BP AMOCO CHEMICAL CO. v. FLINT HILLS RESOURCES

• Decision Date: 25 March 2010
• Docket Number: Case No. 05 C 5661.
• Citation: 697 F. Supp.2d 1001
• Parties: BP AMOCO CHEMICAL COMPANY, Plaintiff/Counter-Defendant, v. FLINT HILLS RESOURCES, LLC, Defendant/Counter-Plaintiff.
• Court: U.S. District Court — Northern District of Illinois

697 F. Supp.2d 1001

BP AMOCO CHEMICAL COMPANY, Plaintiff/Counter-Defendant, v. FLINT HILLS RESOURCES, LLC, Defendant/Counter-Plaintiff.

Case No. 05 C 5661.

United States District Court, N.D. Illinois, Eastern Division.

March 25, 2010.

Richard Cartier Godfrey, Drew George Peel, Erica Blaschke Zolner, Hariklia Carrie Karis, Raymond Christopher Heck, Scott William Fowkes, Kirkland & Ellis LLP, Chicago, IL, Douglas G. Haynam, Joseph S. Simpson, Louis E. Tosi, William L. Patberg, Shumaker, Loop & Kendrick LLP, Toledo, OH, for Plaintiff/Counter-Defendant.

James R. Figliulo, Marc S. Porter, Michael Thomas Graham, Ryan P. Stiles, Sara Anne Paguia, Thomas Daniel Warman, Figliulo & Silverman P.C., Susan M. Franzetti, Nijman Franzetti LLP, Chicago, IL, Dean Kuckelman, Wichita, KS, for Defendant/Counter-Plaintiff.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge.

BP Amoco Chemical Company ("BP Amoco") initially filed suit seeking a declaration that it had not breached a contract with Flint Hills Resources, LLC ("Flint Hills"). (R. 8-1, Am. Compl.) Flint Hills filed counterclaims against BP Amoco for fraud and breach of contract.¹ (R. 14-3, Answer & Countercls.) After a nine week trial, a jury returned a verdict against BP Amoco in the amount of $41,688,648. BP Amoco now moves for judgment as a matter of law on the counts that went to trial or, in the alternative, for a new trial. For the reasons discussed below, BP Amoco's motion is denied. Furthermore, BP Amoco's motion to alter or amend the judgment on its declaratory judgment claim is denied.

BACKGROUND

This breach of contract case involves the sale of a chemical plant between two sophisticated business entities. In May 2004, BP Amoco sold certain rights and assets of its Performance Chemicals Business Unit ("PCBU") to Flint Hills for over $300 million pursuant to a contract called the Asset Purchase and Sale Agreement ("PSA"). A chemical plant located outside of Joliet, Illinois (the "Joliet Plant") was one of the assets BP Amoco sold to Flint Hills under the PSA. The parties signed the PSA on March 29, 2004, and Flint Hills assumed ownership of the Joliet Plant on May 28, 2004.

I. The PSA

The parties engaged in lengthy negotiations over the terms of the 131-page PSA, which extensively detailed the agreements between the parties. Two specific representations in the PSA were the focus of this lawsuit: (1) the representation regarding the condition of the Joliet Plant's assets and (2) the representation of the Joliet Plant's production capacity. After Flint Hills took over the Joliet Plant, the evidence at trial revealed, it ran into problems with both the condition of assets and the production capacity at the Joliet Plant.

A. Condition of Assets Representation

Section 7.1 of the PSA represented and warranted the following regarding the condition of assets at the Joliet Plant:

All of the Joliet Plant process units and buildings are structurally sound, and all tangible Assets have been maintained substantially in accordance with normal industry practice, are in substantially good operating condition and repair for their age (taking account of their nature, normal wear and tear and continued repair and replacement in accordance with Seller's past practice)....

This representation and warranty was applicable as of the date of the PSA (March 29, 2004) and the date that the sale of the Joliet Plant closed (May 28, 2004).

B. Production Capacity Representation

The Joliet Plant produced three chemicals: (1) trimellitic anhydride ("TMA"); (2) purified isophthalic acid; and (3) maleic anhydride ("MAN"). These chemicals are used in performance plastics and coatings such as plastic water bottles.

Section 7.1(d)(ii) of the PSA set forth the production capacity representation regarding these chemicals:

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, 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.

The PSA contains no other statements regarding capacity. Although the PSA contains various definitions, it does not define the phrase "annualized maximum demonstrated sustainable production" ("AMDSP") or any of the individual words in that phrase. Similarly, the PSA does not specify how long a rate must be achieved to be deemed "demonstrated" or "sustainable."

C. Other Provisions

The PSA provided that BP Amoco would indemnify Flint Hills under certain conditions for losses incurred that were greater than $75,000. Specifically, Section 13.2 of the PSA — "Indemnification by Seller" — provided:

To the fullest extent permitted by Law, Seller, in accordance with the terms of this Article 13, hereby agrees to Indemnify Buyer ... from and against, any and all Losses incurred or required to be paid by any Buyer Indemnified Party..., 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....

Further, in Section 13.6 of the PSA, the parties agreed that, except for fraud, the remedies set out in Article 13 are the "sole and exclusive remedies" available for claims arising out of the PSA. Section 13.6 of the PSA states:

Except for ... fraud, any claim or cause of action based on, arising out of or relating to this Agreement or Implementing Agreements must be brought by either Buyer or Seller, subject to the applicable provisions, conditions and limitations of this Agreement or Implementing Agreements, whether such claim arises out of contract, tort or otherwise.

* * *

Except for ... fraud, the provisions of Article 13, Section 2.8(b) and Section 8.1(b) are intended to be the sole and exclusive remedies between the parties for the matters covered by such provisions. * * *

SELLER WILL NOT BE LIABLE TO BUYER FOR ANY LOSS OF PROFIT, LOSS OF USE, SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES SUFFERED BY BUYER, HOWSOEVER ARISING UNDER THIS AGREEMENT, WHETHER BASED ON BREACH OF WARRANTY, BREACH OF AGREEMENT, STATUTE, STRICT LIABILITY OR OTHERWISE, INCLUDING WITHOUT LIMITATION NEGLIGENCE OF SELLER.... EACH PARTY AGREES THAT IT WILL NOT SEEK AND HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO OR FOR PUNITIVE OR EXEMPLARY DAMAGES AS TO ANY DIRECT CLAIM ARISING IN CONNECTION WITH THIS AGREEMENT.

II. Problems at the Joliet Plant

Flint Hills encountered problems with both the assets at the Joliet Plant and its production capacity after it purchased and took over the Joliet Plant from BP Amoco. The problems were extensive and included issues with the fire water system, the laboratory roof, the MAN reactor flanges, the motor control center buildings, the PIA sewer line, the underground piping, the tanks and water wells, the MAN sump, the cooling towers, the TMA and other tanks, the electrical systems, the PIA dryer, the boiler, and an abundant amount of other assets at the Joliet Plant. At times, Flint Hills had to shut down the plant to make repairs or to replace the assets because they were not in substantially good condition and could not operate. In fact, Flint Hills spent approximately $42 million to repair or replace the damaged assets and estimated an additional $56 million to complete the necessary repairs and replacements.

In December 2004, Flint Hills sent BP Amoco a claims notice seeking indemnification for the losses that it incurred as a result of the misrepresentations in the PSA, pursuant to Section 13.5 of the PSA. That section required Flint Hills to notify BP Amoco of its losses in writing with "reasonable promptness," "specifying, to the extent known, the nature of such Claim ..., setting forth the specific facts and circumstances that are the basis of such Claim in reasonable detail, the amount of Losses sought...." Flint Hills sent BP Amoco additional notices with significant details of the problems. Nonetheless, BP Amoco refused to indemnify Flint Hills, and the parties could not resolve their differences.

III. Procedural Background

On September 30, 2005, BP Amoco filed a declaratory judgment action against Flint Hills, seeking a declaration that BP Amoco did not breach the PSA or defraud Flint Hills. (R. 1-1, Compl.) On October 17, 2005, Flint Hills filed counterclaims against BP Amoco, alleging breach of the representations and warranties in the PSA and fraud. It also filed a separate complaint against BP North America, alleging breach of contract and fraud and raising multiple environmental claims. On January 5, 2006, Judge Moran consolidated Flint Hills' case with this one.² In advance of trial, Flint Hills moved to realign the parties for trial given that Flint Hills had the burden of proof on the substantive claims. (R. 480-1, Motion.) BP Amoco did not oppose the motion. (R. 537-1, Response.) The Court granted the request, and the parties were realigned for trial such that Flint Hills was the plaintiff, and BP Amoco was the defendant. (R. 539-1, Order.) The parties also stipulated to the dismissal of BP North America in advance of trial. (R. 774-1, Stipulation.)

Prior to trial, the parties — both of whom were represented by experienced and talented litigation counsel — extensively briefed the issues now before the Court. The parties engaged in extensive discovery, including BP Amoco serving Flint Hills with 4,637 requests to admit. (R. 191-1, Mem., Op., & Order.) BP Amoco also filed a motion for sanctions, claiming spoliation of certain evidence, which the Court ultimately denied. (R. 362-1, Motion.) BP Amoco filed four separate summary judgment motions³, and the parties filed 12 separate Daubert motions challenging the admissibility...