In the spring of 2015, Olin Corporation, through a merger vehicle Blue Cube Spinco (together, the Buyer), purchased certain of Dow Chemical Company’s businesses, including their real estate assets, for more than US$5 billion. When the Buyer went to improve one of the assets it acquired under the deal, a manufacturing facility in Germany (the Building), its application for permits was denied by the German government, which took the position that Dow had registered a pre-closing partition that caused the Building to be in violation of zoning law. The Buyer determined that to cure the code violation, the Buyer would need to demolish part of the Building and reconstruct it in another location.
The Buyer sought indemnification from Dow for its past and ongoing consulting and reconstruction costs, relying on provisions in the parties’ agreements that the Buyer alleged obligated Dow to indemnify it for “any and all” costs produced by the code violation. Dow offered to pay for certain costs that had been incurred, but refused to pay for future costs that had not yet been incurred. The Buyer rejected Dow’s offers and filed suit.
Blue Cube brought two counts against Dow: breach of contract for Dow’s failure to indemnify Blue Cube for “any and all” losses caused by the code violation and a declaratory judgement that Dow must pay for any and all future costs required to remedy the code violation. Dow moved to dismiss both counts under Rule 12(b)(6) for failing to state a claim, alleging that Blue Cube had not properly alleged that the code violation was covered by Dow’s indemnity, that the agreement’s disclaimer barred the Buyer from seeking damages relating to the Building, and that Dow was impermissibly seeking consequential damages that were excluded from indemnity under the parties’ agreements. Dow also moved to dismiss Blue Cube’s second claim for a declaratory judgment under Rule 12(b)(1), arguing that there was no ripe controversy for the court to adjudicate because Count II related to damages the Buyer had not yet incurred.
The court denied Dow’s motion to dismiss as to Count I. The court found that the complaint’s allegations supported a reasonable inference that a code violation exists, that the code violation arguably fell within the terms of Dow’s agreement to indemnify Blue Cube for losses, and that Blue Cube sufficiently alleged conceivable injuries that could be measured by a fact finder. The court further found that the contractual disclaimer relied upon by Dow was ambiguous. The disclaimer stated in part that “all transferred assets are being transferred on an ‘as is,’ ‘where is’ basis and the parties hereto shall each bear their respective economic and legal risks to the extent resulting from . . . any failure to obtain any necessary consents or approvals of any third parties or governmental authorities and . . . any failure to comply with the requirements of any law.” The court held that discovery was needed to determine how the disclaimer was intended to affect indemnifiable losses because it contained an exception for circumstances where it was inconsistent with other provisions, and Blue Cube offered provisions that it reasonably argued would be nullified if the disclaimer swept so broadly.
The court granted Dow’s motion to dismiss as to Count II for declaratory judgment. The court found that while the controversy was ripe, Count II was impermissibly duplicative of the Count I breach of contract claim.
Authored by Ryan M. Philp, David R. Michaeli, and Elizabeth Cochrane.