A former subsidiary of Honeywell is now suing the conglomerate for being coerced into a deal that would assume billions of dollars in asbestos liabilities over the next 30 years.
Garrett Motion Inc., a turbocharger manufacturer acquired by Honeywell in 1999, filed a lawsuit this week claiming Honeywell strong-armed the company into an indemnification agreement that covered debts for most of Honeywell’s asbestos-related lawsuits.
Honeywell’s Asbestos-Lined Brake Pads
In a court filing, Garrett claimed it was forced into signing the agreement “under the threat of improperly triggering a cascade of defaults on Garrett’s debts and driving Garrett into severe financial distress.”
Mostly known for its consumer appliances and industrial tools, Honeywell remains on the hook for the manufacture and distribution of asbestos-lined brake pads. The company has faced and continues to face thousands of lawsuits stemming from the sale and manufacture of asbestos-lined brakes pads.
Some of those suits have been settled — others have not. Earlier this year, an Arkansas judge ordered Honeywell to pay $18.5 Million to the family of a mechanic who installed asbestos-lined brake pads and died from mesothelioma in 2017.
Asbestos Liability Tied-Up in Complicated Merger
The ongoing legal battles suggest a motivation behind Honeywell’s treatment of Garrett Motion, Inc. While Garrett itself has no history of manufacturing or selling asbestos-containing products, another subsidiary of Garret’s former parent company does.
As part of a merger with the company AlliedSignal in 1999, Honeywell acquired both Garrett and a brake manufacturer called Bendix Corporation. For decades, Bendix produced asbestos-lined brake pads for cars, trucks, and industrial vehicles, exposing thousands of workers, mechanics, and consumers to the toxic substance.
Prolonged exposure to asbestos can cause mesothelioma, asbestosis, and other deadly respiratory diseases. Court documents show Bendix was still selling asbestos-containing brake pads as late as 2001.
A Messy Corporate Split
Honeywell spun off Garrett in 2018. As part of the split, Garrett agreed to compensate Honeywell for payments and legal fees relating to Bendix, not to exceed $175 Million a year.
Since then, the 2 companies have failed to negotiate a solution regarding the asbestos liabilities, with Garrett claiming it should not be on the hook and that the company was unfairly forced into the deal. The company also says it has improperly inserted itself into private corporate decisions through debt stipulations. The company said in a press release:
“Garrett asserts that requiring it to make these payments to Honeywell is unacceptable as the historical asbestos liability is Honeywell’s and not Garrett’s. Furthermore, Honeywell has enabled itself to potentially exercise control of key Garrett corporate decisions by inserting a set of loan-like covenants into the 30-year agreement term.”
For its part, Honeywell denies having any controlling interest or seats on Garrett’s board, and that 100% of the company was spun off as part of the 2018 agreement.
In a statement to the Wall Street Journal, Honeywell claimed its “spinoff of Garrett into a standalone company fully complied with applicable law,” adding that the asbestos liabilities come from the transportation business that is now associated with Garrett. Therefore, Honeywell claimed, Garrett should assume the bulk of the asbestos liabilities.
Whether that defense plays in court remains to be seen.
Track Record of Reckless Corporate Behavior
Honeywell has made several attempts to evade its asbestos dues, which are estimated to be over $1 Billion alone. Through bankruptcy filings, political lobbying, and accounting tricks, the company has made clear its intentions to get out from under the heel of asbestos litigation, which it assumed in 1999 after merging with AlliedSignal.
According to the Wall Street Journal, Garrett earned $2.4 Billion in revenue during the first 3 quarters of this year. Honeywell, on the other hand, earned some $27.2 Billion.
Regulatory filings show Garrett has thus far made the agreed-upon payments to Honeywell. These payments constitute a strategy for Honeywell, as the conglomerate stated in 2018 that it fully expects this spinoff as well as others to cover its legal expenses.
Last year, shortly after Garrett was spun off into an independent company, the U.S. Securities and Exchange Commission (SEC) launched an investigation into Honeywell’s accounting of asbestos-related liabilities.
A 2017 estimate put the company’s legal dues at $2.61 Billion — some $1.09 Billion higher than a prior estimate.