Opinion ID: 3002649
Heading Depth: 2
Heading Rank: 1

Heading: Language and Structure of the Supply Agreement

Text: In order to uphold the district court’s judgment dismissing INEOS Polymers’ action, we must conclude that, based on a clear and unambiguous reading of the Supply Agreement, Article 19.A. requires the parties to obtain the other’s consent prior to any change in ownership or control. We do not believe that the language or structure of the contract allows us to reach that conclusion. First, the district court’s interpretation of Article 19.A. is at odds with the common meaning and use of the terms “assignment” and “change in corporate control.” We made clear in Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785 (7th Cir. 1995), that these terms are not synonymous. In that case, Baxter had entered into a distribution agreement with O.R. Concepts. During the term of the agreement, O.R. Concepts sold ninety-five percent of its stock to a third party, Vital Signs. Baxter sued O.R. claiming that it “was in breach of the Agreement because the sale of stock constituted an assignment of O.R.’s interest in the Agreement to Vital Signs. Baxter asserted 12 No. 08-1359 that such an assignment was in violation of a provision of the Agreement requiring Baxter’s written consent prior to O.R. assigning its interest in the Agreement.” Id. at 787. We disagreed and explained accordingly: Baxter fails to demonstrate how the change of ownership of O.R. stock constitutes an assignment of O.R.’s interests in the Agreement. It is well settled that a change in corporate ownership does not constitute a variation of that corporation’s contractual obligations. U.S. Can Co. v. NLRB, 984 F.2d 864, 868 (7th Cir. 1993) (“A sale of stock, like a merger, does not affect the contractual obligations of the corporation.”); United States Shoe Corp. v. Hackett, 793 F.2d 161, 163-164 (7th Cir. 1986). Baxter ignores the most fundamental characteristic of a corporate entity: its independence. Flynn v. Allis Chalmers Corp., 634 N.E.2d 8, 10 ([Ill. App. Ct.] 1994) (“In Illinois, a corporation is deemed a distinct legal entity, separate from other corporations with which it may be affiliated.”); Peoples Energy Corp. v. Illinois Commerce Comm’n, 492 N.E.2d 551, 558 ([Ill. App. Ct.] 1986) (“The general rule . . . is that holding companies and their subsidiaries are separate legal entities.”). O.R. has at all times remained an independent and functioning organization. That fact has not been affected by its change in ownership. The most persuasive demonstration of this is that Baxter itself chose O.R. as the proper party to sue in this action, not its owners. Because the change in stock ownership did not change O.R.’s obligations under the Agreement, O.R.’s interests in the Agreement are still O.R.’s interests. They have not been assigned to anyone. No. 08-1359 13 Id. at 788 (parallel citations omitted). Absent special circumstances, therefore, a change in ownership does not affect the contractual obligations of the company, that is, it does not effect an assignment of rights. Applying this general rule to the present circumstances, the transfer of BP Amoco Polymers stock to another company did not constitute an assignment of rights for purposes of Article 19.A. Article 19.A. addresses only assignments of rights under the Supply Agreement. It does not define the term “assignment” or “assign”; therefore, according to Illinois law, the term must be accorded its common and usual meaning. See Dean Mgmt., Inc. v. TBS Const., Inc., 790 N.E.2d 934, 940 (Ill. App. Ct. 2003) (“Because the contract does not define ‘written notice,’ we must give the term its common and generally accepted meaning.” (internal citations omitted)); Michigan Ave. Nat’l Bank of Chicago v. Evans, Inc., 531 N.E.2d 872 (Ill. App. Ct. 1988) (“Since the lease does not define the term ‘sale’, it will be assumed that the word is intended to be used in its usual meaning.”). As set forth above, the general rule is that a change in corporate ownership does not effectuate an assignment of rights. Baxter Healthcare, 69 F.3d at 788 (“It is well settled that a change in corporate ownership does not constitute a variation of that corporation’s contractual obligations.”). BASF Catalysts acknowledges this general rule, however, it claims that, in the present case, the general rule simply does not apply: “The distinction that INEOS ignores is that those cases simply stand for the proposition that nonassignment clauses are not generally triggered by changes in control of a contracting party . . . .” Appellee’s Br. at 14 No. 08-1359 16. This general principle, BASF Catalysts continues, “is contrasted with Article 19.A. of the Agreement, which specifies that no change in control of Amoco Chemical from Amoco Corporation, or of CRI from Phillips, would be permitted without the consent of the other party.” Id. (emphasis added). We cannot agree that the language of Article 19.A. takes it outside of the general rule articulated in Baxter Healthcare. Article 19.A. is completely silent with respect to a change in ownership or a change in control. By contrast, it explicitly addresses assignments of the Supply Agreement and provides that, with an exception for certain intra-corporate transfers, the rights may not be assigned absent consent by the parties. Essentially, the district court read the exception in the first sentence of Article 19.A.,6 not as providing a more permissive approach for assignments to affiliated corporations, but as prohibiting any change in ownership without prior consent. However, we cannot square the district court’s reading of Article 19.A. with general rules of contract interpretation or with the other provisions of the 6 See R.50-2, Ex. A at 95-96 (“Neither party may assign this Agreement, or any part thereof, without the prior written consent of the other, except that Amoco may assign this Agreement in its entirety only without the consent of CRI at any time to an entity owned fifty percent (50%) or more, directly or indirectly, by Amoco Corporation, and CRI may assign this Agreement in its entirety only without the consent of Amoco to any company one hundred percent (100%) owned, directly or indirectly, by Phillips.”) (emphasis added). No. 08-1359 15 Supply Agreement. The “except” clause of Article 19.A. follows the absolute bar to assignment of contractual rights found earlier in the same sentence: “Neither party may assign this Agreement, or any part thereof, without the prior written consent of the other . . . .” The “except” clause, therefore, provides a permissive exception to the general prohibition of assignment of contractual rights to affiliate entities. Furthermore, the district court’s interpretation of Article 19.A. makes other portions of that article superfluous. According to the district court, any change in corporate ownership is governed by the consent requirement of Article 19.A.; in other words, any successor corporation also is an assignee for purposes of Article 19.A. However, the provision at the end of Article 19.A.—that the Supply Agreement should be binding on the parties’ “successors and permitted delegatees and assignees”—does not treat successors and assignees as interchangeable. Therefore, equating successors and assignees, for purposes of Article 19.A., would violate the principle of contract interpretation that “meaning and effect must be given to every part of the contract including all its terms and provisions, so no part is rendered meaningless or surplusage unless absolutely necessary.” Coles-Mountie Elec. Co-op. v. City of Sullivan, 709 N.E.2d 249, 253 (Ill. App. Ct. 1999); see also Miniata v. Ed Miniata, Inc., 315 F.3d 712, 715 (7th Cir. 2002) (applying the Illinois rule of construction). Finally, the district court’s interpretation of Article 19.A. would render meaningless much of Article 17 and, therefore, violate the same rule of construction. If Article 19.A.’s 16 No. 08-1359 language governing assignments also prohibits any change of control or ownership without consent, then Article 17’s specific proscription of Phillips’ ability to “sell, transfer, assign, grant any option with respect to, merge or otherwise dispose of any of the ownership or control of CRI,” absent certain conditions being met, is mere surplusage. Article 17 specifically addresses a change in corporate control. It provides that neither CRI nor Phillips shall “sell, transfer, assign, grant any option with respect to, merge or otherwise dispose of any of the ownership or control of CRI” absent certain conditions being met, namely Amoco being afforded the right of first refusal. R.50-2, Ex. A at 95-96 (emphasis added).7 The separate mention of “dispos[ition] of any of the ownership or control of CRI” demonstrates that, with respect to Article 17.A, the parties chose to mention explicitly a change in ownership or control, but, with respect to Article 19.A., did not. In sum, according the terms of the Supply Agreement their usual meaning and giving effect to all of the terms of the Supply Agreement, we cannot conclude that the face of the contract is susceptible only to the district court’s interpretation. By contrast, the language and structure of the Supply Agreement strongly suggest that 7 Given that the CD-Catalyst was “vital” to the polypropylene production of Amoco Chemical and its licensees, it is understandable why it would insist on a right to first refusal. It needed to ensure that whoever succeeded to CRI’s business was capable of producing the CD-Catalyst according to specifications, within the parties’ pricing structure, for the long term. See R.50-2 ¶ 2. No. 08-1359 17 Article 19.A. is a provision meant to address only assignment of rights. Because the corporate mutations that occurred between 1992 and 2006 on Amoco’s side of the Supply Agreement did not involve assignments of rights that required consent by CRI (or its successors), INEOS Polymers is not an impermissible assignee. Consequently, at this stage in the litigation, we cannot conclude that INEOS Polymers is unable to prosecute this action against BASF Catalysts and BASF AG.