Honeywell attack on jury verdict awarding $38 million to American Flywheel Systems disputed by former U.S. Attorney General

Business Wire, Dec 2, 1996

SEATTLE--(BUSINESS WIRE)--Dec. 2, 1996--

Says admission of excluded evidence would have produced much

higher award

Former U.S. Attorney General Elliot Richardson, speaking on behalf of American Flywheel Systems Inc. (AFS), Monday disputed Honeywell Corp.'s claim that a Phoenix jury was wrong in its $38 million award to AFS announced last week, and he challenged Honeywell to appeal the decision.

Richardson called ``absurd'' Honeywell's claim in a news release that the jury's verdicts were ``fatally flawed'' because they were ``not supported by the evidence'' in the trial. Richardson said: ``All the jury saw in the case was the tip of the iceberg. The jury reached its verdicts without being allowed to see Honeywell internal documents that amounted to a `smoking gun'.

``If these documents had been admitted, we are confident that the award would have been many times larger. I challenge Honeywell to appeal and take the chance of everything coming to the surface.''

AFS had originally sought damages of more than $450 million but the trial court permitted the jury to consider only a fraction of that amount in its instructions and evidentiary rulings.

The Thanksgiving Eve verdicts from the nine-women, one-man jury culminated an eight-week trial and two years of litigation centering on a contract that AFS and Honeywell signed in 1993, whereby Honeywell was hired to help AFS build a ``flywheel battery'' prototype for an electric car.

American Flywheel made headlines around the world in 1992 when it received the first patents for an electro-mechanical ``flywheel battery,'' a device that stores electrical energy by mechanical rather than chemical means and is widely regarded as having the potential to revolutionize the global auto, utility and aerospace industries.

Most dramatic is the potential for the device to power electric cars with two to three times the range of chemical battery-driven electrics and with performance equal to gasoline cars without tailpipe emissions and resultant smog.

AFS was allowed to present evidence during the trial supporting several claims against Honeywell, including that Honeywell's Satellite Systems Operation in Glendale, Calif., breached the contract when it refused to comply with the contractual requirement that the flywheel battery be designed specifically for use in a car, that Honeywell misrepresented its capabilities and experience in its proposal to AFS and engaged in ``on-the-job training'' at AFS' expense and that Honeywell did not act in good faith and deal fairly with AFS.

Honeywell had sought damages of $1.9 million from AFS, alleging it breached the contract when it discontinued paying Honeywell and did not itself act in good faith and deal fairly with Honeywell.

The jury rejected Honeywell's claim against AFS for breach of contract, finding that it was Honeywell that breached the contract. The jury awarded AFS $22 million because of that breach, $15 million for Honeywell's breach of the covenant of good faith and fair dealing and $1 million because of Honeywell's misrepresentations.

The jury also found AFS breached the good faith and fair dealing covenant, but did not determine any damages to Honeywell.

Significant AFS claims and evidence were excluded from the trial. In its pleadings, AFS alleged it had Honeywell internal documents that showed that Honeywell believed in 1994 that AFS would succeed at a major stock offering that would provide all of the funds necessary to pay Honeywell to complete the battery, but that Honeywell decided it would be better off if the AFS stock offering failed, thereby providing a way for Honeywell to get out of the contract to build the battery for a car and get the AFS technology for itself for space applications.

During the trial, Honeywell acknowledged that it estimated the space market alone was worth up to $1.2 billion. Among claims excluded from the jury were AFS' claims for punitive damages because of Honeywell's intentional actions to sabotage the AFS stock offering and as a result of Honeywell's misappropriating AFS trade secrets.

According to AFS, this formerly excluded evidence will come to the surface again in the event that appeals are sought.

The litigation included testimony from Honeywell Chairman and Chief Executive Officer Michael Bonsignore; AFS Chairman and CEO Edward W. Furia, a former Environmental Protection Agency official and well-known environmentalist; Michael Deland, AFS vice chairman and former chairman of the White House Council on Environmental Quality; as well as Richardson, who was U.S. Attorney General and Secretary of Defense in the Nixon administration and held several other cabinet posts under former U.S. Presidents Dwight Eisenhower, Richard Nixon, Gerald Ford and Jimmy Carter.

Furia, Deland and Richardson are AFS stockholders.

American Flywheel Systems was represented by the Seattle-based law firm of Preston, Gates and Ellis; lead trial counsel were Fred Tausend and Martha Dawson. Honeywell was represented by the Phoenix law firm of Snell and Wilmer.