In re National Steel Corp.
| Decision Date | 26 October 2004 |
| Docket Number | Bankruptcy No. 02 B 08699. |
| Citation | 316 B.R. 287 |
| Parties | In re NATIONAL STEEL CORP. et al., Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Kurt M. Carlson, Esq., Chicago, IL, Ralph E. McDowell, Esq., Detroit, MI, for Movant.
Mark A. Berkoff, Esq., Chicago, IL, for Respondent.
This matter comes before the Court on the motion of Hayes-Lemmerz International, Inc. (the "Creditor") for allowance and payment of a Chapter 11 administrative expense pursuant to 11 U.S.C. § 503(b)(1)(A) from the bankruptcy estates of National Steel Corporation and its related debtor entities ("National Steel"). For the reasons set forth herein, the Court denies the motion.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (O).
The Creditor is a Delaware corporation with its principal place of business located in Northville, Michigan. Proposed Findings from Creditor at ¶ 1; Proposed Findings from National Steel at ¶ B. The Creditor operates several manufacturing facilities, including a steel wheel manufacturing plant in Sedalia, Missouri. Trial Tr. at 13. The Creditor manufactures and sells wheels for use on passenger vehicles and light trucks to original equipment manufacturers in the automotive industry ("OEMs"), such as the Creditor's major customers, Ford Motor Company ("Ford") and General Motors Corporation ("GM"). Id. at 14, 16. On December 5, 2001, the Creditor filed a voluntary Chapter 11 bankruptcy petition in Delaware.2 Id. at 30.
At all times relevant to the instant motion, National Steel was a Delaware corporation with its principal place of business located in Mishawaka, Indiana. Proposed Findings from National Steel at ¶ A. National Steel supplies steel to entities like the Creditor. Trial Tr. at 14. National Steel was the Creditor's supplier for large volumes of certain, specialized steel from which it fabricated the wheels for the OEMs. Id. at 22.
In the automotive industry, suppliers like the Creditor that provide component parts to OEMs are referred to as "Tier 1" suppliers. Proposed Findings from Creditor at ¶ 5. Suppliers like National Steel that provide products to Tier 1 suppliers are commonly referred to as "Tier 2" suppliers. Id. OEMs require that all parts supplied by Tier 1 suppliers meet certain specifications for quality, durability and safety. Trial Tr. at 20. To that end, a Tier 1 supplier must go through a lengthy testing and approval process for each part that it supplies to an OEM. Id. at 20-21. This process is commonly known as the "pre-production approval process" or "PPAP." Id. The PPAP is particularly stringent when the Tier 1 supplier is providing a "safety critical" part to the OEM. Id. In that situation, the materials that the Tier 1 supplier buys from the Tier 2 supplier for use in the safety critical part must also be tested and approved through the PPAP. Id. at 21. The PPAP can take anywhere from six to twelve months. Id. Wheels for use on passenger vehicles and light trucks are considered safety critical parts. Id. at 20, 25; Gonzales Dep. at 27. For that reason, a Tier 1 supplier like the Creditor that supplies a steel wheel to an OEM like Ford or GM must include in its PPAP the testing and approval of all of the steel supplied by the Tier 2 supplier like National Steel for the manufacture of the wheel. Proposed Findings from Creditor at ¶ 8.
Typically, OEMs do not maintain any significant reserve on hand or inventory of component parts like wheels. Trial Tr. at 25. Thus, Tier 1 suppliers are required to supply parts to OEMs on a "just in time" basis. Id. The failure on the part of a Tier 1 supplier to deliver those parts on time to an OEM can cause a host of problems for both the Tier 1 supplier and the OEM, including a slowdown or halt in the production of vehicles, which can have a devastating financial impact on both parties. Id. at 26-28. The shutdown of an automotive plant can be catastrophic for a Tier 1 supplier. Salliotte Dep. at 23. Further, an OEM whose Tier 1 supplier causes it to slow or halt production may impose back-charges against it and refuse to award future contracts to that supplier. Trial Tr. at 26. Such a loss of current and future business can financially ruin a Tier 1 supplier. Id.
In the event that a Tier I supplier fails to deliver parts, an OEM may "off-line" vehicles or install certain "slave" wheels on vehicles until the proper parts are delivered, in lieu of halting production. Id. at 26-27. In the event an OEM slows or halts production, it can incur significant damages as a result of its inability to produce vehicles. Id. at 26-29. If such a situation occurs, the OEM may seek reimbursement from the Tier 1 supplier whose failure to deliver parts caused the OEM to slow or halt production. Id. In fact, in 2002, the Creditor was required to pay Ford approximately $3,000,000.00 as the result of its failure to make timely delivery to Ford. Id. at 27-29.
It is undisputed that the Creditor and National Steel had a multi-year history of annual supply contracts under which National Steel sold steel to the Creditor that the Creditor then used to manufacture wheels for its OEM customers. On October 25, 2001, National Steel provided the Creditor with a Price Proposal and Supply Guidelines for 2002 (the "Price Proposal") for the sale of steel from National Steel to the Creditor for the period from January 1, 2002 through December 31, 2002. Creditor Ex. No. 1. The Price Proposal quoted prices and payment terms for the sale of steel. Id. Pursuant thereto the Creditor delivered Purchase Order No. 276913 (the "Purchase Order") to National Steel in response to the Price Proposal. Creditor Ex. No. 2. The Purchase Order: (1) described the particular steel that the Creditor intended to purchase from National Steel during the duration of the Price Proposal; (2) identified the unit price for each particular type of steel that the Creditor intended to purchase from National Steel during the duration of the Price Proposal; and (3) provided that "[t]he terms and conditions applicable to this purchase order are those terms and conditions in effect on the date of this purchase order and located on the company's web site, www.Hayes-Lemmerz.com." (the "Terms and Conditions"). Id.; Trial Tr. at 24.
Paragraph 2 of the Terms and Conditions, in turn, stated in relevant part that "[t]he Purchase Order is the entire agreement between the Parties respecting the Products and no modification of the Purchase Order shall be effective unless in writing and signed by an authorized representative of [the Creditor]...." National Steel Ex. No. 5 at ¶ 2. Further, paragraph 3 of the Terms and Conditions provided as follows:
Any [National Steel] Document (including any [National Steel] Document referenced in the Purchase Order), to the extent containing any terms in addition to or inconsistent with the terms of the Purchase Order, or a rejection of any terms of the Purchase Order, shall be deemed to be a counter offer to [the Creditor] and shall not be binding upon [the Creditor] unless specifically accepted in writing by an authorized representative of [the Creditor]. In the absence of written acceptance of such counter offer by [the Creditor], commencement of performance by [National Steel] shall be deemed to be an agreement by [National Steel] to perform in accordance with the terms of the Purchase Order and an acceptance hereof, notwithstanding any prior dealings or usage of trade.
The Terms and Conditions also spoke to the price and terms for the purchase of the steel, stating in pertinent part:
[The Creditor] shall not be billed at prices higher than stated on the Purchase Order unless authorized by an amended Purchase Order issued and signed by an authorized representative of [the Creditor] in accordance with Section 2. [National Steel] represents that the prices and terms for the Products covered by the Purchase Order are no less favorable to [the Creditor] than [National Steel] currently offers to any other customers for the same or similar Products in similar quantities. [National Steel] agrees that any price reduction made in Products of the type covered by the Purchase Order subsequent to the placement of the Purchase Order shall be applicable to the Purchase Order. [National Steel's] price shall not exceed the lowest prevailing market price, and in no event is the Purchase Order to be filled at prices higher than the last previously quoted or charged prices by [National Steel], whichever is lower, without [the Creditor's] prior written consent....
Additionally, the Terms and Conditions addressed the possibility of default and the remedies available thereunder:
Upon any default hereunder, in addition to all other remedies hereunder or under applicable law or in equity, [the Creditor] may exercise any one or more of the following remedies: ... (e) recover from [National Steel] any and all increased costs and other damages relating to such default and (f) recover attorneys' fees and costs of suit, plus interest on all of the foregoing at the highest rate permitted by applicable law. No delay by [the Creditor] in the enforcement of any provision of the Purchase Order shall constitute a waiver thereof, and no waiver thereof shall constitute a waiver of any other provision.
Finally, regarding the applicable choice of law, the Terms and Conditions provided in relevant part that "[t]he Purchase Order shall be construed according to the laws of the state of Michigan...
To continue reading
Request your trial
-
In re Marotta
...payment becomes due after the petition date if the transaction was entered into with the debtor prepetition. In re Nat'l Steel Corp., 316 B.R. 287, 300 (Bankr.N.D.Ill.2004). The requirement that an administrative expense “benefit” the estate, although not expressly found in the statute, con......
-
In re Hackney
...gave consideration to the debtor-in-possession); and (2) directly and substantially benefitted the estate.'"); In re National Steel Corp., 316 B.R. 287, 300 (Bankr.N.D.Ill.2004)("[F]or a claim to be allowed as an administrative expense, goods or services must be delivered or provided pursua......
-
Paloian v. Grupo Serla S.A. De C
...are considered property of an estate. See, e.g., Hoseman v. Weinschneider, 277 B.R. 894, 899 (N.D.Ill.2002); In re Nat'l Steel Corp., 316 B.R. 287, 311 (Bankr.N.D.Ill.2004); In re Res. Tech. Corp., 254 B.R. 215, 220 (Bankr.N.D.Ill.2000). The bankruptcy court found that Goss had several inte......
-
In re Ducane Gas Grills, Inc.
...the debtor.")(citing N.L.R.B. v. Bildisco, 465 U.S. 513, 532, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984)). See also In re Nat'l Steel Corp., 316 B.R. 287, 305 (Bankr.N.D.Ill.2004)(citing cases)("most courts agree that before an executory contract is assumed or rejected under § 365(a), that contr......
-
CHAPTER 6 Bankruptcy of Troubled Suppliers and Customers in the United States
...126 (D. Del. 2003) (decision should be approved unless made in bad faith or gross abuse of discretion).[376] In re National Steel Corp., 316 B.R. 287, 305 (Bankr. N.D. Ill. 2004) (citation omitted).[377] See, e.g., Pub. Serv. Co. of N.H, 884 F.2d 11, 14 (1st Cir. 1989).[378] In re Rhodes In......
-
Caught in the Web
...Feb. 23, 2009). [19] Id. at *13-14. [20] 256 F. App'x 515 (3rd Cir. 2007). [21] Id. at 517. [22] Id. at 516-17. [23] Id. at 520. [24] 316 B.R. 287, 294 (2004). [25] Id. [26] Id. at 295. [27] No. 06-CIV-2490-MHD, 2008 U.S. Dist. LEXIS 30637 (S.D.N.Y. Mar. 24, 2008). [28] Id. at *55. [29] No.......