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Tyco International Holdings v. Atkore International Group Inc.

United States District Court, S.D. New York

August 3, 2017

TYCO INTERNATIONAL HOLDINGS, S.a.r.l., Plaintiff,
v.
ATKORE INTERNATIONAL GROUP INC., Defendant,

          OPINION & ORDER

          PAUL A. CROTTY United States District Judge.

         Plaintiff Tyco International Holdings, S.a.r.l. ("Tyco") claims that Defendant Atkore International Group, Inc. ("Atkore") has breached its contractual obligation to indemnify Tyco in connection with a series of lawsuits brought against Tyco in Quebec, Canada (the "Ideal Litigation"). Tyco seeks payment for expenses and losses incurred in the Ideal Litigation, as well as a declaratory judgment that Atkore must indemnify Tyco for the Ideal Litigation now and in the future.

         Tyco has moved and Atkore has cross-moved for summary judgment. Tyco contends that Atkore has breached its indemnification obligation and owes Tyco indemnity for the expenses and losses Tyco has incurred and will incur in the Ideal Litigation, Atkore argues that it has not breached its contractual obligation to indemnify Tyco because the Ideal Litigation has not triggered its indemnification obligation. Alternatively, Atkore moves for summary judgment that if the Ideal Litigation has triggered its indemnification obligation, it must indemnify Tyco for expenses and losses incurred only to the extent the Ideal Litigation claims arise out of the alleged incompatibility between steel sprinkler pipes coated with certain antimicrobial formulas and chlorinated polyvinylchloride ("CPVC") pipes or fittings (the "Alleged Antimicrobial Formula/CPVC Incompatibility").

         The Court DENIES in part and GRANTS in part both parties' motions. Atkore's indemnification obligation to Tyco has been triggered; and Atkore must indemnify Tyco for expenses and losses incurred as a result of the claims in the Ideal Litigation, but only to the extent the claims arise out of the Alleged Antimicrobial Formula/CPVC Incompatibility.

         BACKGROUND

         The material facts of this case are undisputed. Atkore manufactures steel pipes coated with ABF II, an antimicrobial film. Local Rule 56.1 Statement of Undisputed Material Facts in Support of Plaintiff s Motion for Summary Judgment ("PL 56.1") ¶ 1. The ABF Il-coated pipes are often used with CPVC pipes and fittings, including Tyco CPVC pipes, in fire sprinkler systems. See id, ¶ 2; Declaration of Eric Vallieres ("Vallieres Deck") ¶¶ 14, 27. Prior to and after 2010, however, Tyco received complaints that ABF II coating was incompatible with CPVC, causing CPVC pipes to leak. PI. 56.1 ¶ 3; see Ex. 3 to the Declaration of Charles Palella ("Palella Decl.").

         In 2010, Tyco sold its shares in Atkore pursuant to an investment agreement between Tyco, Tyco's parent company, a third party, and Atkore (the "Agreement"). Palella Decl. Ex. 1 ("Agreement"). In the Agreement, Tyco and Atkore negotiated indemnification provisions that set forth the parties' obligations in the event that, among other things, third parties brought claims alleging the incompatibility of CPVC with Atkore's steel pipes. PI. 56.1 ¶ 7.

         Pursuant to the Agreement, Atkore agreed to indemnify Tyco "against, and to pay and hold the Seller Indemnified Parties harmless from, all (or, in the case solely of the indemnification provided by Section 9.3(c), 85% of) Losses suffered or incurred by any of the Seller Indemnified Parties to the extent arising out of, .. (c) 85% SP Claims." (Agreement § 9.3). "85% SP Claims" are "any actual pending or threatened claim or action in respect of Special Products Claims that include claims arising out of the provision of Special Related Products or Services by Seller or a Non-Company Affiliate." Id. § 12.1. And "Special Products Claims" are:

any actual or threatened claim or action brought by any party other than Seller which relates to steel sprinkler pipe coated with antimicrobial formulas, such as but not limited to ABFII coated pipe, manufactured prior to the Closing by Allied Tube & Conduit Corporation and/or other entities comprising part of the Business, to the extent such claim or action arises from the alleged incompatibility of such steel sprinkler pipe with [CP VC] pipe or fittings.

Id. Schedule 12.1(D).[1] "Loss, " in turn, is defined as "any and all Liabilities, losses, damages, expenses (including reasonable expenses of investigation, enforcement and collection and reasonable attorneys' and accountants' fees and expenses in each case, in connection with any Proceeding), costs, fines, fees, penalties and obligations, whether or not involving a Third Party Claim.4* Id. § 12.1.

         Atkore has the option to assume, at its own expense, Tyco's defense against third party claims. Id. § 9.6(a). If Atkore chooses not to assume Tyco's defense, however, Atkore is required to pay for Tyco's defense in accordance with the above indemnification provisions. Id.

         In the instant action, Tyco asserts that Atkore must indemnify Tyco in connection with certain lawsuits brought against Tyco in Quebec, Canada. In the early 2000s, Protection Incendie Ideal ("PII"), a fire suppression system installer, fitted 18 residential developments near Montreal, Quebec, with hybrid Tyco CPVC and Atkore ABF II steel fire sprinkler systems. See PI. 56.1 ¶ 4; Vallieres Decl. ¶ 27. In November 2008, PII sued Tyco. PI. 56.1 ¶ 17. PII alleged failures of the fire sprinkler systems and sought lost profits and damages for the value of repair work and alleged reputational harm. Id. Thereafter, property owners, general contractors, and insurers sued PII, and in some cases PII and Tyco jointly. Id. ¶ 18. They claimed that sprinkler components in certain residential sites leaked, and alleged significant damage to property and/or a need for remediation. Id. Finally, PII brought Tyco into all of the litigations against it that Tyco was not already a party to. See Id. ¶ 19. These litigations, filed between 2008 and mid-2010 are referred to as the Ideal Litigation. Local Rule 56.1 Statement of Undisputed Material Facts in Support of Defendant's Cross-Motion for Summary Judgment and in Opposition to Plaintiffs Motion for Summary Judgment ("Def. 56.1") ¶ 46.

         The parties agree that the Ideal Litigation plaintiffs did not expressly articulate a theory regarding ABF II, until, at the earliest, September 2013. Def. 56.1 ¶ 55. In products liability cases under Quebec law, however, a presumption of defect arises where a product allegedly malfunctions or prematurely deteriorates relative to similar products. See Vallieres Decl. ¶¶ 15-16 (quoting Civil Code of Quebec, S.Q. 1991, c. 64, a. 1726 30); see also Mathias Reimann, Liability for Defective Products at the Beginning of the Twenty-First Century: Emergence of A Worldwide Standard?, 51 Am. J. Comp. L. 751, 790 (2003). The manufacturer must rebut the presumption of defect by pointing to the most probable cause of failure. Vallieres Decl. ¶¶ 15-17. As a result, in 2010, Tyco retained Neil Wu and Chris Scott to investigate the causes of the leaking pipes concerned in the Ideal Litigation. PI. 56.1 ¶ 20. Thus, even though the Ideal Litigation plaintiffs had not directly alleged a theory based on ABF II, Tyco asserts that Wu and Scott were compelled, under Quebec law, to determine whether ABF II incompatibility was a possible cause of the alleged failures. See Vallieres Decl. ¶ 18.

         Wu and Scott issued a report on July 31, 2011, attributing the root causes of the leaks to a variety of factors. See Palella Decl. Ex. 12 at 1. But the report did not mention ABF II or incompatibility between antimicrobial coated pipes and CPVC pipes. See generally Id. In April 2013, PII experts submitted a report identifying certain phthalates as the cause for the pipes cracking, and concluded that "in all likelihood the contaminants originate from the metal pipes used in the fire protection ...


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