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BP Amoco Chemical Co. v. Flint Hills Resources

May 20, 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, District Court Judge

MEMORANDUM OPINION AND ORDER

Plaintiff/Counter-Defendant BP Amoco Chemical Company ("BP Amoco") sued Defendant/Counter-Plaintiff Flint Hills Resources, LLC ("Flint Hills") seeking a declaratory judgment that it had not breached the Asset Purchase and Sale Agreement ("PSA") pursuant to which it had sold a chemical manufacturing plant (the "Joliet Plant") and related assets to 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 asserts breach of contract claims against the guarantor of the PSA, BP Corporation North America Inc. ("BP North America"). (R. 103-1, Flint Hills' Third-Party Compl.) In the present motion, BP Amoco and BP North America (collectively, "BP") seek partial summary judgment on certain environmental compliance claims. (R. 334-1, BP's Mot. for Partial Summ. J.) For the reasons discussed below, the Court grants in part and denies in part BP's summary judgment motion. Specifically, the Court grants BP's summary judgment motion as to Flint Hills' Claims 7, 23, 43, 29, 46, 51, and the PD-700 Low Pressure Absorber in Claim 80. The Court also grants BP's summary judgment motion as to Flint Hills' fraud claims based on Claims 4, 22, and 42.

BACKGROUND

I. Northern District of Illinois Local Rule 56.1

When determining summary judgment motions, the Court derives the background facts from the parties' Local Rule 56.1 statements. Specifically, Local Rule 56.1 assists the Court by "organizing the evidence, identifying undisputed facts, and demonstrating precisely how each side propose[s] to prove a disputed fact with admissible evidence." Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 527 (7th Cir. 2000). Local Rule 56.1(a)(3) requires the moving party to provide "a statement of material facts as to which the moving party contends there is no genuine issue." Cracco v. Vitran Exp., Inc., 559 F.3d 625, 632 (7th Cir. 2009). "The opposing party is required to file 'a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon." Id. (citing N.D. Ill. R. 56.1(b)(3)(B)). In addition, Local Rule 56.1(b)(3)(C) requires the nonmoving party to present a separate statement of additional facts that require the denial of summary judgment. See Ciomber v. Cooperative Plus, Inc., 527 F.3d 635, 643-44 (7th Cir. 2008). Pursuant to the Local Rules, the Court will not consider any additional facts proposed in the nonmoving party's Local Rule 56.1(b)(3)(B) Response, but instead must rely on the non-movant's Local Rule 56.1(b)(3)(C) Statement of Additional Facts when making factual determinations. See id. at 643; Cichon v. Exelon Generation Co., L.L.C., 401 F.3d 803, 809 (7th Cir. 2005) ("Local Rule 56.1requires specifically that a litigant seeking to oppose a motion for summary judgment file a response that contains a separate 'statement ... of any additional facts that require the denial of summary judgment.'") (emphasis in original).

Moreover, the purpose of Rule 56.1 statements is to identify the relevant evidence supporting the material facts, not to make factual or legal arguments, see Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006), and thus the Court will not address the parties' arguments made in their Rule 56.1 statements and responses. Also, the requirements for responses under Local Rule 56.1 are "not satisfied by evasive denials that do not fairly meet the substance of the material facts asserted." Bordelon, 233 F.3d at 528. Further, the Court may disregard statements and responses that do not properly cite to the record. See Cichon, 401 F.3d at 809-10. Finally, "hearsay is inadmissible in summary judgment proceedings to the same extent that it is inadmissible in a trial." Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir. 1997). With these standards in mind, the Court turns to the relevant facts of the case.

II. Relevant Facts

In light of the three summary judgment rulings already issued, the Court assumes the parties' familiarity with the Court's prior decisions and the facts of this case. To recap, in May 2004, BP sold a chemical plant located near Joliet, Illinois, and related assets to Flint Hills pursuant to the PSA. The parties engaged in extensive negotiations over the terms of the PSA, which includes an indemnification clause concerning potential breaches of warranties and representations. After assuming ownership of the Joliet Plant in late May 2004, Flint Hills' employees and contractors began to experience operational problems. During the late fall and early winter of 2004-05, Flint Hills and BP engaged in a series of discussions regarding possible indemnification claims. Those claims include certain environmental compliance claims.

Specifically at issue in the present motion are Flint Hills' allegations that BP committed fraud and breached the parties' PSA with respect to certain PSA representations that relate to environmental compliance at the Joliet Plant. In its motion for partial summary judgment, BP maintains that Flint Hills has failed to create a genuine issue of material fact for trial that BP breached its representations as to twelve of these environmental compliance claims. In addition, BP contends that three of Flint Hills' fraud claims based on its environmental compliance also fail as a matter of law. The Court thus turns to a brief overview of the facts and PSA provisions pertaining to the Joliet Plant's environmental compliance.

The Joliet Plant's equipment includes numerous pollution control devices to comply with air pollution regulations and permits, including the Joliet Plant's Title V Permit that the Illinois Environmental Protection Agency ("IEPA") issued pursuant to the Clean Air Act. (R. 337-1, BP's Rule 56.1 Stmt. Facts ¶ 4.) The information required in the Title V application to the IEPA includes the identity of the pollutants that are present in the emissions from each particular emissions unit and the quantity of the emissions of that particular pollutant. (R. 447-1, FH's Rule 56.1 Stmt. Add'l Facts ¶ 6.) The Title V Permit at the time of the Joliet Plant's closing date is dated July 18, 2001. (BP's Stmt. Facts ¶ 4.)

In 2003, as part of BP's ongoing review of its chemicals segment, BP decided to divest its Performance Chemicals Business Unit ("PCBU") and sell the Joliet Plant and PCBU. (Id ¶ 13.) BP thus commissioned a third-party environmental consultant, URS Corporation, to prepare an environmental health and safety assessment of the Joliet Plant, including Clean Air Act compliance, for potential buyers of the Joliet Plant. (Id.; FH's Stmt. Add'l Facts ¶ 11.) Flint Hills had access to the URS report and conducted its own due diligence on the environmental compliance status of the Joliet Plant before the closing date of May 28, 2004. (BP's Stmt. Facts ¶¶ 15, 19; FH's Stmt. Add'l Facts ¶ 11.)

Article 7 of the PSA, entitled Representations and Warranties, contains the contract provisions concerning BP's environmental compliance. Article 7.1(j) states in relevant part:

(i) Except as set forth on Schedule 7.1(j)(1)-1, for the period running from January 1, 2004, until Closing, with regard to the Joliet Assets, Seller is in compliance with all Environmental Laws which require reporting of deviations and/or certifications of compliance. Except as set forth on Schedule 7.1(j)(i)-2, as of the Closing, with regard to the Joliet Assets, to Seller's Knowledge, Seller is in material compliance with all Environmental Laws that are not subject to deviation reporting or compliance certification requirements.

(ii) Except as set forth in Schedule 7.1(j)(ii), to Seller's Knowledge, with regard to the Joliet Assets, there are no facts or circumstances which would likely lead to a violation of or noncompliance with an Environmental Law after Closing.

(iii) Seller has filed all notices, reports and certifications, including certifications of compliance, required under all Environmental Laws and Environmental Permits with regard to the Joliet Assets. All such notices, reports and certifications are complete and accurate and were conducted after a reasonable inquiry into the circumstances related to the notice of certification.

(R. 14-3, Ex. A, PSA § 7.1(j)(i), (ii), (iii); BP's Stmt. Facts ¶ 19.)

In addition, Section 7.1(j)(viii)(B) of the PSA states:

Except as provided in Schedule 7.1(j)(viii)-2, all environmental control equipment necessary for the operation of the Business as it is currently operated by Seller, is installed at the Joliet Plant, is in substantial compliance with Environmental Laws in effect on or prior to the Closing Date, and is operating in a manner sufficient to achieve and maintain such compliance; .... (PSA § 7.1(j)(viii)(B); BP's Stmt. Facts ¶ 19.)

Under the definitions section of Article 1 of the PSA, "Environmental Laws" states in pertinent part:

"Environmental Laws" means any and all Laws, including notices of violation or noncompliance, rules, permits, licenses, standards or requirements (including decrees, judicial decisions, judgments, injunctions, and administrative orders issued or approved thereunder) together with all related amendments and similar statutes and implementing regulations and all common law, pertaining to or regulating pollution, environmental protection, health or safety of persons, pipeline safety, natural resource damages, conservation of resources, wildlife, waste management, the use, storage, generation, production, treatment, emission, Remediation, design, formulation, packaging or any other activity related to Hazardous Materials, or any other environmental matter, including: . the Clean Air Act, as amended, 42 U.S.C. Section 7401 et. seq. .... (FH's Stmt. Add'l Facts ¶ 1.)

The IEPA issued Flint Hills a Violation Notice dated April 13, 2006, for various violations of the applicable environmental laws and the Joliet Plant's Title V permit. (BP's Stmt. Facts ¶ 72; FH's Stmt. Add'l Facts ¶ 37.) In March 2008, the IEPA filed a Complaint for Injunctive Relief and Civil Penalties in the Circuit Court of Will County, Illinois against Flint Hills. (BP's Stmt. Facts ¶ 72; FH's Ex. 75, IEPA Compl.) Based on BP's alleged breach of its environmental representations, Flint Hills also brings a separate claim for indemnification against BP concerning the IEPA's civil enforcement action. The indemnification section of the PSA provides:

To the fullest extent permitted by Law, Seller, in accordance with the terms of this Article 13, hereby agrees to Indemnify Buyer, any Affiliates of Buyer, and their respective shareholders, members, partners, officers, directors, managers, employees, agents, permitted assigns and representatives (collectively, the "Buyer Indemnified Parties"), from and against, any and all Losses incurred or required to be paid by any Buyer Indemnified Party (Losses so incurred or required to be paid collectively referred to as "Buyer Losses"), regardless of whether based in whole or in part on Law, strict liability, contract, willful or intentional misconduct, or ordinary or gross negligence or otherwise (but excluding any Buyer Losses to the extent caused by Buyer Indemnified Parties' willful or intentional misconduct, ordinary or gross negligence, except to the extent provided for in Section 13.4(l)), which arise out of, relate to or result from any of the following:

(a) any breach of any warranty or representation of Seller contained in Section 7.1 or Section 16.1 (each such breach of warranty a "Seller Warranty Breach"). (FH's Stmt. Add'l Facts ¶ 2; PSA § 13.2(a).)

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Estate of Suskovich v. Anthem Health Plans of Va., Inc., 553 F.3d 559, 563 (7th Cir. 2009) (quoting 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, 2510, 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, 2552, 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 (quotation omitted); see also Fed.R.Civ.P. 56(e)(2) (requiring adverse party to "set out specific facts").

ANALYSIS

I. Environmental Law Standards

Before turning to BP's specific challenges to the environmental compliance claims at issue, the Court first addresses the Clean Air Act ("CAA") provisions and standards relevant to the parties' arguments. The CAA, "first enacted in 1970 and extensively revised in 1977 and 1990, establishes a complex and comprehensive regulatory system to reduce air pollution nationwide." Sierra Club v. E.P.A., 311 F.3d 853, 854 (7th Cir. 2002). In 1990, Congress added Title V to the CAA creating a national permitting program. See Citizens Against Ruining the Env't v. E.P.A., 535 F.3d 670, 672 (7th Cir. 2008); see also Clean Air Act Amendments of 1990, Pub.L. No. 101-549, §§ 501-507, 104 Stat. 2399, 2635-48 (codified at 42 U.S.C. §§ 7661-7661f). Under this national permitting program, "each permit issued must include all emissions limitations and standards applicable to the source, as well as provisions concerning inspection, monitoring, compliance certification, and reporting requirements." Clean Air Implementation Project v. E.P.A., 150 F.3d 1200, 1208 (D.C. Cir. 1998). "Because Congress found that the primary responsibility for preventing and controlling air pollution fell to states and local governments, Title V required each state to develop and implement its own permitting program which at least minimally met the regulations promulgated by the EPA." Sierra Club v. Johnson, 500 F.Supp.2d 936, 938 (N.D. Ill. 2007). The State of Illinois implements its Title V program through the IEPA pursuant to the Illinois Clean Air Act Permit Program ("CAAPP"). See 415 ILCS 5/39.5; see also Citizens Against Ruining the Env't, 535 F.3d at 672 ("In Illinois, a polluting source must apply to the IEPA for an operating permit.").

Moreover, "Title V does not impose additional requirements on sources but rather consolidates all applicable requirements in a single document to facilitate compliance." Citizens Against Ruining the Env't, 535 F.3d at 672 (citing 42 U.S.C. § 7661a(a)). Specifically, "[t]he permit is crucial to the implementation of the Act: it contains, in a single, comprehensive set of documents, all CAA requirements relevant to the particular polluting source." Virginia v. Browner, 80 F.3d 869, 873 (4th Cir. 1996). In sum, Title V's permitting scheme is intended to incorporate the CAA's requirements, including the state implementation plan ("SIP") requirements, that are applicable to the specific polluting source. See Romoland Sch. Dist. v. Inland Empire Energy Ctr., LLC, 548 F.3d 738, 742 (9th Cir. 2008) (citing S.Rep. No. 101-228, at 350 (1989)); see also Sierra Club v. Georgia Power Co., 443 F.3d 1346, 1356 (11th Cir. 2006) ("[T]he permit merely consolidates in a single document all of the clean air requirements already applicable to that source.").

"Title V further creates a 'permit shield' for sources, ensuring that compliance with the permit is 'deemed compliance with other applicable provisions' of the CAA." Sierra Club v. E.P.A., 551 F.3d 1019, 1022 (D.C. Cir. 2008) (citing 42 U.S.C. § 7661c(f)). Section 7661c(f), entitled "Permit shield," states in relevant part:

Compliance with a permit issued in accordance with this subchapter shall be deemed compliance with section 7661a of this title. Except as otherwise provided by the Administrator by rule, the permit may also provide that compliance with the permit shall be deemed compliance with other ...


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