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BP Amoco Chemical Co. v. Flint Hills Resources

February 23, 2009

BP AMOCO CHEMICAL COMPANY, PLAINTIFF/COUNTER--DEFENDANT,
v.
FLINT HILLS RESOURCES, LLC, DEFENDANT/COUNTER--PLAINTIFF.
FLINT HILLS RESOURCES, LLC, THIRD-PARTY PLAINTIFF,
v.
BP CORPORATION NORTH AMERICA INC., DEFENDANT.



The opinion of the court was delivered by: Amy J. St. Eve United States District Court Judge

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge

Plaintiff/Counter-Defendant BP Amoco Chemical Company ("BP Amoco") filed suit seeking a declaration that it had not breached a contract with Defendant/Counter-Plaintiff Flint Hills Resources, LLC ("Flint Hills"). (R. 8-1, Am. Compl.) Flint Hills filed counterclaims against BP Amoco for fraud and breach of contract. (R. 14-3, Answer & Countercls.) Flint Hills also filed a separate action against the guarantor of the contract, BP Corporation North America Inc. ("BP North America"), for breach of contract and fraud. (R. 10-1, 05 C 6795, Flint Hills' Am. Compl.) The cases were consolidated. BP Amoco and BP North America (collectively "BP") have moved for partial summary judgment on Flint Hills' "production capacity" counterclaims. (R. 220-1, Mot. for Partial Summ. J.) For the reasons discussed below, the Court denies BP's Motion for Partial Summary Judgment.

BACKGROUND*fn1

In May 2004, BP Amoco sold a chemical plant located near Joliet, Illinois (the "Joliet Plant") and related assets to Flint Hills, pursuant to an Asset Purchase and Sale Agreement ("PSA"). (R. 223-1, BP's Rule 56.1 Stmt. Facts ¶¶ 3, 5, 25; R. 263-1, Def.'s Rule 56.1 Stmt. Add'l Facts ¶ 1.) The sale price was over $300 million. (R. 223-3, Ex. 1, App. to BP's Rule 56.1 Stmt. Facts, Purchase & Sale Agreement § 5.1, at 60.) In recent years, the Joliet Plant has produced three chemicals: (1) trimellitic anhydride ("TMA"); (2) purified isophthalic acid; and (3) maleic anhydride ("MAN"). (BP's Stmt. Facts ¶ 5.)

The parties engaged in extensive negotiations over the terms of the 131-page PSA. (Id. ¶ 23.) During negotiations, Flint Hills requested that the PSA include a representation as to the Joliet Plant's production capacity for each of the three chemicals it produces. (Id.) Flint Hills initially asked BP to guarantee the "effective capacity" numbers included in the Confidential Information Memorandum ("CIM") which BP distributed as a marketing document to prospective buyers, including Flint Hills. (Id. ¶¶ 13, 23.) BP refused to do so because, among other reasons, the Joliet Plant's effective capacity after the sale would depend on Flint Hills' ability to operate the Joliet Plant's production units in an efficient manner similar to that of BP Amoco, which BP could not guarantee. (Id. ¶ 23.) Instead, the parties discussed whether BP would guarantee the "nameplate capacity" of the production units given in the CIM. (Id. ¶ 24.) The CIM defined "nameplate capacity" to mean "annualized maximum demonstrated sustainable production." (R. 223-5, Ex. 2, App. to BP's Stmt. Facts, Descriptive Mem. at 30.) One way nameplate capacity differs from effective capacity is that nameplate capacity does not account for planned or unplanned downtime. (BP's Stmt. Facts ¶ 24.)

The production capacity representation contained in Section 7.1(d)(ii) of the PSA states: Seller represents and warrants to Buyer, as of the date of this Agreement, and as of the Closing, as follows: The annualized maximum demonstrated sustainable production of the TMA, purified isophthalic acid and MAN production units at the Joliet Plant are 71,000 metric tons, 170,000 metric tons, and 51,000 metric tons,*fn2 respectively, with the product produced meeting Seller's standard specifications therefor, recognizing that such demonstrated capacity does not take into account planned or unplanned downtime. (BP's Stmt. Facts ¶ 26.) The PSA contains no other statements regarding capacity. (Id.) The PSA does not define the phrase "annualized maximum demonstrated sustainable production" ("AMDSP") or any of the individual words in that phrase. (Id.) Similarly, the PSA does not specify how long a rate must be achieved to be deemed "demonstrated" or "sustainable." (Id.)

BP now seeks partial summary judgment on Flint Hills' breach of contract and fraud claims arising out of the PSA's production capacity representation. The central issue underlying both claims is whether BP accurately represented the production capacity rates. That determination depends, in part, on the interpretation of the capacity representation.

SUMMARY JUDGMENT STANDARD

Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed. 2d 202 (1986). In determining summary judgment motions, "facts must be viewed in the light most favorable to the nonmoving party only if there is a 'genuine' dispute as to those facts." Scott v. Harris, 550 U.S. 372, ---, 127 S.Ct. 1769, 1776, 167 L.Ed. 2d 686 (2007). The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed. 2d 265 (1986). After "a properly supported motion for summary judgment is made, the adverse party 'must set forth specific facts showing that there is a genuine issue for trial.'" Anderson, 477 U.S. at 255 (quoting Fed. R. Civ. P. 56(e)). "On summary judgment a court may not make credibility determinations, weigh the evidence, or decide which inferences to draw from the facts; these are jobs for a factfinder." Id.; Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003).

ANALYSIS

BP seeks partial summary judgment on Flint Hills' breach of contract and fraud claims stemming from Section 7.1(d)(ii) of the PSA-the "production capacity" representation. The Court first will address the disputed meaning of the representation. The Court will then turn to whether Flint Hills has presented sufficient evidence to create genuine issues of material fact on its breach of contract and fraud claims. Summary judgment is inappropriate if the evidence would permit a jury to find in favor of the nonmoving party. See Springer v. Durflinger, 518 F.3d 479, 486 (7th Cir. 2008).

I. Intended Meaning of the Production Capacity Representation

A. Contract Interpretation Law

Under Illinois law, which controls here under the PSA's choice-of-law clause (BP's Ex. 1, PSA § 16.14, at 70), the determination of whether a contract is ambiguous, as well as the construction of an unambiguous contract, are questions of law for the Court. Gallagher v. Lenart, 226 Ill. 2d 208, 219, 314 Ill. Dec. 133, 140, 874 N.E.2d 43, 50 (Ill. 2007); Cent. Ill. Light Co. v. Home Ins. Co., 213 Ill. 2d 141, 153-54, 290 Ill. Dec. 155, 163, 821 N.E.2d 206, 214 (Ill. 2004). "The primary objective in construing a contract is to give effect to the intent of the parties." Gallagher, 874 Ill. 2d at 232, 314 Ill. Dec. at 148, 874 N.E.2d at 58. Under Illinois law, contracts are interpreted according to the "four corners" rule: "'[a]n agreement, when reduced to writing, must be presumed to speak the intention of the parties who signed it. It speaks for itself, and the intention with which it was executed must be determined by the language used. It is not to be changed by extrinsic evidence.'" Camico Mut. Ins. Co. v. Citizens Bank, 474 F.3d 989, 992-93 (7th Cir. 2007) (quoting Davis v. G.N. Mortgage Corp., 396 F.3d 869, 878 (7th Cir. 2005) (citations and internal quotation marks omitted)). In applying this rule, courts first look to the language of the contract alone. Camico, 474 F.3d at 993 (citing Air Safety, Inc. v. Teachers Realty Corp., 185 Ill. 2d 457, 462, 236 Ill. Dec. 8, 10, 706 N.E.2d 882, 884 (Ill. 1999)); Gallagher, 226 Ill. 2d at 233, 314 Ill. Dec. at 148, 874 N.E.2d at 58 ("A court must initially look to the language of a contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties' intent."). Under Illinois law, contract terms are interpreted according to their plain meaning unless otherwise defined. Utility Audit, Inc. v. Horace Mann Serv. Corp., 383 F.3d 683, 687 (7th Cir. 2004). "Although words should be given their ordinary and accepted meaning, they must also be viewed in context, and the contract must be considered as a whole in order to ascertain the parties' intent." Id.; Gallagher, 226 Ill. 2d at 233, 314 Ill. Dec. at 148, 874 N.E.2d at 58. When a contract contains an integration clause, extrinsic evidence may not be used to create ambiguity in an otherwise unambiguous contract. Air Safety, 185 Ill. 2d at 465-66, 236 Ill. Dec. at 11-12, 706 N.E.2d at 885-86.

If the language of the contract is facially clear and unambiguous, courts interpret the contract as a matter of law without the use of extrinsic evidence. Camico, 474 F.3d at 993; Air Safety, 185 Ill. 2d at 462, 236 Ill. Dec. at 10, 706 N.E.2d at 884. Only if the contract language is ambiguous is extrinsic evidence admissible to aid in resolving the ambiguity and ascertaining the intent of the parties. Camico, 474 F.3d at 993; Gallagher, 226 Ill. 2d at 233, 314 Ill. Dec. at 148, 874 N.E.2d at 58."The fact that parties disagree about the meaning of a contractual provision does not mean the contract is ambiguous." Interim Health Care of N. Ill., Inc. v. Interim Health Care, Inc., 225 F.3d 876, 879 (7th Cir. 2000). A contract provision is ambiguous only if it is susceptible to more than one reasonable interpretation. PPM Fin., Inc. v. Norandal USA, Inc., 392 F.3d 889, 893 (7th Cir. 2004); Interim Health, 225 F.3d at 879; Lapham-Hickey Steel Corp. v. Prot. Mut. Ins. Co., 166 Ill. 2d 520, 529, 211 Ill. Dec. 459, 463, 655 N.E.2d 842, 846 (Ill. 1995). The general rule in Illinois is that when contract language is ambiguous and therefore must be decided on the basis of extrinsic evidence, summary judgment is inappropriate. Cont'l Cas. Co. v. Nw. Nat. Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005); Loyola Acad. v. S&S Roof Maint., Inc., 146 Ill. 2d 263, 272, 166 Ill. Dec. 882, 886, 586 N.E.2d 1211, 1215 (Ill. 1992). An exception to this rule, however, is that when the extrinsic evidence and the inferences to be drawn from that evidence are undisputed, the interpretation of the ambiguous contract is a question of law for the court and summary judgment may be appropriate. Cont'l Cas. Co., 427 F.3d at 1041; William Blair & Co., LLC v. FI Liquidation Corp., 358 Ill. App. 3d 324, 341, 294 Ill. Dec. 348, 363, 830 N.E.2d 760, 775 (Ill. App. Ct. 2005).

B. Section 7.1(d)(ii) Is Ambiguous on Its Face

The parties dispute the meaning of several aspects of the production capacity representation. BP argues that the production capacity representation in Section 7.1(d)(ii) of the PSA is wholly unambiguous and supports its interpretation. (R. 222-1, BP's Br. in Supp. of Partial Summ. J. at 11.) Thus, BP would have the Court interpret the language without resort to extrinsic evidence. Flint Hills, however, generally contends that the provision is ambiguous and that extrinsic evidence is required to ascertain its intended meaning.*fn3 (R. 262-1, Def.'s Resp. Br. at 11-12, 14.) Flint Hills offers its own "reasonable" interpretation of the PSA's plain language in support of its position. (Id. at 12.) Because the PSA contains an integration clause (BP's Ex. 1, PSA § 16.7, at 67), the Court determines whether the production capacity representation is ambiguous from the contract itself without reference to extrinsic evidence. Air Safety, 185 Ill. 2d at 465-66, 236 Ill. Dec. at 11-12, 706 N.E.2d at 885-86.

1. Simultaneously Versus Individually Operating Units

Most significantly, the parties disagree as to whether the PSA's production capacity representation warrants the capacity of each production unit running simultaneously or individually. Flint Hills argues that the language refers to all three units operating simultaneously. (R. 262-1 at 13.) BP, on the other hand, contends that it refers to each unit operating one at a time. (R. 222-1 at 14; R. 293-1, BP's Resp. to Def.'s Rule 56.1 Stmt. Add'l Facts ¶ 19 ("Nothing in the PSA represents simultaneous production capacity, much less simultaneous production at maximum rates.").) Section 7.1(d)(ii) of the PSA warrants that the "annualized maximum demonstrated sustainable production of the TMA, purified isophthalic acid and MAN production units at the Joliet Plant are 71,000 metric tons, 170,000 metric tons, and 51,000 metric tons, respectively." Looking solely at its language, the capacity representation is ambiguous as to whether the parties intended the representation to refer to the simultaneous or individual production capacity of the three units.

Flint Hills argues that the capacity representation warrants each production unit's annualized maximum demonstrated sustainable production capacity when all three units are operating simultaneously at maximum capacity.*fn4 (R. 262-1 at 13.) This is a reasonable construction of the provision. Flint Hills' reading is buoyed by the fact that the representation for all three units is made in a single sentence and is joined by the conjunctive "and." BP, on the other hand, argues that the representation cannot reasonably be interpreted as warranting the simultaneous AMDSP capacity of the three production units. (R. 222-1 at 14.) BP notes that the provision does not explicitly state that the rates are for "simultaneous" production or production "at the same time." (Id.; R. 292-1, BP's Reply Br. at 14.) BP argues that Flint Hills' version impermissibly adds terms on which the parties did not agree. (R. 222-1 at 14.) Yet, neither does the provision explicitly state what BP claims, for it does not state that the represented rates are for each unit running "one at a time" or "alone." See Bourke v. Dun & Bradstreet Corp., 159 F.3d 1032, 1038-39 (7th Cir. 1998). Nevertheless, the plain language is also reasonably susceptible to BP's interpretation. BP further contends that the word "respectively" supports its interpretation. (R. 222-1 at 14; R. 292-1 at 14-15.) The American Heritage Dictionary defines "respectively" as "singly in the order designated or mentioned." American Heritage Dictionary, Office Ed. 712 (4th ed. 2001). BP argues that the "parties' agreement to use the word 'respectively' [] confirms that each production unit's AMDSP is given 'singly'----not on a simultaneous basis." (R. 292-1 at 15.) In arguing against Flint Hills' version, BP contends that the plain and ordinary meaning of "and" is as a conjunction to join elements of a sentence and that "the average person would not understand the word 'and' without more to mean 'simultaneous' or 'at the same time.'" (Id. at 14.) For like reasons, the cited definition and the plain and ordinary meaning of "respectively"-to indicate that an item in a later series refers only, or singly, to the item in the ...


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