DETROIT — Minority automotive supplier Mexican Industries in Michigan Inc. is trying to force troubled plastics molder Cambridge Industries Inc. to sell its stake in a joint venture both companies own. Detroit-based Mexican Industries accuses Cambridge of being insolvent and not putting the required capital into Dos Manos Technologies, according to a lawsuit filed this month in Wayne County Circuit Court.
Mexican Industries owns 52 percent of Dos Manos, an injection molding operation, and Cambridge owns 48 percent.
But Madison Heights, Mich.-based Cambridge, which put together a financing agreement with its banks and customers last month, said it is solvent and the allegations made by Mexican Industries are false.
"The claims they cite are without merit," said John Sieg, Cambridge vice president of marketing and communications. "The thing that jumped out at us was the characterization of us as insolvent. That's really false. We have funding to make capital expenditures and fund the programs we have going. We've made it clear there's not a liquidity problem here."
Two weeks earlier, Cambridge said it reached an agreement with its banks and customers that would provide enough cash flow to keep the company going until it completes the sale of a division or the entire company.
Mexican Industries offered to buy out Cambridge's stake in Dos Manos, but Cambridge refused, according to Joseph DeVito, corporate attorney for Mexican Industries. The company wants a judge to order Cambridge to sell its interest in Dos Manos because the joint venture is in danger of not meeting its contractual demands to General Motors Corp., DeVito said.
An agreement between the two partners says that if one company becomes insolvent and the other wants to continue operating Dos Manos, the insolvent partner "shall sell" its interest in the company, according to the lawsuit.
"There was an offer to purchase their interest, but we thought their demand was unreasonable," said DeVito, a lawyer with Cox, Hodgman & Giarmarco P.C. in Troy, Mich. "After they rejected our offer, we went to court to force a buyout. We're concerned because they've refused to put more money into this joint venture and support it. We're not going to put more money in and let them have a free ride."
Mexican Industries, which reported 1998 sales of $161.7 million, has loaned Dos Manos $6.5 million, according to the lawsuit.
A legal analyst said that proving that Cambridge is insolvent will be the key to making Mexican Industries' case.
Larry Dubin, a professor of law at University of Detroit Mercy, said the rule on selling interest in Dos Manos kicks in if a company is insolvent.
"The fact regarding the solvency will have to be resolved before the court can decide," Dubin said.
And that's something Mexican Industries will not be able to prove, Sieg said.
"They need to prove we're insolvent to get 100 percent of Dos Manos, and we totally object to that," he said.
Cambridge reported a net loss of $30.3 million on sales of $541.1 million for 1999.
In February, the company hired Morgan Stanley Dean Witter & Co. of New York to look for buyers.
Sieg said sale talks are moving swiftly and Cambridge management is narrowing down offers. He said the lawsuit will not upset the sale process.
"We're beyond the bid stage. At this point, we're in the consideration process of selecting one," he said.
In a separate complaint, Mexican Industries filed a lawsuit against Cambridge in Oakland County Circuit Court seeking payment of $1.06 million that the company claims Cambridge owes.
Sieg said both complaints are "a commercial dispute between us, Dos Manos and Mexican Industries — the parties owe money to all the other parties."
Sieg said Cambridge still will discuss a sale of its interest in Dos Manos with Mexican Industries.
"The sad thing is that this kind of looks like an in-house disagreement that's gotten a little out of hand," he said.