Pella Corp. Files Suit Against Apogee Enterprises Over EFCO Sale Payments

Pella Corp. is alleging that Apogee Enterprises has failed to make payments for its purchase of EFCO Corp. from Pella in June 2017, and that the company has failed to release Pella from a General Contract of Indemnity (GIC) since the purchase. The allegations were brought up in a lawsuit filed in the U.S. District Court of the Southern District of Iowa (Central Division) in July against both Apogee and EFCO. Pella
is seeking more than $7.5 million in damages.

In the complaint, Pella alleges that despite a stock purchase agreement signed prior to its sale of EFCO, Apogee has failed to make $2.5 million payments to Pella on the first and second anniversaries of the closing date, which was June 12, 2017. According to the document, Apogee agreed to make the payments “regardless of any dispute that may exist with respect to any of the parties.” Apogee’s counsel also informed Pella that Apogee would not be making the third installment payment, according to the filing. Apogee purchased all of EFCO’s stock in a sale totaling approximately $195 million in June 2017.

The second part of the complaint focuses on a GIC executed by EFCO and Pella with Travelers Casualty and Surety Company of America in January 2016 for the Wanda Vista Tower Project in Chicago. General contractor James McHugh Construction Co. awarded the curtainwall scope to EFCO under a subcontract in October 2016. Travelers later entered into a performance bond and a payment bond in the amount of nearly $69 million regarding the Wanda project in February 2017.

Pella alleges that Apogee also agreed to, at its own expense, “use commercially reasonable efforts to secure the unconditional release of Pella and its affiliates from all ‘seller collateral,’ i.e., letters of credit, bonds and other such obligations of EFCO, and return to Pella such ‘seller collateral.’”

It also states that as a wholly owned subsidiary of Apogee, EFCO is bound to take all steps necessary to assist Apogee in performing the above obligations. However, Pella alleges that neither company have complied with their obligations under the agreement to secure Pella’s unconditional release from the GCI and the Wanda bond.

“Apogee declined to accept a specific offer that Travelers made on February 1, 2018, to swap Apogee for Pella as indemnitor under certain conditions,” reads the filing.

In the filing, Pella states that it demanded that EFCO cover the entire letter of credit as required under the CGI and Wanda bond, but that the company failed to do so. It also states that Apogee failed to provide the letter of credit demanded by Travelers, despite Pella’s demand letter. Both demands were requested on May 21, 2018. Since then Pella’s counsel has requested repeatedly that Apogee and EFCO take the necessary actions to secure Pella’s unconditional release from the CGI, the Wanda bond and additional bonds, according to the filing.

For both counts of breach of contract that Pella is alleging, the company is seeking:
• $5 million in contractual damages plus pre-judgment interest against Apogee;

• An order that Apogee has “anticipatorily breached its obligation” to pay $2.5 million on or before June 12, 2020 and an additional award of damages in the amount of $2.5 million against Apogee;
• Post-judgment interest;
• Judgment for costs of the suit and attorney’s fees; and
• Other relief the court deems just.

Apogee has not yet filed a response to the complaint. Both companies declined to comment, as they are unable to comment on ongoing legal matters.

Supreme Court Won’t Hear Metal Tariff Constitutionality Case

The U.S. Supreme Court will not hear the American Institute for International Steel’s (AIIS) case on the steel tariffs implemented by the Trump Administration early last year. The AIIS has argued that the Administration’s use of Section 232 of the Trade Expansion Act of 1962 to justify the implementation of tariffs on both steel and aluminum is unconstitutional because it delegates legislative power to the president. Section 232 allows tariffs to be imposed by the president when imports are deemed to be damaging to U.S. national security.

According to the petition, as of March 28, 2019, “the [25%] steel tariffs collected have exceeded $4.5 billion, plus another $1.5 billion for aluminum on which there is a 10% tariff.”

“However, the $4.5 billion figure significantly understates the irreparable and ongoing harm to petitioner AIIS’s members and to countless other companies and individuals who have sustained losses from the reduction in imports of steel products and domestic price increases resulting from the order,” reads the petition.

The petition was denied without comment by the Supreme Court on June 24, 2019. This decision leaves in place the U.S. Court of International Trade’s March decision allowing the tariffs to continue. However, the Supreme Court could hear the case in the future after further review is given by the lower courts.

BACKGROUND

A 25% tariff on steel imports and a 10% tariff on aluminum imports was implemented by the Administration in March 2018 to “build the steel and aluminum industries back.” These tariffs were recently lifted on Canada and Mexico as the countries continue to negotiate a trade deal to replace the North American Free Trade Agreement.

Canada is the top supplier of both metals to the U.S. It represented about 41% of aluminum imports and 16% of steel imports when the tariffs were introduced initially. Mexico represented about 9% of the U.S. import market for steel and about 4% of the market for aluminum.

The aluminum tariffs currently apply to all countries of origin except Argentina, Australia, Canada and Mexico, while the steel tariffs apply to all except Argentina, Australia, Brazil, Canada, Mexico and South Korea.

Steel entry doors represent the largest share of both commercial and residential applications, according to the American Architectural Manufacturers Association. It is followed by aluminum for nonresidential and fiberglass for residential. Metal windows—mostly aluminum—make up roughly 10% of the residential market, but they’re the bulk of commercial fenestration products in the U.S.

Paul Becks, executive vice president of the contract glazing firm National Enclosure Co., told USGlass magazine that after the initial adjustment to raw material values (and budgets), they have seen little pricing pressure.

“Sometimes you need to have a little pain for long-term gain,” he says.

To view the laid-in version of this article in our digital edition, CLICK HERE.