Opinion ID: 3035192
Heading Depth: 2
Heading Rank: 2

Heading: The Coordinating Agreement and the “Sole

Text: Indemnitor” Theory The Bankruptcy Court and the District Court each relied heavily on Exide’s interpretation of the contractual language in the Coordinating Agreement in finding core jurisdiction. Both looked to the language of the Coordinating Agreement and the merits of the Exide defendants’ contractual interpretation argument and held that the claims, although ostensibly against the non-debtor Exide Foreign Entities, were actually more properly understood as leveled directly against the debtor, Exide. In so concluding, they found the Coordinating Agreement excludes all indemnification obligations of the Exide Foreign Entities by clearly and unambiguously designating Exide as the sole indemnitor, with the result that the PDH Foreign Entities have no valid claim against the Exide Foreign Entities. Because only the debtor is an appropriate defendant, the PDH Foreign Entities’ claims become claims of non-debtors against a debtor, the resolution of which must take place in bankruptcy court. On appeal, the PDH Foreign Entities argue that they did not have a fair opportunity to respond to this merits argument as the extant court rules provided them no right of reply. Del. U. S. Bankr. Ct. L.R. 9006-1(d)(2003). They also contend that, because their motion to remand or abstain was a procedural and jurisdictional motion which did not present the issue of contract interpretation, the Bankruptcy Court’s decision on the merits of 29 their claims against the Exide Foreign Entities took them by surprise. According to the appellants, the Court erred in considering the merits of Exide’s interpretation of the Coordinating Agreement and should have confined itself to the jurisdictional issues presented, instead of reaching any issues regarding the claims and defenses of the parties. In response, the Exide Entities insist that the appellants were not unfairly surprised by the Court’s order dismissing their claims against the Exide Foreign Entities because they “had every reason to expect that Exide would address the interpretation of the Coordinating Agreement in its response to the Remand Motion” and because they could have sought leave of the Court to file a reply.7 They argue that the Court properly 7 The appellees devote a large section of their brief to procedural barriers they allege defeat the PDH Foreign Entities’ argument that the Bankruptcy Court’s decision on the merits surprised them and improperly prevented them from presenting defenses. They alternately contend that the appellants waived the argument, endorsed the Bankruptcy Court’s order and are estopped from challenging it, and are precluded from challenging it because it did not dispose of their claims. We are not persuaded. As to waiver, the appellants repeatedly objected to the Bankruptcy Court’s decision as having ambushed and surprised them. They raised the argument before the Bankruptcy Court on reconsideration and the District Court on appeal and preserved it for our review. (continued...) 30 reached the merits and correctly concluded the relevant contract language was clear and unambiguous. Given the requirement that a court carefully evaluate every claim individually to determine if it is “core,” “non-core,” or unrelated to the bankruptcy case, we agree with the Exide appellees that both the Bankruptcy Court and the District Court correctly decided that the issue of the Coordinating Agreement’s interpretation had to be resolved in order to decide the motion 7 (...continued) Equally lacking in merit is the Exide Foreign Entities’ theory that appellants should be estopped from challenging the 2003 Order because their counsel suggested the language used therein and therefore endorsed it. The Bankruptcy Court issued its ruling at the conclusion of the hearing on the motion to remand or abstain and simply requested that counsel draft the order to memorialize its decision. The fact that appellants’ counsel helped draft the order to reflect accurately the Court’s ruling does not estop appellants from challenging the order. As to whether the order disposed of the PDH Foreign Entities’ claims, it states clearly that “the foreign Pacific Dunlop entities have no right of recovery against the non-debtor Exide entities.” App. 24. Although the Exide Foreign Entities’ argument that the order did not represent an allowance or disallowance of the PDH Foreign Entities’ proofs of claim against debtor Exide’s estate is technically correct, it is irrelevant as to whether the order was dispositive as to the PDH Foreign Entities’ claims against the Exide Foreign Entities. 31 to abstain or remand. A determination as to whether the PDH Foreign Entities’ claims had to proceed against the debtor alone was necessary to the disposition of the motion. However, we believe that both courts erred in concluding that the Coordinating Agreement was unambiguous. Indeed, the contractual provision at issue is anything but clear. Article 4.2(a), entitled “Indemnification by Buyer,” delineates the obligations of “Buyer” to PDH USA and the PDH Foreign Entities (“Seller” and “International Sellers,” respectively) as follows: (a) Subject to Sections 4.2(b), 4.2(c), and 4.2(d), Buyer agrees to indemnify and hold Seller and the International Sellers and their Affiliates harmless from and against any and all Losses and Expenses incurred by Seller or the International Sellers and their Affiliates in connection with or arising from: (i) any breach by Buyer of any of its covenants or agreements in the Sale Agreements or in this Agreement; (ii) any breach of any warranty or the inaccuracy of any representation by Buyer contained in the Sale Agreements, . . .; or 32 (iii) any breach by Buyer of any covenant contained in Section 11.1 or Section 12.2 of the U.S. Agreement or the corresponding provisions in the other Sale Agreements. App. 578-79. The provision does not define “Buyer” to mean only Exide nor does it use the term “sole indemnitor” or establish that Exide would be exclusively a proper party for any claims. For the purposes of the Coordinating Agreement, the term “Buyer” is in fact to mean “Buyer and/or (as the context may require) any International Buyer.” App. 567. The Bankruptcy Court and the District Court, however, reasoned that Amendment No.1 to the Coordinating Agreement clarified the provision and unambiguously designated Exide as the “sole indemnitor” and the only proper party for any breach of the sales agreements. After the amendment, subsection (i) read: “any breach by Buyer or, for the sake of clarification, any International Buyer of any of its covenants or agreements in the Sale Agreements or in this Agreement” (new inserted language emphasized). The remaining language in 4.2(a) was unchanged. Based on the amendment, the Bankruptcy Court held there was no ambiguity in 4.2(a) and Exide was unambiguously “solely liable for the asserted breaches.” App. 103. It reasoned, 33 I reach this conclusion, largely as a result of Amendment number 1, where the parties specifically chose to include language which addressed the very issue of what the buyer should mean in that subsection, and it strikes me that there’s no other reasonable inference to be drawn from the making of that amendment other than the parties intended to make that clarification with respect to section 4.2(a) small Roman “i” . . . . That’s why I make that conclusion. This results in making Exide solely liable for the asserted breaches . . . . Id. Its order similarly provided: The Court finds that Section 4.2(a) of the Coordinating Agreement as modified by Amendment No.1 of the Coordinating Agreement is unambiguous, that Debtor Exide is the sole indemnitor thereunder, and that consequently the foreign Pacific Dunlop entities have no right of recovery against the non-debtor Exide entities. App. 23-24. Faced with the PDH Foreign Entities’ motion for reconsideration, the Bankruptcy Court further reasoned that: 34 By virtue of Amendment No. 1, the parties specifically and deliberately carved out only one clause of Section 4.2(a) to “clarify.” The other parts of Section 4.2(a) remained unchanged. Therefore, the only reasonable inference that arises from Amendment No. 1[] is that the parties intended that the term “Buyer,” as used in the remainder of Section 4.2(a), means only Exide Corporation. App. 36. On appeal from the Bankruptcy Court’s order, the District Court agreed with this conclusion. This was error. Amendment No.1 does not make clear that Exide is the sole indemnitor under the Coordinating Agreement. Even after the amendment, Article 4.2(a) does not unambiguously state that only one of the numerous contracting buyers assumed indemnification obligations. Nothing in the agreement indicates that the sole recourse of the PDH Foreign Entities is against Exide or provides a waiver of rights as against the non-debtor Exide entities. No amendment provided that the term in the heading or first phrase of 4.2(a) should no longer be defined as “Buyer and/or . . . International Buyer.” We find illogical the Bankruptcy Court’s assertion that the “only reasonable inference” from the amendment is that “Buyer” means only Exide in the other subsections of the provision. It simply does not follow that, because the 35 amendment clarified that the term “Buyer” in subsection 4.2(a)(i) meant Exide or one of the Exide Foreign Entities, it also established that “Buyer” used elsewhere in 4.2(a) unambiguously meant only Exide. In fact, “Buyer” as used in other subsections of Article 4.2(a) is more reasonably read to mean both Exide and the Exide Foreign Entities. Subsection (iii), for instance, provides as an event for which the sellers will be indemnified “any breach by Buyer of any covenant contained in Section 11.1 or Section 12.2 of the U.S. Agreement or the corresponding provisions in the other Sales Agreements.” App. 579. The reference to “Buyer” here could mean only both Exide and the Exide Foreign Entities because Exide was not a party to the “other Sales Agreements” and could not, therefore, have breached any covenants therein. Thus, “Buyer” has to mean Exide and the Exide Foreign Entities. The language of subsection (ii) suggests a similar interpretation. Accordingly, the Bankruptcy Court erred in concluding that the Coordinating Agreement unambiguously designates the debtor as the “sole indemnitor” and only proper party to the PDH Foreign Entities’ claims. This error was magnified by the Court’s somewhat precipitous consideration of this important and dispositive issue. The Court gave no notice to the parties that it would decide this issue as to the meaning of the agreement at the hearing. The PDH entities had no right to reply to Exide’s merits argument. Yet, at the very outset of the hearing, the Court stated that it 36 considered the claims to be “core.” It, in essence, credited the defendants’ argument before PDH’s counsel had even had an opportunity to address the issue. In so doing, the Court failed to provide the PDH Foreign Entities with adequate notice and opportunity to present arguments regarding the proper interpretation of the contract under Illinois law. Prior to the hearing, neither party had even researched Illinois law applicable to the presentation of extrinsic evidence or the interpretation of the contract. Counsel for PDH protested that the Exide Foreign Entities had acknowledged that they could be held liable under the Coordinating Agreement and perhaps waived the “sole indemnitor” theory, saying, I should point out that there was in the State Court in the first complaint an answer filed by the Exide entities collectively. And in the answer, which I have and can submit also - and I don’t think there would [be] any dispute about that, it’s a document – there’s no defense asserted. You can’t sue us, the foreign entities; it’s not in there. They didn’t raise that. They didn’t raise that for a good long time . . . in the litigation in Illinois. Why not? Because they understood that there was a right to sue them there. So that’s another factor by way of the behavior of the parties to show the understanding and their intent. 37 App. 73. He further noted that Exide’s counsel did not disagree that the Exide defendants’ answer and counterclaim in state court failed to raise the sole indemnitor theory asserted before the Bankruptcy Court.8 The Bankruptcy Court had not yet received the pleadings from Illinois state court and never even addressed this argument. The PDH Foreign Entities should have had the opportunity to pursue their contention that they were entitled to sue their respective contracting Exide Foreign Entities based on Illinois state law and the contracting parties’ understanding of the Coordinating Agreement. In their motion for reconsideration, the PDH Foreign Entities urged the Court “to reconsider its decision not to consider any extrinsic evidence, its apparent decision that there was not even a latent ambiguity in the agreements at issue between the parties, and its narrow interpretation of a portion of Amendment No. 1 to the 8 At the hearing with respect to the motion for reconsideration, counsel made this point again. He said, “it’s not true that these issues were presented in the Illinois proceedings. There was no – in fact, by Schaff and Weiss, the predecessor’s counsel, there was no argument made in the Illinois State Courts at any time by them that Pacific Dunlap [sic] Entities could not go against the foreign entities. That was an argument that was created later by later counsel, and that’s another reason why it shows that they didn't intend it or they would have raised that right at the start.” App. 120. 38 Coordinating Agreement . . . .” App. 1435. They argued that Illinois law supported consideration of extrinsic evidence and they raised the defenses of mutual mistake and latent ambiguity as well. At the hearing on the motion, counsel for PDH urged the Court to reconsider its decision because the motion for remand had not presented the contractual interpretation issue on which the Court based its decision and he had not been prepared to argue the issue and fully develop defenses. Yet, in ultimately denying reconsideration 18 months later, after Exide’s bankruptcy plan had been confirmed, the Bankruptcy Court dismissed this argument as “new legal theories that could have been raised previously.” App. 37. Because the Court acted precipitously, it failed to permit the PDH Foreign Entities to challenge Exide’s proposed interpretation of the Coordinating Agreement. Based on its holding that the relevant provision was unambiguous, it also refused to consider extrinsic evidence. Accordingly, although we now reverse the Court’s determination that Exide is unambiguously the sole indemnitor, we cannot evaluate the contract interpretation on its merits because the record was not developed in the Bankruptcy Court. While the Court correctly determined that an analysis of the indemnification provision in the Coordinating Agreement was necessary to determine whether the PDH Foreign Entities’ claims were actually directed against the debtor and therefore core, it erred in concluding that the provision was unambiguous and failing to allow extrinsic evidence to be introduced. See, e.g., Farm Credit Bank of St. 39 Louis v. Whitlock, 144 Ill.2d 440, 447, 581 N.E.2d 664, 667 (Ill. 1991) (noting that when a contract “is capable of being understood in more sense than one,” parol evidence is admissible). We will, therefore, remand in order to permit the Bankruptcy Court to evaluate the issue more thoroughly. Upon remand, the Court should allow the parties to brief the issue of whether the Coordinating Agreement makes Exide solely liable for all of the PDH Foreign Entities’ claims, to present extrinsic evidence, and to develop the evidentiary record. In evaluating whether the claims are core proceedings, the Court should also exercise care to analyze each claim individually.9 We note that, although, as the Exide Foreign Entities point out, the PDH Foreign Entities did not specifically address this issue in connection with their motion to remand or abstain, they had no right to file a reply. They should be permitted to respond to it on remand. 9 For example, the PDH Foreign Entities have argued that, even if Exide were the sole indemnitor for the breach of contract claims subject to the contract remedy provisions of the Coordinating Agreement, the conversion claims stand apart and can be asserted against the Exide Foreign Entities according to Illinois law. We do not comment on the merits of this contention, but simply note that it may be necessary to address it even if the Bankruptcy Court concludes that the breach of contract and unjust enrichment claims are core proceedings. 40