W& Newco LLC v. Agilent Technologies, Inc., 011121 RISUP, PC-2020-01539

Docket NºC. A. PC-2020-01539
Opinion JudgeSTERN, J.
Party NameW&J NEWCO, LLC Plaintiff, v. AGILENT TECHNOLOGIES, INC. and ULTRESS REALTY, LLC Defendants.
AttorneyFor Plaintiff: William M. Russo, Esq., John A. Dorsey, Esq. For Defendant: John F. Kelleher, Esq. Giovanni La Terra Bellina, Esq.
Case DateJanuary 11, 2021
CourtSuperior Court of Rhode Island

W&J NEWCO, LLC Plaintiff,

v.

AGILENT TECHNOLOGIES, INC. and ULTRESS REALTY, LLC Defendants.

C. A. No. PC-2020-01539

Superior Court of Rhode Island, Providence

January 11, 2021

For Plaintiff: William M. Russo, Esq., John A. Dorsey, Esq.

For Defendant: John F. Kelleher, Esq. Giovanni La Terra Bellina, Esq.

DECISION

STERN, J.

Before the Court is Plaintiff W&J Newco, LLC's Motion for Summary Judgment on its claims against Defendants Agilent Technologies, Inc. and Ultress Realty, LLC. Defendant Agilent Technologies, Inc. opposes this motion. Jurisdiction is pursuant to G.L. 1956 §§ 8-2-13 and 8-2-14.

I

Facts and Travel

On May 25, 2018, Ultra Scientific, Inc. (Ultra) and Defendant, Agilent Technologies, Inc. (Agilent), entered into an Asset Purchase Agreement (APA). (Pl. Mem. Supp. 1 (Oct. 20, 2020) (Pl. Mem.); see also Pl. Mem., Ex. A.) Pursuant to the terms of the APA, Ultra reformed as W&J Newco, LLC (W&J), the named Plaintiff in this action. (Aff. John E. Russo ¶ 5.) Simultaneously with execution of the APA, Agilent entered into a lease agreement with Defendant, Ultress Realty, LLC (Ultress), to occupy the premises previously occupied by Ultra, located at 250 Smith Street, North Kingstown, Rhode Island (Property). (Pl. Mem., Ex. B; Def. Obj., Ex. B (Nov. 24, 2020).)

On May 24, 2018, a day prior to execution of the APA, Ultra received a State Fire Marshal's Inspection Report that cited sixteen fire code "deficiencies found during [a] 02-06-2018 inspection of [the Property]," which required correction in order to comply with the Rhode Island State Fire Safety Code. (Pl. Mem., at 1-2; Pl. Mem., Ex. C, at 1; Def. Obj., Ex. B.) Ultra resolved five of the violations, but eleven violations remained as of the date of the execution of the APA.1(Pl. Mem. at 1-2.) On June 7, 2018, Monica Bourgeois, an authorized representative for Ultra, filed an Application for Variance with the Fire Safety Code Board of Appeal and Review (Board) for the remaining eleven fire code violations. (Pl. Mem., Ex. C, at 1.)

Prior to entering into the APA, Agilent conducted due diligence relative to the condition of the Property and came up with a preliminary "compliance plan" (Plan) that was estimated to cost approximately $2.4 to $2.7 million. (Pl. Mem., Exs. E and F.) The list of items on the Plan were gathered following a brief tour of the Property and prior to Agilent's knowledge of "the identity, depth and scope of all of the health and safety issues which ultimately were learned after the transaction closed." (Decl. Cari Goodrich Supp. Def. Obj. (Decl. Cari Goodrich) ¶¶ 11-12.) Correspondence dated July 18, 2018, two days after closing on the APA, suggests that Ultra mentioned to an employee of Agilent that the State Fire Marshal conducted an investigation and "recommended . . . review [of items], such as fire doors and shelving." (Pl. Mem., Ex. G.) There is no evidence to suggest that Agilent had notice of the Fire Marshal Report or the violations on July 16, 2018, the day the parties closed on the APA. (Def. Obj. at 7.)

On August 21, 2018, the Board conducted a hearing on the Application for Variance. Cari Goodrich and Brian Sullivan, both of Agilent, appeared on behalf of the Applicant, Ultra. (Pl. Mem., Ex. C, at 1.) The Board granted time variances to comply with the fire code violations and to "bring those items into compliance with various provisions of the Rhode Island Fire Code, the Rhode Island Life Safety Code and the code published by the National Fire Protection Association[.]" (Def. Obj. at 7-8.)

Under the APA, $3 million was placed in escrow upon the closing and held for eighteen months for purposes of a claim for indemnification against the Seller, Ultra. (Def. Obj., Ex. A (APA), §§ 10.1, 10.2(c) and Appendix A, Definitions, Escrow Amount.) This Indemnification provision provided that the "Seller shall indemnify, defend and hold harmless [Agilent] . . . [for Losses] . . . incurred . . . [for] any breach of any representation or warranty of Seller[.]" Id. § 10.1. Section 10.3, entitled "Escrow," provided that: "In the event an Indemnified Party wishes to assert a claim for indemnification under this ARTICLE X, Purchaser shall deliver to Seller a Claim Notice, containing a reasonably specific description of the basis and amount of the Losses incurred by the Indemnified Party, with a copy to the Escrow Agent if there is still any portion of the Escrow Amount in the Escrow Account." Id. § 10.3.

Further, Article X, §10.4 of the APA, entitled "Defense of Third Person Claims," stated: "If an Indemnified Party is entitled to indemnification hereunder because of a claim asserted by a third party claimant (a "Third Person Claimant"), Purchaser shall give Seller a notice of claim promptly after such assertion is actually known to Purchaser. Seller shall have the right, upon written notice to Purchaser, and using counsel reasonably satisfactory to Purchaser (and the Indemnified Party, if other than Purchaser), to investigate, secure, contest or settle the claim alleged by such Third Person Claimant (a "Third Person Claim") . . . For the avoidance of doubt, a claim or challenge asserted by a Governmental Entity, including, without limitation, the IRS or the U.S. Department of Commerce, against an Indemnified Party shall be considered a Third Person Claim hereunder." Id. § 10.4.

One day prior to the expiration of the eighteen months, Agilent sent a letter to the Escrow Agent, Citibank, N.A., and copied Ultra, giving notice of a claim for indemnification against the funds held in escrow, in the amount of $2, 832, 700, for the costs and expenses incurred to "remediate the [fire code] violations" set forth in the Fire Marshal's Report, as "contrary to certain representations made by Ultra" in the APA.2 (Def. Obj., Ex. C.)

W&J refused to indemnify Agilent and disputed that Agilent was entitled to indemnification under the APA. On February 17, 2020, W&J filed the instant action and on October 20, 2020 filed a motion for summary judgment. On December 7, 2020, the Court held a hearing on W&J's motion. 3

II

Standard of Review

"Summary judgment is an extreme remedy and should be granted only 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 judgment as [a] matter of law.'" Plunkett v. State, 869 A.2d 1185, 1187 (R.I. 2005) (quoting Wright v. Zielinski, 824 A.2d 494, 497 (R.I. 2003)). "'Only when a review of the admissible evidence viewed in the light most favorable to the nonmoving party reveals no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law, will this Court . . . grant . . . summary judgment.'" National Refrigeration, Inc. v. Standen Contracting Company, Inc., 942 A.2d 968, 971 (R.I. 2008) (quoting Carlson v. Town of Smithfield, 723 A.2d 1129, 1131 (R.I. 1999)). A party opposing "'a motion for summary judgment carries the burden of proving by competent evidence the existence of a disputed material issue of fact and cannot rest on allegations or denials in the pleadings or on conclusions or legal opinions.'" Id. (quoting Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1225 (R.I. 1996)).

III

Analysis

W&J asserts that (1) Agilent's claim for indemnification falls under § 10.4 of the APA, requiring that prompt notice be given to W&J in order to preserve W&J's right to investigate, secure, contest, or settle the claim with the Board and (2) Agilent's improvements were part of a larger construction project that incorporated more than fire code remediation, as evidenced by a letter sent to Ultress.4 In sum, W&J contends that the APA notice was improper and resulted in material prejudice to W&J and that Agilent is not entitled to reimbursement for the improvements; thus, W&J is entitled to judgment as a matter of law.

Agilent contends that genuine issues of material fact remain because it properly gave notice of the claim for indemnification under §§ 10.1 and 10.3 of the APA as the claim is for losses incurred for breach of representations and warranties under § 10.1 and not for a third-party claim under § 10.4. (Def. Obj. at 7-8.) As such, notice needed only to be given before the expiration of the eighteen months. Id. In addition, Agilent contends that the remediation costs of $2.8 million entirely consisted of remediation for the fire code violations because after learning of the fire code violations, "[Agilent] elected to focus its efforts and resources on those items that were needed to make the facility safe and bring it into legal compliance . . . ." Id. at 8; see also Decl. Cari Goodrich ¶ 7. As a result, Agilent claims that notice was proper, it is entitled to indemnification for the full amount of its claim, and W&J is not entitled to judgment as a matter of law.

The success of W&J's motion depends upon an absence of genuine issues concerning (1) whether Agilent's claim falls under § 10.4 of the APA; (2) what notice is required under that provision; and (3) whether Agilent gave proper notice under that provision. If § 10.4 governs, as alleged by W&J, and notice was proper, there must be no genuine issue that Agilent's claim consists of costs and expenses not recoverable under an indemnification provision because the costs and expenses were incurred for a larger improvement project unrelated to the fire code violations.

A

Provision of the APA Governing Agilent's Claim for Indemnification and Notice Requirement

The parties contest which provision governs Agilent's claim for indemnification. Such determination rests on the facts surrounding Agilent's...

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