A Pennsylvania-based electronic equipment supplier on Friday sued Generac Power Systems Inc. in state and federal courts in the first of what it says will be a series of lawsuits aiming to collect payment for $44 million in generator parts that the Waukesha company ordered but no longer wants.
Spartronics, based in Williamsport, Pennsylvania, argues in the lawsuits that Generac forced it into pre-ordering supplies and parts at a time when business was booming during the coronavirus pandemic and then backed out of the agreement as sales fell short of forecasts. As a result, Spartronics claims it owes a network of nearly 100 suppliers tens of millions of dollars for generator parts that it can no longer sell. Big Generator
A lawsuit filed by in the Middle District of U.S. District Court in Pennsylvania seeks to collect $5.7 million that is owed to Tongrun International LLC, a Chinese metal fabricator with operations in Texas. The lawsuit was filed on behalf of its Spartronics Vietnam Inc. subsidiary, the operator of a factory that Spartronics claims to have built specifically for its work with Generac.
A lawsuit in Allegheny County Superior Court in Pittsburgh, seeks $1.1 million that it claims is owed to Sprang & Co., a Pennsylvania maker of electronic components.
“Spartronics’ global suppliers are critical for ensuring it has the parts needed to serve its industry-leading customers in the defense and medical sectors, and Spartronics will not sit by idly while Generac refuses to pay for custom, non-reusable and other materials that they demanded be produced,” Christopher Clark, an attorney for the company said in a statement.
It’s unclear whether Spartronics plans to file individual lawsuits to try to incrementally recoup what it owes each of the 98 suppliers with which court records say it had contracts.
The company claims that the Waukesha-based generator maker cancelled its orders as sales dropped off following a 2021 peak and that Generac has refused to pay Spartronics for the millions of dollars of Generac-specific inventory held by the company and its suppliers. In some instances Generac cut out Spartronics and began negotiating directly with its suppliers, the lawsuits state.
That left Spartronics on the hook for paying its suppliers, and upended Spartronics’ relationships with those companies. Some have sued Spartronics and some have put the company on “global shutdown for all materials,” the complaints state.
“All told, Generac’s actions threaten roughly $450 million in projected Spartronics revenue and have caused immediate and devastating harm to Spartronics’ existing commercial relationships, credibility, and goodwill,” the complaints state.
A Generac spokesperson did not immediately respond to a request for comments Friday afternoon.
Spartronics initially balked at Generac’s request to pre-order supplies, a new arrangement that Generac pitched as it raced “to meet outsized market expectations that came with a stock price that had risen sharply” as demand surged during the pandemic.
After receiving assurances that Generac would buy the materials, Spartronics relented and the parties signed a memorandum of understanding in October 2021 in which Generac agreed to buy supplies at 8% over cost in exchange for Spartronics “utilizing its working capital in support of Generac’s’ demands.”
A year later, Generac’s sales and stock price had plummeted amidst lawsuits, a product recall and a subsequent federal product safety investigation and fine, and the bankruptcy of Pink Energy, a Generac solar products distributor.
Silent Generator Price “Amid this foreseeable tumult and facing continued inventory overstock and soft market for its products in the fourth quarter of 2022, Generac informed Spartronics that it had no need for any more products and directed Spartronics to cancel open POs for inventory,” the complaint states.