• August 26, 2010

A recent denial of a motion for summary judgment before U.S. District Court Judge Paul A. Magnuson (Sr. Judge, D. Minn.) provides a good illustration of how the domino sequence of our recent economic collapse has generated litigation.  And the decision, perhaps, also illustrates why it might sometimes be in the interest of your business to “take its lumps” and move on, as hard as it may be to swallow when your company has been wronged.  

Linamar Corporation is a Canadian company that makes machined automobile components for auto and truck manufacturers.   Its customers, obviously, saw some of the hardest years in their histories in ’08-’09 (though things seem to be improving).   Linamar, in turn, stretched out its payment terms to its vendors, such as Minnesota-based Progress Casting Group.  Progress Casting Group, in turn, was in its own economic free-fall and it demanded a 40% price increase from Linamar notwithstanding an agreement with Linamar not to increase price.

This put Linamar in a serious bind.  The auto component industry moves very quickly (using “just in time” delivery).  Linamar likely felt subject to economic blackmail because it needed the Progress Casting parts, it could not source them elsewhere under the time constraints imposed by its customers, so it faced deepening financial calamity or paying Progress more than it was legally obligated to.  So Linamar sued.

What probably first seemed straightforward to Linamar might seem less so now.  Progress Casting is out of business.  Judge Magnuson has now denied Linamar’s motion for summary judgment.  (Arguably, the Court found, Linamar’s stretching out its payment terms in breach of the parties’ agreement released Progress from its promise not to increase price.  Moreover, the Court found that Linamar alleged that Progress threatened to disrupt the supply chain but failed to provide sufficient evidence of it in its summary judgment papers.)

Without knowing a lot more about Linamar’s maximum realistic recovery (it seeks $4 million in damages), without knowing the extent (if any) of Progress’ resources for paying such a judgment, it remains to be seen whether the litigation will aggravate rather than alleviate Linamar’s financial setback arguably inflicted by Progress.

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