Michelin North America, which is based in Greenville, South Carolina has sued a California tyre company in federal court, alleging it was defrauded of more than US$3.2 million worth of tyres through Michelin’s government sales programme.
The lawsuit, filed in US District Court in South Carolina, alleges an audit showed unverified claims for 71,204 tyres in dealings with closely held Sudduth Tire Company Inc. of Long Beach, Calif.
Sudduth Tire, its president and sole shareholder and its vice president are named as defendants.
In a statement, Michelin said, “This suit is a matter of public record and it is the company’s normal practice not to comment on ongoing litigation.”
The suit said Sudduth Tire has been a Michelin dealer since 1993 and mainly purchases commercial truck tyres from Michelin.
As an authorized dealer, Sudduth Tire purchases tyres from Michelin for resale or distribution to commercial entities, according to the suit.
Michelin also said Sudduth Tire is one of many dealers participating in its government sales program, in which dealers are given certain financial incentives to sell Michelin tyres to government entities.
Under that program, Sudduth Tire sells Michelin tyres to a government entity at a price negotiated by Sudduth, Michelin said in its suit.
After Sudduth Tire shows proof of the sale to Michelin, Michelin credits Sudduth Tire’s account under terms of the program.
Sudduth Tire can use those credits to purchase tyres from Michelin at a discount or potentially without payment, the suit said.
To receive the credits, Sudduth Tire must complete and submit a government sales support claim within 10 days of delivery, Michelin said.
Sudduth Tire delivered its sales support claims electronically by filling out a form and the dealer’s account with Michelin was credited after the claim form was submitted, Michelin said.
The sales program mandates that Sudduth Tire keep the original signed copies of every delivery receipt for three years, Michelin said. The receipt is verification that a government sale took place under the program, Michelin said.
In April 2014, Michelin became aware of discrepancies between the amount of Sudduth Tire’s purchases and its sales support claims, the suit said.
As a result, Michelin conducted an audit, which the company said it was entitled to do under the customer agreement and the dealer program.
The audit revealed a “substantial discrepancy” between the number of tires purchased and the number of sales support claims submitted, according to Michelin’s suit.
Consequently, Michelin determined a second audit was needed, the suit said. That audit showed unverified sales support claims for 71,204 tires, the suit said. Michelin placed Sudduth Tire’s account on hold.
The audit revealed that from Jan. 1, 2012, to July 18, 2014, there were unverified claims totalling $3,246,421.97, the suit said.
Sudduth Tire used “this fraudulently obtained credit” to obtain more than $3.2 million worth of tires from Michelin that the dealer didn’t pay for, Michelin alleged in its suit.
After Michelin demanded reimbursement from Sudduth Tire, the dealer told the tiremaker that Sudduth Tire asked its attorneys to investigate what appeared to be “a significant embezzlement” that might have involved applying to Michelin for credits, according to the suit.
Sudduth Tire hasn’t given Michelin additional information regarding the alleged embezzlement, the suit said.
In its suit, Michelin said it is entitled to treble damages as well as costs, interests and attorneys’ fees because of “willful violations” of the South Carolina Unfair Trade Practices Act.
Michelin also asked that a jury determine punitive or exemplary damages.