GM sued for breach of contract by supplier's creditors

Creditors of a small Massachusetts-based supplier, whose bankruptcy threatened General Motors’ production at plants across North America in July, filed a lawsuit against the automaker claiming breach of contract, fraud and deceptive business practices.

The suit, filed Friday in U.S. Bankruptcy Court in Massachusetts by unsecured creditors of Clark-Cutler-McDermott Co., said GM was “doing nothing more than scheming surreptitiously to protect its own interests through a calculated plan to extract the value of CCM for its own gain.”

Clark-Cutler-McDermott produced dash insulators, wheelhouse liners, floor insulators, fender and pillar insulators -- among other parts that were used in all GM products built in North America.  In July, GM said it had identified other suppliers to provide the automaker with similar parts, but did not name those companies.

Court documents point to internal GM emails that said the automaker’s intention was to exit the company, despite GM agreeing to participate in good-faith negotiations with the supplier a week prior over permanent price increases that would preserve the relationship and enable Clark-Cutler-McDermott to continue.

'Good faith'

“It is now quite clear that the entire so-called ‘good faith’ negotiation process was a sham, simply giving GM the critical time it knew it would need either to conduct a sham sale process or to line up alternative suppliers and to better position GM to benefit from CCM’s demise,” court documents said.

“Instead of participating in “good faith” negotiations, GM aided in CCM’s continued death-spiral-fate that GM perpetuated to the detriment of its fiduciary. GM’s actions were unfair and deceptive, causing irreparable damage to CCM and its creditors.”

No specific hearing on the complaint has been scheduled.

“GM believes the claims made by CCM and the committee to be without merit,” a GM spokesman wrote in an email.

The debtors’ equipment sale hearing is scheduled for Thursday, which must be approved by the court.

The sale generated winning bids totaling $4,880,884 for equipment in Franklin, Mass.; Lafayette, Ga.; and Hildebran, N.C., court documents said.

GM has filed a motion to convert the bankruptcy case from Chapter 11 reorganization to a Chapter 7 liquidation, with a hearing set for Sept. 19.

“As GM had observed it would be, the sale was effectively an equipment auction amongst various liquidators and other buyers that could have been accomplished more efficiently and at a lower cost in Chapter 7,” GM lawyers said in court documents.

Supplier of the Year

GM was the supplier’s largest customer by volume, accounting for more than 80 percent of its revenue. Clark-Cutler-McDermott has supplied parts to the automaker for 45 years, court documents said. It had also been previously named “Supplier of the Year” by GM.

In June, Clark-Cutler-McDermott plants were shut down, after negotiations between the supplier and GM broke off. However, GM won a restraining order, forcing Clark-Cutler-McDermott’s operations and production of the component parts to resume, with GM funding the operations.

GM began providing Clark-Cutler-McDermott with secured loans beginning in March, with the total number reaching over $6 million.

Clark-Cutler-McDermott filed for bankruptcy protection on July 7, after GM filed a motion to acquire dedicated equipment, GM tooling and certain inventory.

GM won court approval in July, which allowed for immediate access to production tooling and parts inventory from the supplier. 

Clark-Cutler-McDermott owned the machinery in its plants but GM owned the special tooling installed in that machinery.

The Wall Street Journal reported on the lawsuit on Tuesday.