| Vectron Intl., Inc. v Corning Oak Holding, Inc. |
| 2013 NY Slip Op 03146 [106 AD3d 1164] |
| May 2, 2013 |
| Appellate Division, Third Department |
| Vectron International, Inc., et al., Respondents, v CorningOak Holding, Inc., et al., Appellants. |
—[*1] Jenner & Block, LLP, Chicago, Illinois (Barry Levenstam of counsel, admitted prohac vice) and Coughlin & Gerhart, LLP, Binghamton (James P. O'Brien of counsel), forrespondents.
McCarthy, J. Appeal from an order of the Supreme Court (O'Shea, J.), entered May1, 2012 in Chemung County, which, among other things, denied defendants' motion todismiss the complaint.
Defendant Corning Oak Holding, Inc. (hereinafter Holding) and defendant CorningInternational Corporation (hereinafter International) are wholly owned subsidiaries ofCorning, Inc. Holding owned all of the capital stock of Corning Frequency Controls, Inc.(hereinafter CFC), which owned Corning Frequency Control, Ltd. (hereinafter CFCL).CFCL owned real property located at 500 Beech Street West, Whitby, Ontario, Canada.Defendants, through CFC and other direct and indirect subsidiaries, were engaged in thebusiness of designing and manufacturing crystal oscillators and quartz crystals forvarious electronic applications, including wireless communication networks.
In 2004, defendants entered into a stock purchase and sale agreement with plaintiffVectron International, Inc., through which, as relevant here, defendants intended toconvey to Vectron all of the capital stock of CFC. After the closing, Vectron changed thename of CFCL to plaintiff Vectron International, Ltd. (hereinafter VIL) and VIL retainedownership of 500 Beech. [*2]In 2006, WenzelInternational purchased 500 Beech from VIL. In 2010, the owner of adjacent property at606 Beech Street (hereinafter the neighbor) provided Wenzel a notice of claim allegingenvironmental contamination migrating from 500 Beech onto its property. Wenzel serveda notice of claim on VIL, and plaintiffs served a notice of claim on defendants seekingdefense and indemnification pursuant to the parties' 2004 agreement.
The neighbor commenced an action in a Canadian court against Wenzel and VIL.After defendants declined to provide a defense in that action on plaintiffs' behalf,plaintiffs commenced this action for breach of contract and for declaratory judgment,seeking a declaration that defendants must defend and indemnify plaintiffs with regard tothe environmental claims by the neighbor and Wenzel under each of the threesubdivisions in section 8.6 of the agreement. Prior to answering, defendants moved todismiss the complaint for failure to state a cause of action (see CPLR 3211 [a][7]). Plaintiffs cross-moved for leave to amend their complaint. Supreme Court deniedthe motion to dismiss and granted the cross motion to amend the complaint. Defendantsappeal.
On a motion to dismiss for failure to state a cause of action, courts afford thecomplaint a liberal construction, accept the facts alleged therein as true and give theplaintiffs the benefit of all favorable inferences to determine whether those facts supportany cognizable legal theory (seeNelson v Capital Cardiology Assoc., P.C., 97 AD3d 1072, 1073 [2012]; Schmidt & Schmidt, Inc. v Townof Charlton, 68 AD3d 1314, 1315 [2009]). In a breach of contract action,"[w]hether a contract is ambiguous is a question of law to be resolved by the court" (Williams v Village of Endicott,91 AD3d 1160, 1162 [2012]; see Greenfield v Philles Records, 98 NY2d562, 569 [2002]; CV Holdings,LLC v Artisan Advisors, LLC, 9 AD3d 654, 656 [2004]). Ambiguity exists ifthe "language used lacks a definite and precise meaning, and there is a reasonable basisfor a difference of opinion" (Pozament Corp. v AES Westover, LLC, 27 AD3d 1000,1001 [2006]; accord Williams v Village of Endicott, 91 AD3d at 1162; seeGreenfield v Philles Records, 98 NY2d at 569). In the context of a motion todismiss, if the contract's language is ambiguous, then the motion must be denied topermit the parties to discover and present extrinsic evidence of the parties' intent.
Section 8.6 of the 2004 agreement addresses claims with respect to environmentalmatters. Pursuant to that section:[FN*]
"Sellers hereby agree to indemnify, defend and hold harmless Buyer and its Affiliatesand the Operating Companies from and against all Losses resulting from:
"(i) any and all Environmental Claims resulting from Sellers' noncompliance with orviolation of any applicable Environmental Law prior to or as of the Closing Date, even ifsuch noncompliance or violation is not discovered or known until after the Closing Date;
"(ii) any and all Environmental Claims resulting from or arising [*3]out of any Remedial Work performed by Sellers related toan Environmental Condition at, on, from, under or in [500 Beech] which EnvironmentalCondition was created prior to or existed as of the Closing Date . . . ;
"(iii) any and all Environmental Claims related to the Release, or the treatment,storage, disposal, arrangement for disposal, transportation, recycling, use, reuse, orhandling in any manner, at locations other than [500 Beech], of Hazardous Substancesgenerated by or in the possession of the Companies at any time prior to or as of theClosing Date."
Under section 8.6 (i) and (ii) of the parties' agreement, there is a question of fact as tothe scope of the term "Sellers." The other aspects of these subdivisions have beenadequately pleaded, as plaintiffs have asserted that the neighbor and Wenzel filedenvironmental claims, and these claims were based on alleged violations of Canadianenvironmental laws and remedial work performed in 2002 when an underground storagetank was removed from 500 Beech. Although the complaint alleges that defendants areresponsible, defendants contend that the allegations are contradicted by the plainlanguage of the agreement, as the environmental law violations must be committed by,and the remedial work performed by, the "Sellers." The agreement's preamble anddefinition section define "Sellers" as Holding and International; that definition does notinclude CFC or CFCL, which are separately defined in the agreement as "OperatingCompanies." Defendants contend that because there is no evidence that they, as opposedto CFC or CFCL, violated environmental laws or performed remedial work, the "Sellers"did not do anything so as to give rise to liability under section 8.6 (i) or (ii).
Plaintiffs, on the other hand, point to additional language in the preamble stating that"acting through CFC and [a company owned by International] and their direct andindirect subsidiaries, Sellers are engaged in the business of designing, manufacturing andselling crystal oscillators and quartz crystals . . . (the 'Business')." Plaintiffsassert that because the environmental laws were violated and the remedial work wasperformed in the course of operating the "Business," defendants are liable not only fortheir direct actions but for those of CFC and its wholly-owned subsidiary CFCL, throughwhich defendants were admittedly acting to conduct the "Business." Plaintiffs furtherargue that a more expansive reading of the term "Sellers" is supported by the definitionof the term "Knowledge of Sellers," which imputes to defendants the actual knowledgeof seven individuals, five of whom appear to be solely connected to defendants'subsidiaries and two of whom apparently work for defendants' parent company; none ofthe named individuals appear to work for defendants, who are defined as the "Sellers."Additionally supporting a flexible reading of the agreement's terms is the introduction tothe definitions section, which states that "[f]or purposes of this Agreement, except asexpressly provided or unless the context otherwise requires, the followingdefinitions shall apply" (emphasis added). Finally, plaintiffs argue that, inasmuch asdefendants were apparently holding companies engaged in the "Business" solely throughtheir subsidiaries, adopting defendants' interpretation of the term "Sellers" would rendersection 8.6 (i) and (ii) ineffectual because defendants did not directly undertakeany actions on behalf of the "Business." Such an interpretation would violate theprecepts that a contract should be considered as a whole and a reading of it "should notrender any portion meaningless" (Beal Sav. Bank v Sommer, 8 NY3d 318, 324 [2007]; see Elmira Teachers' Assn. vElmira City School Dist., 53 AD3d 757, 759 [2008], lv denied 11 NY3d709 [2008]).[*4]
"[T]he parties have advanced two equallyplausible and reasonable interpretations of the [agreement] provision in question, therebyevidencing an ambiguity that requires consideration of evidence outside the four cornersof the [agreement] relevant to the parties' intent" (Williams v Village of Endicott,91 AD3d at 1163; see CV Holdings, LLC v Artisan Advisors, LLC, 9 AD3d at656-657). Because the term "Sellers" as used in section 8.6 (i) and (ii) is ambiguous, atthis pre-answer stage of litigation, Supreme Court properly denied defendants' motion soas to permit the parties to gather and present evidence regarding the meaning of that termin this context.
Regarding liability under section 8.6 (iii), however, plaintiffs have failed to state acause of action for indemnification pursuant to the plain language of that provision. Thatprovision does not depend on actions of the "Sellers," but requires indemnification forenvironmental claims related to, among other things, a "Release" of hazardous substances"at locations other than [500 Beech]." "Release" is defined to include "any spilling,leaking, pumping, pouring, emitting, emptying, discharging, injecting, dumping ordisposing of any Hazardous Material into the environment." In its Canadian action, theneighbor alleged that contaminants—which would be classified as "HazardousMaterials" under the agreement—in the ground at 500 Beech migrated into the soiland groundwater at 606 Beech. There is no allegation that hazardous substances werespilled, leaked or otherwise disposed of directly onto the property at 606 Beech. Rather,the allegation is that the flow of underground water carried those substances from 500Beech, where they had been spilled or leaked, to the neighboring property. Although thehazardous substances eventually wound up at 606 Beech, there is no support for anallegation that the "Release" of those substances occurred at a location other than 500Beech. Thus, plaintiffs cannot state a viable cause of action for indemnification undersection 8.6 (iii) of the agreement.
Supreme Court did not err in granting plaintiffs' cross motion to amend thecomplaint. Plaintiffs merely augmented the allegations contained in the originalcomplaint. Defendants do not contest the amendment itself, other than arguing that theinitial claims have no merit. Supreme Court did not abuse its discretion in granting thecross motion because leave to amend should be freely granted, defendants have notshown any prejudice from the amendment and the amended complaint does not plainlylack merit—other than the portion seeking indemnification under section 8.6 (iii)of the agreement (see Backus vLyme Adirondack Timberlands II, LLC, 96 AD3d 1248, 1250 [2012]).
Rose, J.P., Lahtinen and Egan Jr., JJ., concur. Ordered that the order is modified, onthe law, without costs, by reversing so much thereof as (1) denied that part of defendants'motion to dismiss plaintiffs' claim seeking indemnification under section 8.6 (iii) of theagreement or alleging a breach of that provision of the agreement and (2) granted thatpart of plaintiffs' cross motion to amend the complaint to seek indemnification undersection 8.6 (iii) of the agreement; motion granted to that extent and cross motion deniedto that extent; and, as so modified, affirmed.
Footnote *: All capitalized terms arespecifically defined in the agreement.