Beware Drafters of Purchase Agreements — Unambiguous Terms in Stock Purchase Agreement Assigns Asbestos Liabilities to Purchasers U.S. District Court for the Southern District of Texas, September 12, 2016

Plaintiff Cooper Industries brought a declaratory judgment against Precision Castparts Corp. and Wyman-Gordon Company, for defense and indemnification costs for personal injury asbestos lawsuits, pursuant to a stock purchase agreement between Cooper and Wyman. The plaintiff and defendants both filed summary judgments; the plaintiff’s summary judgment was granted in part, and the defendants’ summary judgment was denied.

Cooper acquired Cameron Iron Works in 1989; in 1994 Wyman purchased the Forged Products business unit from Cooper pursuant to a Stock Purchase Agreement (SPA). In 1995, Cooper transferred the Oil Tools division to Cameron International Corporation pursuant to an Asset Transfer Agreement (ATA).  Later, Cameron Iron Works and Cooper were named in asbestos lawsuits.  Following the SPA, Wyman and Cooper allegedly agreed to split defense and indemnity costs when it was unclear whether the plaintiff worked in the Forged Products or Oil Tools division.  If it was clear, Wyman paid for Forged Products cases and Cooper paid for Oil Products cases; after the ATA, Wyman and Cameron shared costs.  Precision acquired Wyman in 2000.  In 2006, Precision informed Cameron it would no longer contribute to asbestos claims after a $2.2 million settlement in the Sutterfield case.  Cameron then sued Wyman and Precision for their refusal to pay their portion of this settlement.  Cooper and Cameron went through arbitration, and the Texas state court confirmed the arbitration award in January 2015.  After confirmation, Cooper tendered a claim involving a Forged Products employee to Cameron, which was rejected.  Cooper then brought this action and both parties moved for summary judgment.

The court analyzed specific clauses in the SPA between Wyman (Precision) and Cooper, and cited New York law holding that when the terms of a contract are unambiguous, the contract is interpreted by its own language, and the court will not consider extrinsic evidence.  While both parties argued the SPA language was unambiguous, the parties differed in their interpretation of environmental liabilities and regulated materials; their arguments turned on the meaning of “disposed of on,” “discharged into,” and the “environment,” none of which were defined in the SPA.  Defendants cited the SPA and case law in support of their argument that “regulated materials” and “environmental” included asbestos in the workplace environment, such that Cooper retained liability.  However, Cooper also cited case law and definitions contained in CERCLA to support their argument that liability rested with defendants.

Ultimately, the court concluded that the SPA unambiguously assigned asbestos workplace liability injuries to Wyman.  “Under § 5.22(e) [of the SPA], Wyman broadly agreed to indemnify Cooper for ‘any noncompliance of the operations, properties or business activities with any Environmental Law’ and for ‘any liabilities or obligations . . . based upon any Environmental Law, or arising from the disposal of any Regulated Materials.’ In § 5.22(f) Cooper retained the obligation to indemnify Wyman only for ‘Regulated Materials disposed of on, or discharged into the environment’ at the Gulf Metals and Katy Road sites. Under this language, Wyman, not Cooper, is responsible for liabilities and obligations based upon any Environmental Law…”

Cooper also argued the arbitration decision collaterally estopped the defendants from arguing that asbestos liability remained with Cooper; the defendants argued they were not parties to the arbitration and the indemnification obligations were not fully and fairly litigated.  The court found that genuine issues of material fact remained regarding Wyman and Precision’s relationship to Cameron and the Cooper-Cameron arbitration.  Since the defendants provided evidence to raise a factual question as to whether Cameron and precision and Wyman were in privity, summary judgment was denied on this claim.

Read the full decision here.


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