First Brands Grp. v. Neenah, Inc.

• Docket Number: 1:22-cv-02128
• Decision Date: 18 September 2023
• Parties: FIRST BRANDS GROUP, LLC, Plaintiff and CounterDefendant, v. NEENAH, INC., Defendant and CounterClaimant.
• Court: U.S. District Court — Northern District of Ohio

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FIRST BRANDS GROUP, LLC, Plaintiff and CounterDefendant, v. NEENAH, INC., Defendant and CounterClaimant.

No. 1:22-cv-02128

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

September 18, 2023

Jennifer Dowdell Armstrong Magistrate Judge

OPINION AND ORDER

J. PHILIP CALABRESE UNITED STATES DISTRICT JUDGE

First Brands Group, LLC placed $500,000 in escrow while negotiating to purchase a paper processing facility from Neenah, Inc. When the deal fell apart, First Brands filed suit seeking a declaratory judgment that it is entitled to recoup the funds it placed in escrow. Neenah removed the case to federal court and counterclaimed. Each party moves to dismiss the claims the other brings against it. KeyBank, which is not a party to this dispute, continues to hold the money as escrow agent. At bottom, the terms of the escrow agreement determine which party is entitled to the funds placed in escrow, which is the central matter in dispute. In fact, it is the only mater in dispute because neither party states any other claim as a matter of law.

STATEMENT OF FACTS

On the pending cross-motions to dismiss, the parties largely agree on the following material facts.

A. Letter of Intent

Neenah was a paper manufacturer before it merged with another company in July 2022. (ECF No. 5, ¶¶ 4 & 5 PageID #129.) First Brands manufactures and distributes automotive and industrial equipment and parts. (ECF No. 1-1 PageID #31.) At the times relevant to this dispute, Neenah owned a paper processing facility in Appleton, Wisconsin. (Id., ¶ 12, PageID #9-10; ECF No. 5, ¶ 6, PageID #129.)

In March 2022, First Brands sent Neenah a letter of intent to purchase the Appleton facility. (ECF No. 1-1, ¶ 12, PageID #9-10; id., PageID #31; ECF No. 5, ¶ 6, PageID #129.) First Brands stated its intent to acquire 16 acres of real property, a paper mill, a saturator facility, an office building and furnishings, a dam on the Fox River, and a variety of machinery and equipment-collectively defined as the “Acquired Assets.” (ECF No. 1-1, PageID #34.) The letter proposed the timing, consideration, earnest money deposit in escrow, and other terms of the deal. (Id., ¶¶ 1-3, PageID #31-33.) For the most part, the letter only constituted a proposal: it expressly disclaimed “any obligation of any kind whatsoever with respect to any transaction involving the Acquired Assets except as may be set forth in the duly executed and delivered Definitive Agreements.” (Id., PageID #33.) Four provisions in the letter bind the parties-confidentiality, non-solicitation, expenses, and the governing law-none of which is relevant here. (Id.) The chief financial officer of First Brands and the president of Neenah signed the letter of intent. (Id.)

B. Escrow Agreement

On the same day on which the parties signed the letter of intent, executives from First Brands, Neenah, and KeyBank National Association (as escrow agent) entered into an escrow agreement. (ECF No. 1-1, ¶ 17, PageID #10; id., PageID #19-29; ECF No. 5, ¶ 13, PageID #130.) In its recitals, the escrow agreement (A) confirms that First Brands and Neenah entered into a letter of intent for First Brands to acquire Neenah's paper facility and (B) obligates First Brands to deposit $500,000 into escrow. (Id., PageID #19.) The agreement charged the escrow agent with “administer[ing]” the “Escrow Funds in accordance with the express provisions of this Escrow Agreement.” (Id.) The agreement defines “Escrow Funds” to include the $500,000 principal “together with all interest and other proceeds earned thereon as well as on such interest and proceeds.” (Id.) Consistent with the agreement, First Brands placed $500,000 of earnest money in an escrow account held by KeyBank, where it remains. (ECF No. 1-1, ¶ 18, PageID #11; ECF No. 5, ¶ 24, PageID #132.)

Although the parties intended the earnest money deposited in escrow to go toward the purchase price of the Appleton facility, the agreement accounts for other eventualities. In particular, Section 4.2 of the agreement directs KeyBank to distribute funds from the escrow account in five circumstances. The first three are as follows:

(a) upon completion of the deal, to Neenah;

(b) “[u]pon receipt by Escrow Agent of written certification from First Brands . . . that Neenah has declined to consummate, or failed to confirm in writing within five Business Days of a request for the same, its willingness to consummate,” the transaction, to First Brands; or (c) “[u]pon receipt by Escrow Agent of written certification from Neenah . . . that First Brands has declined to consummate, or failed to confirm in writing within five Business Days of a request for the same, its willingness to consummate,” the transaction, to Neenah.

(ECF No. 1-1, PageID #21.) Section 4.2(d) provides for the two remaining circumstances if KeyBank received no direction before May 31, 2022 (or another date to which First Brands and Neenah agreed). (Id.) First, on joint certification of First Brands and Neenah, KeyBank shall disburse the funds to First Brands. (Id., § 4.2(d)(i).) “[I]n all other cases,” KeyBank shall “release the full amount of the Escrow Funds to Neenah.” (Id., § 4.2(d)(ii).)

In its entirety, Section 4.2 of the escrow agreement provides:

4.2 Escrow Agent shall make distributions from the Escrow Funds as follows:

(a) Upon receipt by Escrow Agent of written certification from either Interested Party (which written certification may be delivered via e-mail and shall, in any event, include a copy to the other Interested Party) that the Acquisition has been consummated, Escrow Agent shall release the full amount of the Escrow Funds to Neenah in accordance with the wiring instructions set forth herein;

(b) Upon receipt by Escrow Agent of written certification from First Brands (which written certification may be delivered via e-mail and shall, in any event, include a copy to Neenah) that Neenah has declined to consummate, or failed to confirm in writing within five Business Days of a request for the same, its willingness to consummate, the Acquisition, Escrow Agent shall release the full amount of the Escrow Funds to First Brands in accordance with the wiring instructions set forth herein;

(c) Upon receipt by Escrow Agent of written certification from Neenah (which written certification may be delivered via e-mail and shall, in any event, include a copy to First Brands) that First Brands has declined to consummate, or failed to confirm in writing within five Business Days of a request for the same, its willingness to consummate, the Acquisition, Escrow Agent shall release the full amount of the Escrow Funds to Neenah in accordance with the wiring instructions set forth herein; or

(d) In the event the Escrow Agent has not been directed to disburse the Escrow Funds on or prior to May 31, 2022 (or such later date as the Interested Parties may jointly notify the Escrow Agent of (which notification may be provided via email)) pursuant to clause (a), (b) or (c) above, then, (i) within two business days of such date the Escrow Agent has received a joint written certification from both Interested Parties (which written certification may be delivered via email) that the Interested Parties have discontinued efforts to consummate the Acquisition, Escrow Agent shall release the full amount of the Escrow Funds to First Brands in accordance with the wiring instructions set forth herein and (ii) in all other cases, the Escrow Agent shall, within five Business Days of May 31, 2022 (or such later date as provided to the Escrow Agent in writing by the Interested Parties acting jointly), release the full amount of the Escrow Funds to Neenah in accordance with the wiring instructions set forth herein.

(Id.)

In the event of a dispute regarding “the delivery, distribution ownership, right of possession and/or disposition of the Escrow Funds,” the escrow agent may “retain in its possession . . . the Escrow Funds until such dispute” is resolved either by “mutual written agreement” or court order. (ECF No. 1-1, § 7, PageID #22.) To resolve any dispute, the parties consented to the jurisdiction of the State and federal courts in Ohio and to application of Delaware substantive law. (Id., §§ 8 & 12(c); PageID #22-23 & #25.)

C. Negotiations Fail

In April 2022, First Brands sent Neenah a draft asset purchase agreement. (ECF No. 1-1, ¶ 21, PageID #11; ECF No. 5, ¶ 26, PageID #132.) Two weeks later, Neenah sent a counterproposal with significant revisions. (ECF No. 1-1, ¶¶ 22 & 23, PageID #11; ECF No. 5, ¶ 27, PageID #133.) Approximately four weeks later, First Brands advised that the parties would not be able to agree on a deal and requested that Neenah deliver a joint notice to the escrow agent to return the funds deposited in escrow to First Brands. (ECF No. 1-1, ¶¶ 26 & 28, PageID #12; ECF No. 5, ¶¶ 31 & 32, PageID #133.) In Neenah's version, with that communication First Brands “declined to consummate the transaction.” (ECF No. 5, ¶ 33, PageID #133.) Neenah responded that it stood “ready and willing to proceed with the consummation of the transaction.” (ECF No. 1-1, ¶ 29, PageID #12; ECF No. 5, ¶ 35, PageID #134.) Whatever the case, no party provided a written certification to the escrow agent, and the parties did not deliver a joint notice either. Instead, they continued to posture but still had no agreement on a deal. (ECF No. 1-1, ¶ 29, PageID #12; ECF No. 5, ¶ 35, PageID #134.)

In June 2022-after the May 31 deadline in Section 4.2 of the escrow agreement-First Brands notified the escrow agent “of a dispute between First Brands and Neenah regarding the Escrow Funds” and demanded “that KeyBank hold” the funds “until [it] receives a joint written certification or court order directing KeyBank how to disburse the...