Shinano Kenshi Corporation v. Honeywell International Inc.

Background

Shinano Kenshi Corporation and Shinano Kenshi Co., Ltd. manufactured a custom blower used in Honeywell’s powered breathing-protection equipment. In 2017, the parties entered a Strategic Supplier Agreement under which Honeywell would place individual purchase orders. The agreement allowed Honeywell to terminate the entire agreement or individual purchase orders with 30 days’ written notice. It also limited Honeywell’s liability after termination, depending on whether Honeywell terminated the entire agreement or only individual purchase orders.

After demand increased during the COVID-19 pandemic, Honeywell placed orders for 112,000 blowers due by the end of 2020 and repeatedly referred to a commitment from the federal government. Honeywell later sought delayed shipments and canceled some orders. In February 2021, Honeywell asked for the amount owed for completed and in-process products if the outstanding orders were canceled. The plaintiffs calculated $2,806,459 in costs. They alleged that they still possessed 35,184 completed units and 11,500 partially assembled component kits that Honeywell refused to accept or pay for.

Ruling on the Motion to Dismiss

The court applied New York law because the agreement contained a New York choice-of-law provision. Honeywell moved to dismiss the complaint under the rule governing whether a complaint states a legally sufficient claim. The court granted the motion.

Breach of Contract

The court granted dismissal of the first cause of action with leave to replead. It concluded that the pleaded facts were sufficient to support a possible breach, but the complaint did not clearly allege a viable theory of breach. The February 19, 2021 communication could be understood as notice that Honeywell was terminating the entire agreement. If so, the agreement required payment for certain completed products, work in progress, and unique raw materials. The court allowed the plaintiffs to amend this claim to allege that Honeywell failed to make the payments required after terminating the entire agreement.

The court did not decide whether Honeywell’s February 2021 communication actually terminated the entire agreement or only individual purchase orders. It stated that issue could be addressed at a later stage, including summary judgment or trial. Any amended complaint could not seek punitive damages or storage costs because the agreement barred storage charges and the complaint did not support a viable punitive-damages theory.

Other Claims

The court dismissed the claim based on an alleged modified contract. The agreement required a signed writing that expressly referenced the agreement and reflected mutual intent to modify it. The complaint did not identify such a writing. The court also concluded that the purchase orders for 112,000 units did not themselves establish a modification because the agreement contemplated purchase orders of that kind and the plaintiffs accepted them under the agreement’s existing terms.

The court dismissed the implied-covenant claim because the requested obligation would conflict with the agreement’s express provisions. Those provisions allowed Honeywell to change delivery schedules, temporarily suspend shipments, and, in specified circumstances, cancel purchase orders without further liability.

The court dismissed both fraud claims. One claim concerned Honeywell’s alleged statements that it would continue to need and accept the products; the court found those matters were governed directly by the agreement’s provisions on shipment delays, forecasts, and cancellation. The other concerned alleged statements about a federal-government commitment to purchase the equipment. The court held that the agreement’s integration clause and provisions disclaiming reliance on outside representations defeated that claim.

Finally, the court dismissed the negligent-misrepresentation claim because the parties’ arm’s-length business relationship did not create the special or similar relationship required for that claim under New York law. The court therefore dismissed the complaint through its ruling on Honeywell’s motion, while permitting only the specified amendment to the breach-of-contract claim. If the plaintiffs did not file an amended complaint by March 21, 2023, the complaint would be dismissed with prejudice.