Koch Indus. Inc. v. Specialties

727 F.Supp.2d 199

KOCH INDUSTRIES, INC., KoSa B.V., Arteva Specialties, S.A.R.L., and Arteva Services, S.A.R.L., Plaintiffs,

v.Hoechst AKTIENGESELLSCHAFT, Celanese Aktiengesellschaft, CNA Holdings, Inc., and Celanese America's Corporation, Defendants.

No. 03 Civ. 8679 (NRB).

United States District Court, S.D. New York.

July 19, 2010.

Kenneth Conboy, Esq., Catherine E. Palmer, Esq., Blair G. Connelly, Esq., Latham & Watkins LLP, New York, NY, for Plaintiffs.

Hector Torres, Esq., Harold G. Levison, Esq., David E. Ross, Esq., Zachary W. Mazin, Esq., Kasowitz, Benson, Torres & Friedman LLP, Thomas P. Lynch, Esq., Lynch Rowin LLP, New York, NY, for Defendants.

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, District Judge.

Plaintiffs Koch Industries, Inc. ("Koch"), KoSa B.V.¹ ("KoSa"), Arteva Specialties, S.á.r.l.² ("Arteva Specialties"), and Arteva Services, S.á.r.l. ("Arteva Services" and collectively "plaintiffs" or the "Koch Group") bring this action against defendants Hoechst Aktiengesellschaft ("Hoechst"), Celanese Aktiengesellschaft ("Celanese"), CNA Holdings, Inc. ("CNA"), and Celanese Americas Corporation ³ ("CAC" and collectively "defendants" or the "Hoechst Group"), alleging that when defendants sold plaintiffs a polyester manufacturing business in 1998, defendants fraudulently concealed that the business was violating antitrust laws. Plaintiffs assert New York state law claims of fraud, fraudulent misrepresentation, fraudulent concealment and unjust enrichment, and they seek indemnification pursuant to the Asset Purchase Agreement ("APA") that governed the sale.

Presently before the Court are the parties' cross-motions for summary judgment, brought pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiffs have moved for partial summary judgment on the issue of defendants' liability, under the indemnity provision of the APA, for plaintiffs' costs and expenses in defending and settling numerous third party civil antitrust suits. Defendants have moved for summary judgment on all counts. For the reasons stated herein, defendants' motion is granted in part and denied in part, and plaintiffs' motion is granted.

FACTUAL AND PROCEDURAL BACKGROUND ⁴

A. The Purchase of the Polyester Business

In October 1997 Koch and its joint venture partner, IMASAB S.A. de C.V. ("IMASAB"), entered into discussions with the Hoechst Group about a potential acquisition of the Hoechst Group's polyester manufacturing business (the "Polyester Business"). PSF ¶ 6. One of the HoechstGroup's business lines that Koch contemplated purchasing manufactured polyester staple fiber, a man-made synthetic fiber that has numerous end uses. PSF ¶¶ 10-12. Koch conducted due diligence into the Polyester Business and communicated with a number of executives at the Hoechst Group, including Grover Smith, CAC's Vice President and General Manager of Polyester Staple, and Tom Nixon, CAC's Sales and Marketing Director. PSF ¶¶ 14-16.

As part of the due diligence process, Koch representatives attended a meeting at the Hoechst Group concerning the polyester staple business line. PSF ¶ 18. Smith, Nixon and other Hoechst Group representatives gave a PowerPoint presentation that mentioned the Polyester Business's strategy "to maintain high capacity utilization through strengths in customer relationships, product service, consistency, and technology along with continued emphasis on cost reduction and spending levels." PSF ¶ 19. On May 29, 2008, Koch sent the Hoechst Group a list of questions about the Polyester Business; one question asked whether there "[h]ave been any instances of material non-compliance with laws or regulations (potential or actual fines and penalties in excess of U.S. $100,000)." PSF SI 21. The Hoechst Group replied that there were no such instances of material non-compliance. PSF ¶ 22.

Once the parties had agreed in principle to the transaction, Koch and IMASAB formed a joint venture, KoSa, which was to operate as an acquisition vehicle.⁵ PSF ¶ 5; DSF ¶ 61. KoSa had two operating subsidiaries, Arteva Specialties and Arteva Services. Id. On October 12, 1998, Hoechst and KoSa entered into the APA, which contained the terms of the proposed acquisition. Decl. of Blair G. Connelly in Supp. of Pls. Opp'n to Defs. Motion for Summary Judgment ("Connelly Opp'n Decl."), Ex. 15 (the APA). On December 10, 1998, Hoechst and KoSa closed the acquisition for $1.53 billion pursuant to the APA (the "Closing"). PSF ¶ 28. Hoechst also executed a Bill of Sale that transferred the Polyester Business to Arteva Specialties "for and in consideration of US$463,789,000 ... constituting a portion of the Purchase Price [as defined in the APA]." DSF ¶ 67; Decl. of Zachary W. Mazin in Supp. of Defs. Motion for Summary Judgment, Ex. 38 (the "Bill of Sale") § 2.1.

B. The Asset Purchase Agreement ("APA")

Under the APA, defendants agreed to indemnify plaintiffs for losses associated with the conduct of the polyester business prior to the Closing. Specifically, Section 2.4 of the APA requires Hoechst to pay all "Retained Liabilities" and provides that the "Buyer [Kosa] shall not assume or become liable for any obligations, liabilities or indebtedness of any member of the Seller Group, and ... the members of the Seller Group shall retain all of their respective liabilities, other than the Assumed Liabilities, whether or not relating to the ownership or operation of the Polyester Business." Section 17.2(a)(i) of the APA requires Hoechst "to defend, indemnify and hold harmless the Buyer Indemnified Parties from and against ... [a]ny and all Losses resulting from or in connection with, directly or indirectly, the failure of Seller and its Affiliates to pay, perform and discharge when due all Retained Liabilities." These provisions are given meaning by the following defined terms:

"For the sake of clarity, ... Retained Liabilities include all liabilities and obligations resulting from or in connection with, directly or indirectly. the conduct of the Polyester Business ... prior to or as of the Closing." APA § 2.4.

"Assumed Liabilities [include] all liabilities or obligations resulting from or in connection with, directly or indirectly ... the conduct of the Polyester Business ... after the Closing." APA § 2.3(a).

"Buyer Indemnified Parties" are "Buyer [KoSa] and its Affiliates and their respective officers, Directors, employees [etc.]." APA § 12.1(a).

"Affiliate" is "any other Person at such time directly or indirectly controlling, controlled by or under common control with, such Person." APA § 1.1.

"Losses" include "any and all direct losses, damages, liabilities, judgments, payments, obligations, penalties, fines, assessments, deficiencies, liens, costs, expenses and fees (including ... fees of counsel ... and expert witnesses, costs of investigation and preparation of any kind or nature whatsoever, interest charges and commercially reasonable mitigation costs) and Consequential Losses." APA § 1.1.

"Consequential Losses" are "any and all consequential losses or damages (including business interruptions and loss of profits)." APA § 1.1.

Defendants also represented and warranted that the Polyester Business had no undisclosed liabilities, that it was in compliance with all applicable laws, and that the transaction documents contained no material misstatements or omissions.⁶ APA §§ 7.9(b), 7.12(a), 7.29. Section 17.2(a)(ii) requires Hoechst to indemnify the "Buyer Indemnified Parties" for "any and all Losses" resulting from the breach of any representation or warranty in the agreement. The statute of limitations for any claim for breach of Hoechst's representations and warranties was set at thirty months from the Closing date. APA § 17.1(a). This statute of limitations would be tolled from the date that an indemnified party submits a "Claim Notice" (as defined below). APA § 17.1(b).

The APA also provides a procedure by which plaintiffs can obtain indemnity from defendants. Specifically, Section 17.4(a)(i) of the APA requires:

"In the event that any Claim for which an Indemnifying Party would be liable to an Indemnified Party is asserted against ... such Indemnified Party by a third party (a 'Third Party Claim'), ... the Indemnified Party shall with reasonable promptness notify in writing the Indemnifying Party of such Claim, specifying the nature of and the specific basis for such Claim and the amount or the estimated amount thereof to the extent then feasible to determine (which estimate shall not be conclusive of the final amount of such claim) (a "Claim Notice"); provided, however, that any failure to give such notice shall not constitute a waiver of any rights of the Indemnified Party except to the extent the rights of the Indemnifying Party are actually prejudiced as a result of the delay or lack of detail." ⁷

When a Third Party Claim has been asserted, the Indemnifying party is permittedto take over the defense of the Third Party Claim, and to retain appropriate counsel. APA § 17.4(a)(ii). Alternatively, the Indemnified Party is permitted to force the Indemnifying Party to take over the defense and retain defense counsel. Id. The APA also provides that "[n]o Indemnifying Party shall be liable to an Indemnified Party for any settlement of any Third Party Claim without the consent of the Indemnifying Party." Id.

The parties agreed that, except for the representations and warranties set forth in the APA, the Hoechst Group was selling the Polyester Business "AS IS, WHERE IS" and that the Hoechst Group did not make "ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED ..., ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED." APA § 7.29 (emphasis in original). The APA also contains a merger clause ⁸ and a limited remedies provision, which states that "monetary indemnification specifically provided by this Agreement shall be exclusive of any other rights to monetary indemnification or monetary damages to which a Party may be entitled under any s...