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Cytec Industries Inc. v. Allnex (Luxembourg) & CY S.C.A.

United States District Court, S.D. New York

June 19, 2017



          P. Kevin Castel United States District Judge.

         This is a dispute between buyer and seller of a business over contractual liabilities for environmental remediation costs at a site in Kalamazoo, Michigan. The parent company of Allnex (Luxembourg) & Cy S.C.A. (“Allnex”) entered into a Stock and Asset Purchase Agreement (the “Agreement”) for the purchase of the coating resins business owned by Cytec Industries Inc. (“Cytec”). Almost immediately, a disagreement arose as to whether Cytec or Allnex was the party responsible for environmental remediation of the Kalamazoo chemical production facility. Sulfuric acid and liquid alum had historically been manufactured at that site, and while those chemicals were not used to make coating resins, both parties knew that contamination liabilities were associated with the Kalamazoo facility.

         As part of the Agreement, Allnex agreed to “assume . . . discharge or perform when due all the Assumed Liabilities” set forth by the Agreement. “Assumed Liabilities” is a defined term. It includes “all Liabilities” of Cytec, “to the extent related to, or used or held in connection with” the coating resins business, and specifically “all such Liabilities to the extent relating to Environmental Laws with respect to any facilities located in the United States . . . .” Cytec seeks declaratory judgment that Allnex is responsible for all remediation costs at the Kalamazoo site. Allnex contends that the Agreement's definition limits environmental liabilities to contamination directly caused by the manufacture of coating resins.

         Discovery in this case is closed and both sides move for summary judgment. Their dispute turns principally on the interpretation of unambiguous contractual language. For reasons that will be explained, the Court concludes that the Agreement unambiguously provides that Allnex assumed all liabilities for remediation of the Kalamazoo site. Cytec's motion for summary judgment is therefore granted, and Allnex's motion is denied. BACKGROUND.

         A. Cytec's Sale of Its Coating Resins Business.

         Cytec was formed in 1993, when it was spun off from American Cyanamid Company (“ACY”). (Pl. 56.1 ¶ 1; Def. 56.1 Resp. ¶ 1.) When Cytec was formed, it acquired various chemical manufacturing facilities, including the one located in Kalamazoo, Michigan. (Pl. 56.1 ¶ 2; Def. 56.1 Resp. ¶ 2.) Cytec assumed all environmental liabilities for those sites. (Pl. 56.1 ¶ 3; Def. 56.1 Resp. ¶ 3.)

         In January 2012, Cytec began to market the sale of its coating resins business (the “Business”). (Def. 56.1 ¶ 7; Pl. 56.1 Resp. ¶ 7.) In prior public statements, Cytec had mentioned “weakening demand” for coating resins products and the possibility of selling the Business. (Pl. 56.1 ¶ 20; Def. 56.1 Resp. ¶ 20.) The Business was not a separate, standalone entity within Cytec, but a financial-reporting segment that included various coating resins products. (Def. 56.1 ¶¶ 8, 15; Pl. 56.1 Resp. ¶¶ 8, 15.) During the sales process, the Business was often referred to by the name “Monarch.” (Def. 56.1 ¶ 9; Pl. 56.1 Resp. ¶ 9.)

         In preparation for the sale of the Business, Cytec created pro forma financial statements that were audited by KPMG. (Def. 56.1 ¶ 10; Pl. 56.1 Resp. ¶ 10; Pl. 56.1 ¶¶ 25-26; Def. 56.1 Resp. ¶¶ 25-26.) Because the coating resins business was not a standalone company, Cytec chose which subsidiaries, assets and liabilities would be part of the sale. (Pl. 56.1 ¶ 27; Def. 56.1 Resp. ¶ 27.) The pro forma financial statements detailed the Business's environmental liabilities, among other things. (Def. 56.1 ¶ 10; Pl. 56.1 Resp. ¶ 10.)

         The pro forma financial statements stated that “[o]ur most significant environmental liabilities relate to remediation and regulatory closure obligations at manufacturing sites now or formerly owned by us.” (Pl. 56.1 ¶ 29; Def. 56.1 Resp. ¶ 29.) The statements included an “aggregate environmental related accrual” of liabilities of $32.9 million as of December 31, 2011, and $35.1 million as of June 30, 2012. (Pl. 56.1 ¶ 30; Def. 56.1 Resp. ¶ 30.) A Form 10-Q filing of August 2012 and a due diligence report authored by Ernst & Young listed the same figures. (Pl. 56.1 ¶¶ 31, 40; Def. 56.1 Resp. ¶¶ 31, 40.) Those figures included $3.1 million “in accrued expenses with the remainder included in other noncurrent liabilities.” (Def. 56.1 ¶ 13; Pl. 56.1 Resp. ¶ 13; see also Pl. 56.1 ¶ 40; Def. 56.1 Resp. ¶ 40 (Ernst & Young report listed $3.1 million in current liabilities and $32 million in non-current liabilities).)

         Cytec commissioned environmental assessments of its properties, including “Phase I” assessments of known environmental concerns and “Phase II” assessments of potential environmental concerns. (Pl. 56.1 ¶¶ 32-35; Def. 56.1 Resp. ¶ 32-35.) Regarding the Kalamazoo facility, the Ernst & Young due diligence report stated that “Cytec will transfer the overall site including the land and buildings to Monarch with the exception of” certain assets “for KM Polymer facility only.” (Pl. 56.1 ¶ 38; Def. 56.1 Resp. ¶ 38.) The Ernst & Young report also stated: “Monarch maintains liabilities to address environmental related exposures. Such liabilities are maintained at the site level . . . . Certain of the Monarch sites have a long history of chemical operations, which has resulted in some cases in legacy groundwater and soil contamination.” (Pl. 56.1 ¶ 39; Def. 56.1 Resp. ¶ 39.) The same report identified reserves of $0.9 million for the Kalamazoo facility. (Pl. 56.1 ¶ 41; Def. 56.1 Resp. ¶ 41.)

         B. Advent's Successful Bid to Acquire the Business.

         Advent International Corporation (“Advent”) is a private equity firm with a controlling interest in defendant Allnex. (Def. 56.1 ¶ 4; Pl. 56.1 Resp. ¶ 4.) Advent began to consider acquiring the Business in early 2012, and eventually submitted a total of three bids. (Def. 56.1 ¶¶ 16-17; Pl. 56.1 Resp. ¶¶ 16-17.) During the negotiation and due diligence process, Advent retained the services of outside counsel and an environmental consulting firm, among other advisors. (Pl. 56.1 ¶¶ 52, 58; Def. 56.1 Resp. ¶¶ 52, 58.) The eventual Agreement was negotiated at arm's length between sophisticated parties.

         As part of the bidding process, Advent reviewed a Confidential Information Memorandum prepared by Cytec, a draft Stock and Asset Purchase Agreement prepared by Cytec and performed due diligence through a Virtual Data Room, which included Phase II environmental assessments of the Business's sites. (Pl. 56.1 ¶¶ 43-48, 56-57; Def. 56.1 Resp. ¶¶ 43-48, 56-57.) Advent and other bidders submitted questions to Cytec during the due diligence phase. (Pl. 56.1 ¶¶ 74-77; Def. 56.1 Resp. ¶¶ 74-77.)

         Advent retained Environ Germany GmbH (“Environ”) to analyze the Business's environmental liabilities. (Pl. 56.1 ¶¶ 58, 78; Def. 56.1 Resp. ¶¶ 58, 78.) For the Kalamazoo facility, Environ reviewed Phase I and Phase II reports, and a May 2012 summary of the site's “waste management units.” (Pl. 56.1 ¶ 66; Def. 56.1 Resp. ¶ 66.) The Phase I report noted that the Kalamazoo facility had “[t]wo historic sulfuric acid spill areas, ” and that based on the site's “long industrial history” of using and storing other hazardous chemicals, “the potential for impacts from discontinued operations cannot be ruled out.” (Pl. 56.1 ¶¶ 67-68; Def. 56.1 Resp. ¶¶ 67-68.) Environ concluded that the Kalamazoo facility's possible liabilities included “[a] historic sulfuric acid spill, ” “waste generated by the former liquid alum manufacturing process, ” and pellets of vanadium pentoxide left by the former sulfuric acid plant. (Pl. 56.1 ¶ 72; Def. 56.1 Resp. ¶ 72.) Environ separately conducted an independent review and assessment of the Business's environmental reserves, known liabilities and potential liabilities, including known environmental liabilities at the Kalamazoo facility. (Pl. 56.1 ¶ 78-81; Def. 56.1 Resp. ¶ 78-81.)

         As noted, Advent submitted a total of three bids for the acquisition of the Business. Its final offer was for a $1.175 billion all-cash acquisition of the Business. (Pl. 56.1 ¶ 89; Def. 56.1 Resp. ¶ 89.) The final offer listed “environmental liabilities” of $35.1 million. (Pl. 56.1 ¶ 91; Def. 56.1 Resp. ¶ 91.)

         The final Agreement was negotiated at arm's length with the advice of outside counsel. During the bidding process, Advent and its outside counsel proposed revisions to the Agreement. (Pl. 56.1 ¶ 93; Def. 56.1 Resp. ¶ 93.) These proposed revisions included alterations to the Agreement's definition of “Assumed Liabilities.” (Pl. 56.1 ¶ 94; Def. 56.1 Resp. ¶ 94.) Cytec's outside counsel reviewed Advent's proposed changes and rejected many of them. (Pl. 56.1 ¶ 95; Def. 56.1 Resp. ¶ 95.) Negotiations also took place in face-to-face meetings that included the outside counsel for both Advent and Cytec. (Pl. 56.1 ¶¶ 110, 113; Def. 56.1 Resp. ¶¶ 110, 113.)

         On October 8, 2012, Cytec's board of directors approved the transaction as set forth in the Agreement. (Pl. 56.1 ¶ 122; Def. 56.1 Resp. ¶ 122.) Cytec, and the Advent entity that acquired the Business, “AcquiCo, ” executed the Agreement that same day. (Pl. 56.1 ¶ 123; Def. 56.1 Resp. ¶ 123.) AcquiCo was later renamed Allnex (Luxembourg) and Cy S.C.A. (Pl. 56.1 ¶ 124; Def. 56.1 Resp. ¶ 124.) The transaction closed on April 3, 2013. (Def. 56.1 ¶ 28; Pl. 56.1 Resp. ¶ 28.)

         C. The Parties' Disagreements Concerning the Kalamazoo Site.

         Shortly after the parties signed the Agreement, they began to dispute which of them was responsible for expenses related to environmental remediation of the Kalamazoo facility.

         The Kalamazoo site had a manufacturing history that long predated its acquisition by Cytec and its later sale to Allnex. From 1946 to 1975, Cytec's predecessor, ACY, manufactured sulfuric acid in Kalamazoo, during which time the site had two “spill areas” of sulfuric acid. (Pl. 56.1 ¶¶ 4, 67; Def. 56.1 Resp. ¶¶ 4, 67.) A substance called liquid alum also was manufactured at the facility, until its production was discontinued in 1985. (Pl. 56.1 ¶¶ 4-6; Def. 56.1 Resp. ¶¶ 4-6.)

         In 1998, the Michigan Department of Environmental Quality (“MDEQ”) issued Cytec a Hazardous Waste Container Storage Operating License for the Kalamazoo facility. (Pl. 56.1 ¶ 7; Def. 56.1 Resp. ¶ 7.) Pursuant to the Operating License, Cytec began to remediate historical contaminations at the Kalamazoo facility, specifically those caused by the ...

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