Flexible Foam Products, Inc. v. Vitafoam Inc.

Citations: 980 F. Supp. 2d 690; 2013 WL 5837572; 2013 U.S. Dist. LEXIS 155593Docket: Case No. 1:12-CV-105-MR-DLH

Court: District Court, W.D. North Carolina; October 30, 2013; Federal District Court

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The Court is considering cross motions for summary judgment in a case involving Plaintiff Flexible Foam Products, Inc. (FFP) and Defendant Vitafoam Incorporated (Vitafoam), both of which manufacture polyurethane foam products. On November 28, 2005, Vitafoam sold certain assets to FFP and its affiliates through two Asset Purchase Agreements. These Agreements specified the assets transferred from Vitafoam's manufacturing facilities in High Point, North Carolina, and Tupelo, Mississippi, with identical operative language in both. The Agreements stipulate that Vitafoam would sell all rights and interests in assets used primarily in its foam manufacturing business, including intangible rights and claims against third parties related to the business. However, certain rights were excluded from the transfer, such as those arising under any Seller Contract not designated as Assumed Contracts and intangible rights not exclusively used in the business if they were not material to operations before the transfer.

The litigation centers on whether some tort claims belonging to Vitafoam were transferred to FFP as part of these transactions. Both companies utilized specific chemicals in their manufacturing processes, known collectively as "Foam Chemicals," which they independently procured from major global suppliers. Prior to the asset transfers, a series of price-fixing class actions were initiated against the manufacturers of these Foam Chemicals, leading to consolidated litigation known as the "Urethane Antitrust Litigation." The parties have submitted a stipulation outlining the agreed facts relevant to this case.

Attorneys from Dickstein Shapiro LLP and co-counsel from Adams Holcomb LLP have represented Vitafoam and FFP as opt-out plaintiffs in the antitrust class action In re: Urethane Antitrust Litigation and related actions against BASF, among others. In June and December 2006 and 2008, respectively, Vitafoam and FFP submitted notices to opt-out of the Bayer settlement in the pending antitrust class action. Throughout their joint representation, the firms adhered to a strict confidentiality policy, ensuring that no client’s privileged information was disclosed without consent. In July 2007, the firms facilitated a settlement with Bayer, determining the allocation of proceeds with assistance from the Bates White Firm. Vitafoam received a net settlement payment of $2,532,800, which included $1,301,495 specifically attributed to purchases related to the High Point and Tupelo urethane facilities. While each settling plaintiff was informed of their individual settlement share, no client was privy to the settlement amounts received by others, including Vitafoam and FFP.

Determination and allocation of claims and damages for plaintiffs, including Vitafoam and FFP, were based on evaluations by the Bates White Firm, using sales records from defendant suppliers during the damages period of 1999-2003. Damages attributed to the High Point and Tupelo urethane facilities were included in Vitafoam's claims but not in FFP's. The Bates White Firm did not analyze ownership of antitrust claims related to chemical purchases for these facilities. At the time of finalizing the expert report, no Dickstein Firm clients were privy to the details of other plaintiffs' individual damage claims.

Following the expert's damage assessments, plaintiffs settled with Huntsman and BASF, which included a true-up for the Bayer settlement. Vitafoam received an additional $1,228,272 in May 2012 related to Bayer, while $565,870 attributed to Tupelo and High Point damages was held in escrow due to FFP's demand. Vitafoam's share from the Huntsman settlement was $142,765, with $84,084 linked to the High Point and Tupelo facilities. From the BASF settlement, $4,456,569 was allocated to Vitafoam, of which $1,831,786 was paid out, while $2,624,784 related to the High Point and Tupelo facilities was also held in escrow.

Overall, the total net settlement proceeds from Bayer, Huntsman, and BASF attributable to the High Point and Tupelo facilities amounted to $4,576,233. Of this, $1,385,579 was distributed to Vitafoam, and $3,190,654 remained in escrow, maintained by the Adams Holcomb Firm under FFP's direction.

FFP is entitled to a $4,576,233 allocation of net settlement proceeds from Bayer, Huntsman, and BASF if it is adjudicated to own the antitrust claims related to MDI, polyols, and TDI purchases attributed to the High Point and Tupelo urethane facilities during the claims period. If FFP is barred from asserting any claims regarding these proceeds, its entitlement will be reduced accordingly. Additionally, the Bates White Firm attributed $6,889 (less fees) of damages to the High Point and Tupelo facilities and $4,808 (less fees) to Vitafoam's facilities not sold to FFP. If FFP owns the claims and is not barred from asserting them, it may also claim $6,889 from any further settlements in the Urethanes action. Conversely, Vitafoam would be entitled to $4,808 from those additional settlements if it is adjudicated that FFP owns the claims. 

The parties have filed cross-motions for summary judgment under Federal Rule of Civil Procedure 56, asserting no factual disputes exist that warrant a trial. The standard for summary judgment requires showing no genuine dispute on material facts, which could affect the case's outcome. The Court finds that the record adequately presents the facts, and there are no genuine disputes, making summary judgment appropriate. 

The Court must address two key issues: whether Vitafoam conveyed its antitrust claim against Urethane case defendants to FFP as an asset under the Agreements, and whether FFP’s action is barred by North Carolina’s statute of limitations.

The parties involved have reached a consensus that the Agreements governing this case are clear and unambiguous, leading to the conclusion that FFP is the prevailing party under the terms of the contract. The court's primary responsibility is to assess whether the Agreements are indeed unambiguous. If found unambiguous, the court can interpret the contract without factual disputes, allowing for summary judgment. However, if the court determines ambiguity exists, it may consider extrinsic evidence to resolve the interpretive issue; if such evidence creates genuine factual disputes, summary judgment would be inappropriate.

The court agrees that the Agreements are clear and supports summary judgment for one party based on their terms. Vitafoam contends that the antitrust claim related to the Urethane cases was excluded from the sale to FFP, citing specific sections of the Agreements that retain rights and claims not assumed by FFP. However, the court identifies a flaw in this argument, stating antitrust claims are tort claims and do not arise under contracts, referencing relevant case law. Conversely, FFP argues that the antitrust claim is an asset conveyed to it per a different section of the Agreements, which includes all intangible rights related to the business. The court notes that FFP's argument misinterprets the relationship between severability and exclusivity of rights.

The Urethane antitrust claims are intended to compensate customers harmed by defendants' unlawful price-fixing of Foam Chemicals. Vitafoam, which purchased these chemicals for its U.S. plants, including High Point and Tupelo, holds a single antitrust claim not exclusive to any specific facility. This claim is unrelated to the day-to-day operations of the High Point or Tupelo plants, as it stems from the defendants' unlawful actions rather than from any use of the claim in those facilities. The ability to allocate damages to individual plants does not affect the nature of the claim, which is excluded from transfer to FFP under section 2.2(n) of the Agreements. This section specifically excludes intangible rights not used exclusively in the business and not material to its conduct. Vitafoam's antitrust claim meets all criteria for exclusion: it is an intangible right, was never used at the facilities, and is not material to their operations. Consequently, Vitafoam retains ownership of the claim and is entitled to summary judgment on this matter.

In addition, FFP's claim for unjust enrichment is invalid due to the existence of a valid contract. Under North Carolina law, unjust enrichment requires that a benefit be conferred without interference and must be measurable. However, since an express contract governs the damages dispute, an unjust enrichment claim cannot coexist with it. The established principle is that an express contract precludes any implied contract regarding the same issue, implying that legal remedies arise only when no express agreement exists.

FFP's Count Two of the Complaint is dismissed as it acknowledges the dispute pertains to a breach of contract regarding the ownership of Urethanes Claims, which are governed by existing Agreements with Vitafoam. This admission leads the Court to conclude that FFP’s unjust enrichment claim is legally unfounded. In Count Three, FFP alleges that Vitafoam wrongfully converted the Urethane cases claim and its settlement proceeds. However, this conversion claim fails for two reasons: first, the Court has determined that ownership of the antitrust claim lies with Vitafoam, negating FFP's claim of rightful ownership necessary to establish conversion under North Carolina law. Second, conversion claims in North Carolina are limited to tangible property, and the Urethane cases claim, being a chose in action (an intangible asset), does not qualify for conversion. Consequently, the Court rules in favor of the Defendants on both counts.

FFP's contract action regarding an antitrust claim is time-barred under North Carolina law, which mandates a three-year statute of limitations for breach of contract actions. The claim accrues upon breach, which occurs when the right is violated, as established in North Carolina case law. The dispute revolves around the ownership of the Urethane cases antitrust claim, with the Court determining that Vitafoam retained ownership and did not transfer the claim to FFP under the Agreements. FFP argues that it was not injured until Vitafoam indicated it would not honor the Purchase Agreements in 2012, but this argument is flawed. The statute of limitations is not tolled by a party's lack of knowledge of a breach, and the claim did not constitute a future interest. If Vitafoam had transferred the claim, the breach would have occurred immediately when it asserted ownership of the antitrust claim, which contradicts FFP’s position that it suffered no injury until settlement proceeds were available. Thus, FFP's claim is barred as it was not filed within the required timeframe.

Hamilton v. Memorex Telex Corp. and Glover v. First Union Nat’l Bank are deemed inapplicable to FFP's case. FFP argues that North Carolina's 'continuing wrong' doctrine reset the statute of limitations due to Vitafoam's later actions concerning separate claims. However, this interpretation is incorrect. The North Carolina Supreme Court's decision in Mast establishes that the continuing wrong doctrine applies to ongoing obligations or duties, illustrated through examples like nuisance and trespass. In a contractual context, assuming FFP owned the Urethane cases antitrust claim, there would only be one breach. The continuing violation concept, as noted in Williams v. BCBS of NC, emphasizes that continual unlawful acts create a continuing violation, not merely ongoing effects from a single violation.

FFP's argument fails because Vitafoam’s requests for settlement damages were merely the results of its original breach of contract, not new breaches. If FFP had owned the antitrust claim, the breach occurred when Vitafoam filed its demand on June 9, 2006. Consequently, the statute of limitations began at that time and was not tolled since Vitafoam did not continue breaching the Agreements after that date. FFP's action, filed after June 10, 2009, exceeds the three-year statute of limitations for breach of contract claims in North Carolina. Therefore, the Court concludes that Vitafoam did not transfer its antitrust claim to FFP, leading to the dismissal of FFP's claims for unjust enrichment and conversion as legally unfounded. Even if the claim had been transferred, the statute of limitations would bar the action due to the late filing.

The court grants the Defendants' Motion for Summary Judgment and denies the Plaintiffs' Motion for Summary Judgment. It affirms that the Asset Purchase Agreements dated December 30, 2005, are valid contracts, which do not grant the Plaintiff any rights to pursue antitrust claims against the Urethane cases defendants for damages related to Foam Chemicals delivered to High Point, North Carolina, and Tupelo, Mississippi, during the 1999 to 2003 damages period. British Vitafoam Unlimited is included as a defendant solely as a guarantor for Vitafoam Incorporated's indemnification obligations under the agreements. The court acknowledges that jurisdiction, venue, and the governing law for the case are established under North Carolina law as per the agreements. Furthermore, the court notes that FFP did not assume any contracts related to Foam Chemicals from Vitafoam for the specified facilities. The evidence presented by both parties regarding the ordering and invoicing of Foam Chemicals is deemed irrelevant, as the critical issue is whether the antitrust claim was applicable at the involved locations, which the court concludes it was not.