The Michigan Supreme Court’s July 2023 decision in MSSC, Inc v AirBoss Flexible Prods Co renewed many suppliers’ ammunitions in customer negotiations. One OEM, however, has been publicly pushing back against those arguments, with newly mixed results.
Since the start of the year, Stellantis has sued three of its suppliers in Oakland County Circuit Court, each time seeking an injunction to require the suppliers to continue supplying parts to Stellantis to avoid a break in the supply chain.
First, Stellantis sued Yanfeng International Automotive Technology Co. Ltd. Yanfeng suffered a data breach, which, in its aftermath, caused Yanfeng to miss some shipments to Stellantis. Stellantis issued a debit against Yanfeng for $26 million, to which Yanfeng responded, claiming that the data breach was a force majeure event and that shipments would be suspended until Stellantis reversed the debit. Stellantis instead sought a court injunction to keep Yanfeng supplying while the case played out. The court granted Stellantis’ request and issued a preliminary injunction.
Next, Stellantis filed suit against its supplier KAMAX Inc. after KAMAX threatened to stop supplying multiple Stellantis plants around the globe unless Stellantis granted KAMAX’s demand for price increases on over 100 parts. As part of its argument, KAMAX invoked AirBoss, arguing that purchase orders issued by Stellantis indicating that they were for “approximately 65% to 100%” of Stellantis’ requirements did not sufficiently state a quantity term so as to be enforceable under the statute of frauds. Stellantis again obtained an injunction — meaning KAMAX had to continue supplying Stellantis during the case at the then-existing prices — but the judge declined to wade into the merits of KAMAX’s requirements contract argument at the injunction stage. Instead, the court credited Stellantis’ argument that it faced irreparable harm if the court were to deny its request for an injunction because Stellantis would allegedly face price increase requests from many of its suppliers that would seize on KAMAX’s arguments. KAMAX has since moved to dissolve that injunction, with that motion still pending.
And most recently, Stellantis sued its supplier MacLean-Fogg Company in the same court. This case followed the same pattern as the KAMAX case — i.e., the supplier sought a price increase and Stellantis refused; the supplier threatened to stop shipping and Stellantis sought a court injunction — but this one had a different ending, for now. The case was assigned to a different circuit judge as the two prior cases mentioned above, and yesterday, April 23, 2024, the Oakland County Circuit Court denied Stellantis’ request for an injunction. This time, the court did weigh into the merits, finding that Stellantis’ purchase orders were likely enforceable under the Cadillac Rubber case, a pre-AirBoss Court of Appeals decision that would seem to run counter to the reasoning in AirBoss, but which has not technically been overruled yet.
Despite this finding, the court held that Stellantis’ fears about widespread revolt from the supply base were “speculation and conjecture,” and that Stellantis could simply pay MacLean-Fogg its requested prices under protest as the case played out and recover the overpayments at the end if Stellantis should prevail.
Suppliers can learn several lessons from these cases:
- AirBoss was far from the final word on when a customer has committed to purchasing an enforceable quantity of parts from its suppliers. There are as many versions of quantity provisions in automotive terms and conditions as there are automotive suppliers, and courts are still working through if, and to what extent, those terms are enforceable. (We recently wrote about another of those prominent cases here.) Suppliers should consult with supply chain counsel on whether their own terms and their customers’ terms are likely to be enforceable in light of AirBoss and its progeny.
- Going to court to seek an injunction — or defending against one — can place automotive suppliers and customers in all-or-nothing positions. Courts are no closer to a uniform approach to requests for injunctions in these cases, with small differences in the facts or venue often dictating the outcome. Legal leverage can be powerful in the right circumstances, but suppliers should be well-versed on the legal risks and opportunities before entering the arena.
- With that said, suppliers who do end up with their dispute in court should remember that a court’s ruling on an injunction is not the last word. Payments made under protest may need to be repaid — often, with interest — and negotiations do not end just because the initial leverage has swung in one direction or another as a result of a decision at the injunction stage.
For example, last January, a large Tier 1 supplier (represented by Warner) lost its bid for an injunction against its Tier 2 supplier in the same court where Stellantis just lost. The Tier 1 was forced to pay its supplier under protest to the tune of about $500,000 a week over-and-above the then-existing pricing. But nine months — and about $20 million in overpayments — later, that Tier 1 prevailed on the majority of its claims at the summary judgment stage and was entitled to recovery of the overpayments.
There continue to be new developments in how courts are applying the AirBoss ruling and in strategies by suppliers and customers in trying to resolve these disputes. Warner’s Automotive Industry Group is tracking these developments and advising supplier clients on how best to utilize these legal evolutions. Suppliers wishing to discuss these issues should reach out to Michael Brady, Adam Ratliff or any member of Warner’s Automotive Industry Group.
