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Solutia, Inc. v. FMC Corp.

July 31, 2006

SOLUTIA INC.,
PLAINTIFF,
v.
FMC CORPORATION,
DEFENDANT.



The opinion of the court was delivered by: Pauley, District Judge

Order Denying Reconsideration Nov. 7, 2006

MEMORANDUM AND ORDER

Solutia Inc. ("Solutia") brings this action against FMC Corporation ("FMC") alleging, inter alia, claims for breach of contract, breach of fiduciary duty, negligent misrepresentation and fraud in connection with the parties' joint venture, an entity known as Astaris, LLC ("Astaris"). Solutia moves for partial summary judgment pursuant to Fed.R.Civ.P. 56. FMC moves for summary judgment on all claims or, in the alternative, to strike Solutia's demand for a jury trial. For the reasons discussed below, Solutia's motion for partial summary judgment is granted in part and denied in part, FMC's motion for summary judgment is granted in part and denied in part, and FMC's motion to strike Solutia's jury demand is granted.

BACKGROUND

I. Procedural History

Solutia filed suit against FMC in Missouri state court on October 16, 2003. Thereafter, Solutia filed for bankruptcy in the Southern District of New York. On February 20, 2004, Solutia filed this action in the bankruptcy court and voluntarily dismissed the Missouri action. On FMC's motion, this Court withdrew the reference from the bankruptcy court and assumed jurisdiction over this action. See Solutia Inc. v. FMC Corp., No. 04 Civ. 2842(WHP), 2004 WL 1661115 (S.D.N.Y. July 27, 2004).

In its Complaint, Solutia asserted claims for breach of Section 6.4 of the Joint Venture Agreement between Solutia and FMC dated April 29, 1999 (the "JVA"), breach of the Assignment of PPA Technology Agreement executed by FMC and an Astaris subsidiary on April 1, 2000, and breach of the Asset Transfer Agreement entered into by FMC, Astaris and various of their subsidiaries on April 1, 2000. On March 29, 2005, this Court granted FMC's motion to dismiss those breach of contract claims on the grounds that Solutia lacked standing to sue for damages suffered by Astaris. See Solutia, Inc. v. FMC Corp., 385 F.Supp.2d 324 (S.D.N.Y.2005). The Court denied FMC's motion to dismiss Solutia's claims for breach of Section 17.1 of the JVA, breach of fiduciary duty, negligent misrepresentation and fraud.

II. Negotiation of the Joint Venture

This action arises out of a failed joint venture between Solutia and FMC for the production of purified phosphoric acid ("PPA") at a plant in Conda, Idaho (the "Conda Plant"). PPA is an ingredient in many foodstuffs and also has myriad agricultural and industrial applications. Solutia and FMC are publicly-traded corporations that produce chemicals for industrial and consumer use. Prior to their joint venture, both parties were engaged in the manufacture and sale of phosphorus chemical products and competed with each other in various segments of the North American market. (Solutia's Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 ("Pl.'s 56.1 Stmt.") ¶ 1; FMC's Counterstatement of Material Facts on Summary Judgment in Opposition to Solutia's Motion for Partial Summary Judgment ("Def.'s 56.1 Counterstmt.") ¶ 1; FMC's Statement of Material Facts on Summary Judgment Pursuant to Local Rule 56.1 ("Def.'s 56.1 Stmt.") ¶ 8.)

In May 1998, representatives of Solutia and FMC met to discuss the possibility of a joint venture for the production of PPA. (Pl.'s 56.1 Stmt. ¶ 9; Def.'s 56.1 Counterstmt. ¶ 9.) At that time, both parties produced PPA through the traditional "thermal process" method, the details of which are irrelevant to these motions. (Def.'s 56.1 Stmt. ¶ 6; Solutia's Response to FMC's Statement of Undisputed Material Facts Pursuant to Local Rule 56.1 ("Pl.'s 56.1 Counterstmt.") ¶ 6.) FMC's subsidiary in Spain also manufactured PPA through a less expensive and more efficient "wet process" method. While Solutia did not utilize the wet process method at any of its production facilities, it was part of a Brazilian joint venture where PPA was manufactured through a wet process. (Def.'s 56.1 Stmt. ¶ 7; Pl.'s 56.1 Counterstmt. ¶ 7.) The parties jointly represented to the Federal Trade Commission ("FTC") that Solutia lacked the technology and infrastructure to produce PPA through a wet process method. (Pl.'s 56.1 Counterstmt. ¶ 7; The FMC/Solutia Joint Venture Will Expand Output, Lower Costs and Enhance Competition in the Phosphorus Chemicals Business (Ex. 53).) *fn1

On November 18, 1998, the parties executed a letter agreement drafted by Solutia governing continued exploration of a transaction between Solutia and FMC (the "Letter Agreement"). (Def.'s 56.1 Stmt. ¶ 16; Pl.'s 56.1 Counterstmt. ¶ 16.) The Letter Agreement provided that neither party was required to reach any agreement, nor disclose proprietary information:

Neither party shall have any obligation to commence or continue discussions or negotiations, to provide any of its Confidential Information to the other party or to receive any Confidential Information from the other party, to reach or execute any agreement with the other party, to refrain from engaging at any time in any business whatsoever, or to refrain from entering into or continuing any discussions, negotiations and/or agreements at any time with any third party, until a formal written contract is executed as provided in the first sentence of paragraph 4 hereof.

(Letter Agreement, § 3 (Ex. X).) The Letter Agreement further provided that any representations or warranties had to be in a "formal written definitive contract" executed by the parties:

Except for the matters set forth in this letter, neither [FMC] nor Solutia shall be committed or liable in any way with respect to the possible transaction or the matters discussed unless and until a formal written definitive contract with respect thereto is executed by appropriate representatives or officers of both parties pursuant to due authorization or subject to due ratification by their respective Boards of Directors.... Nothing contained in any discussions between the parties or in any information disclosed by either party as contemplated by this letter shall be deemed to constitute a representation or warranty. Except for the matters expressly specified in this letter or in [the contemplated] formal written definitive contract, neither party shall be entitled to rely on any statement, promise, agreement or understanding, whether oral or written, or any custom, usage of trade, course of dealing or conduct in connection with the Possible Transaction.

(Letter Agreement, § 4.) The parties also agreed to the following merger clause:

This letter is the complete and exclusive statement by [FMC] and Solutia of their understanding in connection with all matters pertaining to the possible transaction and supersedes all previous or contemporaneous dealings, agreements and understandings with respect thereto.

(Letter Agreement, § 11.)

After executing the Letter Agreement, the parties' representatives met on at least thirteen different occasions to discuss a potential joint venture. (Pl.'s 56.1 Stmt. ¶ 11; Def.'s 56.1 Counterstmt. ¶ 11.) During these discussions, it is undisputed that each party was represented by both in-house counsel and outside law firms (FMC by Dechert LLP and Solutia by Lewis Rice & Fingersh). (Def.'s 56.1 Stmt. ¶ 18.) However, the extent to which the negotiations focused on FMC's PPA wet process technology is disputed. ( See, e.g., Pl.'s 56.1 Stmt. ¶¶ 12-13; Def.'s 56.1 Counterstmt. ¶¶ 12-13.) According to Solutia, FMC's PPA technology was "[t]he most critical contribution to the deal" and it "repeatedly asked for as much information as FMC would divulge concerning its PPA technology." (Pl.'s 56.1 Stmt. ¶¶ 12-13). FMC disputes this and claims its PPA technology was "not Solutia's primary concern in the negotiations." (Def.'s 56.1 Counterstmt. ¶¶ 12-13.) In any event, the parties agree that at least "generally," FMC was unwilling to provide Solutia with details about its PPA technology because the parties were competitors, and witnesses from both sides testified that this technology is normally kept secret to prevent the loss of competitive advantage. (Pl.'s 56.1 Stmt. ¶ 18; Def.'s 5 6. 1 Counterstmt. ¶¶ 18, 70-71; Pasquier Deposition Transcript at 146-147 (Ex. J); Wulfert Deposition Transcript at 19-21 (Ex. O).) Solutia was fully aware that FMC possessed information on its PPA technology that it was refusing to disclose. (Pl.'s 56.1 Stmt. ¶ 18.)

Despite a general unwillingness to share information concerning its PPA technology, it appears that FMC made a number of disclosures and representations about the wet process during negotiations over the joint venture. In particular:

• Michael Miller, a Solutia executive, testified that based on a "conversation with Bill Beck [an FMC executive], and what I knew from industry sources, publications, public record, that FMC ... operated a purified wet acid plant in Spain ... And I think Bill characterized to me that they had purified wet acid technology on the shelf, ready to go, and that they could, with a certain degree of capital, be in the purified wet acid business in the United States." (Miller Deposition Transcript, at 147:13-148:3 (Ex. 7).)

• Contemporaneous notes of Kenneth Wulford, a Solutia employee, reflect that on December 22, 1998 FMC represented its PPA technology "[c]an do [i.e., produce] all food grade [PPA]." (Wulford Deposition Transcript, at 182:10-11 (Ex. 13).)

• On February 19, 1999 an FMC employee, Eddie Goldberg, narrated a Power Point presentation to Solutia representatives that included certain information about the history of FMC's PPA technology and its processes. (Power Point Presentation (Ex. 14).) However, the precise meaning and significance of the disclosures in this presentation are disputed. (Pl.'s 56.1 Stmt. ¶¶ 15-16; Def.'s 56.1 Counterstmt. ¶¶ 15-16.)

• Notes taken by Solutia employee Frank Reining in February 1999 state the Conda Plant would be able to produce "all food grade acid" if desired and that it would be "the best acid plant in the world." (Reining Deposition Transcript, at 236:20, 239:15-17 (Ex. 11).) Whether these comments were made by FMC or merely reflect Solutia's subjective understanding is disputed. (Pl.'s 56.1 Stmt. ¶ 17; Def.'s 56.1 Counterstmt. ¶ 17.)

• On April 14, 1999 FMC provided Solutia with several pages containing information regarding FMC's PPA technology. (Letter dated April 14, 1999 and Attached Documents (Ex. 18).) The cover letter for these documents provided that the materials were not to be used for any purpose "other than evaluating its position in the Joint Venture" and further stated: "The agreements set forth in this letter shall be consistent with the terms and conditions of the November 18, 1998 confidentiality agreement between the parties and shall not be intended to expand or limit such terms and conditions." (Letter dated April 14, 1999 and Attached Documents (Ex. 18).)

III. The Joint Venture Agreement

On April 29, 1999 the parties executed the JVA. (Pl.'s 56.1 Stmt. ¶ 20; Def.'s 56.1 Counterstmt. ¶ 20.) As discussed below, the parties' use of the title "Joint Venture Agreement" is a misnomer. The JVA provided that the parties would "negotiate exclusively in good faith" toward the formation of a joint venture of their phosphorus chemicals businesses.

More specifically, Section 2.1 provided, in relevant part:

Subject to the terms and conditions stated in this Agreement ... the parties shall take all such steps and do all such things as are reasonably necessary to create between the FMC Group and the Solutia Group a worldwide joint venture capable of operating as an autonomous commercial entity.... In conjunction with the foregoing, from the date hereof until the date this Agreement is terminated, Solutia and FMC will negotiate exclusively in good faith with each other for the formation of a joint venture of their Phosphorus Chemicals business (and the transfer of each of its respective Phosphorus Chemicals business), and will not discuss with any third parties any other joint venture, sale, disposition or combination of its respective Phosphorus Chemicals business that is subject to terms of this Agreement and will not encourage or solicit any inquiries or proposals by, or engage in any discussions or negotiations with, or except as required by any governmental authority or applicable law, rule or regulation, furnish any nonpublic information to, any person, concerning a joint venture, sale, combination or other disposition of its Phosphorus Chemicals business.

(JVA, § 2.1 (Ex. P).) The JVA further stated:

The parties intend that the transfer of the Transferred Assets to the Joint Venture and the other various transactions, transfers, contributions and agreements to be made or entered by and between the Solutia Group or the FMC Group and the Joint Venture in connection with the formation of the Joint Venture, shall be effective on the Effective Date.

(JVA, § 2.3 (emphasis added).) Section 1.25 of the JVA defines "Joint Venture" as "the joint venture to be formed between the FMC Group and the Solutia Group in accordance with the principles set out in this Agreement [i.e., Astaris]...." (JVA § 1.25.) The "Effective Date" is defined as "12:01 a.m. on a date that the parties may mutually agree in writing...." (JVA § 1.10.)

In addition, the JVA contemplated the structure of the joint venture. For example, the JVA specified that the joint venture would be created as a Delaware limited liability company ("LLC") and that each party would "have a direct or indirect fifty percent (50%) interest" in the LLC, with "control ... shared equally between the parties." (JVA §§ 2.2, 5.1.) The specific mechanisms for supervision and management of the joint venture were set out in detail, including, inter alia, the size of the LLC's board of directors, the board's voting procedures and its areas of responsibility, the means of appointing managers, and the areas of management responsibility. ( See, e.g., JVA §§ 10, 11.) The JVA also provided that "[t]he parties shall share all profits and losses earned or incurred by the Joint Venture in equal shares," and set forth each party's contribution to the joint venture. (JVA §§ 5.2, 6.1, 6.2, 6.3, 6.4.)

At the time the parties executed the JVA, Solutia was fully aware that FMC was refusing to disclose information regarding its PPA technology. Nonetheless, both Solutia and FMC made a number of representations and warranties in the JVA, including that each "ha[d] disclosed to the other party all material facts and circumstances existing on the date hereof which could reasonably be likely to, in such party's commercially reasonable judgment, have a material adverse effect on the Joint Venture." (JVA § 16. 1.) The parties also agreed that "[u]ntil the Effective Date, each party shall continue to use its reasonable efforts to allow the other party to continue due diligence of such party's Phosphorus Chemicals business." (JVA § 23.7.)

Similar to the Letter Agreement, the JVA contained a merger clause:

This Agreement, including the Appendices attached to this Agreement and the Recitals set forth herein, constitutes the entire agreement between the parties pertaining to the subject matter hereof, and all prior representations, discussions and negotiations between the parties and/or members of their Groups pertaining to the subject matter of this Agreement are superseded. Notwithstanding the preceding sentence, the terms and provisions of the [Letter Agreement] between the parties shall remain in full force and effect.

(JVA, § 23.4.) The JVA further provided:

In the event of any conflict or inconsistency between the provisions of this Agreement and any other document related to the subject matter of this Agreement, which may be entered into by the parties or between a member of any Group and the Joint Venture, from time to time, the provisions of this Agreement shall prevail in each case, unless the parties otherwise expressly agree in writing.

(JVA § 23.9.)

Finally, the parties agreed that "[t]he obligation of each party to consummate the Joint Venture is subject to the satisfaction (or waiver) on the Effective Date of" three conditions: (1) government approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (2) other necessary government approvals; and (3) approval by the boards of directors of both Solutia and FMC. (JVA, § 17.1.) A party could terminate the JVA before the Effective Date only in the event that (1) a court, arbitrator, or governmental, regulatory or administrative body issued an order restraining or prohibiting the transaction; (2) a "bona fide claim or litigation involving, directly or indirectly, one or both of the parties" had arisen, which could reasonably have been expected to materially and adversely affect the business prospects of the joint venture; or (3) a material adverse change reasonably outside of the control of the party seeking to terminate occurred with respect to the assets to be contributed by the non-terminating party. (JVA, § 17.2.) The parties contemplated that the Effective Date would be set on or before December 31, 1999, and their respective termination rights under Section 17 expired on that date. (JVA, § 17.3.)

Solutia alleges that after the parties executed the JVA, FMC unlawfully failed to disclose significant documents and information concerning its PPA technology. In particular, Solutia claims FMC failed to disclose:

• A memorandum by Henry Pfeffer dated June 29, 1999 entitled "Summary Report of the PPA Technology Review" (the "Pfeffer Report") summarizing and supplementing discussions held by FMC personnel on May 3-4, 1999. (Pfeffer Report (Ex. 32).) The Pfeffer Report's stated purpose was to "identify any remaining uncertainties that must be addressed before the [Conda] [P]lant design is finalized," and the report detailed numerous process uncertainties, including several that "pose[d] a risk to the success of the PPA venture." (Pfeffer Report at 1, 4 (emphasis in original).)

• An internal e-mail from Jerry Sibley of FMC (the individual chosen to head Astaris) dated June 21, 1999 instructing his technology team to "search the world over to locate and/or determine organics removal technology" and stating that "[w]e need a technology development plan with timing and resources required to solve this problem. 'Trust me, we'll find a solution' just won't work." (E-mail from Jerry Sibley dated June 21, 1999 (Ex. 35).)

• A September 1999 PPA Project Status Report identifying various technology issues and uncertainties.

• A memorandum dated February 28, 2000, entitled "Preliminary PPA Technology Development Plan," which addressed "critical open technology issues." (February 28, 2000 Memorandum, at 1 (Ex. 28).)

• A variety of other documentation concerning FMC's reviews, studies and communications regarding its PPA technology from the period April 1999 through April 2000. (Collection of Documents (Ex. 39).)

For its part, FMC asserts that Jerry Sibley disclosed the substance, if not the details, of the technology uncertainties reflected in each of these documents in the course of numerous conversations he had with Dennis Cavner and Frances Reining of Solutia after the execution of the JVA. According to FMC, Sibley's disclosures of these wet process uncertainties are reflected in Cavner's and Reining's contemporaneous handwritten notes. ...


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