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Ashland LLC v. The Samuel J. Heyman 1981 Continuing Trust

Superior Court of Delaware

March 29, 2017

ASHLAND LLC, INTERNATIONAL SPECIALTY PRODUCTS INC., ISP ENVIRONMENTAL SERVICES INC., and ISP CHEMCO LLC, Plaintiffs/Counterclaim Defendants,
v.
THE SAMUEL J. HEYMAN 1981 CONTINUING TRUST FOR LAZARUS S. HEYMAN, et al., Defendants/Counterclaim Plaintiffs.

          Submitted: December 15, 2016

         Upon Defendants/Counterclaim Plaintiffs' Motion for Partial Judgment on the Pleadings DENIED

          Christopher Viceconte, Esquire, Gibbons P.C., Wilmington, Delaware, and Michael R. Griffinger, Esquire, William S. Hatfield, Esquire, and Camille V. Otero, Esquire, Gibbons P.C., Newark, New Jersey. Attorneys for Ashland LLC, International Specialty Products, Inc., ISP Environmental Services, Inc., and ISP Chemco LLC

          Kevin G. Abrams, Esquire, John M. Seaman, Esquire, and April M. Ferraro, Esquire, Abrams & Bayliss LLP, Wilmington, Delaware, and Andrew J. Rossman, Esquire, Jonathan B. Oblak, and Sylvia E. Simson, Esquire, Quinn Emanuel Urquhart & Sullivan, LLP, New York, New York. Attorneys for The SamielJ. Heyman 1981 Continuing Trust for Lazarus S. Heyman, et al.

          Eric M. Davis, Judge

         This breach of contract case stemming from environmental liability allocation is assigned to the Commercial Complex Litigation Division of this Court. Plaintiffs[1] Ashland LLC, International Specialty Products, Inc. ("ISP"), ISP Environmental Services Inc. ("IES"), and ISP Chemco LLC ("Chemco") filed this declaratory judgment and breach of contract case against Heyman Defendants-The Heyman Seller Defendants, The Heyman Trust Defendants, and Linden Property Holdings LLC ("LPH").[2]

         I. BACKGROUND FACTS[3]

         The disputed property (the "Linden Property") is located at 4000 Road to Grasselli, Linden, New Jersey.[4] The Linden Property has a chemical manufacturing history. From 1919 to 1991, non-parties GAF Corporation and GAF Chemicals Corporation owned and operated the Linden Property.[5] GAF Corporation and GAF Chemicals Corporation discovered extensive contamination at the Linden Property during the 1970s-80s.[6] The Heyman Defendants have owned GAF Corporation and GAF Chemicals Corporation since the 1980s.[7]

         On June 16, 1989, GAF Chemicals Corporation and the New Jersey Department of Environmental Protection ("NJDEP") entered into an Administrative Consent Order (the "ACO") regarding environmental contamination and cleanup at the Linden Property.[8] The ACO made GAF Chemicals Corporation and "its principals, directors, officers, agents, successors, [and] assignees ..." responsible for environmental remediation until the NJDEP gave GAF written notice it satisfied the ACO.[9]

         In 1991, the Heyman Defendants incorporated ISP as a subsidiary of GAF Chemicals Corporation and incorporated IES as ISP's subsidiary.[10] GAF Chemicals Corporation then transferred ownership of the Linden Property to IES.[11] The parties agree that IES became the entity responsible for the ACO. In 1996, the Heyman Defendants spun off ISP (and IES) from GAF Chemicals Corporation.[12]

         In 2006, Chemco executed an Administrative Consent Order Amendment (the "Amended ACO") with the NJDEP.[13] The Amended ACO did not replace the ACO. Instead, the Amended ACO supplemented and became a part of the ACO.[14] The Amended ACO expressly provided that IES would continue to comply with the terms of the ACO.[15]

         The Sale and Closing

         In 2011, Ashland acquired ISP, IES, and Chemco from the Heyman Defendants for $3.2 billion.[16] This was done through a Stock Purchase Agreement, dated as of May 31, 2011 (the "SPA") between the Heyman Defendants (as the "Seller Parties") and Ashland (as the "Buyer").[17] The Heyman Defendants wanted to retain the Linden Property. So, on August 23, 2011, immediately after the SPA closed, IES conveyed the Linden Property back to the Heyman Defendants for one dollar.[18] Defendant LPH operates the Linden Property.[19]

         The SPA set out the parties' respective obligations regarding the Linden Property. SPA Section 2(e) to Schedule 5.19 of the SPA[20] states:

In connection with the Linden Transfer, the Seller Parties shall assume all Liabilities to the extent related to or arising from or existing at the Linden Property, including Liabilities arising under or relating to (i) Environmental Laws, provided that such Liabilities shall not include any off-site migration or disposal of Hazardous Materials from the Linden Property prior to the Closing, any claims or damages associated with any off-site migration or disposal of Hazardous Material from the Linden Property prior to the Closing, and for the avoidance of doubt, any off-site contamination of soils, groundwater or sediments, any third party super fund sites including the Newark Bay Complex, any natural resources damages or exposure claims relating to operations or discharges prior to Closing, .. .or (v) the Linden Transfer (including any Liabilities to the extent arising by virtue of the delivery of a limited warranty deed, but excluding any Liabilities arising out of or relating to fraudulent conveyance or similar liability), in each case, other than as set forth in the proviso in clause (i) above, whether arising before, on or after the Closing Date (the "Linden Excluded Liabilities").[21]

SPA Section 2(f) also discusses the Linden Property transaction-specifically the "Linden Transfer"[22]-and states:

In connection with the Linden Transfer, the Seller Parties shall be responsible, at their sole cost and expense, for compliance, if applicable, with any requirements of the Industrial Site Recovery Act ("ISRA") and, if ISRA applies to the Linden Transfer, Seller Parties shall (i) within five (5) Business Days after execution of this Agreement, make any required filings or notifications (such as a General Information Notice, as defined under ISRA) to the [N]DEP], and (ii) use reasonable best efforts to, prior to closing, make all other filings, undertake all other measures, including where required undertaking any site investigation or Remedial Action required by ISRA. In addition, the [SPA] Seller Parties shall use reasonable best efforts to amend any consent decree or other binding agreement with any Governmental Entity relating to the Linden Excluded Liabilities, and to replace or substitute any related financial assurance (including any bond or letter of credit), to include the name of the Linden Transferee following the Linden Transfer and, if permitted by NJDEP, to remove the name of ISP or any of the Companies therefrom.[23]

         The Hey man Defendants' "Reasonable Best Efforts"

         On July 18, 2011, prior to closing, IES notified NJDEP of the pending Linden Property transfer, and advised NJDEP that IES (or any ISP affiliate) would not be associated with the Linden Property after August 25, 2011, [24] The letter did not advise NJDEP that LPH was required to become an ordered party on the ACO and that IES was to be removed.[25]

         LPH performed some affirmative duties under the ACO. It replenished the outstanding letter of credit.[26] It made payments to New Jersey to comply with its portion of the ACO.[27] And, it applied for Remedial Action Permits ("RAPs") for soil and groundwater at the Linden Property.[28] On February 17, 2012, NJDEP issued RAPs for soil and groundwater at the Linden Property to LPH only.[29] IES is not mentioned in either RAP.[30]

         On July 3, 2012, LPH's Environmental Compliance manager requested from NJDEP a full satisfaction compliance letter.[31] LPH did not mention IES, ISP, or Chemco in its letter.[32] On December 23, 2013, NJDEP denied LPH's full compliance request.[33] NJDEP's letter specifically required an investigation, ecological risk assessment, and remediation of off-site contamination.[34]

         On January 21, 2014, LPH again requested a full satisfaction letter from NJDEP.[35] LPH also mentioned, purportedly for the first time, that IES transferred the Linden Property to LPH, and LPH had taken over on-site responsibilities.[36] LPH also alleged that IES was responsible for any off-site remediation pursuant to the ACO.[37]

         On February 7, 2014, LPH's in-house counsel advised Ashland that additional remedial work, including an ecological risk assessment, remained.[38] Ashland contends this is the first time the Heyman Defendants advised that off-site work remained. Ashland contends that Heyman Defendants had been aware of the off-site requirements since 2007.[39]

         Ashland responded on February 18, 2014.[40] Ashland requested that, pursuant to the SPA, LPH: (i) amend the ACO to add LPH as a party; (ii) obtain NJDEP approval to remove IES from that ACO; (iii) obtain an extension of the statutory deadline to complete remediation investigations; and (iv) complete all work necessary to comply with the ACO.[41] Ashland also requested that, pursuant to the SPA, the Heyman Defendants copy Ashland on all future correspondence and submissions to the NJDEP.[42] The Heyman Defendants did not seek an extension of the statutory deadline to complete work. So, Ashland retained a Licensed Site Remediation Professional ("LSRP").[43] On March 19, 2014, Ashland's LSRP submitted a Remedial Investigation Complete Timeframe Extension Form, and obtained an extension of the statutory deadline to complete remedial work.[44]

         On April 9, 2014, LPH again wrote to the NJDEP. LPH argued that it agreed to assume on-site liabilities, while Ashland assumed off-site liabilities pursuant to the ACO.[45] Further, LPH argued that all on-site remediation was complete.[46] On December 18, 2014, the NJDEP informed LPH that: a) its liabilities were not limited to on-site, and b) it was obligated to complete a remedial investigation pursuant to the Spill Act and N.J.S.A. 58:10B-1.3 as the property owner.[47]

         On July 23, 2015, the Office of the Attorney General of New Jersey advised LPH that its $7, 744, 000 remediation source established in 2011 was solely "a replacement of the [remediation funding source] originally required by the ACO for remediation of the entire site, including remediation of offsite contamination."[48] The Office of the Attorney General advised that the NJDEP was authorized to draw upon the $7, 744, 000 remediation source to complete remediation of the off-site liabilities.[49] Concurrently, the NJDEP sent Ashland and GAF (and its successors) a Demand for Stipulated Penalties for the parties' collective failure to comply with the ACO.[50]

         The Litigation

         Ashland commenced this action on October 20, 2015, and filed its First Amended Complaint (the "Complaint") on December 3, 2015. The Complaint alleges five causes of action relating to purported obligations of the Heyman Defendants in connection with SPA Schedule 5.19 and purported responsibility for the investigation, remediation, and cleanup costs regarding environmental contamination of the Arthur Kill, an off-site location. Count I of the Complaint is a Declaratory Judgment - Breach of Contract claim asserted by Ashland against the Heyman Parties for, among other things, the purported breach of Section 2(f) of Schedule 5.19 of the SPA. Among other things, Count I alleges that the Heyman Defendants' failure to amend the ACO to include the name of LPH and remove ISP and its subsidiaries therefrom is in breach of Section 2(f). The Defendants/Counterclaim Plaintiffs' Motion for Partial Judgment on the Pleadings filed by the Heyman Defendants seeks, under Civil Rule 12(c), judgment on Count I.

         On January 6, 2016, the Heyman Defendants filed their Answer to the Complaint and Counterclaims. The Counterclaims assert six causes of action related to the same off-site liabilities associated with the LPH Property. Counts II and III of the Counterclaims are Breach of Contract and Declaratory Judgment - Breach of Contract claims asserted by the SPA Seller Successor Parties and RPH against Ashland in light of Ashland's purported breach of Section 2(e) of Schedule 5.19 of the SPA.

         On August 26, 2016, the Heyman Defendants filed their Opening Brief in Support of Defendants/Counterclaim Plaintiffs' Motion for Partial Judgment on the Pleadings (the "MJP Motion").[51] The Heyman Defendants seek judgment on the pleadings on its two Breach of Contract Counterclaims (Counterclaims II and III), and on Ashland's Count I. The Heyman Defendants contend that no discovery is needed for the court to determine the parties' rights and obligations pursuant to Sections 2(e) and 2(f) of the SPA. The sections use mandatory terms like "shall" and "any" to delineate each party's respective post-closing obligations.

         On September 19, 2016, Ashland filed its Answering Brief of Plaintiffs/Counterclaim Defendants in Opposition to Motion of Defendants/Counterclaim Plaintiffs for Partial Judgment on the Pleadings (the "MJP Opp."). Ashland argues that Sections 2(e) and 2(f) can be read in conjunction: 2(e) allocates the parties' liability, and 2(f) imposes unequivocal obligations on the Heyman Defendants. Ashland also contends that the MJP Motion must be denied because Ashland alleged there is post-closing discharge from the Linden Property.

         The Court heard oral argument on October 4, 2016. At the close of the hearing, the Court took the MJP Motion under advisement. The parties submitted post-trial briefing and sur-replies in November, completing the process on December 15, 2016. This is the Court's decision on the MJP Motion.

         II. STANDARD OF REVIEW-MOTION FOR JUDGMENT ON THE PLEADINGS

         A party may move for judgment on the pleadings pursuant to Civil Rule 12(c).[52] In determining Rule 12(c) motion, the Court is required to view the facts pleaded and the inferences to be drawn from such facts in a light most favorable to the non-moving party.[53] The Court must take the well-pleaded facts alleged in the complaint as admitted.[54] The Court also assumes the truthfulness of all well-plead allegations of fact in the complaint.[55] The Court must, therefore, accord a party opposing a Rule 12(c) motion the same benefits as a party defending a motion under Rule 12(b)(6).[56] The ...


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