Maxus Liquidating Tr. v. Greenstone Assurance, Ltd.

MAXUS LIQUIDATING TRUST., Plaintiff, v. GREENSTONE ASSURANCE, LTD., Defendant.

CIVIL ACTION NO. 2:19-CV-00401-JRG

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS MARSHALL DIVISION

June 24, 2020

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant Greenstone Assurance, Ltd.'s ("Greenstone") Motion to Dismiss the Maxus Liquidating Trust's ("Maxus") Complaint (the "Motion"). (Dkt. No. 8). The Motion is brought pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court heard oral argument on the Motion on June 16, 2020. Having considered the briefing and oral argument, the Court finds that the Motion should be and hereby is GRANTED-IN-PART and DENIED-IN-PART.

I. BACKGROUND¹

In 1951, Diamond Alkali Company ("Diamond Alkali"), predecessor to the current Plaintiff Maxus, began operating a chemical refinery at 80 Lister Avenue, Newark, New Jersey (the "Lister Site"). (Dkt. No. 1 ¶ 15). The Lister Site sits near or adjacent to the Passaic River. (Dkt. No. 8 at 1). From 1951 through 1969, it produced certain chemicals, the process for which produced TCDD (a commonly known dioxin) as a byproduct. (Id. at 4). In 1973, Diamond Alkali obtained umbrella liability, general liability, and pollution liability insurance coverage from Greenstone (through its predecessor Seahorse Reinsurance Ltd.). (Dkt. No. 1 ¶ 13). These policiesinsured against certain risks associated with the insured's chemical manufacturing operations. (Id.). Each of the policies included a provision requiring Greenstone to indemnify Maxus "for all sums" Maxus "shall become legally obligated to pay by reason of the liability: . . . (b) assumed under contract or agreement" by Maxus for all damages on account of personal injury and property damage "caused by or arising out of each occurrence happening anywhere in the world." (Id. ¶ 12). Greenstone issued such policies to Diamond Alkali for a number of years. (Dkt. No. 8 at 4). It eventually began issuing similar policies to Diamond Shamrock Chemicals Company (Diamond Alkali's successor) in the early 1980s. (Id.). In 1983, Diamond Shamrock Chemicals Company ("Diamond Shamrock") was acquired by Maxus Energy Corporation ("MEC"). (Id.).

Also in 1983, the Environmental Protection Agency ("EPA") detected hazardous substances coming from the Lister Site. (Id. at 5). The EPA notified the owner of the Lister Site about such hazards and a remediation plan was developed in response. (Id.). In 1984, the Lister Site was designated by the EPA as a Superfund Site. (Id.). As a result, MEC sought to enforce coverage from its many other insurers (the "Aetna Action") but not from Greenstone. (Id. at 5-6). MEC incurred substantial costs incident to the Lister Site and its remediation efforts. (Id.). In 1986, MEC carved out and sold Diamond Shamrock, including the Lister Site, to Occidental Chemical Company ("Occidental") under a negotiated Stock Purchase Agreement (the "SPA"). (Dkt. No. 1 ¶ 15; Dkt. No. 8 at 5). Pursuant to the SPA, MEC was required to indemnify Occidental for, among other things, all liabilities related to the Lister Site, but it was allowed to retain and pursue any ongoing litigation or claims filed against any of its insurers, specifically including the Aetna Action. (Dkt. No. 1 ¶ 15; Dkt No. 8 at 5).

Throughout this time, Greenstone continued to issue subsequent insurance policies of the same type to MEC until 1998 (collectively, the "Policies"). (Dkt. No. 1 ¶ 2).

In 2005, the New Jersey Department of Environmental Protection ("NJDEP") and the EPA sued Occidental regarding environmental damages associated with the operation of the Lister Site occurring between 1951 to 1969 (the "New Jersey Litigation"). (Id. ¶¶ 16-17). Later that same year, Occidental tendered the New Jersey Litigation to MEC seeking indemnification pursuant to the SPA. (Id.). In 2008, Occidental subsequently sued MEC in the Superior Court of New Jersey asserting claims for breach of contract and indemnification ("Occidental Claim") under the SPA and regarding the New Jersey Litigation. (Id. ¶ 17). In February of 2015, MEC tendered the Occidental Claim to Greenstone for coverage based on the Policies. (Id. ¶ 25). In 2016, Occidental settled the New Jersey Litigation (the "Settlement"). (Dkt. No. 8 at 6). In April of 2016, the Superior Court of New Jersey held that MEC was required to indemnify Occidental for the Settlement ("New Jersey Court Holding"). (Dkt. No. 1 ¶ 18). In May of 2016, Greenstone "informally rejected" MEC's claims seeking coverage regarding the Occidental Claim because MEC could not present physical copies of the Policies. (Id. ¶ 26). MEC next requested that Greenstone formally take a coverage position in writing (either accepting or denying coverage), and that it also search for and locate the physical Policies in question. (Id.). In June of 2016, MEC filed for Chapter 11 Bankruptcy in the District of Delaware. (Id. ¶ 19). In light of MEC's bankruptcy, Occidental filed its proof of claim relying upon the SPA and the New Jersey Court Holding. (Id.). In July of 2016, Greenstone informed MEC that it would not provide a written coverage position regarding insurance coverage regarding the Occidental Claim, nor would it undertake to search for physical copies of the applicable Policies. (Id. ¶ 26).

In 2017, the Bankruptcy Court approved MEC's Chapter 11 plan, which called for the creation of Maxus, the Plaintiff in this case. (Id. ¶ 20). As part of MEC's Chapter 11 plan, MEC settled the Occidental Claim for approximately $510,000,000. (Id.). In December of 2019, Maxussued Greenstone relating to the Policies issued from 1973 to 1998 for various breach of contract claims and alleged violations of the Texas Insurance Code ("TIC") and the Texas Deceptive Trade Practices and Consumer Protection Act ("DTPA"). (Dkt. No. 1). Greenstone now asks the Court to dismiss all of Maxus's claims for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 8).

II. LEGAL AUTHORITY

When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court must assume that all well-pleaded facts are true and view those facts in the light most favorable to the plaintiff. Bowlby v. City of Aberdeen, 681 F.3d 215, 218 (5th Cir. 2012). The court may consider "the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint." Lone Star Fund V (U.S.) L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). The court must then decide whether those facts state a claim for relief that is plausible on its face. Bowlby, 681 F.3d at 217. "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). As the Supreme Court noted, the plausibility requirement is not akin to a "probability requirement at the pleading stage; it simply calls for enough fact[s] to raise a reasonable expectation that discovery will reveal" that the defendant is liable for the alleged misconduct. Bell Atl. Corp. v. Twombly, 550 U.S. 554, 556 (2007).

III. ANALYSIS

Greenstone challenges each of Maxus's six claims for relief listed in its Complaint. (Dkt. No. 1). The Court addresses these in the order raised by Greenstone. (Dkt. No. 8).

a. Breach of Contract, Anticipatory Breach of Contract, and Declaratory Relief (Counts I-III Respectively)

Greenstone alleges that Counts I-III of Maxus's Complaint should be dismissed because they are barred by collateral estoppel and the fortuity doctrine, the equitable doctrine of laches, by Maxus's failure to abide by policy notice requirements, and because the allegations Maxus put forth in its Complaint are insufficient to survive a Motion to Dismiss. (Id. at 3).

i. Collateral Estoppel and the Fortuity Doctrine

"[C]ollateral estoppel is appropriate when: (1) the identical issue was previously adjudicated; (2) the issue was actually litigated; and (3) the previous determination was necessary to the decision." Pace v. Bogalusa City Sch. Bd., 403 F.3d 272, 290 (5th Cir. 2005). Greenstone alleges that Maxus previously litigated the issue in this case in the Aetna Action and that the Court's decision in the Aetna Action is dispositive here. (Dkt. No. 8 at 13). In the Aetna Action, Maxus sued a number of insurance companies for coverage of Maxus's direct liability for environmental damage related to the Lister Site. (Id.). In this case, Maxus is seeking insurance coverage for the contractual liability created under the SPA. (Dkt. No. 1 ¶¶ 32-33). Maxus's contract claim was not litigated in the Aetna Action, nor could it have been as the Aetna Action was filed in 1984, and Maxus and Occidental did not enter into the SPA until 1986. (Dkt. No. 8 at 5). As such, collateral estoppel does not apply.

Similarly, Greenstone challenges Maxus's claims based on the fortuity doctrine. (Id. at 9-10). The fortuity doctrine precludes coverage when the insured is or should be aware of an ongoing, progressive, or known loss at the time the policy is purchased. RLI Ins. Co. v. Maxxon Sw. Inc., 108 F. App'x 194, 199 (5th Cir. 2004) (applying Texas law). The fortuity doctrine exists to preclude coverage for events that are not accidental or fortuitous. See id. In order to establish that Maxus's claims are barred by the fortuity doctrine, Greenstone must prove that at the time Maxusobtained the Policies from it, Maxus was aware or should have been aware that nearly twenty years into the future, Occidental would incur liability related to the Lister Site which Maxus would be required to indemnify. Greenstone argues that Maxus was aware of this potential liability in 1983 when the EPA detected hazardous substances at the Lister Site, and as such, Maxus obtained the Policies with knowledge that this...