Opinion ID: 2974252
Heading Depth: 2
Heading Rank: 2

Heading: Indemnification litigation

Text: After Dana delivered its Promec shares as ordered by the district court, Dana brought a cross claim against SPX seeking indemnification for its costs pursuant to § 10.1(b)(i) of the Purchase Agreement. Section 10.1(b)(i) provided, in relevant part: Section 10.1. Indemnification by Seller. Seller covenants and agrees to indemnify and hold harmless Buyer . . . from and against . . . any and all Liabilities . . . (b) resulting from or arising out of: (i) any inaccuracy of any representation or warranty made by Seller herein, . . . (but only, with respect to Transferred Subsidiaries other than the Controlled Subsidiaries and their subsidiaries, other than with respect to those representations and warranties contained in Section 3.1 and 3.2, to the extent Seller has knowledge of the facts or circumstances constituting such inaccuracy (and with respect to the Mexican investments held by SPT NV, only such knowledge [as] Seller has without having undertaken any additional inquiry or investigation)) . . . . According to Dana, this language required SPX to indemnify Dana because SPX’s warranties in §§ 3.1(d) and 3.2 inaccurately stated that its assets were “clear of all Encumbrances” and that none of its interests were subject to a right of first refusal. -5- No. 05-4094 Grupo Condumex v. SPX Corp. Upon the parties’ motions for judgment on the pleadings, dismissal, and summary judgment, the district court ruled that Dana was not entitled to indemnification. Grupo Condumex v. SPX Corp., 163 F. Supp. 2d 857, 870 (N.D. Ohio 2001). The court held that, although SPX had breached the § 3.2 warranty relating to rights of first refusal, Dana was not entitled to indemnification because § 10.1(b)(i) unambiguously relieved SPX of any liability for the breach. Id. at 859-60. The court reached this conclusion after making two findings. First, the court found that SPX’s liability for its breach of the right-of-first-refusal warranty as to the Promec shares was limited to the extent that SPX had knowledge of the breach. Id. at 864. Dana had argued that no knowledge was required on SPX’s part because, in its view, the provision of § 10.1(b)(i) limiting SPX’s liability “with respect to the Mexican investments held by SPT NV [the Promec shares], [to] only such knowledge [that SPX] has without having undertaken any additional inquiry or investigation” was modified by the phrase in the same provision, “other than with respect to those representations and warrantied contained in Sections 3.1 and 3.2.” Thus, under Dana’s interpretation, the requirement that SPX have had knowledge of a breach to be liable did not apply to breaches of the §§ 3.1 and 3.2 warranties (containing the right-of-first-refusal warranty). The district court, however, rejected Dana’s interpretation for a number of reasons. First, applying the “last antecedent rule”—that qualifying phrases apply only to the words preceding them—the court found that the exception for the warranties contained in §§ 3.1 and 3.2 did not modify the knowledge requirement as to the Promec shares because the knowledge clause followed -6- No. 05-4094 Grupo Condumex v. SPX Corp. rather than preceded the exception. Id. at 861-61. Therefore, the only clause qualified by the exception related to “Transferred Subsidiaries other than the Controlled Subsidiaries”: (but only, with respect to Transferred Subsidiaries other than the Controlled Subsidiaries and their subsidiaries, other than with respect to those representations and warranties contained in Sections 3.1 and 3.2, . . . ) In addition, the court found that other provisions of the Purchase Agreement demonstrated that the parties had intended to shift to Dana the risk that Condumex had a right of first refusal. Id. at 86263. In the court’s view, the other provisions together showed that the parties were aware of Condumex’s objections regarding the Promec shares and chose to limit SPX’s liability. After the district court interpreted the indemnification provision to require SPX’s knowledge, the court then found SPX not liable because SPX had not known of “the facts or circumstances” of the inaccuracy of the warranty “without having undertaken any additional inquiry or investigation.” Id. at 867. According to the court, the phrase “without having undertaken any additional inquiry or investigation” in § 10.1(b)(i) meant that SPX had to have actual knowledge, which in turn meant that, to be liable, “SPX must have anticipated a . . . substantial likelihood that Condumex would assert and prevail on its claim” of first refusal. Id. at 866. The court found that SPX had possessed no such knowledge. SPX had maintained that the right of first refusal in the bylaws was not triggered because the sale involved a transfer of SP NV shares rather than Promec shares. Because SPX had believed that Condumex’s claim under the bylaws was meritless, the only claim asserted -7- No. 05-4094 Grupo Condumex v. SPX Corp. at that point, the district court ruled that SPX had not known that Condumex would prevail, and thus SPX had no obligation to indemnify Condumex. Id. at 867.