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Ticona Polymers, Inc. v. Solutia

September 11, 2008


On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-3269-02.

Per curiam.


Argued February 27, 2008

Before Judges Axelrad, Sapp-Peterson and Messano.

Defendant, Solutia, Inc. (Solutia) appeals from the trial court orders granting summary judgment dismissing the first five counts of its counterclaim against plaintiff, Ticona Polymers, and granting declaratory judgment relief in connection with the interpretation of its contract with plaintiff. Defendant also appeals the court's order, issued sua sponte, bifurcating the declaratory judgment action from defendant's counterclaim. We affirm.

The following facts are largely undisputed. In 1980, plaintiff's predecessor company, Celanese Corporation, and Monsanto Company, defendant's predecessor company, entered into a Nylon Salt Sales Contract (the contract), in which plaintiff agreed to purchase all of the nylon salt it required from defendant. Nylon salt is the raw ingredient utilized to manufacture nylon polymer. After purchasing the nylon salt, plaintiff polymerized it and then molded the resulting nylon polymer into nylon resins as part of its nylon plastics and resins business, which it sold on the open market.

The contract, known in the industry as a requirements contract, was expressly governed by Missouri law. It did not contain any minimum amount of nylon salt that plaintiff was required to purchase from defendant, but did specify the maximum amount that defendant was obliged to supply to plaintiff. It also contained a formula for determining the price at which defendant would sell the nylon salt to plaintiff. An additional provision allowed plaintiff to purchase nylon salt from another source at a lower price, as long as defendant was given an opportunity to match that price. Another key provision of the contract called for each party to give advance notice of its intent to terminate the agreement.

On August 31, 1989, defendant gave notice to plaintiff of its intent to terminate the agreement. However, before that termination occurred, the parties agreed to further amend the contract. Effective July 23, 1993, defendant's notice of termination was deemed withdrawn and the contract was amended for the final time. According to this amendment, the contract was to run until August 31, 2004, and was to continue thereafter unless terminated on forty-eight months' written notice by either party. The amendment again modified the formula for determining the price at which the nylon salt was to be sold. The new formula was to be effective on September 1, 1994. The amendment did not make any further modifications to the "quantities" provision of the contract. However, the amendment did replace the "assignment" provision of the original contract with the following language:

ASSIGNMENT: Except for an assignment to a party's wholly-owned subsidiary, neither party shall (by operation of law or otherwise) assign its rights or delegate its performance hereunder without the prior written consent of the other party, and any attempted assignment or delegation without such consent shall be void.

Following the 1993 amendment to the contract, defendant reinvested its capital and expanded its facilities to manufacture the ingredients of nylon salt.

On April 17, 2002, plaintiff wrote to defendant that it was canceling the parties' nylon salt contract. Plaintiff claimed that this was intended to be the requisite four-year notice under the contract. The decision was made in order to reduce plaintiff's costs and improve the profitability of its nylon business. During the two-year period leading up to plaintiff's termination notice, plaintiff attempted to negotiate a price relief under the contract, but defendant only agreed to two temporary price modifications. Plaintiff had considered a number of different options, including purchasing already-manufactured polymer. Its board ultimately recommended that plaintiff negotiate a deal with Dupont Chemical Company (Dupont) for polymer and that plaintiff "exit" the polymer manufacturing arm of its business, with the possibility of "exiting" the entire nylon business in the future.

On May 8, 2002, Michael Berezo, defendant's Director of Nylon Intermediates, wrote to plaintiff, advising that defendant

(1) did not object to the sale of plaintiff's nylon business to a third party as long as the sale included an assignment of the existing contract, (2) would consider plaintiff in breach of the contract if plaintiff purchased nylon polymer from an entity other than Solutia, and (3) had "spent considerable expansion capital to ensure a reliable supply of Nylon Salt to Ticona." The letter concluded with the following statement:

[W]e have worked with Ticona to develop modifications to the Nylon Salt contract such as significant price concessions and a Nylon Salt Conversion Provision to support your business during the difficult business conditions we have all faced recently.

In short, we feel as if we have been responsive to Ticona's requests for support and any consideration of alternatives for your Nylon business which don't include Solutia Nylon Salt are not consistent with this spirit of cooperation and violate the spirit and letter of the contract. If you wish to discuss this further or have any questions concerning this obligation, please let . . . me know.

On July 16, 2002, plaintiff filed a declaratory judgment action in the Law Division against defendant Solutia, Inc., seeking a declaration

A. That Ticona has the right to purchase polymer and to reduce its requirements of Nylon Salt to zero, and that Ticona's purchase of polymer from a third party is not a breach of the Nylon Salt Agreement.

B. That Ticona's proposed sale of its nylon plastics and resins business to a third party without the Nylon Salt Agreement, and that the resulting decrease in or elimination of Ticona's requirements for Nylon Salt are not in breach of the Nylon Salt Agreement.

After the court denied defendant's motion to dismiss the complaint pursuant to Rule 4:6-2, defendant filed its answer, affirmative defenses, jury demand and a six-count counterclaim against plaintiff. The counterclaim alleged breach of contract (Count I), breach of implied covenant of good faith and fair dealing (Count II), anticipatory breach of express terms of contract (Count III), anticipatory breach of implied covenant of good faith and fair dealing (Count IV), equitable recoupment (Count V), and action on account (Count VI). Thereafter, the parties proceeded to exchange discovery,

On June 6, 2003, the court conducted oral argument on a discovery motion filed by defendant for the issuance of letters rogatory pursuant to Rules 4:11-5 and 4:12-3. At that time, the court posited to defense counsel that the discovery defendant was seeking may be "for naught" if a "jury comes back and says that salt and polymer are two different things[.]" In response, defense counsel stated, "Well, that's true[,] Your Honor. I believe that is probably true. But that's -- that's the case in any litigation." Then, the following exchange occurred:

THE COURT: Not if I bifurcate it, which is what I want to do. Because then you don't have to spend hours, and hours, and hours, on discovery of damages which you may never get to. Doesn't that make sense?

[DEFENSE COUNSEL]: Certainly, Your Honor. That's not something that we had discussed before, bifurcating that issue from this trial. You know, our position was that if this was being tried as a single case before a jury --

THE COURT: there was nothing --

[DEFENSE COUNSEL]: -- and we would need to do this discovery --

THE COURT: There was nothing prohibiting either you or you coming to me and saying, why don't we cut this down into two bite-size pieces? We'll do the liability portion first, and we'll do the damages portion second. And you can either waive a jury, and I can decide it, or we'll pick a jury and they'll decide, because it's a fact question or interpretation of whether salt is the same as polymer. And then the discovery will be whether they breached the contract by purchasing salt.

But the question of what was the structure? What was the pricing? How was it to be done? You don't need that until you find out whether the polymer is in or out of the deal. And you'll find that out at the liability stage of the trial. Then after the liability stage of the trial, relevancy becomes right to the ...

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