JUNE 1993 - VOLUME 14 - NUMBER 6
I N T E R V I E W
Stopping Capital Flight
A Strategy for Corporate AccountabilityAn interview with Douglas Winters
Douglas Winters is an attorney who represented the township of Ypsilanti, Michigan in a landmark lawsuit against General Motors (GM). In February 1993, Washtenaw County Circuit Court Judge Donald Shelton ruled that GM cannot shut down its Ypsilanti Chevrolet Caprice passenger car plant, because the company had promised to provide employment at the Willow Run facility in exchange for millions of dollars in tax abatements. In December 1992, GM had announced it would consolidate production at either the Michigan facility or a plant in Arlington, Texas, pitting the two communities against one another in a bid to save their respective plants.
Multinational Monitor: What is the background to the suit against General Motors (GM)?
Douglas Winters: For almost two decades, General Motors had availed itself of a tax abatement statute whereby a corporation could receive a 50 percent reduction on its personal or real property taxes for a maximum period of twelve years. As part of that process, General Motors was required to answer questions on forms supplied by the state, in which the company indicated it would retain a certain number of jobs in exchange for the tax abatement being approved. In our case, the two abatements were granted in 1984 and 1988 in exchange for the retention of 4,300 and 4,900 jobs respectively.
Furthermore, on the night the 1988 abatement was approved, General Motors came to the township as part of a public hearing and announced it had selected Willow Run six months earlier as the facility for building new Caprice vehicles, and that it was going to maintain continuous employment and continuous production in exchange for receiving the tax abatement. So in this case, the company had to go beyond what it normally would do. Absent the promise to retain jobs, there was no incentive for us to go ahead and grant a tax abatement on an investment that had already been approved by General Motors six months prior to the abatement request being submitted.
So after 20 years of receiving tax abatements totaling over $1.3 billion -after saving millions of dollars in taxes that would have gone to the township, the county and the state to fund schools and other public services - General Motors announced in February 1992 that it had other plans, it had changed its mind and was going to wash its hands of the township. GM officials placed a 20-second telephone call to the township supervisor in which they communicated their decision to close down Willow Run and shift production to Arlington, Texas. Based upon our dealings with General Motors, based upon the history we have with the company, based upon the promises it made, based upon the millions of dollars in tax breaks it had received and based upon our reliance on GM's assurance it would continue production and maintain employment at Willow Run, the township felt there had been a serious breach of good faith and a breach of contract.
We maintained that GM was bound to keep the plant open by promissory estoppel, which is an equitable remedy that allows the courts to enforce a promise which has clearly been made, where reliance on the promise has been shown on the part of the township and where injustice would occur but for the promise being enforced. In our case, we were successful in convincing the court that General Motors had made a promise that we had relied upon, and in order to avoid injustice, it had to be enforced.
MM: Why did the judge have to rely on promissory estoppel rather than rule through through straight contract law?
Winters: Promissory estoppel is based upon contract law; it is a quasi-contractual theory. Judge Shelton found that under the statute as written, GM and the township did not create a contract based upon the application form. But he did find that GM - through its course of dealings with the township, its 20-year history with the community and its specific promises at the public hearing - had entered into a contractual relationship with the township that was independent of or outside the parameters of the state statute.
MM: Has this sort of suit ever been tried before?
Winters: There was a case in Ohio a few years back, United Steelworkers Local 1330 versus United Steel Company, in which the local filed a lawsuit based on promissory estoppel. It was not successful because the facts of the case simply did not give rise to a definite and clear promise.
The defendant in the case, United Steel, also asserted an economic necessity defense. The promise was: if we can return our plant to profitability, we will maintain employment. There was a dispute as to whether that profitability had been attained.
In our case, GM stipulated that economic necessity was not a defense in its decision to close the plant. It stipulated to the court in writing that to the extent the court found a contract or an obligation to maintain employment, that GM was not going to assert as a defense that it was excused from performance by virtue of economic necessity. During discovery, we obtained documents, which GM tried to keep confidential, revealing that GM would realize an annual savings of over $74 million a year by operating at Willow Run rather than at Arlington. So, unlike the Ohio case, it was never a decision based upon economic necessity. It was a decision based upon corporate convenience.
I don't know the real reason behind the decision to close Willow Run; in my own opinion, it involved a myriad of factors, including Arlington's proximity to Mexico. We may never know all the reasons GM chose Arlington, but it is clear that it was not a decision based upon the necessity to save money. Because GM was going to save more money by keeping Willow Run open.
MM: What was GM's main line of defense in the suit?
Winters: Simply that it had no obligation to the community, that it did not make a promise, that the statements which we claim constituted a binding promise of employment were actually little more than expressions of hope or predictions of future events. GM simply said it made no promise.
But in fact, its statements were very specific; the phrases it used were orchestrated - they were written out days in advance of the public hearing - in a manner so as to induce the township to take the action that it did. GM's defense was belied by its own conduct, by its own words and actions.
MM: How forthcoming were GM officials in terms of handing over requested documents and answering questions as you were preparing for the case?
Winters: They would not do either. We had to go to court, asking that they be held in contempt for not answering the questions that had been asked of them. After they answered the questions, they pretended that they did not know that they were also required to turn over the documents. When they handed over the documents, they did so under protective order.
When we discovered that the documents contradicted positions they had taken publicly - in which they claimed that the decision to close Willow Run was based on economic necessity - we wanted to respond to those claims in the same forum - as a matter of public record. So we fought to have those documents released and they were. It was after they were released, in fact, that GM entered into the economic necessity stipulation. It was trying to cut off any more embarrassing discovery being made public by having to turn over documents that contradicted positions it had previously taken in court.
MM: How did the trial go?
Winters: The trial went very well from our standpoint. GM witnesses bolstered our case by taking positions that led to them being very easily impeached. For example, the executive vice president who made the decision to close Willow Run, Joe Spielman, testified that GM would never promise to retain jobs in exchange for tax abatements. He said nobody in the company has the authority to make that type of promise. So we produced documents from other states showing that GM did just that. In fact, just two months after the decision to close Willow Run was announced, GM officials entered into a tax abatement agreement with Arlington, Texas in which they promised to retain jobs. That agreement had been signed, sealed and approved by GM corporate legal staff, and had been approved by the Arlington city council.
So we learned that GM finds it very easy to make promises, difficult to keep track of those promises and even more difficult to live up to those promises. GM will say what it has to say and promise what it has to promise, in order to induce, frighten or threaten communities into giving them millions of dollars in tax benefits. It has at times pushed this country into a bidding frenzy. Pitting Arlington against Willow Run was like making two pit bulls fight over a piece of meat- winner take all. I think it has become a very recognizable corporate practice, not only at GM but at many other corporations trying to get whatever they can out of communities. They are using taxpayers' benefits as a means of increasing their dividends, increasing their profitability, increasing their standing on Wall Street, and they are doing so without living up to their commitments.
At Willow Run, the entire plant-closing process came down to a 75-minute meeting between two corporate vice-presidents. Think about how a plant closure decision is going to impact the community along with thousands of other people outside the community: the closure of Willow Run is going to result in the loss of 18,000 jobs within three years, according to an Eastern Michigan University study. We had to listen to GM executives testify that this decision was made in a 75 minute meeting - it takes longer than that to watch a movie. It is a rather chilling feeling to know that so many thousands of people who have given so much of themselves to General Motors's overall success can be discarded and thrown out in such a despicable manner.
MM: How has GM responded to the court decision?
Winters: In its typical, arrogant way. It has made bold, brash predictions that this case will be overturned. It has even told the court of appeals that unless the case is overturned, no corporation will ever again apply for a tax abatement in the state of Michigan. But we found out that within 30 days of judge Shelton's decision - the ink was barely even dry on the paper - GM had applied for and received another tax abatement from Madison township, Michigan. And the week it was filing its brief in the court of appeals, it was pushing the city of Pontiac, Michigan to create a tax abatement district which is the first step toward applying for tax abatements in the future.
So, it is going about doing business as usual while telling the higher courts that this decision will be a blow to the Michigan economy unless it is reversed. Well, the only blow to the Michigan economy has been the flight out of this state and out of this country by GM and other Big Three corporations. Michigan did exactly what it promised to do - gave GM tax abatements and saved the company millions of dollars. It was General Motors that did not live up to its end of the bargain.
MM: What is GM's strategy for the appeal?
Winters: It has hired some new attorneys and is trying to renege on the economic necessity stipulation by now offering all these economic arguments as to why it should be allowed to close Willow Run. That argument, however, was removed from the case by GM's own stipulation. Even if GM officials have decided they don't like the stipulation any more, it is still the stipulation. GM is trying to do to the courts what it has done to us - enter into agreements or stipulations and then try to renege upon them later.
MM: How do you think the appeal is likely to come out?
Winters: I think we are going to prevail. The Michigan Supreme Court has issued an opinion saying that the existence and scope of a promise are questions of fact, and that court decisions about a promise will not be overturned unless clearly erroneous. Whether a higher court would have reached the decision that Judge Shelton did is not the standard of review: the standard of review is whether his findings were clearly erroneous. And in this case they are clearly not. Judge Shelton wrote a 30-page opinion in which he details his findings and in which he explains why GM's witnesses were not credible. I feel confident that the record and the Michigan Supreme Court decision greatly bolsters the chance for this case to be confirmed by the Michigan appellate court.
MM: Is the judge's order to continue operation likely to withstand appeal as well?
Winters: I think so. The harm to the township if GM closes down the plant really outweighs any hardships to GM if it is forced to stay open. All it would be forced to do is to continue to build a product at a very highly successful plant. If the plant closes down, we are the ones who have to face the economic devastation that is going to follow, along with all the accompanying social problems.
MM: Has GM offered to pay damages or any other type of settlement?
Winters: No. And it wouldn't do workers any good. What we bargained for were the jobs. There are some damages that occur to a community that money simply cannot fix.
MM: How available is this sort of suit to other communities?
Winters: I think each has to look at its own course of dealing with the corporation to see what kind of history it has established with the community. We had given GM a lot of tax abatements in our 20-year history and until last year the company had always done what it said it would do.
Communities have to look at the specific promises made by the corporation when it requested the tax abatement. We were fortunate because we actually had the public hearing tape which showed in very specific detail the promises that were made. I think that the legal theory is very applicable but the facts still have to be there.
MM: How has the community responded to this lawsuit?
Winters: It has responded very strongly in support of the township's actions and positions. Other communities around the state have also been very supportive - they recognize that this is not the first time that a corporation has reneged on its obligations to a community. We obtained copies of all the contracts GM entered into; it was clear from those documents that GM's strategy is basically to promise the moon to each community and not worry about ever being held accountable if it breaks those promises. This is the first community that I know of that has ever stood up to GM and said, "No, you can't just make promises and break promises and float them around like spare change." The company has never been held accountable before.
So other Michigan townships are very proud of the fact that someone has finally had enough courage to stand up and say you cannot take advantage of a community and then abandon it without being challenged.