACI" ); M.S.E. Distributing Inc. v. Universal Warranty Corp. and Ally Insurance Holdings, Inc., No. 15-cv-400 ("MSE"); Hanlon v. Universal Warranty Corp. and Ally Insurance Holdings, Inc., No. 15-cv-401 ("Hanlon"); and Automotive Development Servs., Inc. v. Universal Warranty Corp. and Ally Insurance Holdings, Inc., No. 15-v-402 ("ADS"), and on the defendants' motions to strike the plaintiffs' evidence in opposition to the motions to dismiss, Filings No. 31 in each above-captioned case.[1]

         These are actions for breach of contract, fraudulent concealment, negligent misrepresentation, tortious interference with a contract, unjust enrichment, and breach of the covenant of good faith and fair dealing in connection with representation agreements for service contracts for motor vehicles. This court has jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332. The actions were removed from state court and have been consolidated for pretrial management and discovery. See Filing No. 16.

         I. BACKGROUND

         In their detailed sixteen-page complaints, the plaintiffs allege they are independent sales agents who offer motor vehicle service contracts (“VSCs”), and GAP contracts to new and used motor vehicle dealers for resale to the dealers’ customers.[2]VSCs provide protection against mechanical breakdown and pay the cost of covered repairs, and GAP contracts provide protection in the event a vehicle is totaled or stolen, and the actual cash value of the vehicle is less than the outstanding balance on the lease or financing agreement. See Filing No. 1-1, Notice of Removal, Ex. 1, Complaint at 3. Defendant Universal Warranty Corp., a wholly owned subsidiary of defendant Ally Insurance Holdings, Inc. (hereinafter, collectively, “defendant” or “UWC”) issues, administers and markets such service contracts.[3] Id.

         The plaintiffs allege that during the relevant period, they offered VSCs and GAP contracts, branded “VehicleOne” contracts, to motor vehicle dealers on behalf of defendant UWC. Id. at 3. The plaintiffs sold these VSCs pursuant to agreements with UWC known as the “VehicleOne Program Representative Agreement” and the "VehicleOne Primary GAP Representative Agreement" (hereinafter, collectively, "Rep Agreements"). Id., Ex. A.[4] Under the Rep Agreements, the plaintiffs were required-at their own expense-to solicit motor vehicle dealers to carry VehicleOne VSCs and to train dealers how to sell them to consumers. Id.

         The plaintiffs allege they were independent agents, not employees. Id. at 4. They state they had relationships with most of the dealers before they began selling the defendants' contracts. Id. They allege that their primary value to UWC was their ability to convince their existing dealer networks to carry UWC products in place of whatever products the dealer carried previously. Id.

         Plaintiffs were compensated for their efforts on a pure commission basis in the form of a representative fee for each contract sold by the dealer to a consumer. Id. They allege they were paid only if they successfully solicited the dealer to sell VehicleOne VSCs or GAP contracts and the dealer successfully sold and continued to sell these contracts. Id. The plaintiffs further allege defendants did not reimburse them for their expenses or compensate them for the business risk they took. Id. Paragraph 7(b) of the VehicleOne Program Representative Agreement and ¶ 8(b) of the VehicleOne Primary Gap Agreement provide that the representative fee will be paid only in respect to those service contracts or debt waiver forms for which UWC has received the Dealer Cost, provided that the representative "is currently servicing such Dealer account on behalf of [the defendant]." See Filing No. 19, Index of Evid., Declaration of Donald Buckner, Ex. A, VehicleOne Program Representative Agreement at 2, VehicleOne Primary Gap Representative Agreement at 2.

         The plaintiffs allege that they had a reasonable expectation of payment both in the near and long term. Id. at 5. They also allege that defendants assured them that they would continue to pay the plaintiffs commissions for VSCs and GAP sold through the independent agents’ customers in the event that it terminated the VehicleOne Program Agreement. Id. They identify specific statements to that effect by UWC's Senior Vice President of Sales in April 2013. Id. at 7.

         They also allege that at the same time the plaintiffs were soliciting dealerships to carry UWC’s products, UWC’s corporate parent, Ally Insurance Holdings, Inc. ("Ally") was utilizing a direct sales force to solicit dealerships to carry similar products known as the GM Protection Plan. Id. at 5. Thereafter, GM decided to offer, and in fact began offering, its own VSCs to GM dealers, bringing them into direct competition with Ally. Id. at 6. GM then decided, effective November 2016, not to renew AIly's right to use GM’s name and trademark in marketing VSCs. Id.

         Plaintiffs allege Ally then developed a plan to gain control of the business and business relationships then being overseen by defendant UWC’s independent agents. Id. Plaintiffs contend that Ally asked UWC to approach agents that were responsible for the highest volume of UWC business and convince them to execute a “Core Representative Addendum to VehicleOne Program Representative Agreement” (“Core Addendum”). Id.; see e.g., id., Ex. B, Core Addendum. The Core Addendum is an amendment and supplement to the Rep Agreements. Id. at 1. The plaintiffs, other than ACI, each executed the Core Addendum on various dates in March and April 2013. Id. at 3; see also MSE, No. 8:15-cv-400, Filing No. 1-1, Complaint, Ex. C, Core Addendum at 3; Hanlon, No. 15-cv-401, Filing No. 1-1, Complaint, Ex. C, Core Addendum at 3; ADS, No. 8:15-cv-00402, Filing No. 1-1, Complaint, Ex. C at 3. Plaintiff ACI did not sign the Core Addendum. ACI, No. 8:15-cv-398, Filing No. 1-1, Complaint at 7.

         The Core Addendum imposed restrictions on the independence of independent agents, including prohibiting the “Core” agents from “offer[ing] any [vehicle service contract] or GAP programs other than VehicleOne]” without the consent of the Ally account executives on accounts where Ally or UWC provided the dealers leads or assigned agents to specific contracts. Id. at 7. The plaintiffs also assert that UWC established minimum annual revenue thresholds that were so aggressive that they only could be met if agents marketed UWC products exclusively. Id.

         The version of the Core Addendum attached to the Hanlon and MSE complaints states: "[i]n the event of termination under this section 3(b), [5] Representative shall not be entitled to any Representative Fees on VehicleOne sales made by Assigned Dealers after the effective date of termination of this Core Addendum." See MSE, No. 8:15-cv-400, Filing No. 1-1, Complaint, Ex. C, Core Addendum (dated April 4, 2013) at 3; Hanlon, No. 15-cv-401, Filing No. 1-1, Complaint, Ex. C, Core Addendum (undated) at 3. That language is not included in the Core Addendum attached to the ADS and Superior complaints. ADS, No. 15-cv-402, Filing No. 1-1, Complaint, Ex. C, Core Addendum (dated April 23, 2013) at 3; Superior, No. 15-cv-396, Filing No. 1-1, Complaint, Ex. B., Core Addendum (dated April 22, 2016) at 3.

         Further, the plaintiffs allege in their complaints that defendants induced the agents to sign the Core Addendum by promising an annual bonus, a profit-sharing arrangement, greater access to Ally's resources and financial structures, and a strong foundation for a long-term relationship with the Ally family of companies. Id. at 8. They allege UWC urged the independent agents to work closely with Ally’s direct sales team and to introduce direct sales team members to ...


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