Garrett Motion is suing Honeywell International Inc. — the company from which Garrett spun off in 2018 — for an “unusual” agreement between the two that has pinned the responsibility of massive asbestos liability claims against Honeywell onto Garrett.
In a suit filed in New York Supreme Court on Dec. 2, Switzerland-based Garrett alleges Honeywell “unilaterally” imposed a 30-year indemnification agreement on Garrett. Garrett says the agreement forces it to compensate Honeywell for all ongoing claims of asbestos exposure against the company that go back several decades.
Garrett also filed a complaint from the December lawsuit on Wednesday, detailing “how Honeywell and its executives, and not Garrett’s current management, devised Garrett’s spinoff to offload Honeywell’s more than $1 billion legacy Bendix asbestos liability, while saddling Garrett with unconscionable and illegal covenants that unnecessarily limit its ability to control its long-term future,” according to a Garrett statement.
As of September 30, Honeywell carried a total of $2.44 billion in asbestos liabilities with $6.4 billion in total unresolved claims, according to the company’s third-quarter filing.
Garrett has paid Honeywell $193 million as “required” by the agreement, but believes the asbestos liability belongs to Honeywell, Garrett spokesman Michael Stoller told Automotive News in a statement.
Over the last several years, the Charlotte, N.C.-based consumer products company has faced thousands of lawsuits as a result of claims that it knew the brakes its businesses manufactured contained asbestos.
Bendix — a brake division Honeywell sold in 2014 — manufactured brake linings that contained asbestos, according to Honeywell’s third-quarter SEC filing.
Other claims against Honeywell’s former North American Refractories Co., or NARCO, of “exposure to asbestos-containing refractory brick and mortar for high-temperature applications” stem back several decades.
NARCO stopped manufacturing those asbestos-containing products in 1980. Once NARCO was sold to Honeywell, liability claims continued until NARCO filed for bankruptcy in January 2002.
Honeywell spun what was left of its Transportation Systems units into Garrett in 2018. According to the SEC filing: “It is not possible to predict whether resolution values for Bendix-related asbestos claims will increase, decrease or stabilize in the future.”
Stoller said Garrett’s decision to file its claim “follows repeated, but unsuccessful discussions with Honeywell for more than a year since its spinoff.”
In the suit, Garrett alleges that the indemnification agreement requires Garrett to reimburse Honeywell for 90 percent of Honeywell’s legacy asbestos liability and “forced Garrett to borrow $1.6 billion to fund a cash distribution to Honeywell,” court documents say.
Stoller said that, since Honeywell did not actually negotiate the indemnification agreement with Garrett at the time of the spinoff, the company was unable to influence the outcome of the agreement.
“The agreement was structured and sized to enable Garrett to generate sufficient cash flow to make the required payments, subject to an annual cap and other protections, and operate in the marketplace as a standalone company,” a Honeywell spokeswoman said in a statement to Automotive News. “Garrett’s CEO and other Garrett executives understood and communicated the spin structure and the new spin company’s obligation … in advance of the spin transaction.”