Chinese car import deal draws U.S. litigation

DETROIT -- Julie Brown, the embattled former CEO of Plastech Engineered Products Inc., is back in court six years after her company was liquidated under bankruptcy.Brown's new venture, Plastech Holding Corp., is taking action against a company it says interfered with its relationship with a Chinese carmaker.Plastech Holding filed a suit in U.S. District Court in Detroit on Oct. 21 against Virginia-based WM GreenTech Automotive Corp. The case centers on claims that GreenTech intentionally interfered with Plastech's relationship with Anhui Jianghuai Automobile Co. Ltd., more commonly known as JAC Motors.Plastech alleges GreenTech entered into an agreement this year to distribute JAC Motors' electric cars, despite a prior exclusive contract agreement between JAC and Plastech.However, GreenTech attorneys argue that Plastech refuses to supply the defendants or the court with a copy of the contract in question. JAC Motors, meanwhile, claims the contract does not exist.Plastech and GreenTech are trading jabs in court documents -- all while uncertainty remains on whether the U.S. market is even ready for Chinese-made cars.Deal or no deal?According to the October complaint, Plastech Holding signed a framework agreement in October 2010 to allow Plastech to distribute passenger electric vehicles made by JAC to U.S. dealers. Plastech Holding alleges GreenTech and JAC began a partnership in April 2013 to bring Chinese cars to the U.S., side-stepping Plastech's exclusive agreement -- which is valid through October 2015 with a clause for automatic renewal.Plastech Holding seeks a yet-to-be determined amount for damages but said it potentially lost $4 million, said Andrew Kochanowski, senior partner at Detroit area law firm Sommers Schwartz PC and Plastech's representation in the case.Kochanowski said Plastech Holding spent millions hiring engineering firms and introducing U.S. dealers to JAC Motors. Now, Kochanowski said, the company is left in the lurch without any JAC cars to distribute.According to the October claim, GreenTech knowingly violated Plastech's agreement with JAC on several fronts.GreenTech hired Marianne McInerney as executive vice president of sales and marketing in March 2012, according to the complaint. McInerney had been Plastech's COO."McInerney assisted in raising a significant amount of funds and interest from U.S. automobile dealers and dealer groups for the JAC passenger vehicles to be distributed by (Plastech)," the complaint states.The complaint alleges McInerney knew the terms of Plastech's deal and would have informed GreenTech.Plastech also alleges it also met with GreenTech CEO Charles Wang about Plastech serving as the middleman -- distributing JAC cars to GreenTech."They knew perfectly well that we had an agreement and interfered with it," Kochanowski said.GreenTech said it would abide by an agreement, if one existed.A motion filed on Oct. 31 by GreenTech said JAC Motors confirmed no such deal was reached.GreenTech attorneys asked Plastech to provide the contract with JAC Motors in response to an Aug. 7 cease-and-desist letter from Plastech's attorneys.Larry Murphy, partner at Honigman Miller Schwartz and Cohn LLP and GreenTech's representation, said Plastech has yet to enter the agreement in court or produce it for his review."We asked for the contract and what we got was a lawsuit," Murphy said. "We really want a copy of this contract, so we can review its merits."Kochanowski said the contract contains a confidentiality clause that has prevented Plastech from giving the contract to GreenTech. He said the agreement will be entered in court soon.Plastech is also anticipating arbitration with JAC Motors in Hong Kong over the issue, he said.The legal battle is in anticipation of a push to sell China-made cars in the U.S.To date, Chinese-made cars have not been imported to the U.S. The issue surrounding such an endeavor is that cars manufactured in China do not meet U.S. regulatory safety standards."I certainly believe that China-made cars in the U.S. will occur eventually, that's very likely," said Fred Hubacker, managing director of advisory firm Conway Mackenzie Inc. "However, the timeframe for that to happen is later, not sooner, in my view. A host of quality, branding and distribution issues must be solved before we are likely to see any significant amount of Chinese-built automobiles in this country."'Layers of intrigue'The suit also makes claims that GreenTech is a "shell company" and that it's desperate to get JAC cars to fulfill obligations.The allegations center on GreenTech's troubled history -- which Kochanowski said supports Plastech's claim that GreenTech does business in ways that are misleading and raise ethical questions.GreenTech Automotive was started in 2009 by Democratic Party fundraiser Terry McAuliffe, now the governor of Virginia, with a plan to build 1 million vehicles a year. Now it more modestly proposes to turn out a few thousand low-speed "neighborhood" vehicles a year.GreenTech opened its long-delayed assembly plant in Tunica, Miss., south of Memphis, Tenn., on Oct. 22, the day after Plastech filed its suit. The company continues to raise investment.In 2009, the venture estimated the Mississippi plant would cost $1 billion and employ 2,500 workers to start. The company originally envisioned producing several models, with a large portion of them being exported to world markets.Launching production in the next two months would cap off a complicated birth for the startup.Since 2009, GreenTech has been dogged by delays and political flak.Complicating its story was McAuliffe's and Wang's plan to finance the venture through the controversial EB-5 U.S. immigration program. EB-5, as created by Congress in 1990, grants immigration visas to foreigners who invest at least $500,000 in a job-creating enterprise in regions targeted by the federal government for job growth.GreenTech made its original fundraising appeals to wealthy individuals in China with the promise of a U.S. visa in return.The venture also became something of a political target when McAuliffe, who led campaign fundraising for Jimmy Carter, Bill Clinton and Hillary Clinton, ran successfully for governor of Virginia in 2013. The U.S. Securities and Exchange Commission investigated the venture at the same time.McAuliffe has stated in media reports that he ended his ties with the auto venture in late 2012.Plastech alleges GreenTech misled economic incentive agencies about its ability to make cars, stating it is simply importing Chinese cars and adding a battery pack."GreenTech has spent a lot of time to convince the state and federal investigators that it was going to create manufacturing jobs in Mississippi," Kochanowski said. "They are not going to be manufactured in the U.S. They are not buying kits; they are buying completely assembled cars."Murphy said these issues are outside the scope of Plastech's complaint and are "salacious" in nature and filed a motion to strike the allegations from the suit. He called Plastech's complaint "gamesmanship" by the firm to build a negative public perception of GreenTech."Rather than pleading a simple complaint based on straightforward contract interference allegations, (Plastech) instead chose to fill its complaint with a multitude of false, impertinent, immaterial and scandalous allegations about the GreenTech companies that do not relate to (Plastech's) counts or its claims for relief," the motion said.Dan Sharkey, partner at Detroit area law firm Brooks Wilkins Sharkey & Turco PLLC, said Plastech's claim is a common one among automotive companies."Generally speaking, tortious interference claims are very common in commercial litigation, but I've never seen the layers of intrigue alleged in this complaint, it reads like a novel," Sharkey said.Plastech's rootsGreenTech isn't alone in its rough go toward profitability. Brown's former company, Plastech Engineered Products, suffered a worse fate.Plastech Engineered Products, the largest minority-owned supplier in the U.S. at the time, filed for Chapter 11 bankruptcy protection on Feb. 1, 2008, after its largest customer, Chrysler LLC, began to cancel its contracts with the supplier.Chrysler cited Plastech's production quality as its reason for pulling the contract. In 2007, Chrysler issued 449 "quality tickets" to Plastech for "non-conforming material" for its injection molded components. Chrysler considered this a material breach of its purchase agreement, Crain's Detroit Business reported in 2008. Plastech had 35 plants and more than 7,700 employees when it filed. At the time, Plastech owed creditors as much as $560 million.A dispute with Chrysler over the supplier's tooling ensued and by June, Plastech sought to liquidate its assets. It sold its exteriors business to units of Goldman Sachs Group Inc. and Magna International Inc. for $24.7 million and its interiors business to Johnson Controls Inc. and Goldman Sachs for $199.5 million. Plastech also sold its stamping business to J.D. Norman Ohio Holdings Inc. for $4.5 million.Brown's compensation, and that of family members she hired, also became a hot-button issue during the proceedings. Brown earned $3.23 million in the 12 months before the bankruptcy filing. Brown's husband, three brothers, two sisters-in-law, sister, cousin and nephew were also on Plastech's payroll, for a total of $6.4 million for the 2007 fiscal year, Crain's reported.Plastech blamed Chrysler's pulling of the contract for its demise, according to court filings.Since then, Brown and Plastech have remained largely out of the public eye until the new Plastech legal case cropped up. CA971991110.PDFCopy of complaintCA971991110.PDF

Chinese car import deal draws U.S. litigation

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