The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge
MEMORANDUM OPINION AND ORDER*fn1
INEOS Polymers Inc. ("INEOS") has brought this diversity-based lawsuit against BASF Aktiengesellschaft ("German BASF") and its subsidiary BASF Catalysts LLC ("Domestic BASF"),*fn2 charging the breach of two provisions of the 1992 Catalyst Supply Agreement ("Agreement") that was originally entered into between Amoco Chemical Company ("Amoco") and Catalyst Resources, Inc. ("CRI"). This memorandum opinion and order dispatches INEOS' lawsuit on Rule 12(b)(6) grounds that are revealed by its own pleading and are spelled out hereafter.
Although the following observation is really rendered parenthetical by the conclusion and result reached here, it is worth noting that this Court has been troubled from the outset as to just how INEOS' attempted invocation of the right of first refusal spelled out in Agreement Art. 17.A*fn3 could work, which forms the principal gravamen of INEOS' Second Amended Complaint ("SAC").*fn4 This is Art. 17.A:
During the term of this Agreement, neither CRI nor Phillips, which indirectly wholly owns CRI, shall sell, transfer, assign, grant any option with respect to, merge, or otherwise dispose of any of the ownership or control of CRI, or any part of the Plant or of the Plant Site, or allow any of the foregoing to occur unless: (i) CRI or Phillips has received a bona fide arm's-length offer to transfer the entire ownership or control of CRI, or to transfer the ownership or control of certain assets of CRI, which assets include but are not limited to the entirety of the Plant and the Plant Site, to such party or parties; (ii) CRI or Phillips has determined that it is willing to accept such offer; (iii) CRI or Phillips has notified Amoco, in writing, of the terms and conditions of such offer; (iv) CRI or Phillips has first afforded Amoco the option to buy all of CRI or to buy all of the certain assets of CRI, which assets include but are not limited to the entirety of the Plant and the Plant Site, whichever is applicable, on terms and conditions no less favorable to Amoco than those contained in the offer; and (v) Amoco does not exercise its option to buy all of CRI or to buy all of the certain assets, which assets include but are not limited to the entirety of the Plant and the Plant Site, whichever is applicable, on such terms and conditions within ninety (90) days of receipt of the written notification referred to in (iii) above.
Here BASF's acquisition of what had originally been the CRI position in the Agreement came via a hostile takeover that originated in a tender offer but that, after rejection by the Board of the target company, resulted in a Merger Agreement (SAC ¶38). Because that transaction, rather than a sale of assets or a share purchase, does not comfortably fit into the language of the option spelled out in Art. 17.A (just how does a merger transaction get translated into "terms and conditions...no less favorable...than those contained in the offer"?), INEOS' counsel seem to have performed a sleight of hand by casting its SAC Prayer for Relief in the quite different terms of a failure to "afford INEOS Polymers the option to buy the CRI business at its fair market value." But the resolution of that puzzling issue would go to the ultimate merits, which cannot and need not be reached for the reasons explained hereafter.
At the outset of the issues that are before this Court, it grants INEOS' most recent motion, in which it seeks leave to file
(a) its Reply in Support of Its Motion for Reconsideration and
(b) the SAC. Although INEOS' argument in support of that motion is flawed in some respects (see, e.g., its Mem. 3 n.1 mischaracterization of the holding in Publishers Res., Inc. v. Walker-Davis Publishers, Inc., 762 F.2d 557, 561 (7th Cir. 1983), which BASF had cited in opposition to the INEOS motion), this Court prefers to meet INEOS' more deeply flawed analysis of the substantive issues head on.
To review the bidding somewhat, INEOS entered the picture more than 13 years after the Agreement was originally entered into between Amoco and CRI (Opinion I at 3 quotes from AC ¶¶6 and 12, INEOS' own statement of the sequence of events that led to INEOS' involvement, events that are elaborated on in SAC ¶¶24-30). For present purposes the critical--indeed the controlling--fact that emanates from what Opinion I at 4 summarized as "several mesne transfers" is that INEOS is indisputably not an "entity owned 50 percent (50%) or more, directly or indirectly, by Amoco Corporation"--the only permitted type of assignee under Art. 19.A, which is set out in full in Opinion I at 2.
That vital deficiency exposes the core of the most fundamental--the truly conceptual--flaw in INEOS' argument by which it seeks to preserve its lawsuit. What its counsel have forgotten--or perhaps more likely have preferred to ignore--is that this action deals with a contract--a universe in which the contracting parties have set out defined relationships and boundaries. Whenever a court construes a contract, it is constrained by the parties' self-defined boundaries--except, of course, in the comparatively infrequent cases in which those self-defined boundaries are not respected because, for example, a contractual provision is held to be contrary to public policy.
Here INEOS' counsel have adduced a group of cases that expound some general rules for construing contractual clauses that limit the assignment of the contracts at issue in those cases--remember that "assignment" is really a shorthand term for defining the parties that can or cannot succeed to the rights and duties of the original contracting parties. But here original parties Amoco and CRI were not content simply to frame the restrictions in general terms. Instead the Agreement carefully limited the universe of entities that could permissibly succeed to the rights and duties of the respective parties. As to Amoco, it has already been said that Art.19.A permitted assignment without consent only to an entity in which it had at least a 50% ownership interest.*fn5 On the other side of the coin, Art. 19.A barred any assignment by CRIS other than to any other wholly-owned subsidiary of Phillips Petroleum Company.
What cannot be gainsaid is that through those restrictions the parties were locked together in their relationship, with neither having the unfettered right to foist some unrelated party on the other without the other's consent. And that narrow universe of permitted assignments was specific on both sides of the deal--in particular, no one could succeed to Amoco's position under the limitations expressly embodied in Art. 19.A unless the putative assignee was "any entity owned 50% or more, directly or indirectly, by Amoco Corporation." INEOS fails that test.
It should be noted particularly that the Art. 19.A constraints speak in terms of percentages of ownership, a concept that involves a change in corporate control. It approaches the height of irony that SAC ¶9 speaks of the execution of a May 30, 2006 Merger Agreement as having "resulted in a de facto 'change of control' of Engelhard for purposes of Art. 17,"*fn6 while INEOS' counsel (who drafted the SAC) fail utterly to recognize the applicability of any comparable de facto changes as impacting the proper construction of Art. 19.A. In that regard INEOS' counsel should have been clued in to the total inapplicability of the caselaw that they cite, which says simply that contractual limitations on assignment do not forbid mere changes in control of a contracting party, as when another party or group acquires stock in that contracting party. Instead any fair reading of Art. 17.A contrasts sharply with that generality, for it specifies that no such change could pass muster unless it fit within the narrower boundaries of that provision.
All of that then defines the judicial role in dealing with the meaning and application of contractual constraints that the parties themselves have established at the outset of their relationship. And that is not a function of the complexity or lack of complexity in the manner in which the relationships moved from their original posture to the present situation--merely a red herring to which a substantial part of INEOS' most recent motion for reconsideration devotes itself. This Court's Opinion I reference to "mesne transfers" was purely descriptive, not a factor that controlled (or even impacted) the decision. For purposes of defining the current relationship between the litigants and whether it does or does not run afoul of the contractual restriction, the situation is no different from what it would have been if the shift ...