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US Ecology, Inc. v. Allstate Power Vac, Inc.

Court of Chancery of Delaware

June 18, 2018

US ECOLOGY, INC. and EQ INDUSTRIAL SERVICES, INC., Plaintiffs,
v.
ALLSTATE POWER VAC, INC. and ASPV HOLDINGS, INC., Defendants.

          Date Submitted: March 9, 2018

          Stephen C. Norman and Daniyal M. Iqbal of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; David B. Hennes, Lisa H. Bebchick, and Joseph G. Cleeman of ROPES & GRAY LLP, New York, New York; Counsel for Plaintiffs.

          Jon E. Abramczyk, D. McKinley Measley, and Alexandra M. Cumings of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; William T. Pruit of KIRKLAND & ELLIS LLP, Chicago, Illinois; Warren Haskel and Benjamin Cooper of KIRKLAND & ELLIS LLP, New York, New York; Counsel for Defendants.

          MEMORANDUM OPINION

          BOUCHARD, C.

         This case concerns a dispute over whether the seller of a business is entitled to reimbursement for approximately $1.6 million in insurance payments relating to that business that the seller paid or expects to pay after the transaction closed.

         Before November 1, 2015, Allstate Power Vac, Inc. ("Allstate") was a subsidiary of EQ Industrial Services, Inc. ("EQ Industrial"), which in turn was a subsidiary of U.S. Ecology, Inc. U.S. Ecology purchased umbrella insurance policies to cover itself and its subsidiaries, including Allstate. The insurance policies relevant here are all occurrence-based, meaning that they provide coverage for events that occurred during the given policy period, regardless of when the eventual claim is brought.

         When Allstate was U.S. Ecology's indirect subsidiary, Allstate would reimburse U.S. Ecology for payments it made to the insurers when the underlying claim related to Allstate's business. By all indications, this was an informal practice; no contractual agreement between U.S. Ecology and Allstate has been identified obligating Allstate to reimburse U.S. Ecology for these insurance payments.

         On November 1, 2015, ASPV Holdings, Inc. ("Holdings") acquired all of the issued and outstanding stock of Allstate from EQ Industrial. The purchase agreement obligated Holdings (as the buyer) to reimburse EQ Industrial for certain insurance payments relating to Allstate that were made after the closing. But the purchase agreement was silent as to how to handle certain other insurance payments that are referred to in this decision as the "Non-Covered Payments." After the transaction closed and Holdings and Allstate refused to reimburse U.S. Ecology and EQ Industrial for the Non-Covered Payments, U.S. Ecology and EQ Industrial filed this action seeking to recover these amounts. Defendants moved to dismiss the complaint for failure to state a claim for relief, and plaintiffs filed a cross-motion for partial summary judgment.

         The specific entities asserting claims, and the specific entities against which the claims are asserted, prove to be important in this action. EQ Industrial asserts that Holdings breached the purchase agreement by not assuming Allstate's obligations for the Non-Covered Payments after the transaction closed. US Ecology asserts that Allstate has been unjustly enriched by U.S. Ecology's payment of Non-Covered Payments.

         For the reasons explained below, I find that Holdings and Allstate are not obligated to reimburse U.S. Ecology and/or EQ Industrial for the Non-Covered Payments. EQ Industrial's contractual claims against Holdings fail because the purchase agreement does not create any obligation for Holdings to assume responsibility for the Non-Covered Payments. U.S. Ecology's unjust enrichment claim against Allstate fails because it is barred by the release in the purchase agreement. Accordingly, defendants' motion to dismiss the complaint will be granted, and plaintiffs' cross-motion for partial summary judgment will be denied.

         I. BACKGROUND

         The facts recited herein are taken from the Verified Complaint filed on June 8, 2017 (the "Complaint")[1] and documents incorporated therein.[2] Any additional facts are either not subject to reasonable dispute or subject to judicial notice.

         A. The Parties

         Plaintiff U.S. Ecology is a leading North American provider of environmental services to commercial and governmental entities. Until November 1, 2015, U.S. Ecology indirectly owned all of the issued and outstanding stock of defendant Allstate through its wholly-owned subsidiary, plaintiff EQ Industrial. EQ Industrial provides turnkey environmental services, specializing in industrial cleaning and maintenance, waste transportation, and environmental management services.

         Allstate is an environmental services and waste management organization that operates under the brand "ACV Enviro." Defendant Holdings acquired all of Allstate's issued and outstanding stock on November 1, 2015 as a result of the stock purchase agreement it entered into with EQ Industrial (the "Transaction").

         B. US Ecology's Insurance Policies and the Non-Covered Payments

         US Ecology historically purchased certain automobile/general liability and workers' compensation insurance policies to provide coverage for itself and its subsidiaries, including Allstate (the "Policies").[3] The Policies are occurrence-based, meaning that they provide coverage for events that take place during their Policy periods regardless of when a claim ultimately is made against the insured.[4] The underlying claims at issue in this suit all relate to events that occurred while Allstate was U.S. Ecology's indirect subsidiary.[5]

         For its automobile/general liability insurance Policies, U.S. Ecology has its insurers directly handle the claims and then reimburses the insurers for the amounts that the insurers paid that fall below the Policies' deductibles or above the Policies' limits.[6] For its workers' compensation insurance Policies, U.S. Ecology pays out the claims and then the insurers reimburse U.S. Ecology for amounts that fall above the Policies' deductibles and below the Policies' limits.[7] I refer to the insurance expenses borne by U.S. Ecology, i.e., the amounts paid below the Policies' deductibles and above the Policies' limits, as the "Non-Covered Payments." Before the Transaction, Allstate reimbursed U.S. Ecology for Non-Covered Payments when the act or incident underlying a claim involved Allstate.[8]

         C. The Allstate Stock Sale

         On August 4, 2015, Holdings and EQ Industrial entered into a stock purchase agreement (the "Purchase Agreement") pursuant to which Holdings would purchase all of the issued and outstanding capital stock of Allstate for $58 million.[9] U.S. Ecology and Allstate are not parties to the Purchase Agreement.

         Relevant to this action, Section 8.08 of the Purchase Agreement contains a release (the "Release"), which provides, in relevant part, that:

Notwithstanding anything contained herein to the contrary, in consideration of the execution, delivery and performance by Seller and Buyer of this Agreement, effective as of the Closing, (i) Seller on behalf of itself and each of its past, present and future Affiliates . . . hereby RELEASES, WAIVES, ACQUITS AND FOREVER DISCHARGES Buyer, the Company and each Company Subsidiary . . . from any and all claims, demands, Proceedings, orders, losses, Liens, causes of action, suits, obligations, Contracts, agreements (express or implied), debts and liabilities of whatever kind or nature, whether in law or equity, that any Seller Releasing Party ever had or may now have against any Buyer Released Party to the extent related to the Company or any Company Subsidiary or Seller's ownership of the Shares or equity interests of any Company Subsidiary, whether known or unknown, suspected or unsuspected, that have accrued prior to the Closing or that accrue at or after the Closing as a result of any act, circumstance, occurrence, transaction, event or omission on or prior to the Closing Date.[10]

         The Release contains the following exclusion for claims asserted under the Purchase Agreement (the "Carve-Out"):

Notwithstanding the foregoing, nothing in this Section 8.08 shall or be deemed to release any rights or obligations of any Seller Releasing Party or any Buyer Releasing Party (a) pursuant to and subject to the terms of this Agreement, including, without limitation, Section 8.07 [Employee Matters] and Article XI [Environmental Matters] hereof.[11]

         The Transaction closed on November 1, 2015 (the "Closing"). After the Closing, Holdings and Allstate refused to reimburse U.S. Ecology and EQ Industrial for the Non-Covered Payments related to Allstate's business that U.S. Ecology had paid its insurers.[12] Specifically, U.S. Ecology alleges that it has reimbursed insurers for Non-Covered Payments on more than fifty claims that U.S. Ecology would have passed along to Allstate pre-Closing.[13] In the Complaint, U.S. Ecology alleged that these Non-Covered Payments totaled $781, 069, and projected that they would increase to a total of $1, 533, 563 by the time the last of the claims at issue is paid in full.[14]

         II. PROCEDURAL HISTORY

         On June 8, 2017, plaintiffs filed the Complaint, asserting four claims. Count I asserts that Holdings breached the Purchase Agreement by disclaiming certain Allstate liabilities (i.e., responsibility for making the Non-Covered Payments) that were transferred under the Purchase Agreement. Count II asserts that Holdings breached the implied covenant of good faith and fair dealing inherent in the Purchase Agreement. Count III seeks a declaratory judgment that Holdings and Allstate are responsible for making the Non-Covered Payments. Count IV asserts that Allstate has been unjustly enriched by U.S. Ecology's continuing payment of the Non-Covered Payments since the Closing.

         On July 3, 2017, defendants filed a motion to dismiss the Complaint in its entirety under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief. On August 4, 2017, plaintiffs filed a motion for partial summary judgment on Counts I, III, and IV. The court heard argument on both motions on March 9, 2018.

         III. THE PARTIES' CONTENTIONS

         Defendants make a number of arguments in support of their motion to dismiss. With respect to Count I, defendants' lead argument is that the Release in the Purchase Agreement bars plaintiffs' breach of contract claim because the Non-Covered Payments are based on events that occurred before the Closing, i.e., the underlying injuries or accidents that triggered the claims at issue.[15] Defendants also argue that Holdings had no legal obligation before the Closing to reimburse EQ Industrial for the Non-Covered Payments, and that no term of the Purchase Agreement "separately creates such an obligation."[16]

         With respect to plaintiffs' breach of the implied covenant of good faith and fair dealing and unjust enrichment claims (Counts II and IV), defendants argue that neither claim is actionable because the express contractual terms of the Purchase Agreement govern the parties' relationship and because those claims are barred by the Release. Finally, defendants argue that the claim for a declaratory judgment (Count III) must be dismissed because it is duplicative of plaintiffs' other claims.

         Plaintiffs make essentially the same arguments in response to defendants' motion to dismiss as they do in support of their motion for summary judgment on Counts I, III, and IV.[17] As a threshold matter, plaintiffs contend that the Non-Covered Payments are Allstate's legal obligations. In support of that argument, plaintiffs point out that certain seller disclosure schedules in the Purchase Agreement include reserves for the Non-Covered Payments as a liability of Allstate, and that defendants took advantage of higher than expected Non-Covered Payments to drive down the purchase price in a post-Closing working capital adjustment.

         With respect to EQ Industrial's breach of contract claim against Holdings, plaintiffs contend that the Release does not apply because the claim for reimbursement of the Non-Covered Payments arose post-Closing upon defendants' refusal to accept responsibility for them. In the alternative, plaintiffs argue that even if their claims fall within the scope of the Release, they are excluded by the Carve-Out in the Release. Plaintiffs further contend that the unjust enrichment claim (Count IV) is "sufficiently pled" because neither U.S. Ecology nor Allstate is a party to the Purchase Agreement.[18] Finally, plaintiffs argue that they are "entitled to a declaratory judgment that Defendants are responsible for payment of the Non-Covered Payments from the time of the closing and going forward" on the theory that they are entitled to relief on their breach of contract and unjust enrichment claims.[19]

         IV. ANALYSIS

         For the reasons explained below, plaintiffs have failed to state a claim upon which relief can be granted with respect to each of their claims. Accordingly, defendants' motion to dismiss the Complaint in its entirety will be granted, and plaintiffs' motion for partial summary judgment will be denied.

         A. Legal Standards

         The standards governing a motion to dismiss for failure to state a claim for relief are well-settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are "well-pleaded" if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate unless the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof."[20]

         Under Court of Chancery Rule 56(c), summary judgment "shall be rendered forthwith 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."[21]

         B. Count I Fails to State a Claim for Relief Because Plaintiffs Have Not Identified Any Provision of the ...


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