Solutia Inc. v. Fmc Corp., 04 Civ. 2842(WHP).

• Decision Date: 29 March 2005
• Docket Number: No. 04 Civ. 2842(WHP).,04 Civ. 2842(WHP).
• Citation: 385 F.Supp.2d 324
• Parties: SOLUTIA INC., Plaintiff, v. FMC CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

385 F.Supp.2d 324

SOLUTIA INC., Plaintiff, v. FMC CORPORATION, Defendant.

No. 04 Civ. 2842(WHP).

United States District Court, S.D. New York.

March 29, 2005.

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Barbara B. Edelman, Mindy Barfield, Dinsmore & Shohl LLP, Lexington, KY, for plaintiff.

Ann B. Laupheimer, Jeremy A. Rist, Blank Rome LLP, Philadelphia, PA, Craig

A. Damast, Rocco A. Cavaliere, Blank Rome LLP, New York, NY, for defendant.

MEMORANDUM AND ORDER

PAULEY, District Judge.

Solutia Inc. ("Solutia") brings this diversity action against FMC Corporation ("FMC"), alleging that shortcomings in FMC's technology undermined the parties' joint venture for production of purified phosphoric acid ("PPA"). Solutia contends that FMC knew of these deficiencies prior to the formation of the joint venture but did not disclose them. FMC moves to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, FMC's motion to dismiss is granted in part and denied in part.

BACKGROUND

Solutia and FMC are publicly traded companies that produce chemicals for industrial and consumer use. (Complaint ("Compl.") ¶ 6.) Prior to their joint venture, both companies produced PPA, which is an ingredient in many foodstuffs and also has myriad agricultural and industrial applications. (Compl.¶ 7.) While Solutia produced PPA using the traditional "thermal processed" method, FMC developed a less expensive and more efficient "wet processed" method through its Spanish subsidiary, FMC Foret. (Compl.¶¶ 7, 21.)

In 1998, the parties discussed the formation of a joint venture that would combine each party's phosphorous chemicals business and mass produce wet processed PPA, among other chemicals. (Compl. ¶ 8.) Solutia alleges that throughout these discussions, "FMC claimed to have the proprietary technology and know-how necessary to permit the large scale production of wet processed PPA at a substantively competitive cost." (Compl. ¶ 9; see Compl. ¶ 22.)

On April 29, 1999, the parties entered into a Joint Venture Agreement (the "JVA"). (Compl.¶ 10.) The JVA required each party to contribute certain intellectual property and tangible assets to the joint venture. (Compl. Ex. A ("JVA") Art. 6.) For example, Solutia was to supply its research and production facilities. (JVA § 6.2.) The JVA required FMC to grant the joint venture a license to use its wet processed technology for use at a facility to be constructed in Conda, Idaho (the "Conda Facility"). (Compl. ¶¶ 16; JVA § 6.4.) FMC was also obligated to deliver "all necessary technology, know-how, intellectual property, and engineering drawings so that the Joint Venture can fund and construct at ... [the Conda Facility] a new plant using the PPA technology that is capable of producing up to 80,000 metric tons of food grade wet processed [PPA]" annually. (JVA § 6.4; see Compl. ¶ 16.) FMC warranted that "it ha[d] disclosed to [Solutia] all material facts and circumstances ... which could reasonably be likely to, in [FMC]'s commercially reasonable judgment, have a material adverse effect on" the joint venture. (JVA § 16.1(v).) After the Federal Trade Commission approved the joint venture, the parties formed Astaris, LLC ("Astaris") on April 1, 2000. (Compl.¶ 14.) Solutia and FMC each have a fifty-percent interest in Astaris and share equally in its profits and losses. (Compl. ¶ 14; JVA §§ 5.1-5.2.)

Both parties understood that the profitability of the venture hinged on utilizing FMC's wet processed technology to mass produce PPA. (Compl.¶ 17.) Solutia relied on FMC's representations concerning the viability of wet processing in deciding to contribute its $225 million phosphorous chemicals business to Astaris. (Compl.¶ 23.) Solutia claims that after the execution of the JVA and up to April 1, 2000, FMC continued to represent that its PPA technology had been successfully utilized by FMC Foret and that the technology could be implemented at the Conda Facility on a much larger scale at a competitive cost. (Compl.¶¶ 20-21.)

The parties executed several additional contracts to effect the JVA. Two are relevant to this action. (Compl.¶ 18.) The first, the Asset Transfer Agreement (the "Transfer Agreement"), was entered into by FMC, Astaris and several of their subsidiaries on April 1, 2000. (Compl. Ex. C ("ATA") at 34.) In the Transfer Agreement, FMC represented to its knowledge that the PPA technology was capable of producing "up to 80,000 metric tons of food grade wet processed [PPA]" annually. (ATA § 3.14(c); Compl. ¶ 18.) The second contract, labeled an Assignment of PPA Technology Agreement (the "Assignment Agreement"), was also executed by FMC and an Astaris subsidiary on April 1, 2000. (Compl. Ex. D ("APTA") at 9.) In the Assignment Agreement, FMC covenanted that it would deliver to Astaris all the technology necessary to produce 80,000 metric tons of food grade PPA. (APTA § 6.2(a).) Each agreement expressly names Solutia as a third-party beneficiary. (APTA § 8.7; ATA § 6.5; Compl. ¶ 19.)

Solutia alleges that the Conda Facility performed well below expectations and produced only less valuable grades of phosphoric acid suitable for agricultural and industrial use. (Compl.¶ 26.) According to the Complaint, FMC's technology "failed to produce any quantity of food-grade, wet processed PPA ... result[ing] in the Conda Plant's complete inability to operate at a profitable margin." (Compl.¶ 25.) The phosphate ore in Idaho was not calcined and contained higher concentrations of metallic impurities than the Spanish ore at FMC Foret. (Compl.¶ 30.) Solutia attributes these differences in phosphate ore to the failure to transport the wet processed method from a small facility in Spain to a much larger one in Idaho. (Compl.¶ 30.) Indeed, Solutia alleges that "FMC at all times knew or should have known that converting the PPA Technology from FMC Foret's 15,000 metric ton per year operations in Huelva, Spain to the anticipated 80,000 metric ton per year operations at the Conda Plant posed serious technical problems that FMC would not be able to solve in a timely and economic way." (Compl. ¶ 27; see Compl. ¶¶ 28-31.) The Complaint alleges that FMC never disclosed its knowledge of the problems facing the Conda Plant (Compl.¶¶ 28-32, 35) and that, if it had, "Solutia would not have entered the JVA in April 1999" (Compl.¶ 33).

Solutia filed suit against FMC in Missouri state court on October 16, 2003. Shortly thereafter, Solutia filed for bankruptcy in the Southern District of New York. In February 2004, Solutia filed this action in the bankruptcy court and voluntarily dismissed the Missouri action. Thereafter, on FMC's motion, this Court withdrew the reference from the bankruptcy court and assumed jurisdiction over this action. See Solutia Inc. v. FMC Corp., 04 Civ. 2842(WHP), 2004 WL 1661115 (S.D.N.Y. July 27, 2004).

The Complaint asserts seven claims against FMC. Solutia claims that FMC's failure to disclose the shortcomings of its PPA technology constituted breaches of section 16.1 of the JVA, section 3.14(c) of the Transfer Agreement and FMC's fiduciary duty, as well as negligent misrepresentation and fraud in the inducement. (Compl.¶¶ 43-55, 62-87.) Solutia also claims that FMC failed to deliver technology capable of producing 80,000 metric tons of food grade PPA to Astaris, in breach of section 6.4 of the JVA and section 6.2(a) of the Assignment Agreement. (Compl.¶¶ 38-41, 57-60.)

Solutia seeks at least $322 million in compensatory damages, lost profits and punitive damages. (Compl.¶¶ 41, 48, 55, 60.) In the alternative, Solutia seeks rescission of the JVA and restitution for the value of the assets Solutia transferred to Astaris. (Compl.¶¶ 69, 77, 87.)

FMC moves to dismiss the Complaint on the grounds that (1) Solutia lacks standing to sue on its own behalf because the Complaint alleges injury borne directly by the joint venture; (2) Solutia's claims are premature until an accounting of Astaris occurs; (3) the fraud and negligent misrepresentation claims are precluded by the JVA's merger clause; (3) the fraud and negligent misrepresentation claims are barred to the extent they duplicate Solutia's breach of contract claims; and (5) the claims for breach of the Asset Transfer Agreement are time-barred.

DISCUSSION

New York law governs Solutia's contract claims. (JVA ¶ 22; APTA ¶ 8.2; ATA ¶ 6.4.) As to the tort claims, FMC contends that the contractual choice-of-law provisions "demonstrate that the parties intended all possible claims between them related to the joint venture to be dealt with under the JVA, and thus governed by New York law." (Defendant's Memorandum in Support of Motion to Dismiss ("Def.Mem.") at 13.) Solutia resists taking a position concerning whether New York or Missouri supplies the governing law for its tort claims, but represents that there is no "distinction between New York law and Missouri law on those counts." (Transcript of Oral Argument, Oct. 14, 2004 ("Tr.") at 22.) Accordingly, this Court applies New York law to all claims.

I. Standard on a Motion to Dismiss

On a motion to dismiss under Rule 12(b)(6), a court must accept the material facts alleged in the complaint as true and construe all reasonable inferences in a plaintiff's favor. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir.1998); see Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (same standard on a motion to dismiss for lack of standing). A court should not dismiss a complaint for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In this limited task, the issue is not whether a plaintiff will ultimately prevail on its claim, but whether the plaintiff "is entitled to offer evidence in support of the allegations in the...