Appellate Court Overturns Trial Court By Ordering That Automotive Supplier Must Continue To Supply OEM

A recent decision by the Michigan Court of Appeals demonstrates that suppliers who threaten to shut down automotive production by refusing to supply component parts to OEMs are likely to be ordered to supply where the supplier is the sole supplier.  Michigan courts continue to recognize that the irreparable harm a plant shutdown would cause greatly outweighs any harm that a supplier may suffer due to an injunction.

On July 2, 2010, Plaintiff Kyklos Bearing International, LLC (“KBI”), the sole supplier of Defendant General Motors LLC’s (“GM”) requirements of wheel bearings for certain vehicle programs, filed a breach of contract suit against GM in Oakland County Circuit Court.  KBI claimed that it was entitled to the award of future vehicle program contracts from GM.  Despite the pending suit, KBI continued to supply GM for approximately four months pursuant to the parties supply agreement (the “Supply Agreement”), until November 9, 2010, when KBI sent a letter to GM claiming that since GM was in breach of the Supply Agreement, KBI was under no further obligation to continue to supply GM.  GM filed an emergency motion seeking a preliminary injunction requiring KBI to continue supplying in accordance with the Supply Agreement.

GM argued that KBI’s supply was essential to GM’s manufacturing because KBI was the sole supplier of 100% of GM’s requirements of certain wheel bearings.  GM reasoned that, due to the “just in time” supply chain method and the fact that the component parts were specialized and unique, if KBI ceased delivery, GM would be unable to obtain the component parts from an alternate source in sufficient volume, and plants would be forced to shut down within a matter of days, costing millions of dollars per day, per plant.

On November 24, 2010, the circuit court denied GM’s motion for a preliminary injunction.  The court stated “it is not conclusive that [GM] … is likely to succeed on the merits [nor] … that there is information that will additionally be presented that may reach that burden….”  (emphasis added). GM then sought relief from the Michigan Court of Appeals, filing an emergency application for leave to appeal the circuit court’s decision.

GM contended that being required to “conclusively” establish that it was to succeed on the merits was an improperly heightened standard and that the court erred when it did not consider and balance all four factors of the preliminary injunction standard, which are:  (1) harm to the public interest if an injunction is issued; (2) whether harm to the applicant in the absence of a stay outweighs the harm to the opposing party if a stay is granted; (3) the strength of the applicant’s demonstration that the applicant is likely to prevail on the merits; and (4) demonstration that the applicant will suffer irreparable injury if a preliminary injunction is not granted.  GM further claimed that KBI’s strategy to cease shipping placed GM in a situation where it was forced to either capitulate and forego its right to a trial on the merits or shut-down numerous automobile assembly plants.  GM argued that unless KBI was ordered to continue to furnish parts under the Supply Agreement, KBI would essentially have a “license to extort.”

On February 10, 2011, the appellate court ruled in favor of GM, finding that the circuit court decision was clearly erroneous.  The court held that the notion that GM was not likely to prevail on the merits of its claims was contrary to the evidence before it.  Additionally, the court reasoned that the public interest favored granting the injunction; that without a preliminary injunction, GM would suffer irreparable harm; and that the irreparable harm faced by GM would greatly outweigh any harm KBI may suffer due to the injunction.  The court further concluded that the circuit court abused its discretion by denying a preliminary injunction, and ordered KBI to continue to supply the component parts in accordance with the Supply Agreement.

E. Powell Miller

Martha J. Olijnyk

Devon P.  Allard

Jennifer E. Frushour

The Miller Law Firm, P.C.