A Pennsylvania manufacturer that was producing parts for Town of Genesee-based Generac Holdings Inc. has sued the company after Generac allegedly made the company pre-order millions of dollars in supplies but later refused to buy custom-made parts as promised.
Williamsport, Pennsylvania-based Spartronics Vietnam, Inc., which specializes in complex electronics manufacturing and design services, filed one lawsuit in the Middle District of Pennsylvania Friday. A second lawsuit was also filed Friday in Allegheny County Superior Court in Pittsburgh.
The federal lawsuit states Spartronics seeks to recoup $5.7 million it owes to the Chinese company Tongrun International LLC, a designer and manufacturer of power control equipment with a North American headquarters in Texas. Overall, Spartronics alleges Generac's refusal to buy the custom-made parts it originally requested has exposed the company to more than $100 million in liabilities.
Friday's federal lawsuit is the first of several that Spartronics expects to file against Generac, according to a press release from the company.
“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,” said Christopher Clark, attorney for Spartronics.
The dispute began in September 2022, when Spartronics alleges Generac did not fulfill an agreement to buy millions of dollars in materials that Spartronics had procured on behalf of Generac, including from Tongrun.
Generac not buying these materials “left Spartronics exposed to over $100 million in open purchase orders to sub-suppliers, threat of lawsuits and soaring losses,” according to a complaint in the case. Tongrun prepared approximately $5.7 million worth of customized materials that were supposed to be sent to Spartronics for use in manufacturing products for Generac.
The complaint states Spartronics has been able to cancel some orders and negotiate settlements with other sub-suppliers, but the company still has $44 million in open purchase orders that could not be renegotiated. Spartronics also alleges it opened a new manufacturing facility in Vietnam to support the work it was doing for Generac.
Over time, Generac allegedly demanded longer lead times for raw material and component purchases and asked Spartronics to purchase material inventory based off Generac’s own forecasts.
“Even when Spartronics sought ‘firm purchase orders,’ Generac insisted that purchase orders should not hold anything up and that Spartronics should buy against ‘(Generac’s) official forecast,’” reads the complaint.
Spartronics moved forward with ordering parts from Tongrun and its other sub-suppliers based on Generac’s 15-month forecasts.
In the fourth quarter of 2022, Generac allegedly informed Spartronics that it no longer needed products and directed the company to cancel open purchase orders. This followed Generac facing falling demand for its home generators, as well as lawsuits filed related to the failure of the company’s SnapRS product and several of the company's portable generators causing injuries to customers.
“Unbeknownst to Spartronics, Generac was knowingly and recklessly overzealous in its attempt to meet outsized market expectations that came with a stock price that had risen sharply,” according to the complaint. “As Generac’s stock price began to slide, Generac hid from Spartronics that it was facing undisclosed legal, regulatory and commercial issues.”
Spartronics alleges Generac has refused to acknowledge liability for the approximately $44 million in inventory under open purchase orders, procured at Generac’s forecasts as requested by the company.
The company further alleges that its third-party suppliers have taken steps to place Spartronics on global shutdown for all products and materials, threatening roughly $450 million in projected revenue.
Spatronics seeks to recoup the $5.7 million it owes Tongrun for the materials the company prepared, plus damages to be determined at trial.
"The company strongly disputes the allegations in the complaint," said Generac in a Monday statement. "Spartronics misrepresents several issues in their lawsuits and ignores their own accountability. We intend to vigorously defend the matter. We cannot comment further since this is pending litigation."