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Macneil Automotive Products v. Cannon Automotive Ltd.

October 26, 2012

MACNEIL AUTOMOTIVE PRODUCTS, LTD., PLAINTIFF,
v.
CANNON AUTOMOTIVE LTD., F/K/A CANNON RUBBER LTD., AUTOMOTIVE DIVISION; C.A. HOLDINGS, PLC; AND CAH ESTATES (1) LIMITED; UNITED KINGDOM COMPANIES, DEFENDANTS.



The opinion of the court was delivered by: Judge Joan B. Gottschall

MEMORANDUM OPINION & ORDER

Plaintiff MacNeil Automotive Products Limited ("MacNeil") sued Defendant Cannon Automotive Limited ("Cannon") over defective automobile floor mats produced by Cannon and supplied by MacNeil to auto manufacturers. Before the court is Cannon's motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. Cannon asks the court to enter judgment in its favor on counts I, IV, V, VI, and VII of MacNeil's complaint and to dismiss counts II and III of the complaint with prejudice.*fn1 Because Cannon has not shown that MacNeil is unable to establish necessary elements of its claims on which it will bear the burden of proof at trial, the court denies Cannon's motion as to counts I, II, IV, V, VI, and VII. Count III, a promissory estoppel claim, is dismissed without prejudice, as the parties agree that their relationship was contractual.

I.BACKGROUND

The following facts are not in dispute, except as otherwise indicated. MacNeil, a manufacturer and supplier of automotive products including floor liners and mats, is an Illinois corporation with its principal place of business in Downers Grove, Illinois. Cannon is a United Kingdom corporation that manufactures and supplies automobile floor mats. Sometime in 1989, MacNeil and Cannon entered into an oral distribution agreement under which Cannon supplied automobile floor mats to MacNeil for resale to end users in the United States.

In May 2004,*fn2 Hyundai Motors America, Inc., an American affiliate of Korean auto manufacturer Hyundai Motors Corporation ("Hyundai"), awarded MacNeil a contract to supply Hyundai with composite floor mats, consisting of carpet adhered to a rubber base. The mats were to be installed in Hyundai Tucson vehicles delivered to U.S. ports to be sold in the United States. MacNeil engaged Cannon to manufacture and supply the composite floor mats. Cannon was aware that MacNeil intended to re-sell the composite mats to Hyundai. As a first step in the manufacturing process, Cannon created pre-production models of the Hyundai floor mats.*fn3

Hyundai approved the models, and full-scale production began in 2004.

MacNeil was concerned from the beginning of the Hyundai floor mat program about the fact that Hyundai wanted a combination rubber-carpet mat. Before the Hyundai program, Cannon shipped MacNeil defective product on some occasions, and MacNeil's requests for credit for the defective product were accepted by Cannon. In 2001, MacNeil supplied Land Rover with a rubber-carpet mat manufactured by Cannon and experienced adhesion defects with the mat. Although MacNeil claims that Cannon assured MacNeil that it had fixed the adhesion problems, Cannon denies that MacNeil either sought or received such assurances. In its manufacturing process, Cannon used glue, among other methods, to attach the carpet insert to the rubber base of the composite mats. Cannon supplied MacNeil with technical data on the glue.

Cannon sent its first shipment of Hyundai mats to MacNeil on July 23, 2004. The last shipment was sent on May 17, 2006. Altogether, Cannon delivered 98,895 mats to MacNeil for resale to Hyundai. Starting with the first shipment, the mats exhibited significant adhesion defects. They arrived at MacNeil's facility in Illinois with the carpet not fully glued to the rubber base. Cannon claims that these defects happened "from time to time;" MacNeil states that they happened "nearly always."

MacNeil instituted an inspection program under which its personnel inspected every mat MacNeil received from Cannon upon the arrival of a shipment of floor mats in Illinois. When MacNeil's personnel found a mat with peeling carpet, they attempted to glue the carpet back down using heat guns. MacNeil made a steel plate with handles so that its employees could push down on the mats to try to obtain good adhesion. If MacNeil's repair appeared successful, MacNeil shipped the mat on to Hyundai. According to former Hyundai employee Daniel Boudalis, the mats were not immediately inspected upon arrival at Hyundai, but were stored until they were installed in vehicles. Where MacNeil's attempted repair of the mats failed, MacNeil rejected the mat and sought a credit from Cannon. Cannon fulfilled the credits. Cannon representatives witnessed MacNeil's inspection and repair procedures.

In an email to Cannon dated August 26, 2004, MacNeil's Vice President, Allan Thom, discussed problems MacNeil had discovered in the first shipment of floor mats, including cracks and problems with carpet affixation. The latter problems included corners that were not fully affixed and bubbles or air pockets where the carpet was not adhered to the rubber. The email stated that, of the first crate of eighty sets of mats,*fn4 only nine sets of mats were perfect, while thirty-nine sets required regluing of the carpet and thirty-two sets had cracks and gluing issues. Thom further stated,

"Hyundai are a potentially HUGE account for both of us, and they intend to hold all of their suppliers to a higher standard as they continue to raise [their] quality standards. Therefore, we need to look carefully at our processes to eliminate these issues before [the mats] get placed in the crate! . . . I will send over some photographs of more examples of the troubles, but in the meantime, can you sit down with your team and discuss these issues and give us some ideas on solutions?"

Cannon responded that any defects on the mats it had observed in England were within its normal quality levels.

On September 8, 2004, MacNeil's President, David MacNeil, sent Cannon an email, attaching pictures of defective mats. He stated, "Here are some 'winning' photographs of Hyundai mats inspected today. . . . If I didn't so desperately need these mats, I would reject the whole lot. How can the production people and the QC people allow this kind of garbage to leave the factory?" The email continued, "You should be thanking us, really thanking us for performing this inspection process. If we shipped this shit to Hyundai, we would lose a multi million dollar contract immediately and without a second chance!" Mr. MacNeil asked Cannon to send representatives to Chicago to inspect the mats and to ensure that no more defective mats were shipped to Illinois. Cannon responded to Mr. MacNeil's email, apologizing for the adhesion issues and proposing to address the adhesion problem by "add[ing] an extra piece of rubber to enlarge the pressure bead and hopefully retain more heat along the carpet edge."

On October 13, 2004, after receiving a complaint about carpet adhesion from Hyundai, Mr. MacNeil sent Cannon an email stating:

Cannon is the manufacturer and must have processes in place to absolutely insure the proper bonding of the carpet to the rubber . . . . I have no clue whether 1%, 21% or 51% of the mats already shipped are any good! Time will tell and our reputation will either be left intact or in tatters! I sure hope that what is currently being built is good, really good!

On November 26, 2004, MacNeil sent Cannon a credit note requesting credit for rejected mats and for labor expenses, explaining the adhesion defects and what MacNeil had been doing to try to repair the mats. On February 11, 2005, Thom sent Cannon an email discussing certain defect issues and explaining that "the tooling was modified to increase the 'pad' thickness to get higher latent heat for better carpet adhesion."

On June 18, 2005, Mr. MacNeil sent Cannon an email reporting issues arising during two meetings between MacNeil and Hyundai:

Bad news. Carpet Adhesion. We (I'm not exaggerating) got completely ripped on about the carpet adhesion. They, yes Hyundai, they bend the corner over and guess what happens? The carpet starts to peel back. We have to supply FEMA results with corrective measures by Monday, end of business. Please help! If you cannot obtain consistently excellent adhesion of the carpet, WE WILL LOSE THE ACCOUNT! We have been put on notice!

The email discussed various ways to improve the glue and ensure proper adhesion and concluded: "Hyundai, the customer considers the carpet adhesion issue a fundamental quality issue! They have requested that we immediately address this issue and improve the product." On October 3, 2005, MacNeil asked Cannon for information with which to defend its production process, as Hyundai had found that the adhesion issue had not been resolved and had requested information on the process.

In or around May 2006, Hyundai complained to MacNeil that the carpet was peeling off the rubber on some of the composite mats in its warehouses. The mats were those that MacNeil had tried to repair at its Illinois facility. On July 4, 2006, Hyundai informed MacNeil that the carpet adhesion issues were so bad that they were shutting off the entire program. Mr. MacNeil forwarded these communications to Cannon and stated:

We think Hyundai fully intends to return $500,000 worth of mats. If they return $500,000 in mats, we intend to return to Cannon $500,000 in mats. This issue is fully the responsibility of Cannon. The quality of the Hyundai floor mats coming out of your factory was inferior, unacceptable, and as Winston Churchill said "We are entering the consequences phase." We have notified Cannon multiple times over the past few years of the inconsistency of the carpet adhesion . . . We are not the manufacturer of the floormats, Cannon is, but we are stuck trying to formulate a plan that Hyundai will accept to QC the mats AGAIN and to repair (re-glue) any defective product. Thanks to this Cannon caused situation, we will NEVER do business again with Hyundai . . . [W]hat is YOUR solution to this crisis?"

After Cannon responded and offered no suggestions, Mr. MacNeil wrote again stating:

[T]he quality responsibility rests 100% with Cannon and I expect that Cannon will financially stand behind the product and all of the expenses associated with dealing with this issue. My guess is that Hyundai may sue MacNeil and also Cannon. THIS is what we are trying to prevent. Since you don't have a plan, here's mine: If Hyundai allows us, Cannon will sen[d] over 3 of 4 top people to personally inspect and repair, by a mutually agreeable method at Hyundai's locations, all 11,500 sets that Hyundai has in stock. My guess is that this will take a month. Who is coming and when?

On July 6, 2006, Hyundai sent MacNeil an email reaffirming the shut-off of the program and stating: "We have conducted an inspection of 50 mats at each port. We have results back from four of our ports today and 80-100% of the mats inspected exhibit carpet separation." In a July 2006 email to Hyundai, Mr. MacNeil expressed skepticism that Hyundai had a legal right to reject the floor mats, but agreed that MacNeil would send representatives to Hyundai's warehouses to address Hyundai's problem with carpet delamination on the Cannon-manufactured mats. Cannon did not send anyone to inspect the defects or otherwise assist MacNeil during its visit to Hyundai.

When MacNeil's employees inspected the mats at Hyundai facilities, they found adhesion defects. MacNeil had brought its heat guns and metal tool and conducted the repair process, with a group of Hyundai employees witnessing the repairs. The day the repairs were made, the carpet appeared to be adhered. But the next day, the carpet was again detaching from the rubber, and the adhesion had not taken. MacNeil became concerned that the mats were not amenable to repair. During one meeting with Hyundai, a senior Hyundai executive pounded his fist ...


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