Weyerhaeuser Company v. Domtar Corporation et al

Filing 18

MEMORANDUM OPINION. Signed by Judge Sue L. Robinson on 7/30/2014. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

WEYERHAEUSER COMPANY,
Plaintiff,

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)
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v.
DOMTAR CORPORATION and
DOMTAR PAPER COMPANY, LLC,
Defendants.

Civ. No. 14-024-SLR

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Stephen B. Brauerman, Esquire and EvanT. Miller, Esquire of Bayard, P.A.,
Wilmington, Delaware. Counsel for Plaintiff. Of Counsel: Laurie L. Chyz, Esquire, and
Michael J. Ewart, Esquire of Hillis Clark Martin & Peterson P.S.
Gregory P. Williams, Esquire, Chad M. Shandler, Esquire, and Katharine C. Lester,
Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware. Counsel for
Defendants. Of Counsel: Gary W. Kubek, Esquire and Courtney M. Dankworth,
Esquire of Debevoise & Plimpton LLP.

MEMORANDUM OPINION

Dated: July.!j), 2014
Wilmington, Delaware

~~dge
I. INTRODUCTION
On January 13, 2014, plaintiff Weyerhaeuser Company ("Weyerhaeuser") filed a
complaint against defendants Domtar Corporation and Domtar Paper Company, LLC
(collectively, "Domtar") alleging breach of contract with respect to liability for workers
compensation claims. (0.1. 1) On February 21, 2014, Domtar filed a motion to dismiss
for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). (0.1. 12)
The court has jurisdiction pursuant to 28 U.S.C. § 1332.

II. BACKGROUND
Weyerhaeuser sold its fine paper business to Domtar (the "Sale") on March 7,
2007. (D. I. 1 at 118) The Sale was governed by an Amended and Restated
Contribution Agreement (the "Contribution Agreement") and an Amended and Restated
Transaction Agreement (the "Transaction Agreement") (collectively, "the Agreements"). 1
(D. I. 14, exs. A-B) The Agreements are dated January 25, 2007 and are governed by
Delaware law. (/d.) Since the Sale, the parties have on multiple occasions reached
settlement agreements relating to post-Sale disputes. (D. I. 1 at 111143-44) However, the
parties have been unable to resolve the contested issue of workers compensation
liability. (/d. at 11 45)

1

Weyerhaeuser accomplished the Sale, in part, by transferring its fine paper
business to Domtar Paper Company, LLC, and then transferring ownership of Domtar
Paper Company, LLC to Domtar Corporation. (0.1. 1 at 119) Domtar Paper Company,
LLC was created by Weyerhaeuser in August 2006 specifically to hold the fine paper
business for the purposes of the Sale and is referred to as "Newco" in the Agreements.
(/d. at 1110; 0.1. 14, ex. A at 1)

There are three categories of current and former fine paper employees relevant
to the action at bar. (/d.

at~

24) The first category consists of fine paper employees

who worked for Weyerhaeuser before the Sale and continued to work for Oomtar after
the Sale (the "Transferred Employees"). (/d.) The second category consists of fine
paper employees who were still employed at Weyerhaeuser at the time of the Sale but
who were receiving workers compensation benefits and, therefore, not working at the
time of the Sale (the "U.S. WC Newco Employees"). (/d.

at~

26) The third category

consists of the remainder of Weyerhaeuser's pre-Sale employees, including those who
were retired or otherwise terminated before the time of the Sale and, therefore, never
became Transferred Employees (the "Retired Employees"). (/d.

at~

30) The parties

dispute liability for workers compensation claims regarding the third category of
employees, the Retired Employees, as well as liability for administration costs of
workers compensation claims regarding the first category of employees, the Transferred
Employees. 2

Ill. STANDARD OF REVIEW
A motion filed under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency
of a complaint's factual allegations. Bell At/. Corp. v. Twombly, 550 U.S. 544, 555
(2007); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). A complaint must contain
2

0omtar accepts responsibility for all workers compensation claims asserted by
Transferred Employees (0.1. 13 at 2; 0.1. 14, ex. A at§ 2.03(a)(vii)), but contests
Weyerhaeuser's asserted administration costs. (0.1. 13 at 9) The parties also agree
that Weyerhaeuser retained all post-Sale workers compensation liability for U.S. WC
Newco Employees unless, and until, those employees became Transferred Employees.
(0.1. 1 at~ 28; 0.1. 14, ex. Bat§ 6.09(a)(iii)) At the time of the Sale, there were
approximately twelve U.S. WC Newco Employees, three of which later became
Transferred Employees by returning to work for Oomtar. (0.1. 1 at~ 29)

2

"a short and plain statement of the claim showing that the pleader is entitled to relief, in
order to give the defendant fair notice of what the ... claim is and the grounds upon
which it rests." Twombly, 550 U.S. at 545 (internal quotation marks omitted)
(interpreting Fed. R. Civ. P. 8(a)). Consistent with the Supreme Court's rulings in
Twombly and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Third Circuit requires a twopart analysis when reviewing a Rule 12(b)(6) motion. Edwards v. A.H. Cornell & Son,
Inc., 610 F.3d 217,219 (3d Cir. 2010); Fowlerv. UPMC Shadyside, 578 F.3d 203,210
(3d Cir. 2009). First, a court should separate the factual and legal elements of a claim,
accepting the facts and disregarding the legal conclusions. Fowler, 578 F.3d. at 21011. Second, a court should determine whether the remaining well-pled facts sufficiently
show that the plaintiff "has a 'plausible claim for relief.'" /d. at 211 (quoting Iqbal, 556
U.S. at 679). As part of the analysis, a court must accept all well-pleaded factual
allegations in the complaint as true, and view them in the light most favorable to the
plaintiff. See Erickson v. Pardus, 551 U.S. 89, 94 (2007); Christopher v. Harbury, 536
U.S. 403, 406 (2002); Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008).
In this regard, a court may consider the pleadings, public record, orders, exhibits
attached to the complaint, and documents incorporated into the complaint by reference.
Tellabs, Inc. v. Makar Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Oshiver v. Levin,
Fishbein, Sedran & Berman, 38 F.3d 1380, 1384-85 n.2 (3d Cir. 1994).
The court's determination is not whether the non-moving party "will ultimately
prevail" but whether that party is "entitled to offer evidence to support the claims."

3

United States ex ref. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 302 (3d Cir.

2011 ). This "does not impose a probability requirement at the pleading stage," but
instead "simply calls for enough facts to raise a reasonable expectation that discovery
will reveal evidence of [the necessary element]." Phillips, 515 F.3d at 234 (quoting
Twombly, 550 U.S. at 556). The court's analysis is a context-specific task requiring the

court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 663-64.

IV. DISCUSSION
A. Liability for Workers Compensation Claims of Retired Employees

Weyerhaeuser alleges that the Sale was structured to transfer from
Weyerhaeuser to Domtar all assets and liabilities of the fine paper business except
those expressly retained by Weyerhaeuser in the Agreements. (D.I. 1 at 1f 11) Since
workers compensation liability for Retired Employees was not expressly retained by
Weyerhaeuser, it alleges that such liability transferred to Domtar through the Sale. (/d.
at 1f 36) Domtar argues that based on the provisions of the Agreements, Weyerhaeuser
retained liability for workers compensation claims of Retired Employees, and its breach
of contract claim should be dismissed. (D. I. 13 at 4)
Under Delaware law, "to survive a motion to dismiss for failure to state a breach
of contract claim, [a] plaintiff must demonstrate: first, the existence of the contract,
whether express or implied; second, the breach of an obligation imposed by that
contract; and third, the resultant damage to the plaintiff." VLIW Tech., LLC v.
Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003) (citations omitted).

4

Weyerhaeuser satisfies the first requirement since neither party disputes that the
Agreements are valid, express contracts governing the Sale of the fine paper business.
(D. I. 13 at 2; D. I. 14, exs. A-B) Weyerhaeuser also satisfies the third requirement by
claiming that it has incurred approximately $8.2 million in damages as a result of
Domtar rejecting or failing to respond to each workers compensation tender from
Weyerhaeuser regarding Retired Employees. 3 (D. I. 1 at~~ 39-40, 46) Further,
Weyerhaeuser projects that future claims asserted by Retired Employees will likely
reach or exceed $6.1 million. (Jd. at

~

47) The dispute at bar concerns the second

requirement- a breach of an obligation imposed by the contract- and hinges on how
the Agreements are interpreted.
The operative provision of the Contribution Agreement governing Newco
Liabilities is Section 2.03(a), which states:
For the purposes of this Agreement, "Newco Liabilities" shall
mean all obligations, liabilities and commitments of any
nature, whether known or unknown, express or implied,
primary or secondary, direct or indirect, liquidated, absolute,
accrued, contingent or otherwise and whether due or to
become due ("Liabilities"), of Weyerhaeuser or any other
member of Weyerhaeuser Group arising out of or primarily
relating to the Newco Assets, the Newco Business or the
operation or conduct of the Newco Business prior to, on or
after the Contribution Date, excluding the Retained
Liabilities, which Newco Liabilities shall include (in each
case, other than the Retained Liabilities): ...

3

Weyerhaeuser has itself administered, paid, and resolved Retired Employee
workers compensation claims in order to ensure that such obligations to Retired
Employees do not go unmet. (D. I. 1 at~~ 40-41)

5

(D.I. 14, ex. A at Section 2.03(a)) (emphasis added) Subsections 2.03(a)(i)-(xi) list
Newco Liabilities that Domtar irrevocably assumed. 4 The following section, Section
2.03(b), states, "[f]or purposes of this Agreement, 'Retained Liabilities' shall mean the
following Liabilities of Weyerhaeuser or any other member of the Weyerhaeuser Group."
(/d. at Section 2.03(b)) Subsections 2.03(b)(i)-(x) explicitly state the liabilities retained

by Weyerhaeuser.
Section 9.02 of the Contribution Agreement governs interpretation of the
Contribution Agreement and states, "[w]henever the words 'include', 'includes' or
'including' are used in this Agreement, they shall be deemed to be followed by the
words 'without limitation'." (/d. at Section 9.02) Based on the parties' stipulation, "shall
include," as used in Section 2.03(a), must be interpreted to mean "shall include without
limitation" the Newco Liabilities specified in Subsections 2.03(a)(i)-(xi). (/d. at Section
2.03(a))
Under Delaware law, contract language such as "including without limitation" and
"including but not limited to" is interpreted broadly. See CarVel Enter. Camp, Inc. v.
Schaffer, Civ. No. 4896, 2010 WL 2091212 at *2 (Del. Ch. May 19, 201 0) (giving the

language "including but not limited to" as used in a release agreement an expansive
reading). When the language "including but not limited to" is used in a contract
provision and is followed by a list contained in the provision or several subsections, the

4

Under Section 2.01 (b) of the Contribution Agreement, Domtar "irrevocably
assume[d] and agree[d] to faithfully pay, perform and discharge when due all the Newco
Liabilities .... " (D.I. 14, ex. A at Section 2.01(b))

6

Third Circuit has interpreted such language to mean that the following list is "not
exhaustive." Cooper Distrib. Co. v. Amana Refrigeration, Inc., 63 F.3d 262, 280 (3d Cir.
1995); see also McKissick v. Yuen, 618 F.3d 1177, 1185 (1Oth Cir. 201 0) (holding that a
phrase appearing within an "including but not limited to" clause of a release agreement
is intended to serve as an example, illustration, or representation of what is
encompassed by the release).
Domtar argues that liability for workers compensation claims falls under
Subsection 2.03(a)(vii), which states that Domtar assumes liability for "all employment
and employee benefit-related Liabilities with respect to Transferred Employees and their
dependents and beneficiaries .... " (D. I. 14, ex. A at Section 2.03(a)(vii)) Domtar avers
that Weyerhaeuser retained liability for workers compensation claims of Retired
Employees because Subsection 2.03(a)(vii) specifies only Transferred Employees, and
no other provision within Subsections 2.03(a)(i)-(xi) explicitly addresses Retired
Employees or employment liabilities. (0.1. 13 at 6) Such an interpretation of the
Contribution Agreement would violate the "well-established principle that in construing a
contract a court cannot in effect rewrite it" because it would effectively read the "shall
include without limitation" clause out of the contract. Gertrude L. Q. v. Stephen P. Q.,
466 A.2d 1213, 1217 (Del. 1983) (citation omitted). Weyerhaeuser and Domtar are
sophisticated parties that explicitly stipulated how the word "include" shall be
interpreted. In construing the Contribution Agreement, the court will "give words in the
contract their plain, ordinary meaning." /d.

7

Section 2.03(a) broadly transfers all liabilities to Domtar except those explicitly
retained by Weyerhaeuser in Section 2.03(b). Subsections 2.03(a)(i)-(xi) are merely
illustrative and do not limit the Newco Liabilities beyond what is expressly retained by
Weyerhaeuser in Subsections 2.03(b)(i)-(x). Liability for workers compensation claims
of Retired Workers is not expressly addressed by Subsections 2.03(b)(i)-(x). Therefore,
liability for workers compensation claims of Retired Workers falls within the Newco
Liabilities assumed by Domtar, and Weyerhaeuser has demonstrated a breach of an
obligation imposed by contract. 5
B. Statute of Limitations
Domtar avers that, even if Weyerhaeuser's claim regarding liability for worker
compensation claims of Retired Employees survives the motion to dismiss, certain
claims are barred by Delaware's statute of limitations. (D.I. 13 at 9) Under Delaware
law, there is a three-year statute of limitations for breach of contract claims (1 0 Del. C. §
8106(a)) which "begins to run when the contract is breached." In re Marvel Entm't Grp.,
Inc., Civ. Nos. 97-638, 98-756, 273 B.R. 58, 80 (D. Del. 2002). In the complaint,

Weyerhaeuser alleges that since the date of the Sale on March 7, 2007, it has tendered
to Domtar dozens of workers compensation claims relating to Retired Employees, all of
which Domtar has either expressly or impliedly rejected. (D. I. 1 at~~ 38-39)

5

Section 6.09(a)(iii) of the Transaction Agreement is consistent with this
conclusion because it does not address liability for workers compensation claims of
Retired Employees and only stipulates that Weyerhaeuser retains liability for workers
compensation claims of U.S. WC Newco Employees. (D.I. 14, ex. Bat Section
6.09(a)(iii))

8

Weyerhaeuser filed the complaint on January 13, 2014. Thus, all claims that accrued
before January 13, 2011, three years prior to the filing of the complaint, are time-barred
unless a tolling doctrine applies.
"Under Delaware law, the statute of limitations is properly tolled under the
doctrines of 'inherently unknowable' and 'fraudulent concealment'." Studiengesellschaft

Kahle, mbH v. Hercules, Inc., 748 F. Supp. 247, 252 (D. Del. 1990). "Under the
'inherently unknowable injury' doctrine ... the statute of limitations is tolled 'where it
would be practically impossible for a plaintiff to discover the existence of a cause of
action' and 'the claimant is blamelessly ignorant of the wrongful act and the injury
complained of."' E./. duPont de Nemours & Co. v. Medtronic Vascular, Inc., Civ. No.
N10C-09-058, 2013 WL 261415 at *11 (Del. Super. Jan. 18, 2013), as corrected (Jan.
29, 2013) (quoting Cent. Mortgage Co. v. Morgan Stanley Mortg. Capital Holdings LLC,
Civ. No. 5140,2012 WL 3201139 at *22 (Del. Ch. Aug. 7, 2012) (citations omitted)).
"Fraudulent concealment requires an affirmative act of concealment [of the facts
necessary to put a plaintiff on notice of the truth] or some misrepresentation by a
defendant that prevents a plaintiff from gaining knowledge of the facts." /d. (citing Albert

v. Alex. Brown Mgmt. Servs., Inc., Civ. Nos. 762, 763, 2005 WL 5750601 at *19 (Del.
Ch. June 29, 2005).
"The statute of limitations can only be tolled until a plaintiff discovers, or by
exercising reasonable diligence should have discovered, facts constituting the basis of
the cause of action ... , [and] [t]he doctrines of inherently unknowable injury, and

9

fraudulent concealment, do not apply when the plaintiff has actual knowledge of the
breach and potential injuries to follow." /d. at 11-12. Additionally, parties engaging in
settlement negotiations to avoid a suit "is not a proper ground for tolling the statute of
limitations" as it "would obviously undermine the public policy behind the statute of
limitations." VLIW Tech., 2005 WL 1089027 at *13.
The doctrines of inherently unknowable injury and fraudulent concealment do not
apply to the case at bar because Weyerhaeuser had actual knowledge of the alleged
breach and the injuries to follow. Indeed, not only did Weyerhaeuser tender to Domtar
many workers compensation claims relating to Retired Employees since the date of the
Sale, but Weyerhaeuser administered, paid, and resolved the Retired Employee
workers compensation claims at its own expense as a result of Domtar rejecting tender
of the claims. (D.I. 1 at~~ 38-41) In two previous settlement agreements, one on
December 21, 2009 and the other on February 28, 2013, Weyerhaeuser and Domtar
stipulated that each of the parties reserves all rights with respect to the workers
compensation dispute. 6 (/d. at~~ 43-44) Such stipulations confirm that the instant
dispute is one in which the parties have been engaged since at least 2009. Moreover,

6

The December 21, 2009 settlement agreement between Weyerhaeuser and
Domtar states, "Each of the [p]arties reserves all rights, and grants no releases, with
respect to any matter other than the Post-Closing Resolved Items as set forth herein."
(D.I. 1 at~ 43) The February 28, 2013 settlement agreement between the parties
states, "The [p]arties intend to address issues relating to these Non-Addressed Workers
Comp Claims at a later date after the [p]arties have finalized the population of claims to
be included in a settlement. Pending the later addressing of those issues, the [p]arties
reserve all rights with respect to the Non-Addressed Workers Comp Claims." (/d. at~
44)

10

even if Weyerhaeuser intended to toll the statute of limitations, engaging in settlement
negotiations is not a proper ground for doing so. 7 See VLIW Tech., 2005 WL 1089027
at *13. Therefore, all claims regarding liability for workers compensation claims of
Retired Employees that accrued prior to January 13, 2011 are time-barred.

C. Liability for Administration Costs of Workers Compensation Claims for
Transferred Employees
Additionally, Weyerhaeuser alleges that Oomtar has not taken responsibility for
the administration of workers compensation claims made by Transferred Employees.

(0.1. 1 at 1J50) Oomtar argues that Weyerhaesuer's allegation regarding Oomtar's
purported failure to administer workers compensation claims of Transferred Employees
should be dismissed for failure to state a claim. (0.1. 13 at 9) In determining whether
Weyerhaeuser pled facts sufficient to survive a motion to dismiss for failure to state a
breach of contract claim, the above-cited standard applies. Weyerhaeuser must
therefore demonstrate: "[F]irst, the existence of the contract, whether express or
implied; second, the breach of an obligation imposed by that contract; and third, the
resultant damage to the plaintiff." VLIW Tech., 840 A.2d at 612.
First, the existence of a valid contract is undisputed. (See 0.1. 13 at 2; 0.1. 14,
exs. A-B) Oomtar "irrevocably assume[d] and agree[d] to faithfully pay, perform and
discharge when due all the Newco Liabilities" including "all employment and employee

7

Additionally, a settlement agreement executed on February 28, 2013 could not
have tolled workers compensation claims that had already accrued at least two years
earlier by January 13, 2011.

11

benefit-related Liabilities with respect to Transferred Employees .... " (D. I. 14, ex. A at
Section 2.01 (b); /d. at Section 2.03(a)(vii)) Administration of workers compensation
claims of Transferred Employees falls within the scope of employment-related
Liabilities. (See D.l. 14, ex. Bat Section 4.12(c)) Second, Weyerhaeuser sufficiently
pled the breach of an obligation imposed by the contract by alleging that Domtar has
refused to take responsibility for the administration of workers compensation claims
made by Transferred Employees. (D. I. 1 at~ 58) Finally, Weyerhaeuser sufficiently
pled damages by alleging that it has incurred significant expenses in administering
workers compensation claims made by Transferred Employees, and that Domtar has
refused to reimburse Weyerhaeuser for these incurred expenses. (/d.

at~~

56-57)

Domtar asserts that the claim should be dismissed because Weyerhaeuser did
not "allege any demand by Weyerhaeuser that Domtar make any payment or the
existence of any purportedly unpaid invoices or amounts." (D. I. 13 at 9-10) However,
Delaware law does not require Weyerhaeuser to demonstrate that a demand was made
and refused in order to survive a motion to dismiss a breach of contract claim. See

VLIWTech., 840 A.2d at 612; Winston v. Mandor, 710 A.2d 835, 840 (Del. Ch. 1997).
Moreover, Weyerhaeuser need not allege an exact monetary figure in order to
sufficiently plead that it suffered damages from the breach of contract. See VL/W

Tech., 840 A.2d at 613 (finding that VLIW's complaint sufficiently pled damages
resulting from a breach of contract by alleging that "as the successor to the Multiflow

12

rights in question, [VLIW] ha[d] been damaged by H-P's breach of the 1990
Agreement").
V. CONCLUSION
For the reasons discussed above, Domtar's motion to dismiss (D. I. 12) is granted
to the extent that Weyerhaeuser's claims regarding liability for workers compensation
claims of Retired Employees that accrued prior to January 13, 2011 are barred by the
statute of limitations. Otherwise, the motion is denied. An appropriate order shall issue.

13