Shinano Kenshi Corporation v. Honeywell International Inc.

Background

Shinano Kenshi Corporation and Shinano Kenshi Co., Ltd. sued Honeywell International Inc. for breach of contract. The parties’ 2017 Strategic Supplier Agreement covered the plaintiffs’ manufacture and Honeywell’s purchase of custom blower units used in Honeywell’s personal protective equipment. The agreement allowed Honeywell to terminate for convenience on 30 days’ written notice. It also stated that, if Honeywell terminated for convenience, Honeywell’s only liability and the plaintiffs’ only remedy included payment for accepted products and certain unique raw materials, work in progress, and finished products.

During the COVID-19 pandemic, Honeywell substantially increased its orders. In February 2021, Honeywell directed the plaintiffs to cancel and scrap units being held, including 35,148 completed units and 11,500 pieces held in Japan. The plaintiffs stated that the amount due, assuming cancellation, was $2,806,459.44, plus storage costs. Honeywell offered $1,496,000 in full satisfaction, and the plaintiffs refused. The plaintiffs sought $2,806,459.44.

In an earlier round of this case, the court dismissed the initial complaint but allowed the plaintiffs to amend only to replead a contract claim based on failure to pay after termination. The plaintiffs then filed an amended complaint asserting that theory and two additional contract theories. Honeywell moved to dismiss.

Ruling on the Motion to Dismiss

The court applied New York law. It denied Honeywell’s motion as to the claim that Honeywell breached the agreement by failing to pay for completed and in-progress blower units and unique raw materials after termination. At the motion-to-dismiss stage, the court accepted the amended complaint’s factual allegations as true and found them sufficient to plausibly allege a contract, the plaintiffs’ performance, Honeywell’s breach, and resulting damages.

Honeywell argued that its February 19, 2021, communication did not comply with the agreement’s notice provision and therefore could not terminate the agreement. The court held that, regardless of whether the notice complied precisely with that provision, Honeywell could not use its own failure to follow the notice provision to avoid potential liability when the plaintiffs received actual notice and claimed no prejudice. The court also held that whether the communication terminated the entire agreement or only individual purchase orders was an issue for summary judgment or trial, not for deciding whether the amended complaint stated a claim.

The court granted Honeywell’s motion as to the plaintiffs’ other contract theories. Those theories alleged breach based on termination of purchase orders and breach under Section 12.1. The court dismissed them because the plaintiffs had been given permission to amend only to replead the failure-to-pay-after-termination theory, and the additional theories exceeded that limited permission.

Interlocutory Appeal

The court denied the plaintiffs’ request to certify the ruling for an immediate appeal under 28 U.S.C. § 1292(b). The court found that the plaintiffs challenged the sufficiency of their pleadings rather than a controlling legal question, had not shown a substantial disagreement about the governing law, and had not shown that an immediate appeal would materially advance the case. Judge Lorna G. Schofield also noted that immediate appeals from such rulings are generally disfavored and that the plaintiffs had not shown exceptional circumstances.

Disposition

The motion to dismiss was granted in part and denied in part. The only surviving claim was the breach-of-contract claim based on failure to pay upon termination. The application for certification for an interlocutory appeal was denied.