2011 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-21-2011

Quadrant EPP USA v. Menasha Corp

Precedential or Non-Precedential: Non-Precedential

Docket No. 10-4159

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Recommended Citation

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 10-4159

____________

QUADRANT EPP USA, INC.; QUADRANT PHS, INC.,

Appellants

v.

MENASHA CORPORATION

____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 06-cv-00356)

District Judge: Honorable Lawrence F. Stengel

____________

Submitted Under Third Circuit LAR 34.1(a)

September 20, 2011

Before: FISHER, HARDIMAN and GREENAWAY, JR., Circuit Judges.

(Filed: September 21, 2011)

____________

OPINION OF THE COURT

____________

HARDIMAN, Circuit Judge.

Quadrant EPP USA, Inc. and Quadrant PHS, Ins. (collectively, Quadrant) appeal a 

judgment in favor of Menasha Corporation following a bench trial. We will affirm.
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I

Because we write for the parties, who are well acquainted with the case, we 

recount only the facts essential to our decision.

This dispute arose out of a stock purchase agreement (Agreement) pursuant to 

which Quadrant purchased four Poly Hi plastics manufacturing facilities from Menasha 

for approximately $84.5 million. As is typical with such agreements, the seller (Menasha) 

made certain environmental warranties to the purchaser (Quadrant). In conjunction with 

those warranties, Menasha agreed to indemnify Quadrant from losses arising out of 

environmental conditions extant at the time of closing. Menasha‟s duty to indemnify 

Quadrant was triggered only when “the aggregate amount of Losses incurred or suffered 

by [Quadrant] from all such breaches and inaccuracies . . . exceeds One Million Dollars 

($1,000,000.00).” The Agreement‟s definition of “Losses” included prejudgment interest 

and “reasonable attorneys‟ fees and expenses.”

After the Agreement was signed but before the deal closed, Menasha and Quadrant 

were aware—from inspections conducted by both the Occupational Safety and Health 

Administration (OSHA) and Menasha itself—that the Keyser Valley Poly Hi facility had 

accumulated sufficient dust to present a combustion hazard. A few days before closing, 

Menasha forwarded a supplemental disclosure to Quadrant explaining that an OSHA 

inspector who had visited the Keyser Valley facility for unrelated reasons had found a 

lack of compliance with the National Fire Protection Association‟s NFPA 654,
3

STANDARD FOR THE PREVENTION OF FIRE AND DUST EXPLOSIONS FROM THE 

MANUFACTURING, PROCESSING, AND HANDLING OF COMBUSTIBLE PARTICULATE SOLIDS

(2000 ed.) (NFPA 654), and suggested certain housekeeping measures to mitigate the 

risk. This disclosure also noted that Menasha had hired an industrial cleaning firm to 

remove dust from the Keyser Valley facility and that some additional mitigation would 

likely be required. Finally, the disclosure represented that Menasha had not been notified 

of an OSHA violation. Quadrant replied to Menasha‟s disclosure by stating that it 

considered the supplemental disclosure informational and that it did not alter the 

warranties and indemnifications in the Agreement. The closing went forward on August 

2 and 3, 2005.

Two days after the closing, Quadrant retained the services of John P. Cholin, a 

professional engineer specializing in fire protection. Cholin inspected the Keyser Valley 

facility on August 11, 2005, and determined that the concerns expressed by the OSHA 

inspector were valid. Accordingly, Quadrant asked Cholin to determine the cost of 

bringing the facility into compliance with the Occupational Safety and Health Act, 29 

U.S.C. § 651 et seq. (Act).

On August 29, 2005, OSHA issued a citation and notification of penalty, 

informing Quadrant that the Keyser Valley facility violated the Act‟s general duty clause. 

29 U.S.C. § 654(a)(1). The citation also noted that complying with the NFPA 654 was, 

“among other methods, one feasible and useful method to correct this hazard.” On
4

September 21, 2005, Quadrant entered into an informal settlement agreement with 

OSHA, agreeing to pay a penalty of $2,400 and to abate the violations. At the time, 

Quadrant did not inform Menasha about the citation or the settlement.

Meanwhile, Quadrant also had Cholin inspect the three other Poly Hi facilities. 

Cholin did so and submitted a report to Quadrant on September 13, 2005, in which he 

concluded that all four facilities failed to comply with NFPA standards. Quadrant 

prepared an abatement plan and obtained quotations for the cost of implementing 

Cholin‟s suggestions. Quadrant submitted a supplemental claim notice to Menasha dated 

December 29, 2005, informing Menasha of the dust issue and OSHA citation, by which 

time Quadrant had already spent over $200,000 on abatement. Over the next couple of 

years, at a cost of nearly $4,000,000, Quadrant implemented some of Cholin‟s 

suggestions—purchasing and modifying equipment, as well as modifying its facilities and 

housekeeping practices—to reduce dust emissions.

II

Quadrant sued Menasha in the District Court seeking indemnification for its 

remediation efforts. Menasha contended that it did not breach any warranty in the 

Agreement and, in any case, the reasonable cost of remediation did not exceed the 

$1,000,000 threshold in the Agreement. After a bench trial at which Cholin testified for 

Quadrant and Dr. Timothy Myers testified for Menasha, the District Court held that 

Quadrant had not established a violation of the general duty clause of the Act because
5

non-compliance with NFPA 654 was not a recognized hazard in the industry in 2005. 

The District Court also held that even had Menasha violated the Act, Quadrant was not 

entitled to indemnification because the reasonable cost of remediation did not exceed the 

$1,000,000 threshold.

III

The District Court had diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). 

We have appellate jurisdiction pursuant to 28 U.S.C. § 1291. We review questions of 

law, including questions of contract interpretation, de novo. United States v. Hardwick, 

544 F.3d 565, 570 (3d Cir. 2008). We review the District Court‟s factual findings, 

including its resolution of conflicting expert testimony, for clear error. Heasley v. Belden 

& Blake Corp., 2 F.3d 1249, 1254 (3d Cir. 1993).

IV

Our review of the record and the briefs leads us to conclude that, regardless of the 

merits of the dispute surrounding Menasha‟s alleged violation of the Act, the District 

Court committed no error when it held that Quadrant failed to prove that the reasonable 

cost of remediation would exceed $1,000,000.

At trial, the District Court heard testimony about the nature of the hazards at the 

Poly Hi facilities and the potential costs of remediation. The two experts, Cholin and 

Myers, presented different views on both issues. Cholin testified that a dust deflagration 

hazard existed if more than one percent of the dust particles had diameters below 420 
6

microns, as measured in a sieve test. Myers testified that dust was combustible only if the 

average diameter of the dust particles was below 290 microns, and further specified that 

only dust with an average diameter below 120 microns fell into the NFPA‟s Class II 

Division 2, for which the NFPA called for the use of special electrical equipment. Myers 

tested a sample of dust particles smaller than 420 microns and they did not propagate an 

explosion. While Cholin testified that his recommended abatement plan—which was 

partially adopted and implemented by Quadrant—was necessary to bring the Poly Hi 

facilities into compliance with OSHA and the NFPA, Myers testified that less extensive 

measures, costing only $721,000, would do so.

The District Court credited the testimony of Myers over Cholin for two reasons. 

First, Myers‟s test showed that certain samples that met Cholin‟s criterion for a 

deflagration hazard would not cause an explosion. Second, the Court found Myers‟s 

testimony to be consistent with the NFPA and based on established methods of scientific 

analysis, whereas Cholin‟s methods had been neither peer-reviewed nor accepted by the 

scientific community. “Even where there are conflicting interpretations of data and other 

scientific information, a trial court‟s findings will not be overturned so long as the 

expert[] whose testimony was credited by the court „provided a reasonable explanation of 

the scientific data.‟” Interfaith Cmty. Org. v. Honeywell Int’l, Inc., 399 F.3d 248, 263 (3d 

Cir. 2005) (quoting Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 

1216-18 (3d Cir. 1993)). Because we find that to be precisely the case here, it was not 
7

clear error for the District Court to credit Myers‟s testimony over Cholin‟s.

Perhaps mindful of the foregoing, on appeal Quadrant does not directly attack the 

District Court‟s decision to credit Myers‟s testimony. Instead, Quadrant posits that 

because the Agreement defined “Losses” to include prejudgment interest and attorneys‟ 

fees, the District Court erred by concluding that the $1,000,000 indemnification threshold 

was not met because the reasonable remediation costs totaled $721,000. But the 

allowance of attorneys‟ fees under indemnification agreements typically is limited to the 

defense of the claim indemnified against and does not extend to costs incurred in 

establishing the right of indemnity. See, e.g., Cooper v. Loper, 923 F.2d 1045, 1051 n.7 

(3d Cir. 1991); Simko v. C & C Marine Maint. Co., 594 F.2d 960, 969 (3d Cir. 1979).

Moreover, Quadrant did not present any evidence of prejudgment interest or the 

fees and costs it incurred pressing its claim. Rather, the parties entered into a pre-trial 

stipulation that Quadrant would present such evidence “if the Court rules in Quadrant‟s 

favor and awards Quadrant damages.” Despite this stipulation, Quadrant now asks us to 

find that the District Court erred by failing to account for evidence and an argument never 

presented to it. “Absent compelling circumstances[,][we] will not consider issues that are 

raised for the first time on appeal.” Shell Petroleum, Inc. v. United States, 182 F.3d 212, 

219 (3d Cir. 1999) (citation omitted). Because the record is devoid of evidence of 

attorneys‟ fees or costs, it necessarily follows that the District Court could not have erred 

by failing to include such costs and fees in its damages calculation. Accordingly, the 
8

District Court correctly held that, if Menasha had violated the Act, the $721,000 in 

reasonable remediation costs was the extent of the losses for which Quadrant could seek 

indemnification. And because that amount fell short of the $1,000,000 threshold, 

Menasha was not contractually obligated to pay anything.

V

For the foregoing reasons, we will affirm the judgment of the District Court.