Robert L. Johns, in His Capacity, Inc. v. Eastman Chem. Co.

248 F.Supp.3d 765

Robert L. JOHNS, in his capacity as GC Plan Administrator and as Spill Claim Plan Administrator for Freedom Industries, Inc., a domestic corporation Plaintiff,

v.EASTMAN CHEMICAL COMPANY, a Delaware corporation, Defendant

CIVIL ACTION NO. 2:16-01775.

United States District Court, S.D. West Virginia, at Charleston.

Signed March 31, 2017

Anthony J. Majestro, Powell & Majestro, Charleston, WV, Brian R. Blickenstaff, Turner & Johns, Charleston, WV, James C. Peterson, Hill Peterson Carper Bee & Deitzler, Charleston, WV, Timothy C. Bailey, Bailey Javins & Carter, Charleston, WV, for Plaintiff.

Marc E. Williams, Melissa Foster Bird, Robert L. Massie, Nelson Mullins Riley & Scarborough, Huntington, WV, for Defendant.

MEMORANDUM OPINION AND ORDER

John T. Copenhaver, Jr., United States District Judge

Pending are defendant's motion to dismiss, ECF No. 3, filed March 1, 2016, and plaintiff's alternative motion for leave to amend, ECF No. 11, filed May 9, 2016.

I. Background

On January 9, 2014, a chemical mixture leaked from a storage facility owned and operated by Freedom Industries ("Freedom") into the Elk River. The leak resulted in contamination of West Virginia American Water Company's water treatment plant and interruption in water service for residents of the surrounding area. The leaked mixture contained, along with other chemicals, 4–methylcyclohexane methanol, commonly referred to as "Crude MCHM." The Crude MCHM was manufactured and sold to Freedom by defendant Eastman Chemical Company ("Eastman").

As a result of the spill, Freedom incurred significant remediation expenses as well as loss of income. Freedom filed for Chapter 11 Bankruptcy on January 17, 2014, and a Chapter 11 plan ("Plan") was confirmed by the United States Bankruptcy Court for the Southern District of West Virginia on October 6, 2015. Plaintiff Robert L. Johns was appointed to serve as the GC Plan Administrator and Spill Claim Plan Administrator of Freedom. Under the terms of the Plan, plaintiff has the authority to pursue those claims and causes of actions retained by Freedom. Of relevance here, Section 11.6 of the Plan ("Retention of Causes of Action") provides, in pertinent part, that the Spill Claim Plan Administrator:

[S]hall have the exclusive right to enforce and shall retain, all Causes of Action of the Debtor and the Estate against any Persons, including, without limitation, Claims or Causes of Action arising from or relating [to] the Incident.

The "Incident" is defined as "the occurrence whereby on January 9, 2014, a substance primarily consisting of [Crude MCHM] was released from Tank No. 396 at the [Freedom facility] onto the facility and into the Elk River in Charleston, WV." Plan, ECF No. 1–5, § 1.53.

Plaintiff filed his original complaint in Kanawha County Circuit Court on January 19, 2016, and his amended complaint on January 25. The amended complaint asserts that Eastman knew of certain hazardous properties of Crude MCHM, including that Crude MCHM was corrosive to carbon steel and hazardous to human health, and that Eastman failed to disclose these properties to Freedom. Because Freedom was unaware of the corrosive nature of Crude MCHM, it stored the chemical in a carbon steel tank, resulting in the failure of the tank and chemical spill. The amended complaint contains six claims against Eastman: 1) breach of contract; 2) breach of warranty; 3) fraud; 4) product liability; 5) negligence; and 6) punitive damages. Defendant removed the case to this court on February 23, 2016. On March 1, 2016, defendant filed the now pending motion to dismiss. The motion seeks dismissal of every claim, asserting that:

1) the Plan failed to preserve Freedom's claims against defendant, and that all claims are thus barred by res judicata;2) plaintiff's fraud, product liability, and negligence claims are barred by the statute of limitations;

3) plaintiff has failed to allege a sufficient factual basis for a breach of contract claim;

4) plaintiff has failed to allege a sufficient factual basis for a breach of warranty claim;

5) plaintiff has failed to plead its fraud claim with particularity; and

6) that all of plaintiff's claims are disguised claims for implied indemnification, and that Freedom's fault in the spill precludes recovery on such a claim.

II. Standard

Federal Rule of Civil Procedure 8(a)(2) requires that a pleader provide "a short and plain statement of the claim showing ... entitle[ment] to relief." Fed.R.Civ.P. 8(a)(2) ; Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). Rule 12(b)(6) correspondingly permits a defendant to challenge a complaint when it "fail[s] to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). The required "short and plain statement" must provide " ‘fair notice of what the ... claim is and the grounds upon which it rests.’ " Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), overruled on other grounds, Twombly, 550 U.S. at 563, 127 S.Ct. 1955 ). In order to survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ); see also Monroe v. City of Charlottesville, 579 F.3d 380, 386 (4th Cir. 2009). The court must also "draw [ ] all reasonable ... inferences from th[e] facts in the plaintiff's favor." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).

III. Analysis

1. Plaintiff's claims are not barred by res judicata.

A bankruptcy court's confirmation of a chapter 11 plan is treated as a final judgment with res judicata effect. In re Varat Enterprises, Inc., 81 F.3d 1310, 1315 (4th Cir. 1996). Thus, parties may be precluded from raising issues or claims post-confirmation that could have been raised prior to confirmation. Id. However, a debtor may choose to retain causes of action for post-confirmation enforcement in its bankruptcy plan. In re Kmart Corp., 310 B.R. 107, 119 (Bkrtcy N.D. Ill 2004).

Section 11.6 of Freedom's chapter 11 Plan purported to reserve all claims or causes of action "arising from or relating [to] the Incident." Defendant asserts that this provision did not properly preserve Freedom's right to pursue claims against defendant, because it does not precisely delineate the category or type of claim preserved. Defendant argues that, while Bankruptcy Code § 1123(b)(3)(B) provides an exception to the res judicata effect of a confirmed chapter 11 plan, a general reservation of litigation rights is not sufficient where the defendant was a previously named creditor. In re Air Cargo, Inc., 2008 WL 2415039 at *5 (D. Md. June 11, 2008).

Regarding the content of a Chapter 11 bankruptcy plan, 11 U.S.C. § 1123(b)(3) states that a plan may provide for:

A) the settlement or adjustment of any claim or interest belonging to the debtor or to the estate; or

B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest;

The chapter does not indicate what language or degree of specificity is required to preserve a claim. The purpose of the provision is to "put creditors on notice of any claim [the debtor] wishes to pursue after confirmation and enable creditors to determine whether the proposed [p]lan resolves matters satisfactorily before they vote to approve it." In re Texas Wyoming Drilling, Inc., 647 F.3d 547, 550 (5th Cir. 2011).

Though courts generally agree that a blanket reservation of "all claims" is insufficient to preserve a claim, see In re SI Restructuring Inc., 714 F.3d 860, 864 (5th Cir. 2013) ; D & K Properties Crystal Lake v. Mutual Life Ins. Co. of New York, 112 F.3d 257, 261 (7th Cir. 1997) ; In re Kelley, 199 B.R. 698, 704 (9th Cir. BAP 1996), they vary as to the exact level of specificity required. Some courts have found general reservations by "type" or "category" of claim is sufficiently specific. See e.g. In re Bankvest Capital Corp., 375 F.3d 51, 59 (1st Cir. 2005) ; Matter of P.A. Bergner & Co. v. Bank One, Milwaukee, N.A., 140 F.3d 1111, 1117 (7th Cir. 1998) ; Teligent, Inc. v. BLR Services SAS, 307 B.R. 744, 747–48 (Bankr. S.D.N.Y. 2004) ; see also Collier on Bankruptcy, Sixteenth Edition § 548.02 [6] (noting that "The emerging majority of courts ... hold that plan language is sufficient if it refers to types or categories of actions without naming specific transactions or specific defendants, at least if there is no conscious attempt to mislead or deceive."). One circuit court, however, has held that a blanket reservation of a category of claims is insufficient to defeat the application of the doctrine of res judicata. See Browning v. Levy, 283 F.3d 761, 774–75 (6th Cir. 2002) (finding language that debtor "shall retain and may enforce any claims, rights, and causes of action that the Debtor or its bankruptcy estate may hold against any person or entity, including, without limitation, claims and causes of action arising under section 542, 543, 544, 547, 548, 550, or 553 of the Bankruptcy Code" insufficient to preserve claims).

Defendant argues that Freedom's bankruptcy plan should have specifically reserved each cause of action it intended to bring (i.e., specifically stated that it reserved claims for negligence, product liability, breach of contract, etc.) in order to provide sufficient notice to defendant. The Fourth Circuit Court of Appeals does not appear to have had opportunity to address the level of specificity required to preserve a claim under 11 U.S.C. § 1123(b)(3). The court, however, believes the standard proposed by the defendants to be excessively onerous. The court finds persuasive the reasoning of In re Railworks Corp., 325 B.R. 709, 717 (Bankr. D. Md. 2005), wherein the court...