Hexion Specialty Chemicals, Inc. v. Oak-Bark Corporation
Filing
82
ORDER granting 51 Motion for Summary Judgment, denying 54 Motion for Partial Summary Judgment, denying as moot 71 Motion to Strike, and denying 79 Motion to Modify Caption and Pleadings. Signed by US District Judge James C. Dever III on 9/28/2011. (Sawyer, D.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTII CAROLINA
SOUTHERN DIVISION
No.7:09-CV-I05-D
HEXION SPECIALTY CHEMICALS, INC.,
Plaintiff,
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OAK-BARK CORPORATION,
Defendant.
ORDER
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On July 1,2009, Hexion Speciality Chemicals, Inc. ("plaintiff" or "Hexion") sued Oak-Bark
Corporation ("defendant" or "Oak-Bark") alleging breach of warranty concerning a 2006 asset
purchase agreement ("APA") in which Hexion purchased most ofthe assets and operations ofOak
Bark's chemical manufacturing plant in Columbus County, North Carolina Hexion contends that
Oak-Bark breached certain warranties in the APA concerning (1) wastewater treatment; (2) the level
of combustible dust at the plant; and (3) one of the plant's ammonia storage tanks. Hexion seeks
approximately $2.7 million in damages. On September 20, 2010, the parties filed cross-motions for
summary judgment [D.E. 51, 54]. Oak-Bark seeks summary judgment on Hexion's warranty claims
[D.E. 51], and Hexion seeks partial summary judgment as to liability on the warranty claims [D.E.
54]. On October 12,2010, Hexionand Oak-Bark filed responses [D.E. 63, 64]. On October 22 and
25,2010, Hexion and Oak-Bark replied [D.E. 69, 72]. As explained below, the court grants Oak
Bark's motion for summary judgment and denies Hexion's motion for partial summary judgment.
I.
Summary judgment is proper when ''the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56(a);
Celotex Con>. v. Catrett, 477 U.S. 317,322 (1986); Anderson v. Liberty Lobby. Inc., 477 U.S. 242,
247-48 (1986). The moving party bears the initial burden ofdemonstrating the absence ofa genuine
issue of material fact. Celotex, 477 U.S. at 325. After the moving party has met this burden, the
nonmoving party "must come forward with specific facts showing that there is a genuine issue for
trial." Matsushita Elec. Indus. Co. v. Zenith Radio Com., 475 U.S. 574, 587 (1986) (emphasis and
quotation omitted). A genuine dispute about a material fact exists "if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. The
court views the evidence and the inferences drawn therefrom in the light most favorable to the
nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007). When considering cross-motions for
summary judgment, a court evaluates each motion using the standard set forth above.
See,~,
United States v. Bergbauer, 602 F.3d 569,574 (4th Cir. 2010); Simmons v. Prudential Ins. Co. of
Am., 564 F. Supp. 2d 515,520 (B.D.N.C. 2008).
Hexion and Oak-Bark are competitors in the chemical manufacturing industry.
On
November 21,2006, Hexion agreed to purchase most of the assets and operations at Oak-Bark's
chemical manufacturing plant located in Columbus County, North Carolina (hereinafter "plant").
At the plant, Oak-Bark and the preceding owner, Wright Chemical Corporation, produced various
chemicals, including formaldehyde, hexamine, and ketone. After the sale, Oak-Bark retained assets
and operations on the site, leaving Oak-Bark and Hexion to coexist at the plant. See Pl.'s Mem.
Supp. Mot. Summ. J. [D.E. 55], App. D Ex. 4 ("APA") §§ 2.1 & 2.2; Def.'s Mem. Supp. Mot.
Summ. J. [D.E. 52] 3. The sale was consummated with a detailed asset purchase agreement, in
which Oak-Bark agreed to place $3 million ofthe purchase money in an escrow account for a period
of3 years. See APA § 11.5. The purpose of the escrow account was to provide indemnification to
Hexion for any damages suffered as a result of, inter ali~ "any breach of any representation or
warranty made by [Oak-Bark] in [the APA] ... or any other certificate, document, writing or
instrument delivered by [Oak-Bark] pursuant to [the APA]." Id. §11.2(a).
2
After the sale, Hexion encountered various problems in the plant. On March 12, 2009,
Hexion demanded indemnification pursuant to section 11.2 of the APA.
Oak-Bark refused
indemnification, and Hexion filed this action on July 1, 2009, alleging breach of warranty. See
CompI. [D.E. 1]. On October 2, 2009, this court entered a scheduling order [D.E. 19]. OnJanuary
19,2010, Hexion (with Oak-Barks's consent and this court's approval) filed an amended complaint
[D.E.24]. Hexion's amended complaint describes three specific breaches. See Am. CompI.
~~
10-30; PI.'s Mem. Supp. Mot. Summ. J. 3. 1
Hexion's first claim relates to the treatment ofthe plant's wastewater, which is a byproduct
of the plant's chemical manufacturing process. Hexion contends in its amended complaint that:
10.
A publicly owned treatment works wastewater facility ("POTW Wastewater
Facility" as defined in the Agreement) supports the operation of the Business.
11.
Oak-Bark was responsible for the design ofthe POTW Wastewater Facility.
12.
Since acquiring the Business, Hexion has received notices from Columbus
County that the POTW Wastewater Facility has had persistent ammonia and
biological oxygen demand violations since it began operation. These violations
indicate that the POTW Wastewater Facility is under-designed and as a result,
sustained operation of the POTW Wastewater Facility at its maximum design
capacity will result in failure to comply with the relevant NPDES permits.
13.
Though Hexion has modified its operations to address the violations, Hexion
has had to pay over $13,000 in fines related to the POTW Wastewater Facility.
14.
Hexion has also incurred substantial costs associated with engineering
modifications to its production processes and for off'site disposal of wastewater
necessitated by the faulty design of the POTW Wastewater Facility.
IS:
Hexion must also modify the hexamine stripper to resolve the issue with the
POTW Wastewater Facility which will require a substantial expenditure.
16.
Oak-Bark has therefore breached the representations and warranties contained
in §§ 3.17(a), 3.22(a), 3.22(c), 3.22(i), and 3.22(k) ofthe Agreement.
Am. Compi. Till 0-16. Hexion seeks $1.5 million in damages. See id. ~ 17.
1 Hexion alleged four breaches in its complaint and amended complaint. See Compi. W
31-36; Am. CompI. ~~ 31-36. However, Hexion has abandoned its claim related to the lined pond.
See PI.' s Mem. Supp. Mot. Summ. J. 3.
3
Second, Hexion seeks damages caused by alleged warranty breaches relating to combustible
dust, a byproduct of producing hexamine at the plant. See id. ~~ 18-22. The parties agree that
producing hexamine leads to dust that can become explosive when suspended in the air at a high
enough concentration. Hexion claims that Oak-Bark breached two specific warranty provisions
concerning combustible dust, both ofwhich caused Hexion to spend $448,493 in repairing the plant
to reduce the combustible dust risk. Id. ~ 22.
Initially, Hexion cites APA section 3.22(g). Id. ~ 19. In section 3.22(g), Oak-Bark affirmed
that it had "delivered to Buyer true and complete copies and results ofany reports, studies, analyses,
tests, or monitoring possessed or initiated by Seller or on behalf of Seller pertaining to Hazardous
Materials or Hazardous Activities, in, on, or under the Facilities ...." APA § 3.22(g). Hexion
claims that Oak-Bark failed to provide a copy of a January 5, 2000 report that the Fike Corporation
(hereinafter ''the 2000 Fike Report") completed for Oak-Bark's predecessor Wright Chemical
Corporation. Wright Chemical Corporation obtained the 2000 Fike Report in conjunction with
purchasing Blue Tech, Inc. equipment from WW Sly Manufacturing Company to be used at the
plant. See Def.'s Mem. Opp'n Mot. Summ. 1. [D.E. 64], Ex. 30 ("2000 Fike Report"). The 2000
Fike Report states that hexamine production creates a dust explosion hazard. See id. Hexion claims
that Oak-Bark's failure to tender the 2000 Fike Report in 2006 violated section 3.22(g). See Am.
CompI. ~ 21.
Hexion also argues that the level of combustible dust that it encountered when it began
operating the plant in November 2006 "violated the general duty clause ofthe Occupational Safety
and Health Act, 29 U.S.C. § 654, and requirements regarding general safety and maintenance of a
clean workplace, 29 C.F.R. §1910.22(a)(I)." Id.
~
20. Hexion alleges that Oak-Bark's conduct
violatedAPA sections 3. 17(a), 3.22(a), 3.22(c), 3.22(g), and 3.22(i). See id. ~ 21. Hexion claims
that it "has incurred substantial expenditures, amounting to approximately $448,493, in order to
address the explosion hazard associated with the hexamine operations and to bring the Facility into
4
compliance with applicable legal requirements." Id.' 22.
Finally, Hexion alleges that "one of the ammonia storage tanks on the Facility lacked
mechanical integrity" on the closing date. Id., 23. The amended complaint then states:
24.
As a result of this condition, Hexion had to inspect, test and repair the
ammonia storage tank.
25.
Hexion also had to obtain a variance to otherwise applicable legal
requirements, which variance authorized Hexion to continue to use the tank while it
evaluated and pursued repairs.
26.
Due to the inherently dangerous nature ofthe ammonia stored in the tank, the
presence of the tank in mechanically deficient condition amounts to a Hazardous
Activity.
27.
The lack of mechanical integrity associated with the tank is also a violation
of Occupational Safety and Health Administration regulations related to process
safety management of highly hazardous chemicals, 29 C.F.R. 1910.119.
28.
By conveying a mechanically deficient ammonia storage tank to Hexion,
Oak-Bark has breached the representations and warranties continued in §§ 3.10(a),
3.10(b),3.17(a), 3.22(a), 3.22(c), and 3.22(i) of the Agreement.
29.
Hexion has incurred costs, amounting to approximately $60,000, associated
with necessary mechanical integrity testing, to effect temporary repairs, and to secure
a variance to allow operation of the ammonia storage tank though March 31, 2010.
30.
Hexion will also have to replace the ammonia storage tank at a cost of in
excess of approximately $700,000.
Id." 24-30.
Oak-Bark seeks summary judgment on Hexion's breach ofwarranty claims in the amended
complaint, and Hexion seeks summary judgment as to liability on the breach of warranty claims.
Oak-Bark also seeks summary judgment based on Hexion's delay in giving Oak-Bark notice of its
claims. See Def.'s Mem. Supp. Mot. Summ. J. 14-23. Oak-Bark claims that Hexion's failure to
give timely notice breached its duties under the APA, thereby excusing Oak-Bark from further
performance of all duties, including indemnifying Hexion. Id. In support, Oak-Bark cites APA
5
sections 11.3(b)2, (e)3, and (t)4. See id. Additionally, Oak-Bark seeks summary judgment based
on equitable estoppel and laches. See id. at 19-23. Finally, Oak-Bark seeks summary judgment and
contends that Hexion breached the implied covenant of good faith and fair dealing. See id. at 23.
2 Section 11.3(b) states:
Except for Remedial Actions or Proceedings relating to Environmental, Health and
Safety Liabilities, being conducted by Seller on or before the Closing Date, which
Seller shall continue at its sole cost to completion, Buyer shall have the sole and
exclusive right to conduct and retain exclusive control over any Remedial Action,
any Proceeding relating to Environmental, Health and Safety Liabilities and, except
as provided in the following sentence, any other Proceeding with respect to which
indemnity may be sought under this Section 11.3. Seller and Buyer shall keep one
another reasonably informed of any Remedial Actions or proceedings they are
conducting. The procedure described in Section 11.6 will apply to any claim solely
for alleged monetary damages relating to a matter covered by this Section 11.3.
Seller and Buyer shall use reasonable efforts to cooperate and share information
relating to any such Remedial Actions or Proceedings.
APA § 11.3(b).
3
Section 11.3(e) states:
Each party shall promptly notify the other party of any condition which may be
subject to indemnity pursuant to this Section 11.3 upon receipt of any written
document concerning such matter.
Id. § 11.3(e).
4 Section 11.3(t) states:
Seller and Buyer agree to cooperate in connection with any Environmental, Health
and Safety Liabilities subject to indemnification under this Section 11.3. Upon
request, Buyer shall provide Seller with (i) any material correspondence, report,
technical data or any other material information generated as a result of a Remedial
Action by Buyer and (ii) the right to take split samples, at Seller's sole expense, in
each case for the purpose of verifying the performance of any Remedial Action,
correction ofnoncompliance or other action, the costs for which Seller is required to
indemnify Buyer pursuant to Section 11.3. Seller and Buyer agree that any
information shared or provided to the other party pursuant to this Section 11.3 shall
constitute Confidential Information.
Id. § 11.3(t).
6
n.
When federal jurisdiction is based on diversity, a court must apply the choice-of-Iaw rules
of the state in which it sits.
See,~,
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,496-97
(1941); Am. Online. Inc. v. St. Paul Mercury Ins. Co., 347F.3d 89, 92 (4thCir. 2003). Under North
Carolina's choice-of-Iaw rules, "a contract is governed by the law of the place where the contract
was made." Tanglewood Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655,656 (1980). Here,
the parties entered the APA in North Carolina and agreed that it was to be construed under North
Carolina law. See APA § 13.13. Therefore, North Carolina law controls, and this court must
determine how the Supreme Court ofNorth Carolina would rule on the substantive claims.
See,~,
Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co., 433 F.3d 365, 369 (4th Cir. 2005).
Although North Carolina substantive law controls, this court must apply applicable federal
procedural rules. See. e.g., Guaranty Trust ofNew York v. York, 326 U.S. 99, 109 (1945). A rule
is one ofprocedure when it "concerns merely the manner and the means by which a right to recover,
as recognized by the state, is enforced ...." Id. For example, this court must apply the Federal
Rules of Civil Procedure, so long as they regulate matters "rationally capable of classification as
procedure." Shady Grove Orthopedic Assocs .. P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1442-43
(2010) (quotation omitted); Hanna v. Plummer, 380 U.S. 460,472-73 (1965).
Under North Carolina law, to recover for a breach of a contractual warranty, a party must
show: (1) the existence of the warranty; (2) the fact ofthe breach; and (3) ''that the breach was the
proximate cause ofthe loss sustained." Rosev. Epley Motor Sales, 288 N.C. 53, 60, 215 S.E.2d 573,
577 (1975); City ofCharlotte v. Skidmore. Owings and Merrill, 103 N.C. App. 667,679,407 S.E.2d
571, 579 (1991) (holding that "proof of causation is essential" in a breach of warranty action).
Moreover, under North Carolina law, interpretation of a written and unambiguous contract is a
question oflaw for the court. Briggs v. Am. & Efird Mills. Inc., 251 N.C. 642,644, 111 S.E.2d 841,
843 (1960). When construing contractual terms, the contract's plain language controls. See, e.g.,
7
State v. Phillip Morris USA. Inc., 363 N.C. 623,631-32,685 S.E.2d 85, 90-91 (2009); Hodgin v.
Brighton, 196N.C.App.126, 128-29,674S.E.2d444, 446 (2009); Hemricv.Groce, 169N.C.App.
69, 76, 609 S.E.2d 276,282 (2005); Martin v. Martin, 26 N.C. App. 506, 508,216 S.E.2d 456,
457-58 (1975).
A.
In Hexion' s amended complaint, its wastewater-treatment claim focuses on the operation of
Columbus County's POTW. See Am. CompI. ~ 10-17. In order to put Hexion's wastewater
treatment claim in context, the court recites the following undisputed facts. From 1959 until
November 30,2004, Wright Chemical Corporation owned and operated the plant. Def.'s Mem.
Supp. Mot. Summ. J. 3. On November 30, 2004, Wright Chemical Corporation sold the plant to
Oak-Bark. Id. On November 21,2006, pursuant to the APA, Oak-Bark sold certain assets at the
plant to Hexion. APA, p.l, Recital A. Certain assets were "Assets to be Sold" and certain assets
were "Excluded Assets." See id. §§ 2.1 ("Assets to be Sold"), 2.2 ("Excluded Assets"). Under the
APA, Hexion acquired Oak-Bark's "production and manufactur[ing] of formaldehyde, hexamine,
ketone, and special projects." Id., p.l, Recital.
As part of the manufacturing process, the plant uses and generates water, and permits are
required to operate the plant. At closing, Oak-Bark possessed North Carolina Department of
Environment and Natural Resources ("DENR") Division of Air Quality ("DAQ") Permit No.
01394T37, for operating the plant. Def.'s Mem. Supp. Mot. Summ. J. 5; see PL's Reply [D.E. 69],
Ex. 13 ("DAQ Permit"). Oak-Bark also possessed DENR Division of Water Quality ("DWQ")
Permit No. 3395 for operating the plant's water pretreatment system known as Biotrol and for
discharging the pretreated water into Outfall Point # 1 of Livingston Creek. See Def.'s Mem. Supp.
Mot. Summ. J. 5; P1.'s Mem. Supp. Mot. Summ. J. 6-7. In addition, Industrial User Pretreatment
Permit ("IUP") No. 001 permitted Oak-Bark to use Columbus County's POTW. See Def.'s Mem.
Supp. Mot. Summ. J. 5. Finally, Oak-Bark possessed the North Carolina Department of Labor
8
Certificates of Inspection for its ammonia storage tanks. See id.
Before closing, the DAQ, the DWQ, and Columbus County regulated Oak-Bark's water
handling and disposal. See APA Schedule 3.17(b). Oak-Bark used most ofits water in other on-site
applications in order to reduce the quantities requiring disposal. See Def.' s Mem. SUpp. Mot.
Summ. J., Ex. 36 ("Def.'s Ex. 36, Busvone Tr.") 35-36, 39, 60--62. Oak-Bark used approximately
75% ofits water to produce formaldehyde, ammoniated fertilizer, and steam for its formaldehyde
boilers. Id. at 60--62. Oak-Bark sent the remaining water to its Biotrol unit for processing and
ultimate discharge into the creek. Id.
NPDES Permit No. 3395 authorized Oak-Bark to treat water in the Biotrol unit before
discharging it into the creek. See Def.'s Mem. Supp. Mot. Summ. J., Ex. 35 ("Def.'s Ex. 35,
Wilkinson Tr.") 27, 29; id., Ex. 14 ("Def.'s Ex. 14, Oakley Tr.") 50--61, 102-10. As for the POTW,
in 1999, Columbus County began studying whether to build a POTW to treat wastewater in
Columbus County. See Def.' sEx. 35, Wilkinson Tr. 10-11; Def.' s Mem. SUpp. Mot. Summ. J., Ex.
23 ("Def.'s Ex. 23, Swart Tr.") 30-31. The County, Oak-Bark, and Wright Chemical Corporation
participated in discussions concerning the viability ofa POTW. See Def.'s Ex. 35, Wilkinson Tr.
10-11. Ultimately, Columbus County decided to construct, own, and operate a POTW in Columbus
County at an approximate cost of $2.5 to $3 million. See Def. 's Ex. 14, Oakley Tr. 88-89. Oak
Bark contributed approximately $800,000 to the project and also donated 2.3 acres ofland. Id. at
88. In approximately July 2006, Columbus County began the POTW start-up procedures and
operations. See Def.'s Ex. 14, Oakley Tr. 95; Def.'s Ex. 36, Busovne Tr. 36-37. During the
POTW's start-up period, the POTW had some mechanical issues, but Oak-Bark continued to
operate the plant and to discharge wastewater pursuant to NPDES Permit No. 3395 and other related
permits. See Defo's Ex. 14, Oakley Tr. 105-08.
During the POTW's start-up period, Oak-Bark obtained IUP No. 001 from Columbus
County. See PI.'s Mem. SUpp. Mot. Summ. J. 8. The IUP, when coupled with Columbus County
9
NPDES Permit No. 87947, permitted Oak-Bark to send its water, within certain parameters, to the
POTW for treatment and discharge into the creek. See Def.'s Ex. 14, Oakley Tr. 50-61, 102-10;
Def.'s Ex. 35, Wilkinson Tr. 27, 29; Def.'s Ex. 36, Busovne Tr. 30-31. At closing, Oak-Bark was
continuing to process its wastewater through its Biotrol unit. See Def.' sEx. 14, Oakley Tr. 106-10.
NPDES Pennit No. 3395 applied to Oak-Bark's Biotrol unit and the routing of water through the
Biotrol process for treatment and then discharge into the creek. See Def.'s Ex. 35, Wilkinson Tr.
27. NPDES Permit No. 3395 did not apply to the POTW. Id.
In its amended complaint, Hexion references the "'POTW Wastewater Facility' as defined
in the [APA] ...." Am. Compl. ~ 10. Hexion contends that, after closing, it discovered that the
"POTW Wastewater Facility is under-designed and as a result, sustained operation of the POTW
Wastewater Facility at its maximum design capacity will result in a failure to comply with relevant
NPDES permits." Id. ~ 12. As such, Hexion contends that Oak-Bark breached the representations
and warranties contained in §§ 3.17(a)S, 3.22(a)6, 3.22(c)7, 3.22(i)8, and 3.22(k)9 of
S
APA section 3. 17(a) provides:
Compliance with Legal Requirements; Governmental Authorizations
(a) Except as set forth in Schedule 3.17(a):
(i) Seller is, and at all times since November 30, 2004, and has been, in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation ofits Business or the ownership or use ofany ofits Assets;
(ii) no event has occurred or circumstance exists that (with or without notice or
lapse oftime) (A) may constitute or result in a violation by Seller of, or a failure
on the part ofSeller to comply with, any Legal Requirement or (8) may give rise
to any obligation on the part of Seller to undertake, or to bear all or any portion
ofthe cost of, any remedial action ofany nature;
(iii) Seller has not received, at any time since November 30, 2004, any notice or
other communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible or potential violation
of, or failure to comply with, any Legal Requirement or (8) any actual, alleged,
possible or potential obligation on the part of Seller to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature;
10
(iv) the products manufactured by Seller and all chemical substances which are
contained in such finished products which are required to be on the Inventory List
promulgated under the United States Toxic Substances Control Act, were and are
on such Inventory List, or are the subject ofa Premanufacturing Notice filed with
the Environmental Protection Agency under such Act, and Seller has not filed,
and to Seller's knowledge has not been under a duty to file, any reports required
by Section 8(e) of such Act with respect to substantial risks involving such
products. To Seller's Knowledge, none of the products of the Business are
subject to an order under Section 5(e), a testing rule under Section 4 or regulation
under Section 6(a) of such Act; and
(v) Seller is in compliance in all material respects with any applicable
Occupational Safety and Health Law. Since November 30, 2004, Seller has not
received or been threatened with any Order, citation, written notice or other
formal communication from any Governmental Body or any other Person ofany
actual or potential violation or failure to comply in all material respects with any
Occupational Safety and Health Law. There are no pending or, to Seller's
Knowledge, threatened claims, Encumbrances or other restrictions ofany nature
for any Occupational Safety and Health Liabilities.
APA § 3.l7(a).
6
APA section 3.22(a) provides:
Seller is, and at all times has been, in full compliance with, and has not been and is
not in violation ofor liable under, any Environmental Law. Seller does not have any
basis to expect to receive and it and any other Person for whose conduct it is or may
be held to be responsible has not received, any actual or threatened order, notice or
other communication from (i) any Governmental Body or private citizen acting in the
public interest or (ii) the current or prior owner or operator of any Facilities, of any
actual or potential violation or failure to comply with any Environmental Law, or of
any actual or threatened obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any Facility or other
property or assets (whether real, personal or mixed) in which Seller has or had an
interest, or with respect to any Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used or processed by Seller
or any other Person for whose conduct it is or may be held responsible, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
Id. § 3.22(a).
7
APA section 3.22(c) provides:
II
the APA. Id. ~ 16.
In opposing Hexion's motion for summary judgment and seeking summary judgment, Oak
Bark argues that nothing in the APA contains a representation or warranty from Oak-Bark to Hexion
concerning the POTW Wastewater Facility. Thus, Oak-Bark argues that it is entitled to summary
judgment.
Seller does not have any Knowledge of or any basis to expect, that it or any other
Person for whose conduct it is or may be held responsible, received, any citation,
directive, inquiry, notice, Order, summons, warning or other such communication
that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any Facility or any other
property or asset (whether real, personal or mixed) in which Seller has or had an
interest, or with respect to any property or facility to which Hazardous Materials
generated, manufactured, refined, transferred, imported, used or processed by Seller
or any other Person for whose conduct it is or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled or received.
Id. § 3.22(c).
8
APA section 3.22(i) provides:
Seller is in compliance with all permits required under Enviromnental Law in order
to conduct the Business ("Environmental Permits"), and each of the Environmental
Permits relating to the Business as currently conducted may be validly transferred to
Buyer without any alteration or amendments or any notice to or consent of any third
person.
Id. § 3.22(i).
9
APA section 3.22(k) provides:
Sustained production operations of the Facilities at their maximum design capacity
will not constitute or result in any violation or failure to comply with any term,
condition, or requirement, including final eflluent limits, ofNorth Carolina National
Pollution Discharge Elimination System (NPDES) Permit No. NC000395, or any
renewal of that permit currently being prepared by the North Carolina Division of
Water Quality.
Id. § 3.22(k).
12
The court has reviewed the APA. The APA refers to the POTW Wastewater Facility in the
DefInition and Usage Section 1, on page 9, which then cross-references section 2.2(k). See APA §
1, p. 9. The DefInition and Usage section states: "POTW Wastewater Facility has the meaning set
forth in section 2.2(k)." Id. In turn, APA section 2.2(k) states:
any tax credits or refunds in the amount of $400,000.00 related to the initial
investment in the aggregate amount of $784,391.00 made by [Oak-Bark] in
connection with the construction ofthe publicly owned treatment works wastewater
facility located in Columbus County, North Carolina .... (the "POTW Wastewater
Facility").
APA § 2.2(k). The APA also references the POTW Wastewater Facility in section 7.16, which
relates to Oak-Bark's payments of any pre-closing fines related to the POTW. 10 The APA does not
otherwise mention the "POTW Wastewater Facility." Accordingly, the court agrees that Oak-Bark
did not make a representation or warranty in APA sections 3.l7(a), 3.22(a), 3.22(c), 3.22(i), or
3.22(k) concerning the POTW Wastewater Facility. As such, Oak-Bark did not breach any such
representation or warranty.
In opposition to this conclusion, Hexion makes two arguments. First, Hexion argues that
the alleged defects in the POTW Wastewater Facility violate APA section 3.22(k). APA section
3.22(k) states:
Sustained production operations ofthe Facilities at their maximum design capacity
will not constitute or result in any violation or failure to comply with any term,
condition, or requirement, including final effiuent limits, ofNorth Carolina National
Pollution Discharge Elimination System (NPDES) Permit No. NC000395, or any
10
APA section 7.16 provides:
Buyer shall have received evidence that fines in the aggregate approximate amount
of $25,000 which have been imposed on Seller for failure to connect to a POTW by
July 1,2006 as required by North Carolina Environmental Management Commission
Special Order By Consent EMC WQ No. 05-003 have been paid in full, or
alternatively a sworn statement of Seller affinning Seller is in full compliance with
the Special Order By Consent and no fines have been or will be imposed under the
Special Order By Consent.
APA,7.16.
13
renewal of that pennit currently being prepared by the North Carolina Division of
Water Quality.
APA § 3.22(k).1l However, section 3.22(k) does not reference the POTW Wastewater Facility. and
NPDES Pennit No. 3395 does not concern the POTW Wastewater Facility. Rather, NPDES Pennit
No. 3395 concerns the operation ofthe Biotrol process and the discharge of effluent from the Biotrol
process into the creek. Thus, the alleged defects in the POTW Wastewater Facility do not constitute
a breach ofOak-Bark's representations and warranties in section 3.22(k).
Second, Hexion creates an entirely new wastewater-treatment claim in its brief in support of
its motion for partial summary judgment. See PI.' s Mem. SUpp. Mot. Summ. J. 6-17; see also PI. 's
Reply 5-11. Essentially, even though Hexion's amended complaint does not mention the Biotrol
process, Hexion now argues that its wastewater-treatment claim is that the Biotrol process was not
available to handle the plant's sustained production operations shortly after closing; therefore, OakBark breached APA section 3.22(k). See Pl.'s Mem. SUpp. Mot. Summ. J. 6-17; Pl.'s Reply 5-11.
In making this new argument, Hexion contends that the Biotrol process was unable to process the
plant's wastewater shortly after closing, that Oak-Bark' s discharge process involved illegally using
the plant's boilers, and that North Carolina eliminated the option ofusing the Biotrol process shortly
after closing. Although none of these allegations are in its amended complaint, Hexion creates an
extensive new claim concerning each item and argues that Oak-Bark thereby breached APA section
3.22(k). See Pl.'s Mem. Supp. Mot. Summ. J. 6-17; Pl.'s Reply 5-11.
Oak-Bark objects to pennitting Hexion to use its briefs in support of and in opposition to
summary judgment to amend the wastewater-treatment claim in Hexion's amended complaint. Cf.
Am. Compl. ,,10-17. Notably, a party may not use its briefs in support of or opposition to
summary judgment to amend a complaint.
See,~,
Wahl v. Charleston Area Med. Ctr.. Inc., 562
F.3d 599, 617 (4th Cir. 2009); Tucker v. Union ofNeedletrades. Indus.. & Textile Employees, 407
11 The reference to Pennit No. 000395 is a typographical error. The parties agree that
referenced pennit is Pennit No. 3395.
14
F.3d 784,788 (6th Cir. 2005); Gilmourv. Gates. McDonald & Co., 382 F.3d 1312, 1315 (11th Cir.
2004) (per curiam); Shanahan v. City ofChicago, 82 F.3d 776,781 (7th Cir. 1996); Fisherv. Metro.
Life Ins. Co., 895 F.2d 1073, 1078 (5th Cir. 1990); Car Carriers, Inc. v. Ford Motor Co., 745 F.2d
1101, 1107 (7th Cir. 1984); Swann v. Source One Staffing Solutions, No. 5:09-CV-271-D, 2011
WL 761479, *10 (E.D.N.C. Feb. 24, 2011). Indeed, "a plaintiff may not raise new claims after
discovery has begun without amending his complaint" Cloaninger ex reI. Estate ofCloaninger v.
McDevitt, 555 F.3d 324,336 (4th Cir. 2009).
This principle makes sense. A party's complaint puts its opponent and the court on notice
ofthe claims in the case. Ifa party wishes to amend those claims, the party must follow the process
set forth in the Federal Rules ofCivil Procedure. Under Rule 15, provided certain time requirements
are met, a party may amend a pleading once as a matter of course. See Fed. R. Civ. P. 15(a)(1).
Additional amendments are allowed under Rule 15 only with the permission ofthe opposing party
or with leave ofcourt, and such leave should be freely given ''when justice so requires." Fed. R. Civ.
P. 15(a)(2). However, once a court enters a scheduling order under Rule 16, imposes a deadline
concerning amendments to pleadings, and the deadline expires, the process changes. At that point,
in order for a party to amend a pleading, the party must first establish "good cause" under Rule 16
and then establish the traditional requirements under Rule 15 (Le., the absence ofprejudice, futility,
and bad faith).
See,~,
Nourison Rug C01',P. v. Parvizifm, 535 F.3d 295,298-99 (4th Cir. 2008).
Ifthe party fails to establish "good cause" under Rule 16, a trial court may deny the motion to amend '
and need not conduct the inquiry under Rule 15. See id.; see also Royce v. Wyeth, No. 2:04-CV
0690,2011 WL 1397043, at *1-2 (S.D. W. Va. Apr. 13,2011) (unpublished); Rodgers v. Hill, No.
5:08-CT-3105-D, 2010 WL 3239104, at *13 (E.D.N.C. Aug. 16, 2010) (unpublished); Hare v.
Opryland Hospitality, LLC, No. DKC 09-0599, 2010 WL 3719915, at *3 (D. Md. Sept. 17,2010)
(unpublished); Halpern v. Wake Forest Univ. Health ScL, 268 F.R.D. 264,266 (M.D.N.C. 2010);
Remediation Prods .• Inc. v. Adventus Americas. Inc., No. 3:07-CV-00153-RJC DCK, 2009 WL
15
101692, at *1-2 (W.D.N.C. Jan. 8,2009) (unpublished). Ifa party could amend its complaint via
summary-judgment briefing, Rules 15 and 16 and trial court scheduling orders would be
meaningless. "Given their heavy case load, district courts require the effective case management
tools provided by Rule 16." Nourison Rug, 535 F.3d at 298. A trial court's scheduling order "is
not a frivolous piece ofpaper, idly entered, which can be cavalierly disregarded by counsel without
peril." Gestetner Corp. v. Case Equip. Co., 108 F.R.D. 138, 141 (D. Me. 1985).
On October 2, 2009, this court entered a scheduling order [D.E. 19]. Pursuant to that
scheduling order, the court ordered that "motions to join additional parties and to amend pleadings
must be made promptly after the information giving rise to the motion becomes known to the party
or counsel." Id. The court also ordered that "[a]ny such motion filed after November 30,2009,
must meet the standards of Fed. R. Civ. P. 15 and 16." Id. On January 12,2010, Hexion filed a
consent motion to amend its complaint to add a citation to APA section 3.22(k:) in its wastewater
treatment claim [D.E. 22], and the court granted the motion on January 19,2010 [D.E. 23]. Hexion
filed its amended complaint on January 19, 2010, and has never again sought leave to file an
amended complaint.
In Cloaninger, the Fourth Circuit held that "a plaintiff may not raise new claims after
discovery has begun without amending his complaint." Cloaninger, 555 F.3d at 336. In so holding,
the Fourth Circuit relied in part on Barclay White Skanska. Inc. v. Battelle Memorial Institute, 262
F. App'x 556,563 (4th Cir. 2008) (unpublished). Id. In Barclay White, the plaintiff-construction
company sought to recover under a building contract and specifically referred to three disputed
change orders in its amended complaint. See Barclay White, 262 F. App'x at 563. At summary
judgment, the plaintiff-construction company expanded its arguments concerning the change orders
to include eleven additional change orders not mentioned in its amended complaint and sought
additional damages based on those eleven change orders. Id. The plaintiff-construction company
argued that the heading on its complaint of "extra work" should be construed liberally as to
16
encompass all fourteen of the disputed change orders involved in the construction project, even
though it had only specifically mentioned three change orders in its amended complaint. Id. at 564.
The district court rejected this argument and held that the plaintiff-construction company could seek
relief only for the three change orders in the amended complaint. Id. Accordingly, the district court
refused to consider plaintiff's argument concerning the eleven additional change orders at summary
judgment and the Fourth Circuit affirmed. Id.
The Fourth Circuit reached the same conclusion in United States ex reI. Owens v. First
Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 731 (4th Cir. 2010). In Owens, plaintiff
Owens alleged that the defendant-contractor First Kuwait had defrauded the government by billing
for defective work on an embassy. Id. at 727. Owen's amended complaint described eight particular
instances of defective work. Id. at 728. After discovery, First Kuwaiti sought summary judgment.
Id. In response, Owens abandoned four of his claims, but added several new ones relating to the
embassy's fire protection system, billing during the construction process, and First Kuwait's request
for a final inspection of its work. Id. at 731. The Fourth Circuit affirmed the district court's grant
of summary judgment as to the new claims, holding that Owens's failure to amend his complaint
precluded him from arguing the claims at summary judgment. Id. (citing Wahl, 562 F.3d at 617).
As to the billing claims specifically, Owens's new claim alleged that First Kuwaiti had overstated
its construction progress in order to receive advance payments from the State Department. Id. at
732. He argued that his complaint's general allegation of First Kuwaiti's "overcharging" the
government sufficiently notified First Kuwait of his subsequent claim of overstating construction
progress. Id. The district court and Fourth Circuit rejected this argument, holding that the
"overcharging" reference was "clearly in reference to the complaint's more specific allegations ..
. ." Id. Thus, the Fourth Circuit reiterated the principle that coupling specific allegations with
general language in a complaint forecloses a plaintiff's ability to use that general language to
bootstrap new specific allegations and a new claim into the complaint at summary judgment. See
17
id. The Fourth Circuit also applied this principle in Wahl, when it refused to pennit plaintiff to add
a new defamation claim on appeal different than the defamation claim actually in plaintiff's
amended complaint. See Wahl, 562 F.3d at 616-17.
Hexion's new wastewater-treatment claim is analogous to the eleven change orders not
mentioned in the complaint in Barclay White, 262 F. App'x at 563, the construction progress
payments not mentioned in the complaint in Owens, 612 F.3d at 732, and the new defamation claim
not mentioned in the amended complaint in Wahl, 562 F.3d at 616-17. Although Hexion's new
wastewater-treatment claim is associated with ''wastewater treatment," the new wastewater-treatment
claim is not in the amended complaint, and Hexion cannot add the claim to this case via summary
judgment briefing. See Owens, 612 F.3d at 731 ; Wahl, 562 F .3d at 616-17; Barclay White, 262 F.
App'x at 563. To rule otherwise would neuter this court's scheduling order and make Rule 16
meaningless. See S. Grouts & Mortars. Inc. v. 3M Co., 575 F.3d 1235, 1243 (lIth Cir. 2009)
(holding that the district court did not abuse its discretion in refusing to allow plaintiff to amend its
complaint to raise new claims when plaintiff did not seek leave to amend until after the deadline
imposed by the scheduling order and after plaintiff had first tried to raise the new claims in its
summary-judgment brief); Shanahan, 82 F.3d at 781 (affirming the district court's denial ofleave
to amend the complaint when the motion to amend was in the form of a footnote raising a new
argument in a summary-judgment brief and the request was untimely, coming over a year after
discovery concluded).
Alternatively, Hexion argues that even ifits amended complaint did not technically contain
the new wastewater-treatment claim, the court should pennit Hexion to assert this new wastewater
treatment claim. In support, Hexion argues that Oak-Bark did not incur prejudice, because the
parties' discovery responses allegedly show that Oak-Bark was aware ofHexion' s new wastewater
18
treatment claim during discovery. See Pl.'s Reply 4-1l.12 Oak-Bark denies that it was on notice
ofHexion's new wastewater-treatment claim during discovery, and contends that allowing Hexion
to raise its new claim would cause it prejudice. Def.'s Mem. Opp'n Mot. Summ. J. 12-13.
Having reviewed Hexion's cited documents, the court does not believe that Oak-Bark was
on notice ofHexion' s new wastewater-treatment claim. Indeed, the way to put a party on notice of
a claim is to put the claim in the complaint or to add the claim to the amended complaint through
the process set forth in Rules 15 and 16. Implicitly, Hexion is arguing that Oak-Bark waived its
rights under Rules 15 and 16 by engaging in some discovery on the periphery ofHexion's possible
new wastewater-treatment claim. The court rejects the notion that one party may couple the breadth
of discovery under the Federal Rules of Civil Procedure with its opponent's discovery requests to
de facto amend a complaint, and thereby trample a court's scheduling order or Rules 15 and 16.
In addition, the court rejects Hexion's argument that the discovery requests and responses
reflect a lack ofprejudice to Oak-Bark, thereby permitting Hexion' s new wastewater-treatment claim
to proceed. Notably, under Rule 16, if a party seeks to amend a complaint after a deadline in a
scheduling order, a trial court does not focus on prejudice. Rather, if Hexion wanted to amend its
complaint to raise its new wastewater-treatment claim after this court's amendment deadline of
November 30,2009, Hexion needed to seek leave of the court [D.E. 19]. See Fed. R. Civ. P. 16.
If Hexion had filed such a motion, the court would have granted leave only upon Hexion's
demonstrating "good cause." Fed. R. Civ. P. 16; [D.E. 19]. The "good cause" standard ofRule 16
12 In support, Hexion cites, inter ali~ Oak-Bark's requests for records ofHexion's ability to
use both the POTW and the Biotrol process. See id., Ex. 1 ("Oak-Bark's Discovery Requests") ~
19, 33. Hexion also cites transcripts of depositions of Oak-Bark officials, in which Hexion's
attorney asked questions about Biotrol, see,~, id., Ex. 4 ("Pl.'s Reply Ex. 4, Barker Tr.") 15-22,
65; Def.' sEx. 14, Oakley Tr. 51-54, 80-81, 103-09, and the transcript ofthe deposition ofa Hexion
official, in which Oak-Bark's attorney asked questions about BiotroI. See P1.'s Reply, Ex. 7 ("P1.'s
Reply Ex. 7, Springer Tr.") 170-71. Hexion also cites its June 2010 response to an interrogatory that
Oak-Bark served on Hexion in which Oak-Bark asked Hexion to explain how Oak-Bark allegedly
was illegally running wastewater through the boilers on the date ofclosing. See PI.' s Reply, Ex. 8
("Hexion's Responses to Third Set ofInterrogatories") , 6.
19
does not tum on the prejudice that a tardy amendment would inflict upon the opposing party, but
rather turns primarily on ''the diligence ofthe moving party." Montgomery v. Anne Arundel County,
182 F. App'x 156, 162 (4thCir. 2006) (per curiam) (unpublished); see United Statesv. 1.604 Acres
of Lang, No. 2:IO-CV-00320, 2011 WL 1810594, at *2 (E.D. Va. May 11,2011) (unpublished).
Prejudice is relevant under Rule 15(a), and therefore considered ifthe good cause standard ofRule
16(b) is first met. Sansotta v. Town of Nags Head, No. 2:10-CV-29-D, 2011 WL 3438422, at *2
(E.D.N.C. Aug. 5, 2011) (unpublished). Here, Hexion never attempted to meet the good cause
standard under Rule 16, and arguments in summary-judgment briefs are no substitute for a proper
motion to amend in accordance with this court's scheduling order and Rule 16. Accordingly,
considering prejudice to Oak-Bark or lack thereof at this stage flies squarely in the face of this
court's scheduling order and Rule 16. See Nourison Rug, 535 F.3d at 299. As such, the court
declines to consider Hexion's new wastewater-treatment claim.
Finally, Hexion argues that its reference to section 3.22(k) in paragraph 16 ofthe amended
complaint provided notice of its new wastewater-treatment claim. See Pl.'s Reply 4--6; cf. Am.
Compl. ~ 16. As mentioned, section 3.22(k) states in part that "[s]ustained production operations
of the facilities at their maximum design capacity will not constitute or result in any violation of .
. . (NPDES) Permit No. [3395] or any renewal ofthat permit ...." APA § 3.22(k). Hexion appears
to argue that by citing APA section 3.22(k), which references NPDES Permit No. 3395, it put Oak
Bark on notice that its real complaint concerned the Biotrol process. However, the amended
complaint belies this assertion. See Am. Compl.
~~
10-17. In the amended complaint, Hexion
focuses on the "POTW Wastewater Facility," provides no factual allegation pertaining to the Biotrol
process, and does not discuss how Oak-Bark's conduct involving the Biotrol process breached APA
section 3.22(k). Id. Hexion's mere passing reference to APA section 3.22(k) in paragraph 16 ofthe
amended complaint is insufficient to inform Oak-Bark of its new wastewater-treatment claim. As
such, this court will not consider Hexion's new wastewater-treatment claim.
20
See,~,
Owens, 612
FJd at 731; Wahl, 562 F.3d at 616-17; Cloaninger, 555 F.3d at 336; Barclay White, 262 F. App'x
at 564.
In sum, no rational jury could find in favor ofHexion on the wastewater-treatment claim in
Hexion's amended complaint. Am. Compl. ft 10-17. Thus, the court grants summary judgment
to Oak-Bark, and denies summary judgment to Hexion.
B.
Hexion argues that Oak-Bark's failure to disclose the 2000 Fike Report breached section
3.22(g) ofthe APA. See Am. Compl. ~~ 18-21. Hexion also claims that the combustible dust at the
plant created an explosion hazard that violated sections 3.17(a), 3.22(a), 3.22(c), 3.22(g), and3.22(i)
of the APA. Am. Compl. ~ 21.13 Hexion seeks "approximately $448,493, in order to address the
explosion hazard associated with the hexamine operations and to bring the Facility into compliance
with applicable legal requirements." Am. Compl. ~ 22.
As for the 2000 Fike Report, Fike Corporation wrote the report in January 2000 for WW Sly
Manufacturing Company (hereinafter "WW Sly',) in connection with Wright Chemical Corporation's
acquisition ofBlue Tech, Inc. equipment from WW Sly for the plant. See 2000 Fike Report. As a
result of the 2000 Fike Report, WW Sly modified the design of the Blue Tech, Inc. equipment for
Wright Chemical Corporation to account for the explosiveness of hexamine dust, and Wright
13
The court already has set forth the text of APA §§ 3.17(a), 3.22(a), 3.22(c), and 3.22(i).
APA § 3.22(g) states:
Seller has delivered to Buyer true and complete copies and results of any reports, studies,
analyses, tests, or monitoring possessed or initiated by Seller or on behalf ofSeller pertaining
to Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or concerning
compliance, by Seller or any other Person for whose conduct it is or may be held responsible,
with Environmental Laws.
APA § 3.22(g).
21
Chemical Corporation placed the Blue Tech, Inc. equipment in the plant. See id. The Blue Tech,
Inc. equipment is an excluded asset under the APA. See APA § 2.2.
The court assumes without deciding that the 2000 Fike Report falls within the APA definition
of reports maintained in section 3.22(g). See APA § 3.22(g); see also APA § I at 7. Nonetheless,
Hexion is not necessarily entitled to recover for breach of warranty. In order to recover for breach
ofwarranty, Hexion must demonstrate that the breach was a proximate cause of its loss.
See,~,
Rose,288N.C. at 60, 215 S.E.2d at 577; City ofCharlotte, 103 N.C. App. at679,407 S.E. 2dat579.
Although the 2000 Fike Report relies upon a hexamine sample that Fike Corporation analyzed in late
1999 or early 2000, the 2000 Fike Report's conclusions do not appear to be based on the unusual
volatility of a specific hexamine sample from the plant. See 2000 Fike Report 4-11. Instead, the
2000 Fike Report states that the test results indicate that hexamine dust, in general, produces a dust
explosion hazard. rd. at 11.14 However, Hexion, as a hexamine producer, surely understood this
basic fact. See Def.'s Mem. Supp. Mot. Summ. J., Ex. 24 ("Def.'s Ex. 24, Scott Tr.") 10-12, 15,
23, 27-28, 34, 59, 63. Furthermore, nothing in the 2000 Fike Report suggests that, in November
2006, the plant was in violation ofthe "general duty clause of the Occupational Safety and Health
Act, 29 U.S.C. § 654, [or] requirements regarding general safety and maintenance of a clean
workplace, 29 C.F.R. § 1910.22(a)(I)." Am. Compo ~ 20. 15 Therefore, no rational jury could find
14 According to the 2000 Fike Report, the explosiveness of dust is measured in terms ofthe
normalized rate rise ofexplosion pressure, signified as Kat. See 2000 Fike Report 5. A sample with
a Kat value ofgreater than 300 is classified as a Class 3 hazard, the most severe. rd. at 7. In the 2000
Fike Report, Fike concluded that, "A ~t of 575 bar.m1s places Hexamethylenetetramine in a dust
explosion hazard category of Class St 3." Id. at 4.
IS
29 U.S.C. § 654 states:
Duties of employers and employees
(a) Each employer-
(1) shall furnish to each ofhis employees employment and a place ofemployment
which are free from recognized hazards that are causing or are likely to cause
death or serious physical harm to his employees;
(2) shall comply with occupational safety and health standards promulgated under
22
that Oak-Bark's failure to tender the 2000 Fike Report in conjunction with the November 2006 sale
was material to the transaction or a proximate cause of the alleged losses that Hexion claims
pertaining to combustible dust. See, e.g., Gardner v. Gardner, 334 N.C. 662, 665, 435 S.E.2d 324,
327 (1993) (holding that summary judgment is proper when a plaintiff fails to establish that the
defendant's conduct was a foreseeable and proximate cause ofthe plaintiff's injury); Phillips v. Rest.
Mgmt. of Carolina. Inc., 146 N.C. App. 203, 212, 552 S.E.2d 686, 692 (2001) ("If evidence is
lacking as to anyone of [the breach of warranty] elements, summary judgment is appropriate.");
see also Sikora v. Vander,ploeg, 212 S.W.3d 277, 291-92 (Tenn. Ct. App. 2006) (holding that a
chiropractor's failure to specifically disclose the declining rate ofnew patients in conjunction with
the sale of his practice did not constitute a breach of a disclosure warranty in the sale agreement
when the buyer knew ofthe decline when he decided to purchase the practice and knew that the price
of the practice reflected this decline).
As for Hexion's second combustible-dust claim, Hexion contends that the combustible dust
at the plant in November 2006 created an explosion hazard and thereby violated the general duty
clause of the Occupational Safety and Health Act, 29 U.S.C. § 654, and requirements regarding
general safety and maintenance of a clean workplace, 29 C.F.R. § 1910.22(a)(1). In making this
argument, Hexion contends that the combustible-dust hazard violated the National Fire Protection
this chapter.
(b) Each employee shall comply with occupational safety and health standards and
all rules, regulations, and orders issued pursuant to this chapter which are applicable
to his own actions and conduct.
29 C.F.R. § 1910.22(a)(l) states:
This section applies to all permanent places of employment, except where
domestic, mining, or agricultural work only is performed. Measures for the control
of toxic materials are considered to be outside the scope of this section.
a) Housekeeping.
(1) All places of employment, passageways, storerooms, and service rooms
shall be kept clean and orderly and in a sanitary condition.
23
Association ("NFPA") standards on the date ofclosing and thereby violated APA section 3.17(a) and
section 3.22(a).
As for the NFPA standards, in section 3.17(a), Oak-Bark warranted that it was in compliance
"in all material respects with any applicable Occupational Safety and Health Law[s] ...." APA
§ 3.l7(a)(v). In section 3.22(a) of the APA, Oak-Bark warranted that it was fully compliant with
all "Environmental Laws." Id. § 3.22(a). The APA, in tum, refers to "legal requirement." See
APA § 1. The APA, however, does not define "requirement." Thus, the court gives the tenn
"requiremenf' its ordinary meaning. See, e.g., Harris v. La1bl, 298 N.C. 555, 558,259 S.E.2d 239,
241 (1979) ("In construing contracts ordinary words are given their ordinary meaning unless it is
apparent that the words were used in a special sense. "); Parker v. Glosson, 182 N.C. App. 229, 234,
641 S.E.2d 735, 738 (2007). A requirement is "a compelled obligation; a command or order."
Webster's New Riverside University Dictionary 999 (2d ed. 1988). Therefore, in order for the NFPA
standards to be a "legal requirement," they must be legally compelled obligations.
In support ofits argument that the NFPA standards are legal requirements, Hexion contends
that the NFPA standards have been incorporated into the General Duty Clause of 29 U.S.C. § 654
and 29 C.F.R. § 191 0.22(a)(l). See Am. CompL ~ 20. However, Hexion fails to cite any regulation
or precedent in support of this conclusion. In fact, Hexion admits that "as ofNovember 30, 2006,
OSHA did not have a regulation specific to combustible dust ...." PI.'s Mem. Supp. Mot. Summ.
J. 19.
Moreover, OSHA specifically disclaims the notion that NFPA standards are legal
requirements, stating, "These are NOT OSHA regulations. However, they do provide guidance
from their originating organizations related to worker protection." See United States Department
ofLabor, OSHA, "Combustible Dust Standards," available athttp://www.osha.gov/dsglcombustible
dustlstandards.html (last visited Sept. 28, 2011) (emphasis in original); see also Def.' s Mem. SUpp.
Mot. Summ. J., Ex. 26 ("Schloss Expert Report"); Def.'s Ex. 24, Scott Tr. 23; Def.'s Mem. Supp.
Mot. Summ. J., Ex. 25 ("Def.'s Ex. 25, Schloss Tr.") 67-68. Accordingly, even though the NFPA
24
standards (including NFPA standard 654) are based on industty practice, they are not "environmental
laws" or "occupational safety and health laws" within the meaning of section 3.l7(a) or section
3.22(a) and have not been incorporated into the General Duty Clause or 29 C.F.R. § 1910.22(a)(l).
Therefore, even if Hexion can show that the level ofhexamine dust in the plant exceeded the NFPA
standards on the date of closing, such a showing does not violate section 3.17(a) or 3.22(a).
Likewise, Hexion has presented no evidence that such a showing violates APA sections 3.22(c),
3.22(g), or 3.22(i).
Alternatively, even if the NFPA standards are legal requirements, Hexion has not presented
evidence from which a rational jury could find that the level ofcombustible dust in the plant violated
29 U.S.C. § 654,29 C.F.R. §1910.22(a)(l), orNFPA standards on the date ofclosing. For example,
Hexion has provided no documentation or expert testimony to suggest that the combustible dust
levels were illegally high in November 2006. Although Hexion cites Hexion' s own audit in March
2007, the report dealt with dust generally and focused on respiratory conditions. See Def. 's Mem.
Supp. Mot Summ. J., Ex. 32 ("2007 Audit Report"). It did not specify or find that there was a
problem (legal or otherwise) with combustible dust. Id. Moreover, Hexion's report was not
completed until four months after closing. See id. Furthermore, the 2000 Fike Report does not
create a genuine issue of material fact given that it was completed six years before the date of
closing, and made no findings that suggest that the dust in the plant was legally non-compliant See
2000 Fike Report.
In sum, no rational jury could find in favor of Hexion on the combustible-dust claims in its
amended complaint. See Am. Compl. ~ 18-22. Thus, Oak-Bark's motion for summary judgment
on the claims pertaining to combustible dust is granted, and Hexion's competing motion is denied.
C.
As for Hexion's ammonia storage tank claim, Oak-Bark again argues that Hexion is
improperly seeking to use the summary-judgment process to amend its amended complaint. See
25
Def.'s Mem. Opp'n Mot. Summ. J. [D.E. 64] 13-17. In support, Oak-Bark notes that Hexion's
amended complaint states that "one ofthe ammonia storage tanks ... lacked mechanical integrity."
Am. Compl. , 23. The amended complaint then describes problems with the ammonia storage tank,
id. ,24, and the need for Hexion to obtain a variance as to the tank. Id.' 25. Hexion then alleges
that the "lack of mechanical integrity associated with the tank is also a violation of Occupational
Safety and Health Administration regulations related to process safety management of highly
hazardous chemicals, 29 C.F.R. § 1910.119." Id.' 27. Hexion asserts that "[b]y conveying a
mechanically deficient ammonia storage tank to Hexion, Oak-Bark has breached the representations
and warranties contained in §§ 3.10(a}, 3.10(b}, 3.17(a}, 3.22(a}, 3.22(c}, and 3.22(i} of the
Agreement." Id.' 28.
The evidence demonstrates that the tank referenced in the amended complaint is tank 267.
See Def.'s Mem. Opp'n Mot. Summ. J., Ex. 2 ("Notice ofClaims") 3-4; id., Ex. 27 ("Def.'s Opp'n
Ex. 27, Swart Tr.") 107-12; id., Ex. 25 ("Ders Opp'n Ex. 25, Gaskins Tr.") 73-74; id., Ex. 22
("May 2007 Gaskins Report") 1; id., Ex. 23 ("July 2007 Gaskins Report") 1;
Mb
Ex. 10
("Correspondence of Counsel") 9, 15. However, Hexion's summary-judgment briefs extensively
describe alleged problems not only with tank 267, but also with tank 268 and process piping used
in connection with the tanks. See PI.'s Mem. Supp. Mot. Summ.1. 25-29; PI.'s Reply 19. Hexion's
summary-judgment briefs then create entirely new claims concerning tank 267, tank 268, and
process piping. See Pl.'s Mem. Supp. Mot. Summ. J. 25-29; PI.'s Reply 19.
Once again, the new claims in Hexion's summary-judgment briefs are like the additional
change orders at issue in Barclay White, 262 F. App'x at 563, the additional overcharging claims
in Owens, 612 F.3d at 732, and the additional defamation claim in Wahl, 562 F.3d at 616-17, and
are not properly considered at summary judgment. IfHexion wanted its new claims concerning tank
268 and process piping to be in the case, it should have sought leave to amend the amended
complaint in accordance with Rules 15 and 16 and this court's scheduling order. It did not. This
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court will not permit Hexion to bypass Rule 15, Rule 16, or this court's scheduling order. Thus,
Oak-Bark's motion for summary judgment is granted to the extent that Hexion seeks damages
resulting from alleged defects in tank 268 or process piping.
As for tank 267, on May 3,2007, Hexion received a report from Gaskins Quality Services,
which identified corrosion in tank 267 and recommended repairs. See May 2007 Gaskins Report.
Hexion then contracted to repair tank 267, and took tank 267 out of service during the repair work.
See Def.'s Opp'nEx. 27, SwartTr. 123-25. However, the May 2007 Gaskins Report does not state
that tank 267 lacked mechanical integrity or violated 29 C.F.R. § 1910.119. 16 See May 2007 Gaskins
Report. Moreover, Gaskins testified that he never recommended to Hexion to take tank 267 out of
service for a lack of mechanical integrity or fitness. See Def.'s Opp'n Ex. 25, Gaskins Tr. 71.
Gaskins also testified that tank 267 was repaired and that Gaskins believed the repairs would be
permanent. Id. at 73-74; see also Def.'s Mem. Opp'nMot. Summ. J., Ex. 12 ("Brimberry Report")
6-8. Additionally, all certificates of inspection for tank 267 before the closing date and through
August 2010 noted that it was fit for service, Def.'s Mem. Supp. Mot. Summ. J., Ex. 8 ("Certificate
ofInspection"), and Hexion's insurance adjuster found tank 267 mechanically fit on August 5, 2009.
Id., Ex. 34 ("Insurer's Report") 2. Finally, the court has reviewed APA sections 3.10(a), 3.10(b),
3.17(a), 3.22(a), 3.22(c), and 3.22(i). In light ofthe record, no rational jury could find that Oak-Bark
breached any representations or warranties in the APA concerning tank 267. Accordingly, the court
grants Oak-Bark's motion for summary judgment and denies Hexion's motion for partial summary
judgment.
29 C.F.R. § 1910.119 "contains requirements for preventing or minimizing the
consequences ofcatastrophic releases oftoxic, reactive, flammable, or explosive chemicals. These
releases may result in toxic, fire or explosion hazards,"
16
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D.
Finally, Oak-Bark seeks summaryjudgment based on Hexion' s alleged delay in giving notice
and bringing its claims. In support, Oak-Bark argues (1) that Hexion materially breached APA
sections 11.3(b), 11.3 (e), and 11.3(t) in failing to give timely notice of the alleged defects, thereby
excusing Oak-Bark from further performance; (2) that Hexion's claims are barred by equitable
estoppel and laches; and (3) that Hexion breached the implied covenant of good faith and fair
dealing, thereby excusing Oak-Bark from further performance. In light of this court's disposition
of Hexion's breach of warranty claims, the court need not and does not address Oak-Bark's
arguments.
m.
In sum, defendant's motion for summary judgment [D.E. 51] is GRANTED as to plaintiff's
breach of warranty claims. Plaintiff's motion for partial summary judgment as to liability on the
warranty claims [D.E. 54] is DENIED. Defendant's motion to strike [D.E. 71] is DENIED as moot
in light of this court's order of December 22, 2010 [D.E. 80], and plaintiff's motion to modify
caption and pleadings to indicate a new name [D.E. 79] is DENIED. The Clerk of Court is
DIRECTED to close this case.
SO ORDERED. This ~y of September 2011.
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