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

Superior Court of Delaware

March 30, 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, etal., Defendants/Counterclaim Plaintiffs.

          Submitted: December 15, 2016

         Upon Plaintiffs' Motion to Dismiss Certain of Defendants' Counterclaims GRANTED in part and DENIED in part

          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, Esquire, and Sylvia E. Simson, Esquire, Quinn Emanuel Urquhart & Sullivan, LLP, New York, New York. Attorneys for The Samiel J. Heyman 1981 Continuing Trust for Lazarus S. Heyman, et al.

          Eric M. Davis, Judge.

         I. INTRODUCTION

         This breach of contract case stemming from environmental liability allocation is assigned to the Complex Commercial 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]

         II. 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. For many years, non-party GAF Chemicals Corporation ("GAF Chemicals"), and its predecessors, owned and operated the Linden Property.[5]

         On June 16, 1989, GAF Chemicals 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.[6] GAF Chemicals agreed "to conduct a remedial investigation and feasibility study of remedial action alternatives" and "designate and implement a remedial action alternative to remedy any and all pollutions at the [Linden Property], emanating from the [Linden Property], or which has emanated from the [Linden Property] ."[7] All operations at the Linden Property ceased in 1991.[8]

         In 1991, GAF Chemicals incorporated ISP as one of its subsidiaries and incorporated IES as ISP's subsidiary.[9] GAF Chemicals then transferred ownership of the Linden Property to IES.[10] Assuch, IES became the entity responsible for the ACO.[11] In 1996, the Heyman Defendants spun off ISP (and IES) from GAF Chemicals.[12] GAF Chemicals and ISP entered into an Indemnification Agreement, outlining their post-spin off indemnification obligations.[13]

         In 2006, Chemco executed an Administrative Consent Order Amendment (the "Amended ACO") with the NJDEP.[14] The Amended ACO did not replace the ACO. Instead, the Amended ACO supplemented and became a part of the ACO.[15] The Amended ACO expressly provided that IES would continue to comply with the terms of the ACO.[16]

         The Sale and Closing

         In 2011, Ashland acquired ISP, IES, and Chemco from the Heyman Defendants for $3.2 billion.[17] 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").[18] 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.[19] Defendant LPH operates the Linden Property.[20]

         The SPA set out the parties' respective obligations regarding the Linden Property. SPA Section 2(e) to Schedule 5.19 of the SPA[21] 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 superfund 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").[22]

         SPA Section 2(f) also discusses the Linden Property transaction-specifically the "Linden Transfer"[23]-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.[24]

         Paragraph 2 of the Contribution Agreement mirrors SPA Section 2(e).[25] That is, LPH, whose membership interests were transferred from Ashland to the Heyman Defendants, became responsible for:

All liabilities to the extent related to or arising form or existing at the Linden Property, including Liabilities arising under or relating to (a) 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 superfund sites including the Newark Bay Complex, any natural resources damages or exposure claims relating to operations or discharges prior to Closing).[26]

         The Trusts' Post-closing Activity

         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, [27]

         LPH performed some affirmative duties under the ACO. It replenished the outstanding letter of credit.[28] It made payments to New Jersey to comply with its portion of the ACO.[29]And, it applied for Remedial Action Permits ("RAPs") for soil and groundwater at the Linden Property.[30] On February 17, 2012, NJDEP issued RAPs for soil and groundwater at the Linden Property to LPH only, [31]

         On July 3, 2012, LPH's Environmental Compliance manager requested from NJDEP a full satisfaction compliance 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] This letter also noted that (i) LPH had no standing under the ACO as LPH was not an ordered party, and (ii) IES had full responsibility for the ACO under the Amended ACO.[35]

         On January 21, 2014, LPH responded to NJDEP's December 23, 2014 letter. LPH explained who was responsible for the Linden Property after the closing on the SPA.[36] This appears to be the first time that LPH disclosed that IES transferred the Linden Property to LPH, and LPH had taken over on-site responsibilities.[37] LPH also alleged that IES was responsible for any off-site remediation pursuant to the ACO.[38] 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.[39] Further, LPH argued that all on-site remediation was complete.[40]

         On July 21, 2015, the NJDEP sent Ashland and GAF (and its successors) a Demand for Stipulated Penalties for the parties' collective failure to comply with the ACO.[41]

         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 Defendants in connection with Schedule 5.19 of the SPA and purported responsibility for the investigation, remediation, and cleanup costs regarding environmental contamination of the Arthur Kill, an off-site location. Relevant here, 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 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).

         On January 6, 2016, the Heyman Defendants filed their Answer to the Complaint and Counterclaims (the "Counterclaims"). The Counterclaims lay out six causes of action related to the same off-site liabilities. Counterclaim I is a declaratory judgment action. The Heyman Defendants request the Court use its declaratory judgment power to declare that IES assumed clean-up responsibility under the 1991 Assumption Agreement. In Counterclaims II and III, the Heyman Defendants assert claims for breach of contract and a declaratory judgment relating to breach of contract. These counterclaims request the Court specifically outline the parties' responsibilities under SPA Sections 2(e) and 2(f) of Schedule 5.19 of the SPA and/or assess damages for the breach of these provisions. Counterclaim IV is a claim for breach of the implied covenant of good faith and fair dealing. The Heyman Defendants allege that Ashland acted in bad faith by refusing to comply with SPA Sections 2(e) and 2(f). LPH seeks relief in Counterclaims V and VI. Counterclaim V is a Spill Act claim. Counterclaim VI is an indemnification claim. LPH alleges that, pursuant to the 1996 Indemnification Agreement, Ashland must indemnify LPH for any and all costs, including penalties, assessed by NJDEP.

         On February 25, 2016, Ashland filed its Plaintiff/Counterclaim Defendants' Motion to Dismiss Certain of Defendants' Counterclaims (the "MTD Motion"). Ashland moved to dismiss, in all or in part, all six of the Counterclaims. First, Ashland argues that Counterclaim I must be dismissed because the Heyman Defendants improperly seek a declaration of the parties' rights pursuant to the Assumption Agreement because none of the Defendants was a party to the Assumption Agreement. Second, Ashland contends that Counterclaims II and III must be dismissed as to LPH because LPH was not a party to the SPA. Ashland also claims that Counts II and III as to the remaining Heyman Defendants must be dismissed because they were not a party to the Contribution Agreement. Third, Ashland argues the Heyman Defendants fail to plead a breach of the implied covenant of good faith and fair dealing. Fourth, Ashland contends that LPH fails to properly plead a Spill Act claim and, therefore, this claim must be dismissed. Fifth, Ashland claims that LPH may not bring a claim for breach of the Indemnification Agreement, because it was not a signatory. Finally, Ashland argues that, to the extent LPH makes a claim pursuant to the Contribution Agreement in any Counterclaim (specifically Counterclaims II and III), those claims must be heard before an arbitrator as the Contribution Agreement contains a mandatory arbitration provision which divests this Court of jurisdiction.

         On April 25, 2016, the Heyman Defendants filed their Counterclaim Plaintiffs' Opposition to Counterclaim Defendants' Motion to Dismiss Certain Counterclaims (the "Opposition"). The Heyman Defendants argue that they may bring a declaratory judgment action to determine IES's rights and obligations under the Assumption Agreement because their rights are affected.[42] The Heyman Defendants also contend that Counterclaims II and III should remain because the two contracts at issue, the SPA and the Contribution Agreement, are inextricably linked. As to Counterclaim V, the Heyman Defendants contend that they have pled a reasonable set of circumstances regarding their Spill Act claim to stave off dismissal. Further, the Heyman Defendants argue that Counterclaim IV, their implied covenant of good faith claim, should survive dismissal because they have adequately pled an implied covenant which Ashland breached. Last, the Heyman Defendants argue that LPH may bring its Indemnification Agreement claim because LPH was an assignee of the Indemnification Agreement's signatories.

         The Court heard oral argument on October 4, 2016, At the close of the hearing, the Court took the MTD 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 MTD Motion.

         III. STANDARD OF REVIEW-MOTION TO DISMISS

         Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they give the opposing party notice of the claim, (hi) draws all reasonable inferences in favor of the non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[43] However, the Court must "ignore conclusory allegations that lack specific supporting factual allegations."[44]

         IV. DISCUSSION

         A. Declaratory Judgment regarding the Assumption Agreement will not Move Litigation Forward

         The Delaware Declaratory Judgment Act provides that "any person .. . whose rights, status, or other legal relations are affected by a ... contract... may have determined any question of construction or validity arising under the ... contract[.]"[45] The Heyman Defendants contend that the Court has the power to declare their rights in conjunction with the Assumption Agreement signed by ISP and GAF Chemicals Corporation. Ashland argues, without citing any case law, that the Heyman Defendants lack standing.

         This claim seems non-controversial. The Heyman Defendants seek the Court to declare that IES, as successor, assumed obligations under the Assumption Agreement. Ashland agrees.[46] To the extent the Heyman Defendants seek a declaration that IES (and Ashland) assumed all off-site obligations, they seek the same claims in their breach of contract claim. The Court finds that exercising its discretion under Delaware's Declaratory Judgment Act would not fruitfully move this matter forward. The parties' dispute revolves around the SPA and SPA Sections 2(e) and 2(f), not the Assumption Agreement-i.e., the purported "actual and justiciable" controversy raised in Paragraph 82 of the Counterclaims is the dispute between Ashland and the Heyman Defendants asserted in Counterclaims II and III. As such, the Court will grant the MTD Motion as to Counterclaim I.

         B. The SPA and Contribution Agreements are related, and must be read Together

         Ashland argues, without citing to authority, that LPH may not bring a claim because it did not sign the SPA. The Court finds that LPH and the Heyman Trusts have standing to bring claims pursuant to the SPA and the Contribution Agreement. Section 9.3 of the SPA provides that the SPA "shall be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns."[47] Section 2(a) of Schedule 5.19 of the SPA, as amended, plainly states that:

[Ashland] shall cause [ISP and its Subsidiaries] to, (i) immediately following the Closing, assign, transfer, convey and deliver to [LPH]..., a Delaware limited liability corporation (the "Linden Subsidiary") formed by [IES].. .all right, title and interest of the Companies in and to the following assets (and no other assets): (A) the Linden Property, (B) any rights to receive the proceeds of any insurance policies covering the Linden Property, (C) any Contracts to the extent related to operation of the Linden Property and (D) any personal property assets located thereon ... by limited warranty deed, and (ii) immediately following the actions contemplated by subclause (i), assign, transfer, convey and deliver to the Seller Parties or their designee (the "Linden Transferee") the Linden Subsidiary ((i) and (ii) collectively, the "Linden Transfer")-[48]

         The parties clearly contemplated that LPH was coming into existence, and it would have rights pursuant to the SPA. As set forth below, the Court finds that LPH may ...


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