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COMBUSTION ENGINEERING v. IMETAL

August 15, 2001

COMBUSTION ENGINEERING, INC., PLAINTIFF
V.
IMETAL, DEFENDANT. IMETAL, COUNTER-CLAIMANT, V. ASEA BOVERI BROWN, INC., AND COMBUSTION ENGINEERING, INC., COUNTER-DEFENDANTS.



The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

AMENDED DECISION AND ORDER

Combustion Engineering, Inc. ("CE") brought this action, invoking the Court's diversity jurisdiction, against Imetal for breach of contract and unjust enrichment. Imetal asserted counterclaims against CE and its parent, Asea Brown Boveri, Inc. ("Asea"), for breach of representation and warranty, breach of implied covenant of good faith and fair dealing, and indemnification. CE and Asea now move pursuant to Fed.R.Civ.P. 56(b) for summary judgment, and Imetal cross-moves for summary judgment. For the reasons discussed below, CE's and Asea's motion is granted, and Imetal's cross-motion is denied.

BACKGROUND

In May 1990, CE and Imetal entered into a stock purchase agreement (the "Agreement") whereby CE agreed to sell to Imetal the stock of several corporations, including Tennessee Electro Minerals, Inc. ("TECO"). The sale was consummated in August 1990. Declaration of Mark S. Ouweleen (counsel for CE and Asea) in Support of CE's Motion for Summary Judgment ("Ouweleen Decl."), Sep. App. Vol. I, Ex. 1 (the Agreement).

The Agreement provided that Imetal would assume a portion of liability arising from the "Minco Patent Litigation," a lawsuit brought by Minco, Inc. against CE for patent infringement regarding a rotary kiln that TECO used in the production of fused silica, and which at the time was pending in the Eastern District of Tennessee. Specifically, the Agreement provided, in pertinent part, that:

[Imetal] shall assume . . . all obligations of [CE] as to which [Imetal] has received written notice from [CE] in any way relating to any [acquired company] . . . including, but not limited to . . . (iii) any action, suit, or proceeding involving [CE] . . . (including, without limitation, that portion of the Damages relating to the Minco litigation not indemnified by [CE] pursuant to section 12.1(c) hereof). To the extent that [CE] and its Affiliates . . . are not relieved of such liabilities, [Imetal] shall defend, indemnify and hold harmless [CE] . . . against and in respect of such liabilities as provided in Article 12.

Agreement § 8.6(a) at 45.

CE, pursuant to § 12.1(c), agreed to indemnify Imetal for up to 80 percent of all damages Imetal incurred in connection with the Minco Patent Litigation, this obligation not to exceed $8 million:

[CE] agrees to defend, indemnify and hold harmless [Imetal] . . . against and in respect of . . . (c) 80% of all Damages, including, without limitation, reengineering costs, suffered or incurred by [Imetal] . . . in connection with the Minco patent infringement litigation referred to on Schedule 6.8, it being understood and agreed that [CE] shall have no obligation under this agreement to indemnify [Imetal] for more than $8,000,000 by reason of such litigation.

Agreement § 12.1(c) at 57.

The Agreement also provided that Imetal would indemnify CE for "any and all actions, suits, proceedings, claims, liabilities, demands, assessments, judgments, costs and expenses, including reasonable attorney's fees . . . incident to any of the foregoing or such indemnification." Agreement § 12.2(c) at 59.

The Minco Patent Litigation resulted in a judgment against CE for $30,429,373. See Minco v. Combustion Engineering, 903 F. Supp. 1204 (E.D. Tenn. 1995), aff'd, 95 F.3d 1109 (Fed. Cir. 1996). Ultimately, CE and Minco settled for $29.4 million. Ouweleen Decl. Sep. App. Vol. III, Ex. 63 (letter from John Brett to Richard Davis dated Nov. 22, 1996). In November 1996, CE demanded indemnification from Imetal pursuant to the Agreement for the amount by which the settlement exceeded $8 million. Imetal refused to pay, contending that CE had breached certain provisions of the Agreement. See Id. Ex. 64 (letter from Richard Davis to John Brett dated November 25, 1996).

In July 1990, Minco had filed a related lawsuit against CE, in the Greeneville County Circuit Court in Tennessee, alleging theft of trade secrets relating to the rotary kiln patent technology. The case was stayed pending resolution of the Minco Patent Litigation and ultimately settled as part of that agreement.

Following its success against CE, Minco promptly filed suit against TECO seeking damages for the period following Imetal's acquisition of TECO. Declaration of Jennifer L. Plitsch (Counsel for Imetal) in Support of Cross-Motion for Summary Judgment ("Plitsch Decl."), Sep. App. Vol. I Ex. 16 (Compl., Minco, Inc. v. Tennessee Electro Minerals. Inc., No. 2:95-CV-355 (E.D. Tenn. Sep. 27, 1995)). Ultimately, TECO ...


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