Garrett Motion Files Complaint Against Honeywell in Asbestos Indemnity Suit
January 16 2020 - 8:39AM
Business Wire
104-Page Filing Details How Honeywell
Foisted Its Legacy Asbestos Liabilities Upon Garrett Through An
Unenforceable 30-Year Indemnification Agreement
Garrett Motion Inc. (NYSE: GTX) today filed the complaint
in its lawsuit, initiated on Dec. 2, 2019, against Honeywell
International Inc. (NYSE: HON), related entities and certain
affiliated individuals in the Supreme Court of the State of New
York.
The complaint details how Honeywell and its executives, and not
Garrett’s current management, devised Garrett’s spinoff to offload
Honeywell’s more than $1 billion legacy Bendix asbestos liability,
while saddling Garrett with unconscionable and illegal covenants
that unnecessarily limit its ability to control its long term
future. Garrett’s complaint includes the following assertions:
- Top Honeywell executives devised Garrett’s spinoff to
offload the financial burdens of its asbestos liabilities. In
October 2018, Honeywell spun off what remained of its
Transportation Systems business, primarily a turbocharger business,
into what is now Garrett Motion. Garrett’s lawsuit arises from
Honeywell’s unilateral imposition of a 30-year Indemnification
Agreement as part of that spin. This agreement requires Garrett to
compensate Honeywell for payments made to resolve Honeywell’s
asbestos liabilities arising from Honeywell’s legacy Bendix
automotive brake business. That brake business is completely
unrelated to Garrett’s turbocharger business.
- Honeywell did not negotiate the one-sided Indemnification
Agreement with Garrett. Because no rational company would ever
voluntarily agree to the egregious terms of the Indemnification
Agreement, Honeywell installed one of its own in-house lawyers
prior to the spinoff as Garrett’s president and sole director for
the purpose of forcing these unconscionable terms on Garrett. In
addition, Garrett did not have independent legal representation
during the spinoff process: Honeywell retained the same lawyers to
represent both Honeywell and Garrett in connection with the
spinoff. The lawyers blindly acceded to Honeywell’s wishes,
regardless of the best interest of their other client,
Garrett.
- The Indemnification Agreement violates New York law. The
Indemnification Agreement purports to illegally require Garrett to
indemnify Honeywell for punitive damages, which are meant to punish
Honeywell, including for its reckless disregard of the dangers of
asbestos. Under New York law, Garrett cannot be required to
indemnify Honeywell for any amount attributable to punitive damages
or Honeywell's own intentional misconduct, as well as attorneys'
fees and related costs incurred in defending against or settling
such claims.
- Honeywell incorporated onerous and unlawful covenants into
the Indemnification Agreement that were uniquely designed to give
Honeywell a veto over Garrett’s key corporate decisions for 30
years. These covenants hobbled Garrett’s ability, as an
independent, publicly traded company, to refinance its debt and
engage in corporate transactions, including mergers and
acquisitions, that would benefit Garrett and its shareholders. As
detailed in the complaint, Garrett has no right to prepay
Honeywell, as it would a lender, which leaves Honeywell with
control over these decisions by Garrett for 30 years regardless of
Garrett’s circumstances. The complaint describes how such extensive
and long-lasting control by Honeywell over Garrett’s affairs has no
legitimate basis and is unlawful.
- Honeywell is not entitled to indemnification, and has
breached the Indemnification Agreement it wrote for itself.
Honeywell denied many of Garrett’s requests for information
concerning the liability for which it is indemnifying Honeywell,
despite Garrett’s right to this information and its attempts for
more than a year to obtain it. Honeywell has also failed to
establish its right to indemnity for each and every asbestos
settlement of the thousands for which it seeks indemnification.
Moreover, Honeywell has not allocated between indemnifiable amounts
and non-indemnifiable amounts, including punitive damages or
intentional misconduct.
For more than a year since its spinoff, Garrett has attempted to
resolve these critical governance and financial issues amicably
with Honeywell. After repeated, but unsuccessful discussions with
Honeywell, Garrett believes it has no alternative but to turn to
the Court for relief. Garrett intends to vigorously pursue its
claims.
During its negotiations, Honeywell has continued to force
Garrett to pay Honeywell’s asbestos labilities, including amounts
paid to settle punitive damages exposure and Honeywell’s wrongful
conduct, both of which are not permitted under New York law, under
the threat of improperly triggering a cascade of defaults under
Garrett’s financial indebtedness. Despite asserting that
Honeywell’s agreement is unlawful and unenforceable, Garrett has
continued to comply with its terms, including making timely
quarterly indemnity payments under protest. Garrett’s exposure
remains capped at $175 million annually throughout the
agreement.
Garrett’s lawsuit, initiated through a Summons with Notice filed
on Dec. 2, 2019, seeks compensatory damages, rescission of the
Indemnification Agreement, as well as other relief from the Court.
The complaint can be read here.
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended. All statements, other than statements of fact, that
address activities, events or developments that we or our
management intend, expect, project, believe or anticipate will or
may occur in the future are forward-looking statements including
without limitation our statements regarding our plans to pursue
litigation against Honeywell. Although we believe forward-looking
statements are based upon reasonable assumptions, such statements
involve known and unknown risks, uncertainties, and other factors,
which may cause the actual results or performance of the company to
be materially different from any future results or performance
expressed or implied by such forward-looking statements. Such risks
and uncertainties include, but are not limited to those described
in our annual report on Form 10-K for the year ended December 31,
2018, as well as our other filings with the Securities and Exchange
Commission, under the headings “Risk Factors” and “Cautionary Note
Regarding Forward-Looking Statements.” You are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date of this document. Forward-looking
statements are not guarantees of future performance, and actual
results, developments and business decisions may differ from those
envisaged by our forward-looking statements.
About Garrett Motion Inc.
Garrett Motion is a differentiated technology leader, serving
customers worldwide for more than 65 years with passenger vehicle,
commercial vehicle, aftermarket replacement and performance
enhancement solutions. Garrett’s cutting-edge technology enables
vehicles to become safer, and more connected, efficient and
environmentally friendly. Our portfolio of turbocharging, electric
boosting and automotive software solutions empowers the
transportation industry to redefine and further advance motion. For
more information, please visit www.garrettmotion.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20200116005467/en/
Media Mike Stoller +1 734 392-5525
michael.stoller@garrettmotion.com
Michael Cimini +1 973 216-3986
Michael.Cimini@garrettmotion.com
Investor Relations Paul Blalock +1
862 812-5013 paul.blalock@garrettmotion.com
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