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Law360 (May 5, 2020, 9:15 PM EDT) -- A Chinese manufacturer of aluminum alloy wheels for General Motors, Ford and other major automakers says that a U.S. warehousing company must arbitrate a dispute over the Chinese company's alleged failure to fulfill minimum shipment volumes due to COVID-19 and other events beyond its control.
Zhejiang Wanfeng Auto Wheel Co. Ltd. told an Ohio federal court on Monday that Sunland Logistics Solutions Inc., which receives, stores and prepares the Chinese company's wheels for delivery to its customers, is obligated under their agreement to arbitrate the dispute. Sunland is seeking "tremendous damages" after Wanfeng was unable to fulfill its obligations to ship the 60,000 wheels per month required under their deal, according to the suit.
The Chinese company, which has accused Sunland of improperly seizing 50,000 wheels "desperately needed" by its customers, has blamed the shortfall not only on shutdowns aimed at reducing the spread of COVID-19, but also a six-week strike last fall at GM that caused the automaker to shut down production. It has also blamed its performance on the imposition in 2018 of U.S. tariffs on Chinese aluminum, saying it's excused from blame under a force majeure provision in their contract.
Wanfeng is urging the court to order Sunland to not only release the wheels, but to submit to arbitration, as they agreed in their contract.
The contract says disputes will be submitted to the "America International Economic and Trade Arbitration Commission." While no such institution exists, Wanfeng says that the parties clearly meant for the dispute to be adjudicated by the China International Economic and Trade Arbitration Commission, and that the incorrect name was due to a typographical error.
"[E]ven if the court found CIETAC not to be the intended arbitrator, the law designates this court with the authority and duty to designate an arbitrator to carry out the parties' clear intent that disputes under the contract be arbitrated," according to the suit.
Sunland responded Tuesday, urging the court to toss the litigation because Wanfeng is not registered to do business in Ohio and therefore unable to file litigation in the Ohio federal court.
A Sunland representative declined to comment. Counsel for Wanfeng could not immediately be reached for comment on Tuesday.
The dispute stems from a 2015 contract under which Sunland agreed to receive, store and prepare wheels for delivery to Wanfeng's customers, including GM, Ford, Chrysler and Nissan. The contract obligated Wanfeng to ship 180,000 wheels per quarter, approximately 60,000 wheels per month.
Wanfeng says it was able to fulfill this requirement until 2019, when a GM strike that for six weeks that fall forced the company to shut down production and stop buying wheels. GM was its largest customer purchasing from Sunland's Toledo facility, according to the suit.
Wanfeng also blamed its poor production on 10% tariffs imposed on Chinese aluminum products in September 2018 that were later increased to 25% in June 2019, and on COVID-19, which is further affecting and reducing its shipment of wheels to the automakers.
It argues that its performance is excused under the pact's force majeure provision, which is triggered by events such as strikes and acts of governmental authorities, along with "any other causes or conditions beyond the reasonable control of the parties."
Sunland, meanwhile, has seized the 50,000 wheels as a warehouse lien for more than $140,000 due for unshipped wheels due in the fourth quarter of last year. Wanfeng says this is improper and that the wheels should be released.
Wanfeng has also alleged that Sunland is not blameless in the dispute, saying the company has had "serious problems" upholding its side of the deal, such as by delivering the wrong product to the Chinese company's customers and improperly accepting damaged products for intake.
Wanfeng is represented by Matthew D. Harper and M. Charles Collins of Eastman & Smith Ltd., and by Steven C. Powell of Powell Murphy.
Sunland is represented by Colin D. Dougherty of Fox Rothschild LLP.
The case is Zhejiang Wanfeng Auto Wheel Co. Ltd. v. Sunland Logistics Solutions Inc., case number 3:20-cv-00972 in the U.S. District Court for the Northern District of Ohio, Western Division.
--Editing by Peter Rozovsky.
For a reprint of this article, please contact reprints@law360.com.
