International Minerals & Chemical Corp. v. Avon Products, Inc.

• Decision Date: 08 November 1994
• Docket Number: No. 63076,63076
• Citation: 889 S.W.2d 111
• Court: Missouri Court of Appeals
• Parties: INTERNATIONAL MINERALS & CHEMICAL CORP., et al., Respondent/Cross-Appellant, v. AVON PRODUCTS, INC., Appellant/Cross-Respondent.

Page 111

889 S.W.2d 111

INTERNATIONAL MINERALS & CHEMICAL CORP., et al Respondent/Cross-Appellant, v. AVON PRODUCTS, INC., Appellant/Cross-Respondent.

No. 63076.

Missouri Court of Appeals,

Eastern District,

Division Four.

Nov. 8, 1994.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Dec. 14, 1994.

Application to Transfer Denied

Jan. 24, 1995.

Michael Joseph Morris, W. Stanley Walch, William G. Guerri, Linda Carroll Reisner, St. Louis, for appellant.

Frank N. Gundlach, Thomas Cummings, Jordan Bernard Cherrick, Petree Eastman, Thomas Blumeyer Weaver, St. Louis, for respondent.

CARL R. GAERTNER, Judge.

The plaintiffs, International Minerals & Chemical Corporation (IMC) and Mallinckrodt, Inc. (Mallinckrodt), and the defendant, Avon Products, Inc. (Avon), appeal from the judgment of the trial court. After partial summary judgment, this action was previously appealed in International Minerals v. Avon Products (Avon I), 817 S.W.2d 903 (Mo. banc 1991). Although the facts recited in Avon I are on substantially the same record, we again set forth the basic facts here for the sake of clarity.

On February 28, 1986, Avon sold all of the stock of its wholly owned subsidiary, Mallinckrodt, to IMC. As part of the Purchase Agreement between Avon and IMC, Avon agreed to indemnify IMC against Mallinckrodt's existing contingent liabilities. ¹ Several of these existing liabilities were listed in Avon's Disclosure Schedule. One of these was a claim by E.I. DuPont de Nemours & Company (DuPont) against Mallinckrodt.

Mallinckrodt marketed and sold products using a radioactive chemical known as PYP. DuPont filed suit in the United States District Court for the District of Ohio, charging patent infringement for these sales. This suit was pending at the time IMC purchased the stock of Mallinckrodt from Avon. In fact, the parties were only awaiting the decision of the district court since the action had already been argued and submitted. On January 30, 1987, the district court rendered its decision. The court sustained the DuPont patents but found that some of Mallinckrodt's major PYP products did not infringe on DuPont patents. Furthermore, the court determined that Mallinckrodt had not acted in bad faith or willfully infringed on any of DuPont's patents. The district court's ruling was limited to liability only and did not address the amount of damages.

DuPont appealed to the United States Court of Appeals. Under the terms of the Avon-IMC purchase agreement, Avon, as the indemnitor, had the right to assume the defense of the patent case on appeal. It chose not to do so. Mallinckrodt, now under the auspices of IMC, controlled the appeal. The appellate court reversed the district court. The appellate court held that the products, which the district court had ruled were non-infringing, did, in fact, violate DuPont patents. This ruling increased DuPont's potential recoverable damages considerably. Even more damaging to Mallinckrodt, the court held that Mallinckrodt willfully infringed one DuPont patent. This led to the potential for DuPont to recover treble damages and attorney fees. Moreover, Mallinckrodt faced an injunction against future PYP sales.

With an injunction looming and since the appellate court's ruling did not address the issue of damages, Mallinckrodt entered settlement negotiations with DuPont. In accordance with the Purchase Agreement between Avon and IMC, Mallinckrodt needed Avon's consent to settle the DuPont claim since Avon would ultimately have to indemnify the plaintiffs for this claim. When negotiations were finally completed, DuPont agreed to a settlement of $32 million and a twenty-five percent royalty on future PYP sales. Avon consented to the settlement in order to enable Mallinckrodt to continue future sales, but reserved the issue of allocation of the amount paid among Avon, Mallinckrodt and IMC.

In accordance with the Avon-IMC Purchase Agreement, IMC and Mallinckrodt sought indemnity from Avon for the DuPont settlement and eventually filed suit in the Circuit Court of the City of St. Louis. The trial court entered a partial summary judgment finding that Avon was liable under the indemnity provision but leaving damages for later determination. Avon appealed from this judgment. In Avon I, 817 S.W.2d at 910 (Mo. banc 1991), the Missouri Supreme Court affirmed the trial court's grant of partial summary judgment and remanded the case for further proceedings on damages.

After remand to the trial court, all parties moved for summary judgment on damages. Ruling on these motions, the trial court found Avon was not responsible for any liability Mallinckrodt incurred after the closing date on which IMC bought Mallinckrodt. In all other respects the court overruled these motions, leaving the issue of damages for a jury's consideration. The trial court also considered the plaintiffs' motion to strike certain defenses Avon was prepared to offer. The trial court ruled Avon could not present any evidence that the DuPont settlement amount was unreasonable; the court also precluded any evidence that Mallinckrodt mishandled the patent case defense.

After all the evidence was presented in a trial on damages, the jury returned a verdict for the plaintiffs in the amount of $16 million. Plaintiffs then filed a motion for judgment notwithstanding the verdict or, in the alternative, for a new trial. The trial court granted plaintiffs' motion for a judgment notwithstanding the verdict, increasing the plaintiffs' award to $27,059,273. ² Alternatively, in accordance with Rule 72.01(c), the trial court granted the plaintiffs' motion for new trial, if the j.n.o.v. was reversed, because the court found it had erred in submitting Avon's proffered mitigation of damages instruction.

Avon appealed from the trial court's judgment, and the plaintiffs filed a cross-appeal. For reasons of convenience, we first turn our attention to plaintiffs' appeal.

PLAINTIFFS' APPEAL

I

On February 28, 1986, Avon closed its sale of Mallinckrodt to IMC. The effective date of the patent case settlement was December 31, 1987. Between February 28, 1986, and December 31, 1987, Mallinckrodt continued to market and sell products using PYP, infringing on DuPont's patent. The patent case settlement compensated DuPont for the damages it suffered as a result of all infringing sales--including sales which occurred between the closing date and the date of final settlement. The settlement also included a twenty-five percent royalty for all future PYP related sales. In their first point on appeal, IMC and Mallinckrodt argue that Avon must indemnify them for all of these losses. Avon maintains it should indemnify the plaintiffs only for losses arising from pre-closing patent right infringements and all post-closing infringements are the responsibility of the plaintiffs alone.

Ruling on the parties' cross-motions for summary judgment, the trial court found that Avon was not liable under the indemnity clause for damages arising from Mallinckrodt's acts of infringement occurring after the Avon-IMC closing date. The plaintiffs argue that the trial court's ruling was erroneous because it conflicts with the plain language of the Purchase Agreement and the intent of the parties. The pertinent part of the Purchase Agreement reads:

Avon agrees to indemnify [plaintiffs] and hold [plaintiffs] harmless from all out-of-pocket losses, costs, expenses (including reasonable attorneys' fees and expenses) and liabilities incurred by [plaintiffs] as a result of ... any contingent liability of Mallinckrodt or New Mallinckrodt, whether or not set forth in the Avon Disclosure Schedule, to the extent (but only to the extent) based on or arising out of events, acts, omissions, conditions or a state of facts occurring or existing on or prior to the Closing Date ... (emphasis added)

The plaintiffs argue that the entire DuPont claim against Mallinckrodt arose out of facts already present at the time of closing. In fact, DuPont's claim had already been tried by the time IMC bought Mallinckrodt. The plaintiffs maintain that the only change in conditions after the closing took place was the decision of the Court of Appeals for the Federal Circuit. The plaintiffs claim, therefore, the terms of the indemnity agreement cover all of the patent case losses.

Words in a contract are to be construed to achieve the apparent purpose of the parties. Hooper Associates v. AGS Computers, 74 N.Y.2d 487, 549 N.Y.S.2d 365, 367, 548 N.E.2d 903, 904 (1989). Although the words might seem to indicate a broader meaning, they should be restrained to the particular occasion and to the particular object which the parties intended. Hooper, 549 N.Y.S.2d at 367, 548 N.E.2d at 904. This is especially true with indemnity contracts. The language of an indemnity contract should be construed so as to encompass only that loss and damage which reasonably appear to have been within the intent of the parties. Tokyo Tanker Co. v. Etra Shipping Corp., 142 A.D.2d 377, 536 N.Y.S.2d 75, 77-8 (1989). It should not be extended to include damages which are neither expressly within its terms nor of such character that it is reasonable to infer that they were intended to be covered under the contract. Tokyo Tanker, 536 N.Y.S.2d at 78.

In the present action, the language of the indemnity agreement is unambiguous. Avon would indemnify the plaintiffs for any contingent liability arising out of "acts, omissions, conditions or a state of facts occurring or existing on or prior to the Closing Date." The plaintiffs would have us treat the patent case, pending at the time of closing, as a singular unit from which all liability arose. And as such, the patent case could be considered to be a state of facts existing prior to the closing date. This argument ignores the nature of DuPont's injuries, the source of Mallinckrodt's liability. DuPont's injuries were not indivisible. Prior to closing, Mallinckrodt marketed and sold...