Court Opinion

ID: 9914761
Source: CourtListenerOpinion
Date Created: 2024-01-02 22:01:51.563367+00
Date Added: 2024-06-11T13:14:26.586126
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

THE DOW CHEMICAL CO., and                 )
DOW BRASIL INDUSTRIA E                    )
COMERCIO DE PRODUTOS                      )
QUIMICOS, LTDA.,                          )
                                          ) C.A. No. N22C-08-002
                        Plaintiffs,       )          PRW CCLD
                 v.                       )
                                          )
CITIC AGRI INVESTMENT CO.,                )
LIMITED, LP HIGH TECH                     )
HOLDING LTDA, LONGPING                    )
HIGH-TECH SEMENTES &                      )
BIOTECNOLOGIA, LTDA.,                     )
LONGPING HIGH-TECH                        )
BIOTECNOLOGIA LTDA.,                      )
AMAZON AGRI BIOTECH LUX                   )
S.A.R.L,                                  )
                                          )
                        Defendants.       )

                         Submitted: December 8, 2023
                           Decided: January 2, 2024

                      Upon Defendants’ Motion to Dismiss,
                                GRANTED.

                MEMORANDUM OPINION AND ORDER

Chad S.C. Stover, Esquire, BARNES & THORNBURG LLP, Wilmington, Delaware,
Michael T. Williams, Esquire, Judith Pace Youngman, Esquire, WHEELER TRIGG
O’DONNELL LLP, Denver, Colorado, Attorneys for Plaintiffs.

Alessandra Glorioso, Esquire, DORSEY & WHITNEY LLP, Wilmington, Delaware,
Daniel J. Brown, Esquire, Jack Huerter, Esquire, DORSEY & WHITNEY LLP,
Minneapolis, Minnesota, Attorneys for Defendants.

WALLACE, J.
                                 I. INTRODUCTION

      In July 2017, a seller sold off its affiliate’s corn seed business through a share

purchase agreement. The share purchase agreement required the seller to indemnify

the buyer for pre-closing litigation related to the business and certain third-party

claims. After the sale, a series of legal disputes arose. The parties entered into a

settlement agreement that included a mutual release of claims. Approximately two

years later, the seller demanded that the buyer reimburse and indemnify it for certain

third-party claims; those claims had been in litigation before the parties entered into

the settlement agreement. The seller and its affiliate followed up their demand by

filing a complaint against the buyer and buyer’s affiliates in this action.

      In sum, the seller argues that for the settlement agreement to “release” and

“discharge” the buyer of its indemnification obligations under the share purchase

agreement with respect to third-party claims, the buyer must reimburse the seller

with respect to those claims. But the settlement agreement does not provide the

seller such a right. Rather, the settlement agreement removed the buyer’s right under

the share purchase agreement to enforce its claims for indemnification against the

seller. Given that the buyer is not seeking to enforce those obligations—and seller

cannot enforce a right that it was not provided for in the later settlement agreement—

the buyer’s prayer for dismissal is GRANTED.
                II. FACTUAL AND PROCEDURAL BACKGROUND

    A. THE SHARE PURCHASE AGREEMENT

       On July 10, 2017, The Dow Chemical Company (“Dow”) and Dow

AgroSciences Industrial LTDA (“Dow AgroSciences”)1 sold Dow AgroSciences

Sementes & Biotecnologia Brasil Ltda. (the “Seed Business”) to CITIC Agri

Investment Co., Limited (“CITIC”)2 through the Share Purchase Agreement

(“SPA”).3 As part of the sale, CITIC acquired the business’s in-scope assets and

liabilities.4

       The SPA requires Dow to indemnify CITIC for Losses5 arising from certain

third-party claims and litigation related to the pre-closing operation of the Seed

1
    For ease of reference, the Court will refer to Dow and Dow AgroSciences as “Dow,” unless
specificity is required. See also Defendants’ Opening Brief in Support of their Motion to Dismiss,
Exhibit A (“SPA”) (D.I. 25) § 12.6(c) (“All of the rights of Seller hereunder are enforceable by
[The Dow Chemical Company] against [CITIC] and any of their Affiliates to the same extent as
though [The Dow Chemical Company] were the Seller for purposes of enforcement of such rights.
In connection with such enforcement, all references herein to Seller shall be deemed to include
[The Dow Chemical Company].”).
2
    CITIC was formerly known as China International Trust Investment Corporation. Complaint
(D.I. 1) ¶ 25.
3
    Compl. ¶ 2; see generally SPA.
4
    See SPA Recitals; Compl. ¶ 3.
5
    “Losses” include “any and all losses, liabilities, obligations, damages, deficiencies,
settlements, awards, judgments, assessments, penalties, offsets, claims, interest, payments, fines,
costs and expenses or other charges of any kind, actually incurred, including reasonable attorneys’
fees, costs of investigation and costs of enforcing any right to indemnification hereunder or
pursuing any insurance providers; provided that Losses shall not include indirect, consequential,
special, punitive or related losses and/or damages, except in the case of fraud or to the extent
actually awarded to a third party.” Ex. E to SPA at 65.

                                               -2-
Business. SPA Section 11.2 provides, in relevant part, that Dow:

        indemnify, defend and hold [CITIC] and any Affiliate thereof and their
        respective Representatives (each, a “Buyer Indemnified Party”)
        harmless from and against any and all Losses incurred or sustained by,
        or imposed upon, such Buyer Indemnified Party resulting or arising
        from, related to, or incurred in connection with

                               *                       *                       *
        (d) the management or operation of, or any fact, act or omission
        relating to the Company, the Business, In-Scope Assets and Liabilities,
        the Excluded Assets and Liabilities or the In-Scope Employees
        resulting from any act, fact or omission arising, occurring or incurred
        prior to and including the Closing Date. . . .6

        Dow had the option to participate in, or assume, the defense of any “Third-

Party Claims,”7 as long as Dow indemnified CITIC for the claims.8 That option,

however, did not extend to existing litigation at the time of closing; the SPA

mandated that Dow “remain responsible for the defense of all existing lawsuits and

administrative and judicial proceedings involving the [Seed Business] . . . and

commenced before the Closing Date . . . and . . . bear the costs of such defenses.”9

6
    See SPA § 11.2.
7
    “Third-Party Claims” include “the assertion of any claim, the commencement of any suit,
action or proceeding, or the imposition of any penalty or assessment by a third party in respect of
which indemnity may be sought under Section 11.1 or Section 11.2” of the SPA. Id. § 11.4.1(a).
8
     See id. § 11.4.2(a)(i) (“The Indemnifying Party shall have the right, at its option, to participate
in or, by giving written notice to the Indemnified Party, to elect to assume the defense of such
Third Party Claim at the Indemnifying Party’s own expense and by its own counsel, provided, that
the Indemnifying Party shall indemnify and hold harmless the Indemnified Party against all losses,
liabilities and reasonable costs incurred as a result of its defense of such Third Party Claim.”)
(italics and bold in original).
9
    Id. § 11.5(a).

                                                 -3-
         Too, the SPA prescribes a contractual limitations period for indemnification

claims. Section 11.6(a) of the SPA provides that CITIC’s right to indemnification

“shall apply only to those claims for indemnification . . . made on or before the

respective dates set forth below. . . .:

         (ii) any claim for indemnification pursuant to . . . Section 11.2(d) . . . in
         each case except for claims relating to tax or labor Losses, shall be
         made on or before the date which is thirty-six (36) months after the
         Closing Date; and

         (iii) any claim for indemnification pursuant to . . . Section 11.2(d) . . .
         in each case for claims relating to tax or labor Losses, shall be made on
         or before the date that is thirty (30) days after the expiration of the
         applicable statute of limitations.”10

The contractual limitations period, however, does not apply for “indemnification for

Losses arising out of Existing Litigation.”11

     B. THE SETTLEMENT AGREEMENT

         After the sale of the Seed Business, Dow and CITIC became embroiled in a

series of legal disputes.12       On August 2, 2019, Dow, Dow Brasil Industria E

Comercio De Produtos Quimicos, LTDA (“Dow Brasil”),13 CITIC, LP High Tech

Holding Ltda. (“LongPing_1”), Longping High-Tech Sementes & Biotecnologia

10
     Id. § 11.6(a)(ii)-(iii).
11
     Id. §11.6(b).
12
     Compl. ¶ 36.
13
   The Court will refer to Dow and Dow Brasil in reference to the Settlement Agreement as
“Dow,” unless specificity is required.

                                             -4-
LTDA (“LongPing_2”), and Amazon Agri Biotech LUX S.a.r.1 (“Amazon Agri”)

entered into a settlement agreement (the “Settlement Agreement.”).14

         The parties’ current dispute centers on Section 3 of the Settlement Agreement.

Section 3 provides for the mutual release of claims between CITIC and Dow.

Specifically, Section 3(b) of the Settlement Agreement provides that CITIC (and

CITIC Group15):

         hereby irrevocably, fully, and forever release and discharge Dow and
         the Dow Group from any and all claims, causes of action, obligations,
         costs, expenses, interest, attorneys’ fees, damages, and demands of
         whatever character, nature, or kind (whether fixed or contingent,
         anticipated or unanticipated, known or unknown, asserted or
         unasserted, past or present, suspected or unsuspected, accrued or
         unaccrued, vested or not vested, ripe or not ripe), based upon facts,
         circumstances, events, actions, or inactions occurring or existing, in
         whole or in part, prior to the date of this Settlement Agreement arising
         out of or relating to the Parties’ Disputes, the divestment or sale of the
         DAS Corn Seed Business, the operation of the DAS Corn Seed
         Business, any “wrong pockets” issues, the Merger Control Agreement,
         the Share Purchase Agreement, Services Agreement, the Germplasm
         Agreement, or the Closing Memorandum….16

14
   Compl. ¶ 37; Compl., Ex. 1 (“Settlement Agreement”). CITIC, LongPing_1, LongPing_2, and
Amazon Agri will collectively be referred to as “CITIC,” and when necessary, the Court will
specifically refer to a party.
15
     “CITIC Group” includes “CITIC’s past, present, and future parents, agents, members,
affiliates, partnerships, joint ventures, trusts, organizations, successors, officers, directors,
employees, representatives, insurers, reinsurers, heirs, assignees, trustees, grantees, associates,
legal successors, agents, partners, representatives, and attorneys.” Settlement Agreement § 3(a).
16
     Id. § 3(b).

                                               -5-
SPA Section 3(b) carves out “any claims, causes of action, obligations, costs,

expenses, interest, attorneys’ fees, damages, and demands of whatever character that

arise under this Settlement Agreement.”17 SPA Section 3(d)(i) also provides that:

           [n]o Third Party Claim as to which a Party first receives notice after the
           date of this Settlement Agreement is released by the mutual releases
           above. Nothing in this Settlement Agreement modifies or enlarges the
           Parties’ respective indemnity right as to such Third Party Claims, if
           any.18

           The Settlement Agreement, therefore, did not release or discharge claims to

enforce the Settlement Agreement itself, nor Third-Party Claims as to which a party

received notice after the Settlement Agreement.

     C. THIS LITIGATION

           Dow provided CITIC quarterly reporting of third-party claims and costs since

the sale.19 Around the end of 2019 or early 2020, Dow engaged in discussions with

CITIC relating to tax claims against the Seed Business.20 Dow alleges discussions

stalled as the COVID-19 pandemic hit.21

           Approximately two years after the execution of the Settlement Agreement, on

July 25, 2022, Dow sent CITIC formal notice of its tender of all third-party claims

17
     Id.
18
     Id. § 3(d)(i).
19
     Compl. ¶ 52.
20
     Id. ¶ 53.
21
     Id. ¶ 55.

                                             -6-
related to the Seed Business’ pre-closing operations, a demand for reimbursement

and indemnity, and request to resolve the dispute.22 Those claims include:

         (1) third-party claims known as of the date of the Settlement
             Agreement, August 2, 2019;

         (2) third-party claims related to the Seed Business’ operations,
             unknown on August 2, 2019, involving Losses, exclusive of tax or
             labor Losses, incurred thirty-six months after closing, i.e.,
             November 30, 2020; and

         (3) third-party claims related to the Seed Business’ operations,
             unknown on August 2, 2019, involving tax or labor Losses incurred
             after the applicable statute of limitations.23

         Barely a week later, Dow and Dow Brasil (“Plaintiffs”) initiated this action by

filing a complaint against CITIC, LongPing_1, LongPing_2, and Amazon Agri

(“Defendants”). Plaintiffs assert claims for breach of contract, implied covenant of

good faith and fair dealing and seek declarations regarding the Settlement

Agreement, and similar claims relating to the contractual limitations periods under

the SPA.

         Defendants have now moved to dismiss the Plaintiffs’ complaint in its entirety.

                      III. APPLICABLE LEGAL STANDARDS

         When considering a motion under Rule 12(b)(6), the Court (i) accepts as true

all well-pled factual allegations in the complaint, (ii) credits vague allegations if they

22
     Id. ¶ 56.
23
     Id. ¶ 59.

                                           -7-
give the opposing party notice of the claim, and (iii) draws all reasonable inferences

in favor of the plaintiffs.24 The motion to dismiss will be denied “unless the plaintiff

would not be entitled to recover under any reasonably conceivable set of

circumstances.”25

           Delaware follows the “objective” theory of contracts; that is, the Court

accords a contract’s terms what would be an objective, reasonable third-party’s

interpretation thereof.26 When determining the scope of a contractual obligation, and

when measuring the parties’ conduct against that obligation to determine breach,

“‘the role of a court is to effectuate the parties’ intent.’”27

           When the contract is clear and unambiguous, the Court follows the plain-

meaning of the contract’s terms and provisions.28 A contract is ambiguous only if

there are at least two differing, reasonable interpretations of it.29 On a Rule 12(b)(6)

motion, this Court “cannot choose between two differing reasonable interpretations

of ambiguous provisions.”30 Indeed, dismissal is proper only if the defendant’s

24
     Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del. 2011).
25
     Id.
26
   Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing NBC Universal v.
Paxson Commc’ns, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
27
   Cygnus Opportunity Fund, LLC v. Washington Prime Grp., LLC, 302 A.3d 430, 454 (Del. Ch.
2023) (quoting Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006)).
28
   Osborn, 991 A.2d at 1159 (citing Rhone–Poulenc Basic Chem. Co. v. American Motorists Ins.
Co., 616 A.2d 1192, 1195 (Del.1992)).
29
     Twin City Fire Ins. Co. v. Delaware Racing Ass’n, 840 A.2d 624, 628 (Del. 2003).
30
     VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del. 2003).

                                              -8-
interpretation is the only reasonable interpretation.31

                                       IV. DISCUSSION

     A. CLAIMS UNDER THE SETTLEMENT AGREEMENT

           Dow contends that “CITIC has not assumed responsibility for the third-party

claims for which Dow’s indemnity obligations have been released, discharged, and

extinguished.” 32 Thus, Dow seeks to enforce the Settlement Agreement in a manner

requiring that CITIC “assume” that responsibility33a—that is, “reimburse Dow” for

its ongoing costs in the litigation of the Third-Party claims.34 Yet, Dow doesn’t

identify a single provision in the Settlement Agreement that specifically affords it a

right of reimbursement. Instead, Dow offers as support the Merriam-Webster’s

definition of to “discharge,” which means “to relieve of a charge, load, or burden.”35

           While dictionaries can help provide a meaning to a word or phrase, such a

meaning cannot be credited with no consideration of its context.36 In the context of

31
     Id.
32
     Compl. ¶ 50.
33
     Id.
34
     Id. ¶ 58.
35
     Ans. Br. at 18.
36
    See United States v. Costello, 666 F.3d 1040, 1044 (7th Cir. 2012) (“Dictionary definitions are
acontextual, whereas the meaning of sentences depends critically on context, including all sorts of
background understandings.”); In re P3 Health Group Hldgs., LLC, 282 A.3d 1054, (Del. Ch.
2022) (“The natural habitat of words is thus a larger text; words appear in phrases, in sentences, in
paragraphs, and in entire provisions. Those provisions in turn appear within still-larger texts, such
as a statute or contract. When interpreting those documents, a court cannot read words in isolation;
the court must construe the document as a whole.”); Texas Pac. Land Corp. v. Horizon Kinetics
                                                -9-
the Settlement Agreement, CITIC agreed to “release and discharge” Dow of its

indemnification obligations under the SPA for third-party claims noticed before the

date of the Settlement Agreement.37            Accordingly, CITIC released Dow of

obligations that CITIC had the right to enforce against Dow; the release did not

create some new affirmative right that Dow can now assert against CITIC.

        In other words, the Settlement Agreement-created indemnification rights (or

perhaps, more aptly, an express foregoing thereof) belong to CITIC. And while

CITIC can no longer pursue indemnification against Dow for such third-party

claims, the release does not now provide Dow a right of reimbursement for those or

other third-party claims. If Dow had in fact bargained-for and secured such a right,

it would have appeared plainly in the language of the release not via the creative

read it suggests now.

        So, Plaintiffs are not entitled to reimbursement or indemnification for third-

party claims assumed prior to the Settlement Agreement.

        Dow’s claims for breach of the implied covenant good faith and fair dealing

and request for declaratory judgment fare no better. A party may not use the implied

LLC, 2023 WL 8297050, at *19 (Del. Ch. Dec. 1, 2023) (“But dictionary definitions are not a be
all and end all. Words appear in sentences, and their meaning depends on context.”).
37
     Settlement Agreement § 3(d).

                                            - 10 -
covenant of good faith and fair dealing to re-write a contract’s terms.38 And if the

contract addresses the conduct at issue, any implied covenant claim fails.39

        The parties released indemnification claims prior to the Settlement

Agreement. They did not bargain for any right of reimbursement or indemnification

for ongoing defense costs of third-party claims assumed prior to the Settlement

Agreement. Dow may not use the implied covenant to read into the release a right

of reimbursement.

        Because Dow fails to state a claim for breach of contract and the implied

covenant of good faith and fair dealing, the Court also will deny its related request

for declaratory judgment.

     B. CLAIMS UNDER THE SPA

        Dow seeks a release of indemnification claims for losses incurred after the

38
    Cincinnati SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989, 992 (Del.
1998) (“[I]t is not the proper role of a court to rewrite or supply omitted provisions to a written
agreement.”); Winshall v. Viacom Int’l, Inc., 55 A.3d 629, 636–37 (Del. Ch. 2011), aff’d, 76 A.3d
808 (Del. 2013) (“[T]he implied covenant of good faith and fair dealing should not be applied to
give plaintiffs contractual protections that they failed to secure for themselves at the bargaining
table...[T]he implied covenant is not a license to rewrite contractual language. . . . Rather, a party
may only invoke the protections of the covenant when it is clear from the underlying contract that
the contracting parties would have agreed to proscribe the act later complained of had they thought
to negotiate with respect to that matter.”) (internal citations and quotations omitted)).
39
     Allen v. El Paso Pipeline GP Co., 113 A.3d 167, 183 (Del. Ch.), judgment entered, (Del. Ch.
2014), aff’d, 2015 WL 803053 (Del. Feb. 26, 2015) (“[T]he court decides whether the language of
the contract expressly covers a particular issue, in which case the implied covenant will not apply,
or whether the contract is silent on the subject, revealing a gap that the implied covenant might
fill. A court must determine whether a gap exists because ‘[t]he implied covenant will not infer
language that contradicts a clear exercise of an express contractual right.’”) (citation omitted).

                                               - 11 -
contractual limitations period. Those claims include indemnification for third-party

claims relating to the pre-closing operation of the Seed Business, as well as those

relating to tax and labor Losses.

         Section 11.6(a)(ii) of the SPA provides that:

         . . . (ii) any claim for indemnification pursuant to . . . Section 11.2(d)
         . . . in each case except for claims relating to tax or labor Losses, shall
         be made on or before the date which is thirty-six (36) months after the
         Closing Date.

         Dow insists that CITIC’s indemnification rights for Losses from third-party

claims relating to the Seed Business, other than tax or labor Losses, expired after

November 30, 2020.40 That is, Dow contends that the contractual limitations period

applies to the time Losses are incurred.41 Dows seems to be treating the contractual

limitations period as a sort of damages cut-off. Dow makes the same argument as

to third-party claims relating to tax or labor Losses under Section 11.6(a)(iii).

         Dow’s interpretation of the contractual limitations periods is belied by the

contract’s plain language. SPA Section 11.6(a)(ii) and (iii) apply to claims tendered,

not Losses incurred.42 Both provisions provide that a claim “shall be made on or

40
     Compl. ¶ 46.
41
    See Ans. Br. at 21-22 (“Yet, the Losses at issue were incurred after the contractual limitations
period expired so Dow cannot possibly be obligated to provide indemnity for such Losses. Stated
differently, prior to the expiration of the contractual limitations periods, CITIC could not have
properly tendered indemnity claims for future Losses, when the Losses were not incurred until
after the limitations periods expired.”) (italics in original).
42
     SPA § 11.6(a)(ii) and (iii).

                                              - 12 -
before” the given contractual limitations date.43 The phrase “shall be made on or

before” modifies claim—not Losses.44

           Too, the implied covenant of good faith and fair dealing cannot be used to

alter the contractual limitations period. Thus, the breach-of-contract claim and resort

to the implied covenant of good faith and fair dealing fail.

           Because the request for declaratory judgment is predicated on the faulty

breach-of- contract claims, Dow is not entitled to the declaration sought.

           Lastly, the claim for unjust enrichment is duplicative of the contractual and

implied claims.        If a contract governs and there is no “question about the

effectiveness or application of the contract at issue,”45 a claim of unjust enrichment

cannot stand.46

           Dow is not challenging the enforceability of the Settlement Agreement or

SPA, and those contracts directly address the parties’ relationship and conduct at

issue. Accordingly, the Court will dismiss Plaintiffs’ unjust enrichment claim.

43
     Id.
44
    The fact that the contractual limitations period in Section 11.6(a) does not apply to claims for
indemnification for Losses arising out of the Existing Litigation does not change the outcome. Id.
§ 11.6(b). The parties may submit claims for indemnification for Losses arising out of Existing
Litigation, separate and apart from when the Existing Litigation commenced.
45
   Encore Preakness, Inc. v. Chestnut Health & Rehab. Grp., Inc., 2017 WL 5068753, at *4 (Del.
Super. Ct. Nov. 1, 2017) (citation omitted); RCS Creditor Tr. v. Schorsch, 2018 WL 1640169, at *7
(Del. Ch. Apr. 5, 2018).
46
    Metcap Sec. LLC v. Pearl Senior Care, Inc., 2009 WL 513756, at *5 (Del. Ch. Feb. 27, 2009),
aff’d, 977 A.2d 899 (Del. 2009); Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010).

                                              - 13 -
                        V. CONCLUSION

   For the reasons set forth above, Defendants’ Motion to Dismiss is

GRANTED.

   IT IS SO ORDERED.

                                        _______________________
                                        Paul R. Wallace, Judge

                              - 14 -