Opinion
C.A. No. 07C-10-057 RRC.
Submitted: August 26, 2008.
Decided: September 17, 2008, Corrected: September 23, 2008.
On Plaintiff Rexnord Industries' and Invensys, Inc.'s "Motion for Partial Summary Judgment." GRANTED.
On Defendant RHI Holdings, Inc.'s and The Fairchild Corporation's "Motion for Summary Judgment as to Liability." DENIED.
On Defendant RHI Holdings, Inc.'s and The Fairchild Corporation's "Motion for Partial Summary Judgment as to Damages." DENIED.
James L. Holzman, Esquire and Gary F. Traynor, Esquire, Prickett, Jones Elliot, P.A., Wilmington, Delaware, and, Steven P. Handler, Esquire, Mark A. Bilut, Esquire, and David J. Scriven-Young, Esquire, McDermott, Will Emery, LLP, Chicago, Illinois (pro hac vice), Attorneys for Plaintiffs Rexnord Industries, LLC and Invensys, Inc.
Kevin G. Abrams, Esquire and John M. Seaman, Esquire, Abrams Laster LLP, Wilmington, Delaware, and Peter V. Baugher, Esquire, Patrick J. Heneghan, Esquire, and Joseph J. Siprut, Esquire, Schopf Weiss, LLP, Chicago, Illinois (pro hac vice), Attorneys for Defendants RHI Holdings, Inc. and The Fairchild Corporation.
MEMORANDUM OPINION
I. INTRODUCTION
This action was brought by Plaintiffs Rexnord Industries, LLC ("Rexnord") and Invensys, Inc. ("Invensys") (collectively, "Rexnord") against Defendants RHI Holdings, Inc. ("RHI") and The Fairchild Corporation ("Fairchild") (collectively, "RHI/Fairchild") alleging breach of RHI/Fairchild's indemnification obligations to Rexnord and Invensys under a 1993 Purchase Agreement (the "1993 Agreement") through which RHI/Fairchild sold Rexnord's stock to BTR Dunlop Holdings, Inc. ("BTR"). The losses for which indemnification is sought in this case relate to facilities located at 2400 and 2324 Curtiss Street, Downers Grove, Illinois in the Ellsworth Industrial Park (the "Property"). Third-party plaintiffs in two related civil cases in Illinois (the "Lockformer cases") alleged that the chlorinated solvent contamination on the Property and on other areas of the Ellsworth Industrial Park contributed to groundwater contamination in the class areas and caused third-party plaintiffs' damages. Rexnord now sues in Delaware to recover for the attorneys fees and costs that it expended in its defense to the Lockformer cases, pursuant to the 1993 Agreement with RHI/Fairchild. The parties have filed three motions for summary judgment. The central issue of Plaintiffs' Partial Motion for Summary Judgment and Defendants' Motion for Summary Judgment as to Liability is whether, under the terms of the 1993 Agreement, RHI/Fairchild must indemnify Rexnord for attorney fees and costs Rexnord incurred in its defense to the Lockformer cases. The central issue of RHI/Fairchild's motion for partial summary judgment is whether Rexnord's indemnification award should be limited to $30,000 because Invensys fronted Rexnord's costs above $30,000.
Rexnord's motion for partial summary judgment is GRANTED; RHI/Fairchild's motion for summary judgment as to liability is DENIED; RHI/Fairchild's motion for partial summary judgment as to damages is
The only issue that remains to be tried is the amount of damages.
DENIED.
II. PROCEDURAL AND FACTUAL BACKGROUND A. Plaintiffs' Motion for Partial Summary Judgment
The below facts have been stipulated to by the parties:
Stipulation as to Undisputed Facts Concerning Pls. Mot. for Partial Summ. J., Docket Item ("D.I.") 53.
The Parties
1. Rexnord Industries, LLC ("Rexnord") is a limited liability company organized under the laws of the State of Delaware.
2. Invesys, Inc. ("Invesys") is a corporation organized under the laws of the State of Delaware.
3. The Fairchild Corporation ("Fairchild") is a corporation organized under the laws of the State of Delaware.
4. RHI Holdings, Inc. ("RHI") is a corporation organized under the laws of the State of Delaware.
Agreements Concerning RHI/Fairchild's Indemnification Obligation
5. RHI owned and conducted bearing manufacturing operations at facilities located at 2324 and 2400 Curtiss Street, Downers Grove, Illinois in the Ellsworth Industrial Park (the "Property") from a period in the 1950s to August, 1988.
6. In 1988, RHI sold its Mechanical Power Division, which became Rexnord, and Rexnord continued to be minority owned by RHI until December 1993.
7. On December 2, 1993, RHI/Fairchild sold Rexnord's stock to BTR Dunlop Holdings, Inc. ("BTR"). The 1993 Purchase Agreement provided grounds for indemnification.
8. On November 9, 1994, Rexnord and RHI/Fairchild entered into a protocol (the "1994 Protocol").
9. In 1995, Rexnord and RHI/Fairchild agreed to a "Memorandum of Understanding."
10. Aaron Hardt, environmental consultant to Rexnord, and Michael Hodge, counsel for RHI/Fairchild, communicated on environmental issues frequently in person, by telephone, and in writing during the years 1993-2002.
Communications Between Rexnord and RHI/Fairchild Regarding the Lockformer Cases
11. Lockformer Company conducted a metal fabrication operation to the northwest of the Ellsworth Industrial Park. Two class action lawsuits, LeClercq v. Lockformer and Mejdrech v. Met-Coil (the "Lockformer cases"), were filed against Lockformer and its parent corporation, Met-Coil, by residents living to the south of Lockformer's facility.
12. On May 31, 2002, Lockformer and Met-Coil filed a Third-Party Complaint for Contribution against Rexnord and other companies in the Ellsworth Industrial Park in the LeClerq case.
13. On July 3, 2003, Met-Coil filed a Third-Party Complaint for Contribution against Rexnord and other companies in the Ellsworth Industrial Park in the Mejdrech case.
14. On or about April 16, 2002, RHI/Fairchild received a letter from Aaron Hardt summarizing the United States Environmental Protection Agency's (EPA) and the Illinois Environmental Protection Agency's (IEPA) investigation of soil and groundwater contamination at or near Rexnord's Downers Grove Illinois facility.
15. On or about June 11, 2002, RHI/Fairchild received a letter from Aaron Hardt identifying "a new claim against Rexnord which may be the responsibility of RHI Holdings under the 1988 Bill of Sale, Assignment and Assumption Agreement, and its subsequent interpretations."
16. On or about July 15, 2002, RHI/Fairchild received a letter from Aaron Hardt summarizing the status of the LeClercq case and providing RHI/Fairchild with a copy of Rexnord's Motion to Dismiss in the LeClerq case.
17. On or about August 10, 2002, RHI/Fairchild received a letter from Aaron Hardt notifying RHI/Fairchild of an upcoming meeting between Rexnord and the Environmental Protection Agency.
18. On or about September 19, 2002 RHI/Fairchild received a letter from Aaron Hardt summarizing a site assessment that reported significant findings of PCE and TCE at the Downers Grove facility.
19. On or about October 31, 2002, RHI/Fairchild received a letter from Todd Wiener, outside legal counsel for Rexnord, reiterating Rexnord's tender of defense and demand for indemnity.
20. Rexnord filed a fourth-party complaint against RHI/Fairchild on March 7, 2003 in LeClercq. RHI/Fairchild appeared in that case and moved to strike the fourth-party complaint on May 13, 2003. The Court denied RHI/Fairchild's motion to strike on August 14, 2003.
21. On or about July 18, 2003, RHI/Fairchild received a letter from McDermott, Will Emery, on behalf of Rexnord, requesting immediate defense and indemnity, pursuant to the 1988 Bill of Sale, Assignment and Assumption Agreement and the 1993 Purchase Agreement.
22. None of the letters were sent to Weil, Gotshal Manges [RHI/Fairchild's outside counsel] in New York.
23. The LeClercq and Lockformer cases were consolidated before U.S. District Judge Harry Leinenweber on December 17, 2003. That same day Judge Leinenweber stayed all fourth-party claims, including Rexnord's fourth-party complaint against RHI/Fairchild.
B. Facts relating to Defendants' Motion for Summary Judgment as to Liability and Defendants' Motion for Partial Summary Judgment as to Damages
The below facts have also been stipulated to by the parties:
1. This lawsuit is based on a claim for indemnification under the 1993 Agreement, pursuant to which RHI/Fairchild sold the stock of Rexnord to BTR Dunlop Holdings, Inc.
2. The Lockformer cases were brought by two classes of plaintiffs who lived west of the Ellsworth Industrial Park in which the 2324 and 2400 Curtiss property is located.
3. The classes in both cases brought claims against several defendants, including Lockformer, located north of the class areas and outside the Ellsworth Industrial Park.
4. Although some of the first-party defendants eventually settled, third-party complaints for contribution were filed against a number of companies in the Ellsworth Industrial Park, including Rexnord.
5. The third-party plaintiffs' suits were voluntarily dismissed with prejudice in June 2005 after one of their experts was precluded by the Court from testifying under Daubert v. Merrell Dow Pharmaceuticals, Inc. Thereafter, on June 9, 2005 U.S. District Judge Harry Leinenweber entered an order of dismissal in response to third-party plaintiffs' motion.
6. Rexnord filed a Rule 11 Motion for Sanctions on August 8, 2003. Judge Leinenweber held the Rule 11 Motion for Sanctions in abeyance and never ruled on the motion.
7. In its Rule 11 Motion, Rexnord asserted that: "Lockformer has never had any evidentiary support for its Third party Complaint."
8. Rexnord also asserted in its Rule 11 Motion that: "The Third Party Complaint is contradicted by all of the new information developed by the United States Environmental Protection Agency and Lockformer."
9. Plaintiffs seek total damages of $857,352.04, plus prejudgment interest and costs.
10. Of that $857,352.04, Wasusau paid $476, 956.58.
11. In connection with the Lockformer cases, Rexnord elected to hire McDermott, Will Emery, and pay its hourly rates.
12. As of late 2002, Rexnord incurred fees and expenses of approximately $30,000 for the services of its counsel, McDermott, Will Emery. Rexnord paid this amount directly to McDermott, Will Emery.
13. In late 2002, Invensys began paying Rexnord's defense costs in the Lockformer litigation.
14. Plc had an indemnification obligation to Rexnord for defense costs incurred in the Lockformer cases.
15. Invensys made the payments on plc's behalf as plc's "agent in the United States."
16. Invensys consolidates its corporate accounting statements with those of its parent, plc. Plc is not a party to this lawsuit.
C. Additional Facts not in Dispute
Additionally, Defendants admitted to the following facts in their Answers to Plaintiffs' Requests for Admission. D.I. 52.
1. RHI/Fairchild did not respond in writing to the April 16, 2002 letter within 45 days of RHI/Fairchild's receipt of the April 16, 2002 letter.
2. RHI/Fairchild did not respond in writing to the June 11, 2002 letter within 45 days of RHI/Fairchild's receipt of the June 11, 2002 letter.
3. RHI/Fairchild did not respond in writing to the July 15, 2002 letter within 45 days of RHI/Fairchild's receipt of the July 15, 2002 letter.
4. RHI/Fairchild did not respond in writing to the August 10, 2002 letter within 45 days of RHI/Fairchild's receipt of the August 10, 2002 letter.
5. RHI/Fairchild did not respond in writing to the September 19, 2002 letter within 45 days of RHI/Fairchild's receipt of the September 19, 2002 letter.
6. RHI/Fairchild did not respond in writing to the October 31, 2002 letter within 45 days of RHI/Fairchild's receipt of the October 31, 2002 letter.
7. RHI/Fairchild did not respond in writing to the July 18, 2003 letter within 45 days of RHI/Fairchild's receipt of the July 18, 2003 letter.
III. THE PARTIES' CONTENTIONS A. Plaintiffs' Motion for Partial Summary Judgment
In light of the Court's present ruling in favor of Plaintiffs' Motion for Partial Summary Judgment, the Court need not reach 1) Defendants' Motion in Limine to Bar Opinions and Testimony of Ronald Frehner, D.I. 57, 2) Defendants' Motion in Limine to Bar Evidence or Testimony Regarding Information or Data Reported after Lockformer Sued Rexnord, D.I. 56, 3) Defendants' Motion in Limine to Bar Introduction of or Reference to Arbitration Decisions or Proceedings, D.I. 55, and 4) Defendants' Motion in Limine to Bar Evidence or Testimony Regarding PCE, D.I. 58.
In response, Defendants first maintain that the indemnification provision of the 1993 Agreement was modified by a 1994 joint protocol that eliminated the "formalistic" aspects of the notice and response requirements in the indemnification provision. Defendants contend that the 1994 joint protocol "created an agreed procedure by which indemnification issues between the companies were to be handled exclusively by Hardt [for Rexnord] and Hodge [for RHI/Fairchild], thus eliminating the formalistic notice and response requirements."
Defs. Opp'n to Pls. Mot. for Partial Summ. J., D.I. 38 at 3.
Id.
Second, Defendants maintain that the 10-year course of conduct established by the parties with respect to indemnification matters had the effect of eliminating the 1993 Agreement's written response requirement in lieu of an oral response. Defendants highlight the longstanding relationship between Hardt and Hodge, during which time "Hardt and Hodge cooperated with one another and dealt with each other exclusively on indemnification matters." Hardt and Hodge "often addressed and resolved issues verbally."
Id.
Id.
Id.
Third, Defendants contend that Rexnord's tenders did not satisfy the requirements of the 1993 Agreement. According to Section 9(n) of the 1993 Agreement, "notices must be sent to Donald Miller, RHI/Fairchild's General Counsel, `with copy to' designated outside counsel." In addition, Defendants maintain that the letters do not include information regarding "`the existence of the facts and the amount of the Loss or the nature of the condition which may give rise to the Loss,' as required by Section 7(d)."
Id. at 4.
Id.
Last, Defendants maintain that Rexnord's tender for indemnification was made pursuant to the parties' 1988 Agreement, which does not contain any requirement that responses to indemnification demands be in writing.
Id.
B. Defendants' Motion for Summary Judgment as to Liability
As a threshold matter, Defendants contend that Plaintiffs have the affirmative burden of proving that RHI/Fairchild caused the contamination on the Lockformer sites. The indemnification provision of the 1993 Agreement provides that "RHI/Fairchild agreed to assume responsibility for losses that RHI/Fairchild genuinely caused during the `covered period' up to 1988 during which RHI/Fairchild operated the property." Section 7(d) of the 1993 Agreement states, " [Rexnord] shall have the burden of proof to demonstrate that any losses for which it seeks reimbursement or indemnification resulted from operation or ownership of the [RHI/Fairchild] businesses, properties, or facilities during the covered period." Defendants maintain there was no evidence that the contamination at issue in LeClercq originated from the Rexnord-RHI/Fairchild facility. Defendants contend RHI/Fairchild's indemnification obligations were never triggered because there was no evidence to support the claims in the Lockformer cases. Defendants contend that the 1993 Agreement "does not operate as an insurance policy," and thus "the `four corners' of the Lockformer pleadings were not the standard for RHI/Fairchild's indemnification responsibilities."
Defs. Mot. for Summ. J. as to Liability, D.I. 48 at 1.
Id.
Id. (emphasis added).
Id. at 2. The Lockformer cases were dismissed with prejudice and Rexnord paid no damages. Aaron Hardt, Rexnord's attorney and author of the June 11, 2002 tender for indmenfication conceded in his deposition that there was no evidence suggesting the contamination at issue in LeClerq was Rexnord's responsibility.
Id.
Id. at 3.
In response, Plaintiffs first contend that RHI/Fairchild is precluded from asserting a defense to liability because it failed to respond in writing to Rexnord's notice letters. RHI failed to reply in writing to any of the notices within 45 days. Consequently, they contend, "pursuant to Section 7(d) of the Agreement, RHI cannot assert a defense to liability and is deemed 100% liable for Plaintiffs' Losses."
Pls. Opp'n to Defs. Mot. for Summ. J. as to Liability, D.I. 60 at 1.
Id.
Second, Plaintiffs maintain that the motion should be denied because it is untimely. Pursuant to the February 4, 2008 Trial Scheduling Order, the dispositive motions deadline was May 28, 2008. On May 27, 2008, RHI filed a motion to compel a second Rule 30(b)(6) deposition, purportedly because "Invensys' designee was unable to testify completely on certain topics relating to Plaintiffs' damages." The parties subsequently agreed that RHI would serve Plaintiffs with supplemental interrogatories in lieu of actually taking the deposition. During a hearing on June 10th, the Court entered a schedule regarding the supplemental interrogatories and identified July 14th as the deadline to file dispositive motions. However, the Court indicated its inclination that any dispositive motions filed after May 28th should be limited to the issues raised by the supplemental discovery. Plaintiffs contend that RHI's motion has nothing to do with Plaintiffs' damages, but, rather, only takes issue with Plaintiffs' claim of RHI's liability under the Agreement. Consequently, Plaintiffs contend the motion was not timely filed because it was not limited to the issues raised by supplemental discovery.
Id. at 3.
Id.
Id.
Id.
Id. at 2.
Id.
Third, Plaintiffs maintain that the motion should be denied because it is contrary to the unambiguous language of the 1993 Agreement and Delaware law. Plaintiffs assert that the 1993 Agreement "does not require that Rexnord establish that it would have been found liable in the Lockformer cases because of RHI's conduct." Plaintiffs contend that Plaintiffs are not attempting to enlarge their rights to indemnification, but, rather, Defendants are attempting to add a limitation to the 1993 Agreement. In addition, Plaintiffs contend that the motion is contrary to Delaware law and that the law does not require that Rexnord would have been found liable in the Lockformer cases as a result of RHI/Fairchild's conduct.
Id.
Id. at 3.
Id.
C. Defendants' Motion for Partial Summary Judgment as to Damages
Defendants first maintain that Plaintiff Invensys has suffered "no damages and [has] no standing to prosecute the indemnification claim in this lawsuit." Second, Defendants maintain that Plaintiff Rexnord's damages, in any event, should be limited to $30,000, the costs Rexnord incurred prior to late 2002 when Invensys "began paying Rexnord's defense costs in the Lockformer litigation pursuant to a 2002 Sale Agreement in which Invensys' parent company, Invensys plc, sold Rexnord to Royal Bank of Scotland." Defendants contend Invensys was not obligated to pay Rexnord's defense costs under the 2002 Agreement, but did so nonetheless, and was reimbursed for those payments by Invensys plc. Therefore, Defendants maintain that Invensys is the wrong party to bring suit. In addition, Defendants contend that "Invensys has no standing as an indemnitee under the 1993 Agreement in the first place." In order to have standing, "Invensys must be a current indemnitee under the 1993 Agreement to have any current standing to recoup whatever payments it made." Defendants contend that the sale of Rexnord to Royal Bank of Scotland effectively "severed [Invensys'] connection to Rexnord — and with it, any rights under the 1993 Agreement."
Defs. Mot. for Summ. J. as to Damages, D. I. 49 at 1.
Id.
Id. at 2.
Id.; Defs. Reply in Further Support of their Mot. for Partial Summ. J. as to Damages, D.I. 63 at 1.
Id.
Id. at 3, emphasis in original.
Id.
In response, Plaintiffs contend that both Invensys and Invensys plc are "affiliates" and thus covered indemnitees under the 1993 Agreement. Plaintiffs draw on language from Arbitrator Manko's 2007 confirmed award, in which Rexnord arbitrated identical breach of contract claims against RHI/Fairchild to recover from civil and environmental actions relating to chlorinated solvent contamination on the Property. Arbitrator Manko noted, "`[f]orcing another indemnified party from the Invensys family of companies to step up and reimburse Rexnord does not excuse RHI/Fairchild of its obligations to Rexnord under the 1993 Agreement.'" Arbitrator Manko concluded both Invensys plc and Invensys were "indemnitees" within the meaning of the 1993 Agreement and thus "payments received from Invensys or Invensys plc do not reduce the amount of `Losses' that are recoverable. . . ." Plaintiffs contend that the logic of Arbitrator Manko reasoning is equally applicable here (although not binding).
Pls. Opp'n to Defs. Mot. for Partial Summ. J. as to Damages, D.I. 59 at 2-3. "[T]he Arbitrator concluded that Invensys and Invensys plc were indemnitees and not `third parties' under the Agreement, regardless of whether Invensys and Invensys plc are still affiliated with Rexnord today."
Joseph M. Manko, Esquire, in his capacity as an arbitrator, issued an opinion after conducting a three-day hearing and reviewing the parties' exhibits and briefs. Pls. Mot. for Partial Summ. J., Ex. 2.
Pls. Opp'n to Defs. Mot. for Partial Summ. J. as to Damages at 1.
Id. at 2-3. "[T]he Arbitrator concluded that Invensys plc, as the ultimate parent of the Invensys family of companies, was an `affiliate,' and therefore an indemnitee, under the Agreement. The Arbitrator concluded that Invensys was also an indemnitee under the Agreement, "as an agent, successor or assign of one of the `affiliates' to the 1993 Agreement."
In response to Defendants' contention that Invensys lost its indemnitee status when Invensys plc sold Rexnord in 2002, Plaintiffs highlight Arbitrator Manko's conclusion that Invensys and Invensys plc were indemnitees and not "third parties" under the Agreement, "regardless of whether Invensys and Invensys plc are still affiliated with Rexnord today." Plaintiffs also maintain that Defendants motion should not be granted because there are genuine issues of fact. For example, Rexnord disputes RHI/Fairchild's assertion that Invensys plc "reimbursed" Invensys for defense costs paid on Rexnord's behalf. Rather, Rexnord contends that Invensys plc "loaned" Invensys the money, with the expectation of repayment.
Id. at 3. "The Agreement does not extinguish indemnification rights when a party to the Agreement is later sold or an affiliate relationship is ended nine years after the date of the Agreement. To the contrary, the Agreement extends indemnification to all `agents and assigns' of the original parties to the Agreement and all of their affiliates."
Id. at 4.
Id.
IV. STANDARD OF REVIEW
V. DISCUSSION
Super. Ct. Civ. R. 56(c).
Mason v. United Servs. Auto. Ass'n, 697 A.2d 388, 392 (Del. 1997) ("a party moving for summary judgment concedes the absence of a factual issue and the truth of the nonmoving party's allegations only for purposes of its own motion, and does not waive its right to assert that there are disputed facts that preclude summary judgment in favor of the other party").
The notice to be provided under (c) above shall consist of a written report of the existence of the facts and the amount of the Loss or the nature of the condition which may give rise to the Loss to the Seller and Holdings (`Report'). Unless, within 45 days of the receipt by the Seller and Holdings of the Report, the Purchaser has received from the Seller or Holdings a notice disputing the facts or the amount of any Loss stated in such Report, a Determination that Rexnord has incurred the Loss shall be deemed to have been made on the last day of the 45-day period.
Beginning on April 16, 2002 Rexnord sent a series of written notices to RHI/Fairchild regarding RHI/Fairchild's responsibility for chlorinated solvent contamination on and from the Rexnord property. In the responses to Plaintiffs' Requests for Admission RHI/Fairchild admit they did not respond in writing to these notices. Thus, RHI/Fairchild's lack of written responses is undisputed.
Pls. Reply in Support of their Mot. for Partial Summ. J., D.I. 43 at 1.
RHI/Fairchild contend that Rexnord's tenders were deficient on three grounds. First, RHI/Fairchild argue that the tenders, which were directed to Michael Hodge, should have been addressed to Donald Miller or to outside counsel. However, RHI/Fairchild's contact person was modified by the 1994 protocol, which identified Michael Hodge as the new contact person. It is undisputed that Rexnord's tenders were sent to Hodge; therefore, the tenders were properly addressed.
Second, RHI/Fairchild contend that Rexnord's tenders were deficient because they did not explicitly offer to make the Property available for inspection. Section 7(c) of the 1993 Agreement states that RHI/Fairchild "shall be permitted to enter [Rexnord's properties] at reasonable times after prior consultation with the Purchaser [BTR] or Rexnord. . . ." Nothing in the 1993 Agreement requires the tender letters to reiterate that the property is available for inspection. In addition, Rexnord's September 9, 2002 letter stated, "Would you like to visit the Site and/or the Rexnord facility?"
Id. at 2.
Id.
Third, RHI/Fairchild contend that Rexnord's tenders do not comply with Section 7(d), which requires "a written report of the existence of the facts and the amount of the Loss or the nature of the condition which may give rise to the Loss." However, the record indicates that Rexnord's tenders provided background on the Lockformer cases, enclosed third party complaints, and stated reasons Rexnord believed RHI/Fairchild should provide indemnification. Therefore, the tenders complied with the requirements of Section 7(d).
Pls. Mot. for Partial Summ. J., Ex. 1.
Pls. Reply in Support of their Mot. for Partial Summ. J. at 2.
Next, RHI/Fairchild argue that Rexnord's tenders expressly requested indemnification under the parties' 1998 Agreement — not under the 1993 Agreement. The tenders show this argument to be without merit. Rexnord's June 11, 2002 tender stated that it was provided "under the August 16, 1988 Bill of Sale, Assignment and Assumption Agreement, and its subsequent interpretations." The October 31, 2002 letter stated it sought defense and indemnity pursuant to the 1988 agreement "and/or its reiteration in" the 1993 Agreement. The July 18, 2003 tender stated it was provided pursuant to "the 1988 Bill of Sale, Assignment and Assumption Agreement and/or Section 7 of" the 1993 Agreement. Therefore, Rexnord's tenders were made pursuant to and in compliance with the 1993 Agreement.
Id. (emphasis added).
Id.
Id. (emphasis added).
Next, RHI/Fairchild contend that the 1994 and 1995 protocols eliminated the requirement of a written response. However, nothing in either protocol alters or eliminates the requirement of a written response, pursuant to Section 7(d) and 9(n) of the 1993 Agreement. The purpose of the 1994 and 1995 protocols was to designate Aaron Hardt and Michael Hodge to receive notices and tenders. Therefore, the 1994 and 1995 protocols did not relieve RHI/Fairchild from responding in writing.
Id. at 3.
Id.
Id.
Alternatively, RHI/Fairchild contend that if the 1994 and 1995 protocols did not explicitly amend the 1993 Agreement, then the parties' course of conduct excused RHI/Fairchild from replying in writing. However, Section 9(e) of the 1993 Agreement requires all modifications to be in writing. In some circumstances such a provision may be waived by course of conduct, but the provision usually will not be waived if the parties have reduced a modification to writing on a prior occasion. In the instant case, the parties' course of conduct shows that the parties did not intend to modify the 1993 Agreement's written response requirement. A course of conduct modification "must be of such specificity and directness as to leave no doubt of the intention of the parties to change what they previously solemnized by formal document." The letters between Aaron Hardt and Michael Hodge illustrate the parties' intention to abide by the requirements for written tenders and responses. Thus, the parties' course of conduct demonstrates that Rexnord and RHI/Fairchild did not intend to modify the 1993 Agreement's requirement for written notice and response. Therefore, in light of the above, Plaintiffs' Motion for Partial Summary Judgment is granted.
Id.
Cont'l Ins. Co. v. Rutledge Co., 759 A.2d 1219, 1229 (Del. Ch. 2000) (noting that the "parties prior course of conduct, however, demonstrates that they did, in fact, on a prior occasion reduce a modification to writing" and therefore the modification requirement was not waived).
Reeder v. Sanford Sch., Inc., 397 A.2d 139, 141 (Del.Sup.Ct. 1979); Cont'l Ins. Co., 750 A.2d at 1230.
Id. at 4. RHI/Fairchild's Oct. 4, 1996 letter to Rexnord references Hodge's rejection of a tender from Hardt "for failure to give timely notice" under the 1993 Agreement.
Id.
With regard to Defendants' Motion for Summary Judgment as to Liability, RHI/Fairchild contend that, in order for RHI/Fairchild to be liable under the 1993 Agreement, this Court must find that Rexnord would have been found liable in the Lockformer cases, as a result of RHI's contamination. However, this contention is contrary to the unambiguous language of the 1993 Agreement and Delaware law.
Under all the circumstances, the Court finds that Defendants' motion was timely filed.
Delaware law applies the general principles of contract law to indemnification agreements. "Contracts must be construed as a whole, to give full effect to the intentions of the parties. Where the contract language is clear and unambiguous, the parties' intent is ascertained by giving the language its ordinary and usual meaning."
Nw. Nat'l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996).
Id.
In a previous suit between Rexnord and RHI before the American Arbitration Association interpreting the 1993 Agreement under Delaware law, a three-arbitrator panel rejected RHI's identical argument that proof of liability is a necessary prerequisite for indemnification. The panel noted:
In this suit, the plaintiff sought to recover for personal injuries resulting from drinking water that was allegedly contaminated by chlorinated solvents from the RHI/Rexnord property. Pls. Opp'n to Defs. Mot. for Summ. J. at 2.
RHI contends that the issue before the Panel is one of contractual indemnity, and that in order for RHI to be responsible under the contract, the Panel must find that RHI's conduct actually contributed to [the Plaintiff's] illness. . . . Subject to the language of the parties' indemnification agreements, an indemnitor's claim generally accrues when it makes payment for which it seeks indemnity or in good faith settles a claim that exposes the indemnitor to liability for which it has a right of indemnification. The contract in this case recognizes that Rexnord may seek indemnity for liabilities that have not resulted in actual judgments or settlements. Section 7(a) of the Purchase Agreement requires RHI to indemnify Rexnord for any " liability, commenced or threatened." We find in these words an explicit intent to indemnify Rexnord for claims seeking to fasten liability on Rexnord for pre-1988 conduct, not just those that successfully do so. Significantly, Section 7 provides that the parties intended to sweep within the scope of the indemnity claims that may ultimately lack merit. The task of the trier of fact under this agreement is not to adjudicate the settled claim, but to determine to what extent the actual or threatened liability asserted relates to pre-1988 conduct or operations. The promise of indemnity in these circumstances could be significantly impaired if, [in] order to obtain it, Rexnord were required to prove the claimant's case with respect to pre-1988 conduct. This conclusion is strengthened by the requirements of Section 7(c) and (d) which provide for notice of indemnification claims and which give RHI the right to defend such claims, Indeed, the notice provided for in Section 7(c) is of any claim that " might give rise to any Losses." Section 7(d) specifies that the notice shall consist of a written report specifying "the existence of the facts and the amount of the Loss or the nature of the condition which may give rise to the Loss."
Id. at 2-3 (emphasis added).
The rationale of the three-arbitrator panel is sound, and it is applicable in the instant case. Indeed, Section 7(d) of the 1993 Agreement requires Rexnord to demonstrate that "any losses for which it seeks reimbursement or indemnification resulted from operation or ownership of the [RHI] business, properties, or facilities during the covered period." The broad and unambiguous language of the 1993 Agreement does not make indemnification contingent upon a finding of liability.
Pls. Mot. for Partial Summ. J., Ex. 1 (emphasis added).
In addition, Delaware law does not require Rexnord to establish that Rexnord would have been found liable in the Lockformer cases as a result of RHI's conduct in order to receive indemnification. In Pike Creek Chiropractic Center, P.A. v. Robinson, a case relied on by Defendants, the Delaware Supreme Court dealt with a similar, but factually distinct, situation. The indemnification agreement in Pike Creek required the employee to indemnify the employer for "any liabilities, expenses, including attorney's fees," resulting from the employee's negligence. Pike Creek directs that "[a] court construing an indemnification agreement should look to the actual facts developed through discovery, or at trial, to determine if the indemnitee is free from actual wrongdoing and therefore entitled to complete indemnification." Defendants argue by inverse inference that RHI/Fairchild (the indemnitor) should not have to pay Rexnord (the indemnitee) unless the record establishes that Rexnord's losses resulted from RHI/Fairchild's operations on the property during the covered period. But this argument goes beyond the scope of the Pike Creek holding and fails to recognize the fact that the contamination at issue in the Lockformer cases existed on or prior to August 19, 1988, the covered period. Rexnord seeks indemnification for defending itself in a case directly related to pre-1988 operations on the property; while it is true the allegations against Rexnord ultimately were proved to be without merit, nonetheless, Rexnord was forced to defend against allegations that contamination occurred during the covered period, before Rexnord owned the property.
637 A.2d 418, 420 (Del. 1994).
Id. at 419-20.
Id. at 421.
With regard to Defendants' Motion for Partial Summary Judgment as to Damages RHI/Fairchild contend that Invensys has no damages and Rexnord's damages should be limited to $30,000 because Invensys plc reimbursed Invensys' costs and Invensys fronted the remainder of Rexnord's costs. RHI/Fairchild made a similar argument in the first arbitration in Illinois. Arbitrator Manko, however, ruled that Rexnord was entitled to recover the full amount of its "Losses" under the 1993 Agreement, "regardless of whether the Losses were already paid or reimbursed by Rexnord, Invensys plc or Invensys, Inc." Arbitrator Manko relied on Section 7(a) of the 1993 Agreement, which provides indemnification for "the Purchaser [BTR Dunlop Holdings, Inc.], its affiliates (including Rexnord) and their respective shareholders, officers, directors, employees, agents and successors and assigns. . . ." Under the terms of the 1993 Agreement, "affiliate" is defined by Rule 12b-2 of the Securities Exchange Act of 1934. Rule 12b-2 defines "affiliate": "[a]n `affiliate of, or person `affiliated' with, a specified person, is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under control with, the person specified." Arbitrator Manko determined that Invensys plc, as the ultimate parent of the Invensys family of companies, and Invensys, "as an agent, successor or assign of one of the `affiliates' to the 1993 Agreement" were both indemnitees.
Pls. Opp'n to Defs Mot. for Partial Summ. J. as to Damages at 1 (quoting Arbitrator Manko).
Id.
Pls. Opp'n to Defs. Mot. for Partial Summ. J. at 1-2.
Id. at 2.
Arbitrator Manko reviewed the exclusion in Section 7(a) that states, "the indemnity shall apply only to the excess of (x) Losses over (y) the sum of amounts collected by Purchaser or Rexnord from third parties on account of or in anticipation of Losses." Pursuant to this provision, Arbitrator Manko ruled that payments made by Invensys plc or Invensys did not reduce Rexnord's losses:
Id.
Since Invensys plc and Invensys, Inc. are both indemnified entities under section 7(a) of the 1993 Agreement, they are not third parties to the 1993 Agreement. Accordingly, the exclusion cited by RHI/Fairchild in section 7(a) . . . does not apply to amounts received from Invensys, plc or Invensys, Inc. It is irrelevant under this reading of the 1993 Agreement whether Invensys plc or Invensys, Inc. are still affiliated with Rexnord today; amounts collected by Rexnord or paid on behalf of Rexnord by Invensys, plc or Invensys, Inc. are not amounts collected from third parties. . . . Furthermore, "third party" does not appear to be a defined term within the 1993 Agreement. As explained above, Invensys plc is an indemnified party under the 1993 Agreement and cannot be viewed as a "third party" payor under my reading of section 7(a) of the 1993 Agreement. It would defy logic to say that a wholly owned U.S. subsidiary which acts on behalf of Invensys plc in the United States is somehow a "third party" for purposes of making payments when its parent is not such a third party. . . . It would be unreasonable and inequitable to read the "third party" provision of the 1993 Agreement to exclude from Rexnord's claim sums received from Invensys. Rexnord provided RHI/Fairchild with appropriate notices under the 1993 Agreement of the various claims at issue in this arbitration. In certain cases RHI/Fairchild did not respond to those claims and in any event has declined to indemnify and hold harmless Rexnord on those claims. The fact that a Rexnord affiliate, or successor or assign thereof, which is also entitled to an indemnification from RHI/Fairchild, stepped in and reimbursed Rexnord does not absolve RHI/Fairchild of its obligations under section 7(a) of the 1993 Agreement. After RHI/Fairchild declined to fully indemnify Rexnord, Rexnord tendered the matters to Invensys plc, another indemnified party under the 1993 Agreement. Forcing another indemnified party from the Invensys family of companies to step up and reimburse Rexnord does not excuse RHI/Fairchild of its obligations to Rexnord under the 1993 Agreement.
Id. at 2 (quoting Arbitrator Manko's ruling) (emphasis in original).
Arbitrator Manko's assessment and rationale is sound and pertinent to the instant case and, therefore, Rexnord's recovery is not limited to the attorneys fees and costs ($30,000) it paid directly.
RHI/Fairchild also argue that Invensys is not a current indemnitee because the sale of Rexnord to Royal Bank of Scotland in 2002 severed Invensys' rights as an indemnitee under the 1993 Agreement. However, Arbitrator Manko determined that both Invensys plc and Invensys are indemnitees and the 1993 Agreement does not extinguish indemnification rights when a party to the agreement is later sold or an affiliate relationship ends. Rather, the language of the 1993 Agreement contemplates change in the parties' status and extends indemnification to all "agents and successors and assigns" of the original parties and their affiliates. By distinguishing between "affiliates" and their "agents and assigns," the Agreement evidences an intent to indemnify parties who are not currently affiliates. Consequently, the 2002 sale of Rexnord did not abrogate Invensys' indemnification rights.
Id. at 3.
VI. CONCLUSION
For the foregoing reasons, Plaintiffs' Motion for Partial Summary Judgment is GRANTED, Defendants' Motion for Summary Judgment as to Liability is DENIED, and Defendants' Motion for Partial Summary Judgment as to Damages is DENIED.
IT IS SO ORDERED.