Emhart Industries, Inc. v. New England Container Company, Inc et al

UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND
EMHART INDUSTRIES, INC. 	:
:
v. 	: 	C.A. No. 06-00218 WES
:
NEW ENGLAND CONTAINER 	:
COMPANY, INC., et al. 	:
:
EMHART INDUSTRIES, INC. 	:
:
v. 	: 	C.A. No. 11-00023 WES
:
UNITED STATES DEPARTMENT 	:
OF THE AIR FORCE, et al. 	:
REPORT AND RECOMMENDATION (SEALED)
Lincoln D. Almond, United States Magistrate Judge
These related environmental actions arise out of environmental contamination at the
Centredale Manor Superfund Site (the “Site”) located in North Providence, Rhode Island.
The background and procedural history of these matters are well known to the parties and the
Court, and thus need not be repeated here. Pending before me on referral for preliminary
review, findings, and recommended disposition are cross-Motions for Summary Judgment
filed in both actions by fourth-party Plaintiff BASF Corporation (“BASF”) and fourth-party
Defendant Rohm and Haas Company (“R&H”). 28 U.S.C. § 636(b)(1)(B) and LR Cv 72(a).
These Motions are directed at Count I (contractual indemnification), the only remaining
claim in BASF’s fourth-party Complaint against R&H. The cross-Motions are docketed as
ECF Nos. 1023 and 1025 in C.A. No. 06-00218 and ECF Nos. 845 and 847 in C.A. No. 11-
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00023. The Motions and supporting pleadings are all filed under seal pursuant to prior Order
of the Court. A sealed hearing was held on December 14, 2021. For the reasons discussed
below, I recommend that BASF’s Motions be GRANTED and R&H’s Motions be DENIED.
Discussion
These Motions involve a fourth-party dispute regarding contractual indemnity for
third-party environmental claims brought by Emhart against BASF. 	Emhart sues BASF
as the alleged successor to Paragon Chemicals, Inc. (“Paragon”) which formerly operated
in Lincoln, Rhode Island. 	Paragon allegedly sent barrels to New England Container
Company for reconditioning that contained hazardous substances found at the Site.
Emhart alleges that a chain of corporate transactions and mergers, including R&H’s 1986
sale of Furane Products Company (“Furane”) to Ciba-Geigy Corporation (“Ciba-Geigy”),
resulted in BASF succeeding to Paragon’s environmental liability. 	(See BASF Exh. G).
BASF disputes Emhart’s third-party successorship claim but also brings the instant
fourth-party action against R&H alleging that it is entitled to contractual indemnification
from R&H under the 1986 Stock Purchase Agreement (“SPA”) for Emhart’s claim.
BASF alleges that it is entitled to the benefit of that contractual indemnity as the
successor to Ciba Specialty Chemicals Corporation (“Ciba Specialty”).
Because of the passage of time, there is a limited universe of documents before the
Court upon which to resolve these Motions, and the parties have entered into a stipulation as
to those documents. 	(R&H Exh. K). 	They have also stipulated to the absence of live
testimony in these proceedings from any percipient witness to facts relevant to these fourth-
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party claims and defenses. 	Id. 	The well-established framework for deciding summary
judgment motions under Rule 56 is applicable and set forth below.
A. 	Summary Judgment Standard
A party shall be entitled to summary judgment “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” 	Fed. R. Civ. P. 56(c). 	When deciding a
motion for summary judgment, the Court must review the evidence in the light most
favorable to the nonmoving party and draw all reasonable inferences in the nonmoving
party=s favor. Cadle Co. v. Hayes, 116 F.3d 957, 959 (1 st Cir. 1997).
Summary 	judgment 	involves 	shifting 	burdens 	between 	the 	moving 	and 	the
nonmoving parties. 	Initially, the burden requires the moving party to aver “an absence
of evidence to support the nonmoving party=s case.” 	Garside v. Osco Drug, Inc., 895
F.2d 46, 48 (1st Cir. 1990) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
Once the moving party meets this burden, the burden falls upon the nonmoving party,
who must oppose the motion by presenting facts that show a genuine “trialworthy issue
remains.” 	Cadle, 116 F.3d at 960 (citing Nat=l Amusements, Inc. v. Town of Dedham,
43 F.3d 731, 735 (1st Cir. 1995); Maldonado-Denis v. Castillo-Rodriguez, 23 F.3d 576,
581 (1st Cir. 1994)). 	An issue of fact is genuine if it “may reasonably be resolved in
favor of either party.” Id. (Citing Maldonado-Denis, 23 F.3d at 581).
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To oppose the motion successfully, the nonmoving party must present affirmative
evidence to rebut the motion. 	See Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
256-257 (1986). 	“Even in cases where elusive concepts such as motive or intent are at
issue, summary judgment may be appropriate if the nonmoving party rests merely upon
conclusory 	allegations, 	improbable 	inferences, 	[or] 	unsupported 	speculation.”
Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1 st Cir. 1990). 	Moreover,
the “evidence illustrating the factual controversy cannot be conjectural or problematic; it
must have substance in the sense that it limns differing versions of the truth which a
factfinder must resolve.” Id. (quoting Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179,
181 (1st Cir. 1989)). 	Therefore, to defeat a properly-supported motion for summary
judgment, the nonmoving party must establish a trialworthy issue by presenting “enough
competent evidence to enable a finding favorable to the nonmoving party.” 	Goldman v.
First Nat=l Bank of Boston, 985 F.2d 1113, 1116 (1 st Cir. 1993) (citing Anderson, 477
U.S. at 249).
Cross-motions for summary judgment “simply require [the court] to determine
whether either of the parties deserves judgment as a matter of law on the facts that are not
disputed.” 	Barnes v. Fleet Nat’l Bank, N.A., 370 F.3d 164, 170 (1 st Cir. 2004) (internal
quotation marks and citation omitted). 	The legal standard for summary judgment is not
changed when parties file cross-motions for summary judgment. 	Adria Int’l Group, Inc.
v. Ferre Dev. Inc., 241 F.3d 103, 107 (1 st Cir. 2001). 	“The court must rule on each
party’s motion on an individual and separate basis, determining, for each side, whether a
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judgment may be entered in accordance with the Rule 56 standard.” 	Bienkowski v.
Northeastern Univ., 285 F.3d 138, 140 (1 st Cir. 2002) (internal quotation marks and
citation omitted).
B. 	Has BASF Shown That it has Contractual Indemnity Rights under the
1986 SPA?
The short answer is yes. 	After thoroughly reviewing the parties’ submissions, I
find that there are no genuine issues of material fact on this record precluding the entry of
summary judgment. 	More to the point, I also find that no reasonable fact finder could
review the totality of this record and conclude that BASF has not met its burden by a
preponderance of the evidence. 	The path is long and complicated but is undisputed in
any material respect. 	While the journey is not crystal clear, BASF reasonably connects
the dots sufficient to meet the preponderance standard of proof. 	Also, this conclusion
reasonably prevents R&H from retaining the benefits of the 1986 SPA without the
corresponding 	burden 	of 	indemnification 	for 	pre-closing 	liabilities. 	My 	reasoning
follows.
The path starts with the 1986 SPA pursuant to which Ciba-Geigy purchased the
shares of Furane from R&H. 	As noted previously, this dispute arises out of Emhart’s
claim that Furane is a successor to the environmental liabilities of Paragon. 	The 1986
SPA in Section 14.2 contains a standard indemnification provision in favor of the
purchaser Ciba-Geigy and Furane for pre-closing environmental liabilities. 	BASF has
shown that it ultimately succeeded to that entitlement to contractual indemnity.
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Following its 1986 acquisition of Furane from R&H, Ciba-Geigy issued a press
release in early 1987 indicating that Furane would operate as a unit of its “Electronic
Chemicals Group” within its “Plastics and Additives Division.” 	(BASF Exh. U). 	It
further provided that the Furane acquisition included operations in Los Angeles “as well
as Isochem operations in Lincoln, Rhode Island.” 	Id. 	It also identified Furane as the
developer 	and 	producer 	of 	certain 	products 	including 	“Epocast.” 	Id. 	In 	1988,
Ciba-Geigy merged Furane into itself. (BASF Exh. V).
The next segment of the path forks at the 1996 Separation Agreement, and I find
that BASF supports its position as to the fork taken by the 1986 SPA including R&H’s
continuing indemnification obligation. 	I reach this conclusion despite R&H’s argument
that things are not as clear as BASF claims following the 1996 Separation Agreement.
The 1996 Separation Agreement is between Ciba-Geigy (now including Furane pursuant
to the 1988 merger) and Ciba Specialty, a newly formed entity. (BASF Exh. Y). BASF
describes it as basically a split of Ciba-Geigy’s biological and nonbiological businesses.
The nonbiological or specialty chemicals part of the business was defined as the “SC
Business” and included the Additives Division (which included Furane pursuant to the
1987 press release). 	Id. 	That part of the business became Ciba Specialty. 	The
biological business was separated out and renamed Novartis. 1 	BASF’s position is
reasonably supported by the terms of the Separation Agreement. 	For instance, Schedule
1.01(d) identifies the Furane operations in Los Angeles as part of the SC Real Property
1 	By letter dated November 5, 2018, Novartis informs R&H that the indemnification rights in issue reside with BASF
(as successor to Ciba Specialty), and not it, after the 1986 Separation Agreement. (BASF Exh. NN).
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(“SC”) going to Ciba Specialty. 	(ECF No. 846-6 at p. 51). 	It is also undisputed that
Furane was only operating in Los Angeles at the time. 	(BASF Exhs. W and X). 	The
Separation Agreement also provides for the transfer of the SC Assets including SC
Contracts to Ciba Specialty. 	(ECF No. 846-6 at pp. 16-17, and 20). 	The only
reasonable conclusion to reach based on this record is that the 1986 SPA and its
indemnification provision was included as an SC Contract and succeeded to Ciba
Specialty.
BASF 	also 	reasonably 	shows 	that 	its 	interpretation 	of 	the 	1996 	Separation
Agreement is borne out by proof that Ciba Specialty continued the Furane product line
thereafter. 	For instance, in its disclosures for the 1986 sale of Furane, R&H identified
Epocast as a trademarked Furane product. 	(ECF No. 846-5 at pp. 12-13). 	Further, a
Material Safety Data Sheet identifies Epocast as a product manufactured by Ciba
Specialty formerly Furane. 	(BASF Exh. AA). 	BASF also points to evidence that the
Epocast trademark was transferred to Ciba Specialty in 1997. 	(ECF No. 869 at pp.
15-20).
The path takes a turn in 1999 when Ciba Specialty entered into a Transaction
Agreement with Avanti for the sale of certain assets. 	(BASF Exh. BB). 	BASF asserts
that this Agreement provided for Ciba Specialty to sell its Performance Polymers
Business to Avanti, which included the Furane product line and the Los Angeles facility.
(ECF Nos. 846 at ¶¶ 65 and 869 at p. 14). 	Also, BASF asserts in a demonstrative flow
chart that the sale included the Furane product line, but Ciba Specialty “retained
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liabilities associated with Furane.” 	(BASF Exh. NN). 	The problem is that BASF cites
only generally to the lengthy and vague Transaction Agreement for its factual assertions,
and it offers no specific citation to provisions in the Agreement or quotations of the
Agreement’s 	terms 	to 	support 	its 	assertions. 	I 	have 	independently 	reviewed 	the
Agreement and cannot specifically identify such support. 	Thus, the question is whether
that factual link in the chain is material to determination of the successorship issue before
the Court, and I conclude that it is not.
R&H naturally seizes upon this claimed failure of proof. It argues reasonably that
“[t]here is no evidence in the record regarding what specific assets Ciba Specialty [ ]
sold, as the lone document…is an umbrella agreement requiring various sub-agreements
between different subsidiaries.” 	(ECF No. 847 at p. 31). 	R&H accurately points out
that none of these sub-agreements are in the record and that there is nothing in the Avanti
Transaction Agreement that talks about Ciba Specialty, Furane or its products, or the
contract in issue. BASF includes the Avanti transaction to provide a complete picture of
the chain of corporate transactions (BASF Exh. NN and ECF No. 869 at p. 14) but
contends that although some unspecified assets including the Furane product line went to
Avanti, 	Ciba 	Specialty 	thereafter 	remained 	the 	successor 	to 	Furane 	entitled 	to
indemnification by R&H. 	I agree with BASF. 	Back in the 1986 SPA, R&H sold
Furane to Ciba-Geigy and expressly agreed as part of that sale to indemnify and hold
those 	entities 	harmless 	for 	various 	pre-closing 	claims 	and 	liabilities 	including
environmental matters. 	BASF has shown that R&H’s 1986 indemnification obligation
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succeeded to Ciba Specialty, and there is nothing in the Avanti transaction from which a
reasonable fact finder could infer that R&H’s contractual obligation to Ciba Specialty
was transferred to Avanti.
BASF completes the chain by showing that Ciba Specialty changed its name to
CIBA Corporation in 2007. 	(BASF Exh. DD). 	In 2009, BASF acquired the stock of
CIBA Corporation. 	(BASF Exh. EE). 	In 2010, CIBA Corporation was converted to an
LLC called BASF Performance Products. 	(BASF Exh. FF). 	Finally, in 2011, that LLC
was merged into BASF Corporation. 	(BASF Exh. GG). 	Based on the above, I find that
the 	totality 	of 	the 	undisputed 	evidence 	meets 	BASF’s 	burden 	and 	proves 	by 	a
preponderance that BASF is the successor to Ciba Specialty, and thus Ciba-Geigy’s and
Furane’s rights under the 1986 SPA, including the right to contractual indemnity,
currently reside with BASF.
C. 	Does the 1986 SPA Require R&H to Indemnify BASF with respect to
Emhart’s Third-party Claim concerning Paragon Chemicals?
The short answer is yes. 	BASF persuasively argues that Emhart’s third-party
claim against it falls squarely within the indemnification provision of the 1986 SPA. As
previously noted, Emhart alleges BASF is the successor to Paragon and that BASF is
connected to Paragon through Furane. 	While BASF denies Emhart’s claim and disputes
that Furane is the successor to Paragon, the indemnification provision is triggered by
Emhart’s assertion of a “claim” that allegedly arises out of Furane. 	R&H disputes
BASF’s reading of the indemnification provision and asserts that Section 14.2(i) of the
1986 SPA unambiguously requires BASF to “demonstrate” that Paragon is a predecessor
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of Furane. 	(ECF No. 847 at p. 50). 	It asserts that “BASF cannot hide behind Emhart’s
allegations to satisfy its burden.” 	(Id. at p. 52). 	In other words, R&H contends that
BASF 	must 	prove 	Emhart’s 	successorship 	theory 	of 	liability 	in 	order 	to 	trigger
indemnity. BASF reasonably describes R&H’s position as nonsensical.
The parties agree that Delaware law applies to this dispute, and there is no real
dispute as to the applicable legal principles. 	Rather, the parties present competing
interpretations of the indemnification language in question, a pure question of law.
Applying the applicable rules of contract interpretation, I have analyzed and interpreted
the language of the indemnification provision to identify its plain meaning. 	After doing
so, I find that the clear and unambiguous contract language supports BASF’s position.
Section 14.2 of the 1986 SPA provides, in relevant part, as follows:
Indemnification by Rohm and Haas and RH Del. Rohm
and Haas and RH Del, jointly and severally, shall indemnify
and 	hold 	harmless 	CIBA-GEIGY 	and 	Furane, 	and 	shall
reimburse CIBA-GEIGY and Furane for, any loss, liability,
claim, damage, expense (including, but not limited to, costs of
defense 	and 	reasonable 	attorneys’ 	fees) 	(collectively,
“Damages”) arising from or in connection with:
…
(i) any claim against Furane or any of its property relating to
public or worker health, welfare, safety or the environment
which arises on account of any act or omission of Furane (or
any predecessor entity), or the operation of the business of
Furane (or any predecessor entity), or the operation of any
properties currently owned by Furane, prior to the Closing
Date, or any matters pertaining to the operation or ownership
of any properties previously owned or operated by Furane (or
any predecessor entity); provided, that, as to environmental
matters, this subsection (i) shall cover only third party claims,
actions demanded or initiated by any Governmental Body or
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otherwise 	required 	by 	law, 	and 	actions 	to 	which 	any
Governmental Body is a party;
BASF has shown that Emhart’s claim against it meets the clear and unambiguous
requirements for indemnification pursuant to Section 14.2. 	Emhart brings a third-party
“claim” against BASF alleging responsibility for the environmental liabilities of Paragon,
an alleged predecessor of Furane. 	It is undisputed that the liability claim predates the
1986 SPA. 	Section 14.2(i) plainly applies since Emhart’s “claim” is a “third party
claim[ ]” “against Furane,” “relating to…the environment,” arising “on account of…the
operation of the business of Furane (or any predecessor entity),” and occurring “prior to
the Closing Date.” 	The triggering event is the assertion of a covered “claim.” 	It does
not require that the claim have merit or be litigated to a judgment before indemnification
is required. 	If so, R&H’s interpretation would render meaningless the requirements of
Section 14.4 which give the indemnifying party entitlement to notice of a covered
“claim” and the option to assume its defense.
R&H seeks to take a narrow view of the meaning of a “claim” and argues that it
only applies to claims against undisputed, and not alleged, predecessors of Furane. 	It
accuses BASF of seeking to read the term “alleged” into the parenthetical referencing a
predecessor entity to Furane. 	However, the plain language and intent of Section 14.2
suggests otherwise. 	BASF is not being sued for any direct connection to Paragon.
Rather, it is being sued as succeeding to Furane’s liabilities, as the successor to Paragon.
The purpose of Section 14.2, in part, is to indemnify the buyer of Furane for pre-Closing
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claims. BASF now stands in the shoes of that buyer and faces a successor liability claim
directed at Furane. It is plainly a covered claim.
R&H unpersuasively points to the use of the term “alleged” in Section 14.2(b) to
support its reading. 	However, that provision narrowly deals with potential claims for
brokerage/finder’s fees or commissions contemporaneously related to the 1986 sale itself.
It 	understandably 	uses 	the 	term 	“alleged” 	because 	any 	actual 	agreements 	and
understandings in that regard would have been disclosed and dealt with at the time of
Closing, and there would only be a need to provide indemnification after the Closing for
“alleged” entitlements to unpaid brokerage fees or commissions. 	On the other hand,
Section 	14.2(i) 	deals 	more 	broadly 	with 	a 	range 	of 	potential 	post-Closing 	claims
including environmental claims which are often, as here, pursued on successor liability
theories. The single use of the term “alleged” in Section 14.2(b) does not have the broad
implications suggested by R&H.
Finally, the parties dispute the applicability and meaning of Section 14.2(a) which
provides for indemnification for expenses including reasonable attorneys’ fees “for any
failure by [R&H]…to perform or comply with any agreement in this Agreement.”
BASF argues that R&H’s failure to honor its indemnification obligation to BASF is such
a “failure to perform or comply” and gives it a claim for its reasonable attorneys’ fees and
expenses incurred in prosecuting this fourth-party claim. 	I am compelled to agree with
BASF given the plain language of Section 14.2(a). 	R&H’s reliance on Section 14.4 is
not persuasive. 	R&H argues that Section 14.4 gives it the option to defend or deny the
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tender of a claim. 	R&H takes too narrow a reading and puts the cart before the horse.
If R&H accepts the tender, it then has the option under Section 14.4 of directly defending
the claim or stepping aside and accepting liability for defense costs. 	BASF has shown
that Section 14.2(a) applies because R&H’s denial of BASF’s tender of the Paragon
claim was a “failure to perform or comply” with the indemnification provision of the
1986 SPA.
Conclusion
For the foregoing reasons, I recommend that BASF’s Motions as to Count I be
GRANTED 	and 	R&H’s 	Motions 	be 	DENIED. 	Also, 	since 	this 	Report 	and
Recommendation references both arguments and facts in pleadings previously sealed by
the Court and quotes from contracts subject to a confidentiality protective order, the
Clerk shall docket this Report and Recommendation under seal until further Order of the
Court.
Any objection to this Report and Recommendation must be specific and must be
filed with the Clerk of the Court within fourteen days of its receipt. 	See Fed. R. Civ. P.
72(b); LR Cv 72. 	Failure to file specific objections in a timely manner constitutes
waiver of the right to review by the District Court and the right to appeal the District
Court’s decision. 	See United States v. Valencia-Copete, 792 F.2d 4, 6 (1 st Cir. 1986);
Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603, 605 (1 st Cir. 1980).
/s/ Lincoln D. Almond
LINCOLN D. ALMOND
United States Magistrate Judge
December 28, 2021
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