Automotive contract law keeps evolving, and suppliers will need to continuously assess how these changes will impact them.
As we previously reported, last summer, the United States Court of Appeals for the Sixth Circuit issued a decision in Higuchi Int’l Corp. v. Autoliv ASP, Inc., which provided additional clarity regarding the Michigan Supreme Court’s landmark decision in AirBoss, and the language required to create an enforceable requirements contract under Michigan law.
Since that time, federal trial court judges have issued decisions interpreting specific contract provisions under the rules established by Higuchi. Now, a federal trial court judge has weighed in on whether terms that Stellantis commonly includes in its purchase orders satisfy the standard set forth in Higuchi to create an enforceable requirements contract.
In FCA US, LLC v. MacLean-Fogg Component Solutions LLC, et al., two Tier One suppliers asked a federal trial court judge to hold that Stellantis’ purchase orders, which stated that the quantity of parts to be purchased was “approximately 65%-100% of [Stellantis’] requirements,” did not create an enforceable requirements contract, but rather were merely a release-by-release arrangement. The court ruled in favor of the Tier One suppliers, holding this language did not create an enforceable requirements contract.
In reaching that conclusion, the court first addressed nuanced issues regarding the application of state and federal law, explaining that the court was obligated to follow “Higuchi’s interpretation of Michigan law.” The court then recited the directive from Higuchi that, to create an enforceable requirements contract, the quantity term must “clearly and precisely establish the set share of its requirements that [the buyer] must purchase from [the seller].” Applying that directive, the court reasoned that “[a] quantity term that is an approximation is not ‘clearly and precisely’ established” and does not create an enforceable requirements contract. The court thus held that Stellantis’ purchase orders did not create an enforceable requirements contract. This ruling likely means that the suppliers will keep approximately $3.9 million Stellantis had paid “under protest” during the pendency of the case and that the suppliers can set their price moving forward.
This ruling diverges from a ruling that was issued by a state trial court in another case involving Stellantis’ purchase orders, FCA US, LLC v. Kamax Inc. There, the Oakland County Circuit Court ruled that this same language does create an enforceable requirements contract under Michigan law.
The MacLean court acknowledged this tension between the two rulings, reasoning that its ruling was compelled by federal precedent (specifically, Higuchi), and that the result might have been different in state court. This tension between federal and state court rulings has resulted from one of the questions left open in AirBoss — the impact of AirBoss on a prior decision, Cadillac Rubber & Plastics, Inc. v. Tubular Metal Sys. LLC, 331 Mich. App. 416 (2020), which we’ve previously written about in further detail.
The Kamax case is currently on appeal in the Michigan Court of Appeals, and the Court of Appeals will likely issue a ruling in the coming months that will further clarify Michigan law post-AirBoss.
The MacLean decision highlights a critical difference between the application of Michigan law by federal and state courts. Inconsistent outcomes in state and federal court litigation may persist until a Michigan appellate court clarifies the status of Cadillac Rubber. In the meantime, suppliers should carefully review the language in their contracts for the “approximately” language found in MacLean, as well as percentage ranges, which may be interpreted varyingly as to whether it creates an enforceable requirements contract.
