United States District Court, S.D. New York
OPINION & ORDER
A. CROTTY United States District Judge.
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.
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
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.
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
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.
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
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). "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.
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.
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.
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.
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 ...