RG Steel, LLC v. Severstal US Holdings, LLC et al

Filing 23

AMENDED OPINION: #103884 Based upon the conclusions set forth above, Defendant's Motion to Dismiss is granted: Plaintiff's First Cause of Action with respect to the 2010 Transportation Contract, and Second Cause of Action in its entirety, are dismissed. (Signed by Judge Robert W. Sweet on 1/22/2014) (cd) Modified on 1/29/2014 (ca).

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

----x
RG STEEL, LLC,
PIa

i

13 Civ. 1540

-againstAMENDED OPINION
SEVERS TAL US HOLDINGS, LLC and SEVERSTAL
US HOLDINGS II, LLC,
Defendants.

---x
A P PEA RAN C E S:

A~torne

for ~he Defendants Severstal US Holdi
LLC and Severstal US Hold
s II Inc.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Four Times Square
New York, NY 10036
By:
Scott D. Musoff, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
155 North Wacker
Chicago, IL 60606
By: Albert L. Hogan, III, Esq.
Amy L. Van Gelder, Esq.

Andrew J. Fuchs, Esq.

Atto

for Plaintiff RG Steel

WILKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
Brian E. O'Connor, Esq.

amin P. McCallen, Esq.

Joshua M. Troy, Esq.

s

Sweet, D.J.

rstal US

Defendants
dings II,

Severstal US

Inc.

ldi

("SUSH") and

s,

("SUSH II")

(collectively

"Severstal" or "Defendants") move pursuant to Rule 12(b} (6) to
partially dismiss the Compla

of Plaintiff RG Steel ("RG

Steel" or Plaintiff").

For the reasons set forth below,

De

s' motion is

granted.

Procedural History

r 3, 2011, Severstal fil

On Oct
seeking a declarato
RG Steel

a complaint

judgment to bar the arbitration sought by

to limit its relief to indemnification.

On

November 7, 2011, RG Steel sought an order to compel
arbitration, appoint an

trator and st

this action.

On

23, 2012, RG Steel's motion was granted.

PIa
2012.

iff broughL the instant action on March 30,

After De

matter juri

s disputed the al

ction, PlainLiff voluntarily

on April 20, 2012.
1

ions on subject
smissed the action

iff refi.-:..'

PIa

Supreme Court of the
fil

their answer, P

y in the

the action the same

or to Defendants

ate of New York.
intiff and affiliat

entities fi ed

protection under Chapter 11 of the Bankruptcy Code, and the
the action.

State Court s

By Notice of Removal

ed March

7, 2013, RG Steel removed the action to this court.

Plaintiff fi'ed the Amended Complaint ("Complaint") on
June 7, 2013.

The Complaint alleges five independent causes of

action and see
in connection wi

to recover for losses

lor damages sustained

RG Steel's purchase of certain steel mills

from Defendants pursuant to the Stock Purchase Agreement (the
"SPA") entered into in 2011, as we 1 as certain declaratory
relief.

On
dismiss.

y 22, 2013, Defendants filed the motion to

On September 30, 2013, the parties st

lat

and

agreed that Plaintiff's Fourth Cause of Action was voluntarily
withdrawn wit

prejudice.

Defendants' motion to

heard and marked fully submitted on October 2, 2013.

2

smiss was

Facts

1. The Part

SPA
------------------

RG Steel is a Delaware limited liability company that
manufactures a variety of steel mill products, including
rolled, cold-roll

,and coated sheets, and tin mill products.
ted Ii

SUSH is a Delaware 1

lity company.

owner of the issued and outstanding

It is

ity interests of SUSH II,

a Delaware corporation and former owner of the e

interests

Sparrows Point, LLC ("Severstal Sparrows Point").

of Seversta

aries of Severstal International, a

SUSH and SUSH II are s
global

sole

ch has

stee~maker

ions in Russia, the United

States and elsewhere.

RG Steel, SUSH, SUSH II and Severstal Sparrows Point
entered into

March 1, 2011 SPA, which provided that RG Steel

would purchase the equity
from SUSH. The facil
Ma

three U.S.-based steel companies

ies are located in

and, Warren, Ohio and Wheeli

,West Vir

rows Po
a and were

acquired by Severstal between May 2008 and August 2008. In
connect

with the transaction, RG Steel purchased all of t
of Severstal Sparrows Point, which in turn owned all of

the outstanding

ity in Severstal Warren LLC ("Warren" or
3

rstal Wheeling Inc.

"Severstal Warren") and
(Compl.
to

~

7; SPA

followi

1.01, 1.04.)

§§

subject to a pur

$125

Ilion in cash,
amount of

se price adjustment based on
~

company at closing (Id.

working capital at t
mill

(l)

of a note (the "Note"), t

in the

").

, RG Steel ag

In

payment schedule:

("Wheeli

8.)i

(2) $100

princ

which was due five years after closing (id.);

(3)

1 of

repayment of

$317 million of third-party bank debt owed by the Severstal
entit

s

(id.) and (4) $36 million in cash to

Severstal subsidiar

s within one year of closing.

transaction closed on March 31, 2011.

1. The Pu

paid to two

.

The

37.)

e Price

Section 1.01 of the SPA provides that
cons

~

(Id.)

ration to be pa

"aggregate

by [RG Steel] at the Closing .

shall be (i) the Note, plus (ii) cash in the amount equal to the
Initial purchase Price (as adjusted pursuant to Section 1.04,
the

nal Purchase Price)."

The Note has a principal amount of $100 million, with
a maturity date of March 2 , 2016, and quarterly interest
payments

beginni

on June 3C, 2012, until the entire
4

(Exhibit 1,

ipal amount is repaid in full.

require immediate payment of

~he

~ote

The

yment events

ory

Note also sets forth certain

1.1.)

t

in full,

§

including, for

nge of control or certain sales, transfers, and

example, a

dispositions of RG Steel's interest in the acqui
(Exhibit 1 Preamble,

§

1.5.)

of an event of default, incl
Severstal may

ion, upon the occurrence

In

ng RG Steel's bankruptcy,

clare all or a portion of the Note immediately

due and payable.

(Id.

2.1,2.3.)

§§

Section 1.04(a) of the SPA defines the I
Purchase

businesses.

tial

ce as $125 million, subject to an upward or downwa

adjustment

sed on the acquired business's net work

tal and

certain indebtedness as of the Closing Date, also known as the
"Ef

ctive Time," as compa

the SPA.

(SPA

ustment.

§

1.04.)

with

The SPA prov

seline amounts set forth in
s for two phases of this

First, pursuant to a calculat

before the Closing,

n two

siness

ys

Initial Purchase Price was subject to an

initial upward or downward adjustment bas

on Severstal's

estimate of the net working capital and certain indebtedness as
of

Clos

in the SPA.

Date, as compared with

,

• J

seline amounts set forth

The estimates of net working

indebtedness resulted in RG Steel

5

tal and

ing only $85 million at the

cv-6922

Holdings LLC v.

Several

osing.

St

/ LLC, Case No. 11

(RWS), 865 F. Supp. 2d 430 (S.D.N.Y. 2012).

, the SPA provides
to the pu

se p

calculations

0

r another, final adjustment

ce based on t

renee between final

net working capital

and Severstal's estimate of net wor

certain indebt

ss,

capital and certa

indebtedness of Severstal Sparrows Point and its subsi
as of the Closing Date.

(SPA

§

1.04(b).) The second a

is conducted through a multi-st
between t

2.

a

es,

ustment

of calculations
1 Purchase Price.

rties and yie

(Id. )

tration Process
--------------------------

In the event that t

parties were unable to agree on

the amount of this final adjustment, Article I of t
provides

r either party to re
accounting firm.

Price.

r their disputes to an
.

§§

1.04(b) (iii)

tes to calculate the

(Id. §§ 1.04 (a) (i),

nal Purchase

(b) (iii), and (b) (iv).)

In this case, at the conclusion
of calculat

(iv).) The

independent accounting firm's

parties would then use t
resolution of their di

SPA

0

, RG Steel proposed
6

the parties'
ustments to

ce that could,

final purchase

ce to zero.

cash purchase
val

Severstal disputed the

ty of nearly all of these pu

rted a

ustments.

purchase price

Severstal's calculation of
Steel would owe it $29 million.

Under

ustment,
dings LLC

See Severstsal US

865 F. Supp. 2d 430

v. RG Steel,

ed, essentially reduce

if

(S.D.N.Y. 2012).

On

it was

September 3, 2011, RG Steel notified Severstal t

parties' disputes to arbitration pursuant to

referring t

Section 1. 04 (b) (iii) of the SPA.

Id. at 431.

The parties selected an individual within
independent accounting firm to serve as arbitrator and
negotiat

and executed an engagement letter.

On December 27,

2011, the independent accounting firm issued a schedule for the
arbitration, including a st

red exchange of submissions and a

decision date of May 11, 2012.
pr

a f

to rende

I

(Exhibit 2.)

On March 8, 2012,

decision, the independent accounting

firm resigned as arbitrator due to a conflict of interest
involving RG Steel.

(Compl.

81.)

On May 31, 2012, RG Steel filed a voluntary
for relief under
Unit

States

(Compi. 'lI 1.)

er 11 of the Unit

ion

States Code in the

strict Court for the District of Delaware.
Pursuant to the bankruptcy stay,
7

t

arbitration

was suspended for

roximately one

worked to locate

engage a new a

agreed upon a s

until the part
rator.

s t

Ie that concl

s

The parties have

2013.

arbitration

(CompI. '!l 81.)

sentations and Warrant

3.

In ne

s

iating the SPA, t

parties bargained for and
'!l 8.)

obtained certain representations and warranties.
particular, the preamble to Art

II of the SPA p

"[e]xcept as

a schedule to

se set

representation and warranty
Schedules") ,
Purchaser t

lectively, the"

Company and Parents represent

Section 8.02 of the SPA provides
hold harmless RG Steel for

representation or warranty made by Severstal
fai

des that,
particular

sclosure
warrant to

t all of the statements contained in this Article

II are true as of the date of this Agreement.

indemnify

In

to perform or

"

(Id.

'!l 30.)

t Defendants must
of
Article II or

fill any covenant contained in the SPA:

Subject to
provisions of
s Article II,
after the Closi ,Parents
11, jointly and
severally,
ify Purchaser and its Affiliates
. in respect of, and hold
harmless from
against, any
all Losses suf red, incurred or
8

and

susta
. by reason of or resulting from (i)
inaccura
or breach of a
sentation or warranty
of Parents and the Company contained in Article II of
this
eement or (ii) any non Ifillment of or
failure to perform any covenant or agreement on t
part of any of the Parents or, with respect to
covenants or agreements to
performed prior to t
Closing, the Company, contained in this

(Compl.

':II

32; SPA

damages,

§

8.02.) "Loss" is defined as "any

s) • "

(Compl.

':II':II

and warranties that form the
expire either 18 months a
Closing, 30

Notice was t

(Id.

9.01(a).)

§

c section, the

sis

§

rs after the

icable statute of 1
8.01.)

resentations

r indemnification claims

er the Closing, f

ys after the

expires, or never.

32 33; SPA

i

ng on the

not

ses (including reasonable

ilities, costs and

attorneys'

all

tations

If a Claim Notice or Indemnity

ly provided, a representation or warranty does

ire until the rela

indemnification cIa

is resolved.

(Id. )

Sections 8.02(c)

(h) and 8.03-8.07 set forth

additional detailed provisions applicable to the parties'
ification obligations and detailed procedures for making
an

fication cIa

8.03 sets forth the process
indemnifying party and

As part of those
deliver
process for
9

s, Section

a

aim Notice to the
fying party to

assume control of t
8.06 provi
VII s

defense of a t

s that an indemnification c

11 be the exclus

inaccuracy

remedy of the parties "for

or

of warranty or nonfulfil

brea

in Article

im set

srepresentation,

sentation or warranty,

any

ction

rd-party action.

ilure to be perfo

of any covenant or agreement contained" in the SPA.

(Id.

§

8.06.)

In Section 2.16, Severstal represented and warranted
Schedule 2.16 contained an accurate list of all "Material

y.

Contracts" to which Sparrows or an affiliate was a
§

2.16(a)-(n).)

A Material Contract is one t

(SPA

"involves the

payment or receipt of an amount in excess of $1,000,000."

aintiff contends that Defendants

(Id.)

esented to RG

Steel that it was assuming the benefits of ten-year coke supply
agreements that provided the steel

redient coke at relatively

fixed conversion prices for the life of the agreements,
Compl.

~~

44 46), but that RG Steel did not rece

contractual benefits for which it
agreements include: the Have
Agreement, and the Se
the "Co

id.

(Id.

~

11 Agreement, t

the

53.) The
Jewell

ce Provision Agreement

Supply Agreements"} .

(see

Defendants, purport

lectively,
y in

violation of these warranties, failed to disclose a letter dated
10

January 31, 2011
C

land Inc.
sed coke,

fi

"January 31 Letter"),

(t

("ArcelorMittal"), through whom Sparrows
in which ArcelorMit

by Sparrows was

(Id.

(Id.

'Il 50.)

the price from $22.00 fixed/$20.90 variable

$10.10fixed/$22.00 variable
re

favorable

and the price to be paid

stantially higher.

ArcelorMittal rais

h.

1 stated that

had been

ice provis

reements,

ttal

from Arcelo

r the Haverhill and Jewell

ively, to $37.50 fixed/$37.50 variable under

'Il 51.)

Plaintiff all

s that this caused RG Steel

ed liability of $80.7 million.

to incur an une

(Id.)

Plaintiff also asserts that Defendants failed to
sclose the existence of a t

rtation contract pursuant to

which Sparrows was burdened with an additional
of $1,425,450.00.
provided PIa

(Compl. 'Il 65.)

ure obligation

Specifically, Defendants

iff with a 2007 contract in whi

subsidiary, WCI Steel,

Inc.

(the predecessor-

a Sparrows
interest to

Severstal Warren), agreed to transport no less than 215,000 tons
of coke per

r for 15 years with Norfolk Southern Rai

Company ("Norfolk Southern") and its subsi
"2007 T

ation Contract") .

(Id.

y

ary railroads

'Il'll 60-61.)

(the

s

De

purportedly did not disclose that the 2007 Transportation
Contract was terminated in light of Severstal Warren's
and replaced with a contract executed December 1, 2010
11

("the

(Id.

"2010 Transportation Contract") .

~~

62-63.) The 2010

Transportation Contract specified that "no tonnage was shipped
under [the 2007 Transportation Contract] in 2009,

resulting in a

215,000 ton deficit and an obligation to pay [Norfolk Southern]
$1,425,450" (the "Accrued Liability"), and further provided that
Norfolk Southern "shall forgo collection of the Accrued
Liability and 215,000 tons is hereby added to the Prior Minimum
Volume for 2024."

(Id.

~

64.)

Further, Plaintiff alleges that Defendants failed to
adequately disclose the unfavorable terms of the amendment to a
pellet purchase contract between Sparrows and Cliffs Sales
Company ("Cliffs").

(Compl.

~~

Subsequent to the

54-59.)

closing, Cliffs asserted a claim for breach of contract against
RG Steel, which proceeded to arbitration.

(Id.

~~

56-57.)

The

arbitration panel found in favor of Cliffs and rendered an award
against RG Steel for $18,963,465.40 in damages, plus $1,524.53
in daily interest and $7,127.18 in arbitration fees.
54-59.)

(Id.

~~

Plaintiff contends that Defendants also failed to

disclose ten additional Material Contracts pursuant to which
Sparrows was obligated to sell tin plate to third parties at
prices below the cost of production.

(Compl.

~~

66-68.)

RG

Steel has suffered more than $38 million in losses as a result
of these agreements.

(Id.

~

69.)
12

t Defendants failed to

nally, Plaintiff maintains
disclose t

stence of changes to

s

by the Co

e Agreements and t

(Compl.

Contract.

<[

70.)

r practices occasioned
2010 Transportation

Pursuant to Section 2.15 of

S

Defendants represented and warranted t

as set forth in S
dule 2.15, since
r
30, 2010 to the date of this Agreement: (i)
Business has been conduct
in the ordinary course
consistent with prior practices;.
(x) nei
r the
Company nor any of its Subsidiaries has amended,
terminated, cancel
or compromised any mate al
aims or waived
r rights of substantial
value; .
neither the Company on [sic]
of
s Subsidiaries has
fied in any material re
cts
s payment practices
th any of its mater
suppliers .

. ']( 71.)

Defendants pu

rt

to disclose that (1)

ly violated this p

sion by

rrows materially modifi

practices under the Co

Supply Agreements in

31 Letter (Id. '](']( 42-53), and (2) pursuant to t
Transportation Contract,
practices with Nor

its

materially
lk Southern.

4. Covenants

13

(See id.

2010

its
60-65. )

Article IV of the SPA is titled "Covenants and
reements."

Section 4.14 sets

orth a number of covenants

rding the termination of intercompany agr
pre

sting agreements between Severstal entit

s, which are
s that would

remain with Severstal, on the one hand, and those that were sold
hand.

to RG Steel, on the

Section 4.14(d)
rrows Point to

Steel to cause its subsidiary

obligates RG
to

Severstal's affiliates all outstanding intercompany trade
payables in an amount not to exceed $36
to the first ann

llion

sary of the Closing Date."

"[o~n

(Id.

or prior
§

4.14(d).)

The Applicable Standard

In cons ide
12(b) (6),

ng a motion to di

ss pursuant to Rule

Court construes the complaint liberally, accepting

all factual allegations as true and drawing all reasonab

s in

in

Corp.

r

plaintiff's favor.

12 F . 3d 11 7 0 , 11 7 4 ( 2 d Ci r.

Mills v. Polar Molecular

1 9 9 3) .

The i s sue "i s not

whether a plaintiff will ultimately prevail but whether
claimant is entitled to of

Villa
1995)

r evi

nce to support the claims."

Pond, Inc. v. Town of Darien,
(quoting Scheuer v. Rhodes,

Ct. 1683, 40 L.

. 2d 90

(1974)).

14

56 F.3d 375, 378

(2d Cir.

416 U.S. 232, 235 36, 94 S.

To survive dismissal, "a complaint must contain
sufficient factual matter, accepted as true, to 'state a claim
to relief that is plausible on its face.'"

Ashcroft v.

556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868

Iqbal,

(2009)

(quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570, 127 S.

Ct. 1955, 167 L. Ed. 2d 929 (2007)).

Plaintiffs must allege

sufficient facts to "nudge [

J

their claims across the line from

conceivable to plausible."

Twombly,

550 U.S. at 570.

"The

plausibility standard is not akin to a 'probability
requirement,' but it asks for more than a sheer possibility that
a defendant has acted unlawfully."

Cohen v. Stevanovich,

Supp. 2d 416,

Though the court must accept

423 (S.D.N.Y. 2010).

772 F.

the factual allegations of a complaint as true, it is "not bound
to accept as true a legal conclusion couched as a factual
allegation."

Iqbal,

556 U.S. at 678.

(quoting Twombly,

550 U.S.

at 555).

"Under New York law .
lS

. judgment as a matter of law

appropriate if the contract is unambiguous.

Contract

language is unambiguous when it has a definite and precise
meaning, unattended by danger of misconception in purport of the
[contract] itself, and concerning which there is no reasonable
basis for a difference of opinion."
Smartlens Corp.,

Photopoint Techs., LLC v.

335 F.3d 152,160 (2d Cir. 2003)

(internal

15

-------------_.

-_. __..- - - ­

tations omitted); see also Crane Co. v. Collec Indus., Inc.,
171 F.3d 733, 737

(2d Cir. 1999)

("If the

rties'

ent is

unambiguously conveyed by the plain meaning of the agreements,
inte

tat

is a matter of law.").

It is black letter

"[a] contract should be construed so as to give

law

meaning and ef

to all of its provisions,"

I

"[r]ather

rewrite an unambiguous agreement, a court should enforce the
plain meaning of that
Inc.,

164 A.D.2d 275,277

" Am.

Express Bank v. Uniroyal,

(N.Y. Sup. Ct. 1990).

I. efendants' Motion to Dismiss is Granted
D
Severstal has moved to dismiss the
Action in

rt, and the Second Cause of Act

rst Cause of
in its entirety,

r failure to state a claim.

1. Because Plaintiff fails to Al

Tran
ion Contract Gives
se
as to That Contract in
Plaintiff's First Cause of Action
are
smissed

De

ndants move to dismiss the portion of RG Steel's

rst Cause of Action re ating to the 2010 contract with Nor
Southern,

lk

"2010 Norfolk Southern Transportation Agreement")

which Plaintiff alleges De

s

in a loss of $1,425,450.

16

iled to disclose resulting

Both parties agree that Defendants disclosed a
transportation agreement between Severstal Warren and Norfolk
Southern Railway dated February 9, 2007
Southern Transportation Agreement") .

(the "2007 Norfolk

(Compl.

~

60.)

This

agreement has a 15 year term (through 2024) and required
Severstal Warren to transport with Norfolk Southern no less than
215,000 tons of coke per year from a coke plant located in
Haverhill, Ohio.

(Id.

<]I

61.)

Severstal Warren failed to ship a

certain 215,000 tons under the 2007 Norfolk Southern
Transportation Agreement, which gave rise to a $1,425,540
liability.

(Id.

<]I

62.)

Severstal Warren subsequently entered into the 2010
Norfolk Southern Transportation Agreement, which provides that
Norfolk Southern will forgo collection of the $1,425,450, and
Severstal Warren shall instead ship the missed 215,000 tons in
2024

(in addition to the original tonnage for 2024).

64-65.)

(Id.

<]I~

According to RG Steel, Severstal's failure to disclose

the subsequent 2010 Norfolk Southern Transportation Agreement,
"that obligated Severstal Warren, LLC to pay the Accrued
Liability," by increasing the required tonnage in a post-closing
liability, rather than a pre-closing $1,425,450 Accrued
Liability as assessed under 2007 Transportation Contract, was a
material breach under

§

2.16.

(Id.

17

<]I

6S.)

In § 2.16 of the SPA, Severstal represented and
warranted that Schedule 2.16 contained an accurate list of all
"Material Contracts," which include:

(e) any agreement, commitment or other Contract
relating to Indebtedness of the Company or a
Subsidiary thereof in an amount in excess of
$1,000,000;
(i) any agreement, invoice, purchase order or other
arrangement with any supplier or for the furnishing of
services under the terms of which the Company or any
of its Subsidiaries (i) is likely to payor otherwise
give consideration of more than $1,000,000 in the
aggregate during the calendar year ending in December
31, 2011 or any calendar year thereafter or (ii) is
likely to payor otherwise give consideration of more
than $5,000,000 in the aggregate over the remaining
term of such agreement, in each case, that is
not otherwise included under Section 2.16(d);
(j) any agreement, invoice, sales order or other
arrangement for the sale of inventory or for the
furnishing of services by the Business that (i) is
likely to involve consideration of more than
$1,000,000 in the aggregate during the calendar year
ending in December 31, 2011 or any calendar year
thereafter or (ii) is likely to payor otherwise give
consideration of more than $5,000,000 in the aggregate
over the remaining term of such agreement, in each
case, that is not otherwise included under Section
2.16 (d) .

(SPA §§ 2.16 (e),

(i), and (j); Compl. 'l1 41.)

In Section 8.02,

Severs tal agreed to indemnify RG Steel for "Losses suffered,
incurred, or sustained by [RG Steel] by reason of or resulting

18

from (i) any inaccuracy or breach of a represent at
"

warranty of [Severstal]

RG Steel
Nor

(SPA § 8.02.)

for

(See SPA

§

2.16(j).)

rtation

claimed

2007 Nor

lk Southern

reement, which was disclosed, not from the 2010

The 2010 Norfolk Sout

rn Transportation Agreement

does not give rise to the loss,
Southern "shall
obligation provi

altered from a
does not

furnishing

However, t

$1,425,450 liability results from t

tons at issue

1

Business" with consideration

ces by

Contract.

er

was a

Contract," in that it was an "agreement

\\$1,000,000."

2010

s sufficiently alleged that

lk Southern Transportation

of

or

provides

Norfolk

rgo collection" of the pre

sting $1,425,450

that Severstal Warren will sh
2024.

(Id.

~

64.)

the 215,000

That the obligation was

closing liability to a

t

osing liabili

underlying liability is not

the fact t

or breach of a r

the result of "any inaccura

resentation or

warranty of [Severstal],U (see SPA § 8.02), but rather was
disclosed by Defendants

t

2007 T

Steel there

e

a loss related to the 2010

fails to

rtation Contract.

Norfolk Southern Transportation Agreement, and Plaintiff's
allegations as to that contract are di

19

ssed.

RG

Practices
the 2010

2.

Plaintiff's Second Cause of Act
letter rega
the 2010 Nor

ng the pricing of the Coke Supply Agreements and
k Southern Transportation Agreement, both of

which Defendants failed to disclose, const

§

2.1

of the SPA.

uted changes in

of the representation and warranty

payment practices in
in

alleges that a

(S PA

§

2. 15 . )

Pursuant to Section 2.15 of

SPA, Severstal

sented and warranted to RG Steel that between

ember 30,

2010, and March 1, 2011, there was an absence of certain changes
in its business, specifically that,

(i) "the Bus
ss has been conducted in the ordinary
course consistent with prior practice" and (xvi)
"neither
Company or any of its Subsidiaries
s
modified in any material respects its payment
practices with any of its material suppliers."

(SPA

§

2.15 (a)

(i) and (

)

.)

Plaintiff contends that on

January 31, 2011, Defendants received a letter modifying the
payment provisions of

Coke Supply Agreements.

(Compl. ']I

0)

The Coke Supply Agreements are grounded in a Service Provision
Agreement, which provides that,

20

Upon delive
of
Sparrows Point Coke to the
Del
ry Point (as
fined
the Co
Supply
Agreements) relating to the
rrows Point
ility,
(i) Rec ient [Severstal Sparrows Point LLC] shall
notify Provider [Arcelo
ttalJ in writing of t
occurrence of such deli ve
[and] (ii) Recipient
shall pay Provider in all cash amounts owed by
Provi r for
Sparrows Point Co
pursuant to t
appli
le Co
Supply
reement.

(Compl.
the Co

~

49.)

s disclosed the existence of

Although De

Supply Agreements, Defendants did not disclose a

January 31, 2011 letter from ArcelorMittal to Severstal N.A., in
which

favorable fixed price provision had been removed and

price to be

id by Severs tal Sparrows Po

increased, equating to an
million over t

LLC had been

regate price increase of $80.7

term of the contracts.

(Compl.

~~

In

50 51.)

tion, "in or about December 1 2010,H Severstal entered into
the 2010 Nor

lk Southern Transportation

ement, which

transformed a pre-closing Accrued Liability into a post clos
igation to transport an additional 215,000 tons of co
Nor

lk Southern.

both t

Janua

~~

(Id.

63-64.)

The Complaint alleges t

31 letter and the 2010 Norfolk Sout

Transportation Agreement material
practices in breach of

§

with
t

rn

changed Defendants'

yment

2.15.

se assertions, though, are the same as those
supporting Plaintiff's cla

in its First Cause of Action for

21

resentations and

Severstal's purported breach of its
warranties

(Id. g[g[ 44- 53, 87.)

r Section 2.16 of the SPA.

RG Steel

rting its claims in

not plead new facts

Second Cause of Action, but merely incorporates the paragr
to its Section 2.16 claims in

in its Complaint pertai
its First Cause of Action.

(Id. 'l1 72.)

To be meaningful,

Sections 2.15 and 2.16 must constitute representations and
warranties about dif

See, e.g., Muzak Corp. v.

rent conduct.

Hotel Taft Corp., 1 N.Y.2d 42, 46

7 (1956)

("The rules of

construction of contracts require us to adopt an inte
which gives meaning to every

tation

sion of a contract or, in the

negative, no provision of a contract should be left wi
force
subd.

effect.")
[c]).

(citing 1 Restatement, Contracts, § 235,

Section 2.15 is not applicable to an all

failure to disclose Material Contracts, but rather contains only
representations and warranties that Severstal would not
materially change certain business and pa
Plaintiff does not anywhere p
dis
Norf
brea

ose the amendments to

how
Coke S

nt practices.
alleged

ilure to

ly Agreements and 2010

k Southern Transportation Agreement constitutes such a
of the

sentations and warranties in Section 2.15

and (xvi), and is not a mere

ilure to disclose a material

contract under § 2.16.

T'l1 96-97; see also id. 'l1'l1 70

(i)

22

2)

Because Plaintiff does not allege facts in support of
r Section 2.15 other than t

its claim
claim

se that allege a

r failure to disclose Material Contracts pursuant to

Section 2.16, Plaintiff's Second Cause of Action is dismis
to both the Co

reements and the 2010 Nor

Supply

as

lk Southern

Transportation Contract. 1

II.

plaintiff's Motion to Replead is Denied

In the event RG Steel's allegations are
insufficient,

intiff

sts leave to

its

ssed

claims.

Absent undue del
ility,

bad

ith, undue prejudice, or

"mandate" under Rule 15 (a) (2) to freely grant

leave to amend "is to

heeded." Foman v. Davis

371 U.S. 178,

In further support, Defendants contend that § 4.0: of the SPA, which sets
forth Severstal's covenants during the ti~e between the execution of the SPA
and closing, demonstrates that § 2.: does not
for mere failures to
disclose Material Contracts.
Section 4.10 contains a covenant that the
shal "not enter into, material y amend or terminate any Materia
Contract., or viaive any mate
right thereunder."
(PA § 4.10(k).)
According to Defendants, if the anguage in Sections 4. Ora) and (r), which
is ident
to the anguage in Sections 2.
(i) and (xvi), included
representa ions and warranties related to the disclosure of Material
Contracts, then it would have been unnecessary to include
ion (k) in
Section 4.10, showing that Section 2.1
(i) and (xvi) did not include
representations
warranties related to disclosure of Material Contracts.
(Defendants Memorandum in
of Motion to Dismis , "Def. Mem."; at 20
(ci::ing Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 46-47 (1956) ("The
rules of contruction of contracts
re us to
an interpretation which
ion of
contract or, in the negative, no
sion of a contract should be
force and effect.")).)
1

23

182 (1962); see also

Servs. Gas Holdi

of Am. N.A., 626 F.3d 699, 725 (2d Cir. 2010)
this Circuit has been to allow a

Co. v. Bank

('''The

rty to amend its pleadi

the absence of a showing by the nonmovant of prej
faith.'V)

e in
s in

or bad

(quoting Block v. First Blood Assocs., 988 F.2d 344,

350 (2d Cir.1993)).

This case
scovery has

s been

to

in.

cause no material delay in

since
A second amended

laint would

resolution of this case.

However, amendment would be futile.

PIa

iff's cIa

conclusive.

PIa

iff has not cited any additional

to overcome the provisions of t

states

s it

contract, but

"any amendment would simply of

the issues discussed in this motion."

r clarity on

(Pl. Opp. at 19-20.)

such, Plaintiff's request for leave to amend t
cIa

fail on

of the SPA, which is unambiguous and

the plain

would pI

il 2012 and

dismissed

is deni

Conclusion

Based upon the cone Ius
Defendant's Motion to

set

h above,

smiss is granted: Plaintiff's First

Cause of Action with respect to the 2010 Transportation
24

As

Contract, and Second Cause of Action in its entirety, are
smissed.

It is so ordered.
New York, NY
January

j.,V,

2014

ROBERT W. SWEET
U.S.D.J.

25