09-3854-cv, 09-4026-cv
INEOS Americas LLC v. The Dow Chemical Company
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3
4 SUMMARY ORDER
5
6 RULINGS BY SUM M ARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUM M ARY ORDER
7 FILED ON OR AFTER JANUARY 1, 2007, IS PERM ITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
8 PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. W HEN CITING A SUM M ARY ORDER IN A DOCUM ENT
9 FILED W ITH THIS COURT, A PARTY M UST CITE EITHER TH E FEDERAL APPENDIX OR AN ELECTRONIC
10 DATABASE (W ITH THE NOTATION “SUM M ARY ORDER”). A PARTY CITING A SUM M ARY ORDER M UST SERVE
11 A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
12
13 At a stated term of the United States Court of Appeals for the Second Circuit, held at
14 the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New
15 York, on the 24th day of May, two thousand ten.
16
17 PRESENT:
18 JOHN M. WALKER, JR.,
19 CHESTER J. STRAUB,
20 DEBRA ANN LIVINGSTON,
21 Circuit Judges.
22 __________________________________________
23
24 INEOS Americas LLC and INEOS Oxide Limited,
25
26 Plaintiffs-Appellants-Cross-Appellee,
27
28 v. 09-3854-cv, 09-4026-cv
29
30 The Dow Chemical Company,
31
32 Defendant-Appellee-Cross-Appellant.
33 __________________________________________
34
35 FOR APPELLANTS: RICHARD W. CLARY (RACHEL G. SKAISTIS, on the brief),
36 Cravath, Swaine & Moore, LLP, New York, NY
37
38 FOR APPELLEE: THOMAS J. MOLONEY (LEWIS J. LIMAN, on the brief), Cleary
39 Gottlieb Steen & Hamilton LLP, New York, NY
40
41
42
1 UPON DUE CONSIDERATION IT IS HEREBY ORDERED, ADJUDGED, AND
2 DECREED that the judgment of the district court be AFFIRMED.
3 Plaintiffs-Appellants-Cross-Appellees INEOS Americas LLC and INEOS Oxide Limited
4 (“INEOS”) appeal a December 9, 2008 order of the United States District Court for the Southern
5 District of New York (Hellerstein, J.) granting Defendant-Appellee-Cross-Appellant The Dow
6 Chemical Company’s (“Dow”) motion for summary judgment with regard to INEOS’s claims for
7 equitable relief, including specific performance, and dismissing these claims. INEOS also appeals
8 the district court’s August 12, 2009 award of nominal damages of $100 plus costs for Dow’s breach
9 of contract. Dow is in agreement with the district court’s decisions regarding specific performance
10 and damages but, on cross-appeal, argues that the district court erred in determining that Dow
11 breached the contract. We assume the parties’ familiarity with the underlying facts, procedural
12 history, and the issues on appeal.
13 A. Background
14 The relationship between INEOS and Dow began in 2000 following Dow’s proposed merger
15 with Union Carbide Corporation. The Federal Trade Commission (“FTC”), concerned about certain
16 anticompetitive aspects of the merger, insisted that Dow divest itself of its ethanolamines (“EOA”)
17 business as a condition for approval of the merger. Dow agreed to sell to INEOS its EOA plant in
18 Plaquemine, Louisiana. In connection with the sale of the EOA plant, Dow agreed to supply
19 ethylene oxide (“EO”), the primary feedstock for the production of EOA, to INEOS from Dow’s
20 contiguous EO plant. The terms for Dow’s ongoing sale of EO to INEOS are memorialized in the
21 contract at issue in the instant litigation, a Supply Agreement pursuant to which Dow is to supply
22 EO to INEOS over the 35-year term of the agreement.
2
1 The Supply Agreement, in substance, states that INEOS must obtain from Dow and Dow is
2 to supply to INEOS such quantities of EO as are necessary to satisfy INEOS’s requirements up to
3 250 million pounds per year. The agreement also gives INEOS the option to purchase, in accordance
4 with its requirements, up to 27 million additional pounds per year for use at the Plaquemine EOA
5 plant, for a total of 277 million pounds per year. Critical to the instant dispute, Article 5.1(e) of the
6 Supply Agreement provides:
7 Expansion of EO Plant Capacity. If at any time after the eighteenth month
8 after the Effective Date [Dow] proposes any expansion of the capacity of the
9 EO Plant, it shall inform [INEOS] before implementing such proposal and
10 shall offer [INEOS] the opportunity to participate in the cost of financing
11 such expansion. If [INEOS] accepts such opportunity and participates in the
12 financing, the additional EO capacity which represents [INEOS’s] pro rata
13 share (based upon its share of the financing cost) of such expansion shall be
14 reserved for supply to [INEOS] at a price which represents the Cash Cost of
15 such EO. For these purposes “Cash Costs” means [Dow’s] actual cash costs
16 per lb. to produce such EO, which the Parties expressly agree excludes any
17 depreciation or amortization cost or financing costs or charges, but on the
18 basis that the cost of the ethylene used in such production shall be deemed to
19 be the price at which such ethylene could be acquired by [INEOS] taking into
20 account the then conditions of the ethylene market, but applying the same
21 assumptions as have been applied by the Parties in agreeing to the definition
22 of Ethylene Price based on market conditions at the date of this Agreement.
23
24 In 2003, Dow experienced fires at its EO plant and, as a result, decided to replace the oxygen
25 mixer in the plant. Dow named this project, which was completed during a May 2004 plant
26 shutdown, the Glycol II Capacity Increase Project (“Glycol II Project”). INEOS filed suit on
27 September 18, 2006, alleging breach of Article 5.1(e) of the Supply Agreement and seeking money
28 damages and specific performance. INEOS alleged that even though Dow anticipated a daily
29 capacity increase in EO production as a result of the Glycol II Project, Dow never advised INEOS
30 of this projected increase nor did Dow give INEOS an opportunity to share in the financing costs
31 under Article 5.1(e).
3
1 On December 9, 2008, ruling from the bench, the district court granted summary judgment
2 in favor of Dow as to INEOS’s claim for specific performance, holding that “[a]ny breach of this
3 contract is remediable by money damages and there has been no showing of irreparable damage or
4 inability to recover money damages.” A ten-day bench trial on the remainder of INEOS’s claims
5 began on June 1, 2009, and on June 18, 2009, the district court issued oral findings of fact and
6 conclusions of law. The court determined that Article 5.1(e) is a valid and enforceable part of the
7 Supply Agreement and that it was triggered by Dow’s expansion during the Glycol II Project,
8 creating an obligation on Dow’s part to give notice to INEOS of the projected costs of the project
9 and to invite INEOS to participate in the financing. Because Dow did not provide this notice to
10 INEOS, the court found, Dow breached Article 5.1(e). Nevertheless, the court determined that
11 because INEOS was aware that Dow was considering an expansion of plant capacity and because
12 INEOS did not “have the requirements level to ask for more [EO] and increase its obligation to
13 Dow,” INEOS was entitled to only nominal damages of $100 for Dow’s breach.
14 On appeal, INEOS contends that the district court erred in denying specific performance and,
15 alternatively, that the district court erred by awarding only nominal damages for Dow’s breach. In
16 reply, Dow urges us to affirm the district court’s determination of damages and its ruling on specific
17 performance. On cross-appeal, Dow argues that the district court erred in finding that Dow breached
18 Article 5.1(e). For the reasons that follow, we affirm the judgment of the district court.
19 B. Specific Performance
20 We review a district court’s grant of summary judgment de novo. McBride v. BIC Consumer
21 Prods. Mfg. Co., 583 F.3d 92, 96 (2d Cir. 2009). Summary judgment is proper only when,
22 construing the evidence in the light most favorable to the non-movant, “there is no genuine issue as
4
1 to any material fact and . . . the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
2 56(c); McBride, 583 F.3d at 96. We review a district court’s decision to grant or deny the equitable
3 remedy of specific performance for abuse of discretion. See Abrahamson v. Bd. of Educ. of
4 Wappingers Falls Cent. Sch. Dist., 374 F.3d 66, 76 (2d Cir. 2004); Leasco Corp. v. Taussig, 473
5 F.2d 777, 786 (2d Cir. 1973); see also Sheet Metal Workers’ Int’l Ass’n Local 19 v. Herre Bros.,
6 Inc., 201 F.3d 231, 249 (3d Cir. 1999). “A district court abuses its discretion when it rests its
7 decision on a clearly erroneous finding of fact or makes an error of law.” Citigroup Global Mkts.,
8 Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 34 (2d Cir. 2010).
9 The New York Uniform Commercial Code (“U.C.C.”), which both parties agree applies in
10 this case, provides that specific performance “may be decreed where the goods are unique or in other
11 proper circumstances.” N.Y. U.C.C. § 2-716(1). The comments to this section explain that
12 emphasis is placed on “the commercial feasibility of replacement” and that “inability to cover is
13 strong evidence of ‘other proper circumstances.’” Id. cmt. 2. “Specific performance is a proper
14 remedy . . . where the subject matter of the particular contract is unique and has no established
15 market value.” Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 415 (2001) (internal
16 quotation marks omitted). Finally, “[a]lthough the Code has liberalized the right to specific
17 performance, that remedy still remains extraordinary in character and is generally available only
18 when other remedies are in some way inadequate.” 4A Anderson on the Uniform Commercial Code
19 § 2-716:13 (3d ed. 2009).
20 The district court did not err in granting summary judgment to Dow on the issue of specific
21 performance and, to the extent the district court permitted INEOS to renew arguments related to its
22 request for specific performance at trial, the district court did not abuse its discretion in declining
5
1 to award the requested relief. At the summary judgment stage, and also at trial, the undisputed
2 evidence before the district court was that INEOS, at all times relevant to this dispute, was able to
3 enter into short-term “tolling” agreements with alternative suppliers of EO in order to cover its
4 current EO requirements. The district court did not err in concluding before trial that if INEOS’s
5 costs under these tolling agreements proved to be higher than they would have been under the
6 contract with Dow, the difference between INEOS’s cover price and the contract price would be
7 easily computable and any harm flowing from the difference would be remediable with money
8 damages. See N.Y. U.C.C. § 2-713(1). The trial evidence did not draw this conclusion into
9 question. INEOS contends that specific performance was appropriate here because only long-term
10 contractual relationships position it to begin making plans to expand its EOA business. But this is,
11 in effect, an argument that INEOS should have been awarded specific performance based on the
12 possibility of an EOA plant expansion, not yet planned, to occur sometime in the indefinite future.
13 The district court did not err in declining to afford extraordinary relief based on a claim founded on
14 such “speculation [and] conjecture.” See Wolff & Munier, Inc. v. Whiting-Turner Contracting Co.,
15 946 F.2d 1003, 1010 (2d Cir. 1991).
16 C. Breach
17 “In reviewing a district court’s decision in a bench trial, we review the district court’s
18 findings of fact for clear error and its conclusions of law de novo.” White v. White Rose Food, 237
19 F.3d 174, 178 (2d Cir. 2001). “Under the clearly erroneous standard, there is a strong presumption
20 in favor of a trial court’s findings of fact if supported by substantial evidence. We will not upset a
21 factual finding unless we are left with the definite and firm conviction that a mistake has been
22 committed.” Id. (internal quotation marks omitted). Although “[t]he matter of whether [a] contract
6
1 is ambiguous is a question of law for the court,” Law Debenture Trust Co. of N.Y. v. Maverick Tube
2 Corp., 595 F.3d 458, 465 (2d Cir. 2010), the interpretation of an ambiguous contract provision is a
3 question for the factfinder that we review for clear error, see New Windsor Volunteer Ambulance
4 Corps., Inc v. Meyers, 442 F.3d 101, 111-12 (2d Cir. 2006). “Where there are two permissible views
5 of the evidence, the factfinder’s choice between them cannot be clearly erroneous.” Id.
6 On cross-appeal, Dow argues that the district court erred when it determined that the Glycol
7 II Project was a plant expansion triggering Article 5.1(e) and that Dow’s failure to notify INEOS of
8 the proposed capacity increase and to offer INEOS a chance to participate was a breach of the Supply
9 Agreement. We disagree. Central to its decision was the court’s finding that Dow projected an
10 increase in capacity as a result of the Glycol II Project from 1.7 million pounds of EO per day to 1.9
11 million pounds per day based on the plant’s “effective capacity.” Dow contends that this was error,
12 and that Article 5.1(e) contemplates not a measurement of the plant’s effective capacity, but rather
13 its maximum design capacity. We agree with the district court that, when viewed in the context of
14 the agreement as a whole, whether Article 5.1(e) refers to effective or design capacity is unclear from
15 the face of the agreement. Moreover, reviewing the evidence presented at trial, we cannot say that
16 the district court clearly erred in determining that “capacity” in Article 5.1(e) refers to a “practical”
17 measure of “what in practice [the EO plant] could reliably and safely produce over a consistent
18 period of time.” The district court’s choice between two permissible views of the evidence was not
19 clear error in this case. Similarly, the district court’s finding—after hearing testimony and viewing
20 evidence—that Dow projected an effective capacity increase in its EO plant from 1.7 million pounds
21 per day to 1.9 million pounds per day as a result of the Glycol II Project was not clearly erroneous
22 and we agree with the district court that this increase in capacity triggered Dow’s obligations under
7
1 Article 5.1(e).
2 Also on cross-appeal, Dow contends that even if the Glycol II Project resulted in a capacity
3 increase triggering its notification obligations under Article 5.1(e), the district court erred in
4 determining that the notice provided was inadequate to satisfy those obligations. We disagree. The
5 district court determined that while INEOS was aware that the Glycol II Project was being
6 undertaken by Dow, Dow told INEOS only that “this was a project to improve reliability” and that
7 INEOS was not informed of the projected capacity increase. Given Article 5.1(e)’s requirement that
8 if Dow “proposes any expansion of the capacity of the EO Plant, it shall inform [INEOS] before
9 implementing such proposal and shall offer [INEOS] the opportunity to participate in the cost of
10 financing such expansion,” it was not error for the district court to find a breach in the circumstances
11 of this case. While Dow did inform INEOS that it was replacing the oxygen mixer at the plant,
12 Dow’s argument that it satisfied its Article 5.1(e) obligation because INEOS could have inferred how
13 much the project would cost and by how much the plant’s capacity would increase is unavailing.
14 The plain language of Article 5.1(e) provides that Dow’s notification obligation is more
15 specific—Dow was required to both inform INEOS before implementing a capacity increase
16 proposal and offer INEOS the opportunity to participate in financing. Since Dow indisputably did
17 not offer INEOS the opportunity to participate in financing the Glycol II Project, even if it notified
18 INEOS of aspects of its plans, it breached Article 5.1(e).
19 D. Damages
20 “Although the amount of recoverable damages is a question of fact, the measure of damages
21 upon which [a] factual computation is based is a question of law.” Arch Ins. Co. v. Precision Stone,
22 Inc., 584 F.3d 33, 40 (2d Cir. 2009). We thus review de novo a district court’s calculation of
8
1 damages. Id. Additionally, under New York law, “[i]t is fundamental to the law of damages that
2 one complaining of injury has the burden of proving the extent of the harm suffered.” Berley Indus.,
3 Inc. v. City of New York, 45 N.Y.2d 683, 686 (1978).
4 Here, the district court determined that “[because] the Supply Agreement is a requirements
5 contract, INEOS is entitled only to damages that correspond to its actual requirements.” Since
6 INEOS, at the times relevant to Dow’s breach, was able to cover with tolling agreements its
7 requirements beyond the 277 million pounds it could take from Dow under the Supply Agreement,
8 and because INEOS’s costs under those tolling agreements were less than its costs would have been
9 under the Supply Agreement, the district court found that INEOS was entitled to only nominal
10 damages.
11 INEOS now challenges this determination by contending that it was entitled to damages
12 under New York U.C.C. § 2-713 regardless of whether it required or could have accepted delivery
13 of the EO. That is, INEOS asserts entitlement to damages for all of the EO that Dow would have
14 been required to “reserve” for INEOS—without regard to its requirements—under Article 5.1(e) if
15 Dow had not breached and had INEOS accepted an offer to share in financing. We reject this
16 argument and agree with the district court that the purpose of the Supply Agreement, including
17 Article 5.1(e), is to provide INEOS with EO only up to its requirements. This purpose is reflected
18 in numerous provisions of the contract, including Article 2.1, which states that the “purpose of this
19 Agreement is for [INEOS] to obtain from [Dow] and [Dow] to supply [INEOS] such quantities of
20 EO as are necessary to satisfy [INEOS’s] requirements . . . for use in [INEOS’s] production of
21 products at the [Plaquemine Facility].” More specifically, various provisions of Article 5 refer to
22 INEOS’s requirements and there is nothing in the text of the Supply Agreement from which we
9
1 could conclude that Article 5.1(e), unlike the rest of the Agreement, conveys upon INEOS an ability
2 to demand from Dow EO in excess of its requirements.
3 With this in mind, we affirm the district court’s award of nominal damages for Dow’s breach.
4 Under New York U.C.C. § 2-306, governing requirements contracts, a contract term that measures
5 quantity by the requirements of the buyer “means such actual . . . requirements as may occur in good
6 faith.” N.Y. U.C.C. § 2-306(1). Here, since the Supply Agreement provides that INEOS is entitled
7 to take from Dow only the EO it requires for production of EOA at its Plaquemine facility, INEOS’s
8 good faith requirements cannot exceed the amount it is able to use at its Plaquemine facility. Given
9 the testimony presented to the district court at trial, we find no clear error in the district court’s
10 conclusion that even had Dow performed under Article 5.1(e), INEOS “failed to prove that it would
11 have been able to take up additional capacity in any of the relevant years beginning in 2004” beyond
12 what it obtained from Dow under the Supply Agreement and what it was able to cover with lower-
13 cost tolling agreements. Therefore, because INEOS either obtained from Dow or obtained at a lower
14 cost from other sources all of the EO it required to produce EOA at the Plaquemine facility during
15 the period relevant to this action, INEOS has not met its burden of showing that it suffered
16 compensable damages as a result of Dow’s breach. See id. § 2-712(2) (explaining that a “buyer may
17 recover from the seller as damages the difference between the cost of cover and the contract price”);
18 id. § 2-713(1) (“[T]he measure of damages for non-delivery or repudiation by the seller is the
19 difference between the market price at the time when the buyer learned of the breach and the contract
20 price.”).
21 Because we affirm the district court for the reasons stated herein—including its determination
22 that the Glycol II Project was a capacity expansion under Article 5.1(e) and its award of nominal
10
1 damages—we need not reach the question briefed by INEOS whether the district court correctly
2 calculated the extent of the EO plant expansion. We have considered the remainder of the arguments
3 presented in this case and have determined that they do not affect our conclusions here.
4 For the foregoing reasons, the judgment of the district court are hereby AFFIRMED.
5
6
7
8 FOR THE COURT:
9 Catherine O’Hagan Wolfe, Clerk
10
11
11