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Law360 (January 13, 2021, 7:04 PM EST) -- A metal manufacturer told a California federal judge that COVID-19 is not an "act of God" in a suit seeking to compel its debtor, a green-tech company, to pay over $4 million in debt and damages after the company tried to invoke a "force majeure" provision in the parties' contract to allegedly avoid payment.
G&H Diversified Manufacturing LP said Tuesday that Regreen Technologies Inc has repeatedly broken its promise to pay G&H since 2018, and Regreen most recently attempted to plead "force majeure" to escape payment obligations after the pandemic started.
"Although the manufacturing agreement contains a force majeure clause, that clause does not address epidemics or pandemics, only 'acts of God, acts of war, riot, fire, explosion, flood or sabotage,'" G&H said.
According to the suit, Regreen is a "green technology" firm that sells machines that turn municipal wastes into reusable materials. The machines were previously manufactured in Turkey, but in 2018 Regreen decided to make them in the U.S. to get more customers and chose G&H to produce the machines.
In May 2018, the two companies signed a contract to have G&H purchase the $1.6 million machine from its then-Turkish maker to "reverse engineer" it in order to design and build a U.S. version. Regreen agreed to repay G&H for the $1.6 million machine and a 15% profit margin of all costs incurred during the purchase. Regreen's founder, Albert Mardikian, also signed a personal guarantee obligating him to pay G&H if payment from Regreen falls through, according to the suit.
G&H then bought the 15-ton Turkish machine and hired employees to finish the engineering and design process. But Regreen never paid the $1.6 million and other costs as agreed, G&H alleged. Together with the purchase price for the Turkish machine and the costs of reverse engineering it, G&H had incurred about $3 million in expenses, it said.
In September 2018, Regreen asked G&H to produce the first five U.S. machines, which cost $1.75 million each, in another agreement, telling the metal manufacturer that it had secured orders and investors' interests, and forecasting 17 more machine orders in 2019, according to the complaint.
But Regreen delayed payments and never paid for machine testing and modification costs as promised, G&H said in the suit.
Last July, after G&H learned that the order for the first U.S. machine fell through with Regreen, it sent a demand letter seeking all outstanding sums owed. "In a panic, Regreen attempted, clumsily, to invoke 'force majeure'" and urged G&H to retract the letter, G&H said. After the manufacturer declined to take back the demand letter, Regreen told G&H that "it had no way to make any payment," according to the suit.
"Regreen was always delinquent on its obligations, using post-dated checks, and pleading poverty months before any business could plausibly claim to have been affected by COVID-19," G&H said.
The manufacturer is alleging breach of contract, breach of good faith and fair dealing, and seeking over $4 million in debt and damages, with the exact amount to be determined in a jury trial.
Representatives for the parties could not be immediately reached for comment on Wednesday.
G&H is represented by Alan Kossoff of Kinsella Weitzman Iser Kump LLP.
Counsel information for Regreen was not immediately available.
The case is G&H Diversified Manufacturing LP v. Regreen Technologies, Inc. et al., case number 8:21-cv-00062, in the U.S. District for the Central District of California.
--Editing by Michael Watanabe.
For a reprint of this article, please contact reprints@law360.com.
