Chrysler files lawsuit against Daimler for failure to perform under contractual obligations

By Jennifer Lanning Drey

Portland, Ore., Aug. 24 - Chrysler LLC filed a lawsuit on Monday against Daimler AG, alleging that the company has failed to perform its contractual obligations under a cure dispute resolution agreement previously reached between the two companies, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

Chrysler asked the court to award related damages in an amount to be determined at trial, according to the filing.

Chrysler is also seeking a declaratory judgment that Daimler has no entitlement to volume shortfall payments under OM 651 contracts between the two companies because it waived any right to those payments in an April settlement.

In addition, Chrysler asked the court to declare the cure amounts with respect to the OM 651 contracts as zero and require Daimler to honor the cure dispute resolution agreement.

According to the filing, Daimler has improperly conditioned its performance of contractual obligations concerning the supply of steering column and torque converts parts on the resolution of a separate OM 651 cure dispute between the parties.

Chrysler said Daimler's "bad faith conduct and contractual breaches" threaten to severely harm Chrysler and send devastating ripple effects through the automotive industry."

Chrysler said Daimler has taken the position that unless Chrysler pays a cure amount of 55 million euros or agrees to litigate the dispute with a floor of 22 million euros, Daimler will not perform under the OM 651 contract or perform under a final steering column amendment and torque converter amendment.

However, according to the filing, Chrysler and Daimler previously agreed to a process for the assumption and assignment of contracts to Chrysler and for the resolution of a handful of other outstanding issues, including a dispute that had arisen between the parties regarding a cure amount related to OM 651 diesel engines.

Chrysler said they had also agreed to the essential terms for future supply and agreed to finalize the paperwork necessary to ensure the continued supply of the steering column and torque converter parts for the remainder of the 2010 model year.

Chrysler said Daimler breached the previously negotiated cure dispute resolution agreement by refusing to sign a fully negotiated steering column amendment and torque converter amendment.

Chrysler said the ongoing dispute with Daimler relating to the OM 651 is no excuse for Daimler to refuse to perform its good faith obligation to execute the final steering column and final torque converter amendments.

"Without court intervention, Daimler's actions threaten to shut down Chrysler's manufacture of key product lines and derail this court's carefully structured plan to foster the manufacturing, assembly and sale of Chrysler vehicles for the 2010 model year and beyond," Chrysler said.

Chrysler, an Auburn Hills, Mich.-based automotive company, filed for bankruptcy on April 30. Its Chapter 11 case number is 09-50002.

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