Opinion
03 Civ. 943 (LAK) (GWG)
November 14, 2003
REPORT AND RECOMMENDATION
Defendant Loctite Corporation ("Loctite") moves this Court for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure as to the ninth and tenth claims for relief in plaintiffs First Amended Complaint. Plaintiff Permatex, Inc. ("Permatex") cross-moves for judgment on the pleadings under Rule 12(c) on the same claims and also for an order dismissing Loctite's first counterclaim in its Answer and Counterclaim to First Amended Complaint. For the reasons below, the motions should be denied.
I. INTRODUCTION
A. Background
The facts as set forth in the pleadings, which are not in dispute, are accepted as true for purposes of these motions.
Permatex is a Delaware corporation with its principal place of business in Connecticut. See First Amended Complaint, filed April 2, 2003 (Docket #5) ("Am. Compl."), ¶ 3. It was formed in July 1999 specifically to acquire Loctite's "Permatex" business. Id. ¶ 6. The Permatex business as operated by Loctite had "manufactured, packaged, and sold a variety of automotive-maintenance products, including cleaners, lubricants, adhesives, sealants, gasket makers, and other maintenance and performance-related products." Id. As defined in the Asset Purchase Agreement, which effectuated the transaction, the business acquired by Permatex consisted of Loctite's "Automotive Aftermarket Division," including its Automotive Dealers Service and Parts business, and select heavy duty truck accounts, referred to collectively therein as the "Purchased Business." See id. ¶¶ 6-7; see also Asset Purchase Agreement By and Among Loctite Corporation (the "Seller"), Permatex, Inc. (the "Buyer"), Permatex Canada, Inc., Loctite Canada, Inc. and Manco, Inc., dated July 30, 1999 ("A/P Agreement") (reproduced as Ex. A to Am. Compl.), ¶ A, at 1-2.
Permatex's amended complaint states ten claims for relief, the first eight of which relate generally to trademark issues and are not relevant to the instant motions. The instant motions concern solely Permatex's allegation that Loctite breached the A/P Agreement when it failed to transfer to Permatex certain "manufacturing technology and know-how."See generally Am. Compl. ¶¶ 51-53, 54-57; Answer and Counterclaim to First Amended Complaint, filed April 18, 2003 (Docket #7) ("Answer"), ¶¶ 66-75. Permatex seeks equitable damages and specific performance of the A/P Agreement, see Am. Compl. ¶ 52 (ninth claim), and contract damages, id. ¶ 57 (tenth claim). Loctite denies that the A/P Agreement required it to share the "manufacturing technology and know-how" at issue with Permatex and thus denies that it breached the A/P Agreement. See Answer ¶ 52, 55. Consistent with this position, Loctite seeks in its first counterclaim a declaratory judgment confirming that "it has fully complied with the [A/P Agreement] and related agreements." Id. ¶ 75.
B. The A/P Agreement
Under the terms of the A/P Agreement, Loctite agreed to sell to Permatex "certain assets used or held for use in, or relating to" the Purchased Business, consisting of, among other things, "certain manufacturing and distribution sites, production know-how, formulas, formulation techniques, customer lists, and trademarks." A/P Agreement ¶ A, at 1-2. The assets transferred pursuant to the A/P Agreement are described in Section 1.1 of the A/P Agreement, which is captioned "Acquired Assets." See id. § 1.1, at 4. Section 1.1 lists nineteen subclasses of assets that constitute the "Acquired Assets."See id. § 1.1(a)-(s), at 4-8. One of these nineteen subclasses, Section 1.1(i), states that the "Acquired Assets" include
(i) . . . all of [Loctite's] production records, technical information, manufacturing know-how, processes, trade secrets, customer lists . . . and any other intangible assets, in each case to the extent they relate or pertain to the Purchased Business, except as set forth in Section . . . 1.2(g) hereof, as described on Schedule 1.1(i). . . .Id. § 1.1(i), at 6. Schedule 1.1(i) identifies the following as being transferred: "All production records, technical information[,] manufacturing know-how, processes, and trade secrets, relating or pertaining to the products of the Purchased Business wherever located." Id. sched. 1.1(i) (reproduced as App. A to Reply Memorandum of Law in Further Support of Plaintiff's Rule 12 Motion, filed September 2, 2003 (Docket #20) ("PI. Reply Mem.")). The final clause of Schedule 1.1(i) notes that such know-how (and related items) "will not be separately delivered." Id. Listed in this schedule are a number of trademarks that relate, at least in part, specifically to certain "anaerobic" products that are at issue in the instant motions.See id. At oral argument, Permatex stated that it would be satisfied if it received only the technology/know-how related to the products for which there are trademarks listed on Schedule 1.1(i).
Section 1.2 of the A/P Agreement contains an introductory section and various subsections, including a subsection (g). Together the pertinent sections provide:
Excluded Assets. Notwithstanding the foregoing, [Loctite] shall not be deemed by this Agreement to sell to [Permatex], and [Permatex] shall not be deemed by this Agreement to purchase from [Loctite], any tangible or intangible properties, assets or rights of [Loctite] not included in the Acquired Assets. Without limiting the generality of the foregoing, there shall not be sold, assigned, transferred or delivered hereunder, and the term "Acquired Assets" shall not include, any of the following assets of [Loctite] (collectively, the "Excluded Assets"), although [Permatex] shall have the absolute right to acquire, obtain, make, use, sell or market any such assets or rights from others or by law unless specifically precluded from doing so by this Agreement . . .:
. . . (g) for the duration of the [Permatex] Supply Agreement . . ., any rights to make, have made, use, or sell any product, product formulation or equivalent product substance derived from, identical, or substantially equivalent to the anaerobic, silicone or cyanoacrylate products or any chemically similar variation thereof manufactured by [Loctite] as of the Closing Date or thereafter, and including, without limitation, those described on Schedule 1.2(g) hereto. . . .Id. § 1.2(g), at 9-10. Schedule 1.2(g), captioned "Excluded Assets (Chemistries)," lists seven products: anaerobics, cyanoacrylates, silicones, acrylics, acrylates, epoxies, and urethanes.See Id., sched. 1.2(g) (reproduced as Tab 3 to Ex. B of Loctite Corporation's Memorandum of Law in Support of its Motion for Judgment on the Pleadings as to Plaintiffs Breach of Contract Claims (Ninth and Tenth Claims for Relief), filed June 16, 2003 (Docket #15) ("Def. Mem.")). Again, and as was made clear at oral argument, it is undisputed that the technology/know-how relating to these chemistries (that is, those described in Section 1.2(g) and listed in Schedule 1.2(g)) are the ones that Permatex seeks to acquire.
In a separate portion of the A/P Agreement is an Article entitled "Representations and Warranties of [Loctite]." Id. art. 5, at 16. Within this Article are twenty-three "representations and warranties" lasting "[f]or the period set forth in Section 13.7" of the A/P Agreement, Id., which was two years, see id. § 13.7, at 72. Loctite's final "representation and warranty" states:
Carve-Out Business. As set forth above in the Recitals to this Agreement, the Acquired Assets constitute a "carve-out" of the Purchased Business from [Loctite's] Consumer and Industrial Business. Consequently, and not by way of limitation, the Acquired Assets transferred do not include: (i) accounting systems and support; (ii) human resource systems; (iii) customer service; (iv) information and computer systems or technology; (v) any equipment, know-how, or production rights to any chemical products associated with [Loctite's] anaerobic, cyanoacrylate. or silicone technologies; (vi) environmental health and safety services; or (vii) management personnel and, as constituted, do not comprise an entire business.Id. § 5.23, at 34 (emphasis added). As was made clear at oral argument, the technologies described in Section 5.23(v) are the technologies at issue in the current dispute.
Simultaneous with the execution of the A/P Agreement, the parties signed reciprocal Exclusive Supply Agreements. See Permatex Exclusive Supply Agreement, dated July 30, 1999 ("Permatex Supply Agreement") (reproduced as Tab 1 to Ex. B of Def. Mem.); Loctite Exclusive Supply Agreement, dated July 30, 1999 (reproduced as Tab 2 to Ex. B of Def. Mem.) (collectively, the "Supply Agreements"). The Permatex Supply Agreement set forth the terms under which Permatex would purchase from Loctite "its complete requirements of all anaerobic, cyanoacrylate, silicone, and acrylic Core Products and chemistries, of every type and specification on an exclusive basis." Permatex Supply Agreement § 4.1, at 2. The Permatex Supply Agreement could be terminated only upon six-month's written notice after the first thirty months and, accordingly, was in effect for a minimum of three years. See id., § 2, at 1. It expired on August 1, 2002. See Am. Compl. ¶ 13; Answer ¶ 13.
C. The Instant Motions
The instant motions both raise the same question: whether Permatex acquired under the A/P Agreement the technical information and/or know-how relating to the "anaerobic" and related technologies. Permatex contends that it is entitled under the A/P Agreement to receive the technology/know-how. Plaintiffs Memorandum of Law in Opposition to Defendant's Rule 12 Motion, and in Support of Plaintiff's Rule 12 Motion, dated July 18, 2003 ("PI. Mem."), at 2, 15; see Am. Compl. ¶¶ 11-12. Loctite contends that "the parties expressly excluded Loctite's anaerobic, cyanoacrylate, silicone, acrylic, acrylate, epoxy and urethane chemistries/technology from the assets being purchased by Permatex as part of the 'carve-out' from Loctite's other and ongoing business." Def. Mem. at 9; see Answer ¶¶ 67-72. For the reasons below, the Court finds that the A/P Agreement is ambiguous and thus both parties' motions should be denied.
II. DISCUSSION
A. Standard of Review
A motion for judgment on the pleadings under Fed.R.Civ.P. 12(c) is examined using the same standard as that for a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). See Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir.), cert. denied, 513 U.S. 816 (1994). "A complaint may be dismissed under Rule 12(c) only if 'it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief" Deravin v. Kerik, 335 F.3d 195, 200 (2d Cir. 2003) (quoting Patel v. Searles, 305 F.3d 130, 135 (2d Cir. 2002),cert. denied, 123 S.Ct. 1486 (2003T): accord Hernandez v. Coffey, 2003 WL 22241431, at *1 (S.D.N.Y. Sept. 29, 2003). Under that test, a court "must view the pleadings in the light most favorable to, and draw all reasonable inferences in favor of, the nonmoving party." Davidson v. Flynn, 32 F.3d 27, 29 (2d Cir. 1994) (internal quotation marks and citation omitted); accord Hughes v. Lillian Goldman Family. LLC, 153 F. Supp.2d435, 439 (S.D.N.Y. 2001). A court is not required to accept as true, however, "conclusions of law or unwarranted deductions of fact." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994) (internal quotation marks and citation omitted), cert. denied, 513 U.S. 1079 (1995). The court must limit itself to the pleadings, documents attached to the pleadings as exhibits, and documents incorporated by reference in the pleadings. See Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir. 1999).
B. Choice of Law
The A/P Agreement and the Supply Agreements contain choice of law provisions specifying that Ohio law will apply. See A/P Agreement § 13.4, at 71; Supply Agreements § 18.2, at 9. "'[A]s a general rule, choice of law provisions . . . are valid and enforceable in [New York].'" Terwilliger v. Terwilliger, 206 F.3d 240, 245 (2d Cir. 2000) (second alteration in original) (quoting Marine Midland Bank v. United Mo. Bank, 223 A.D.2d 119, 122-23 (1st Dep't 1996)). "Absent fraud or violation of public policy, a court is to apply the law selected in the contract as long as the state selected has sufficient contacts with the transaction." Hartford Fire Ins. Co. v. Orient Overseas Containers Lines OHO Ltd., 230 F.3d 549, 556 (2d Cir. 2000) (citing Int'l Minerals Res, v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996)).
There are no allegations of fraud or a violation of public policy. Moreover, Ohio is alleged to have significant contacts with the transaction. See, e.g., A/P Agreement ¶ C, at 2 (Loctite's consumer business conducted through Manco, Inc., an Ohio corporation);id., § 1.1(b), at 4 (Acquired Assets include property in Solon, Ohio). Finally, as indicated at oral argument, the parties agree that Ohio law applies to this dispute. Accordingly, the Court will apply Ohio substantive contract law.
C. Applicable Legal Principles
"The interpretation of a written agreement is, in the first instance, a matter of law for the court." Crowninshield/Old Town Cmty. Urban Redey. Corp. v. Campeon Roofing Waterproofing. Inc., 719 N.E.2d 89, 92 (Ohio Ct.App. 1998) (per curiam). The court's primary objective in construing an agreement is "to ascertain and give effect to the intent of the parties, which can be found in the language they chose to employ." Id.: accord State ex rel. Maher v. Baker, 102 N.E. 732, 734 (Ohio 1913).
[A]bsent some special circumstance, such as a contractual definition, or a commercial or technical meaning acquired by usage and intended to be used by the parties, or a special meaning manifested in the contractual context, the entire [contract] must be considered and construed in a fashion which accords words and phrases therein their natural and usual meaning.
[A court's] inquiry is, therefore, directed to what may reasonably have been understood, and thus intended, from the [contract] as a whole, giving each part thereof its proportionate significance and the words and phrases used therein their usual and natural meaning. ___Gomolka v. State Auto. Mut. Ins. Co., 436 N.E.2d 1347, 1351 (Ohio 1982) (citations omitted).
Where a contract is clear and unambiguous, "the interpretation of the agreement involves an issue of law, and [a court] need not go beyond the plain language of the agreement or resort to rules of construction to determine the rights and obligations of the parties." Wolfer Enters., Inc. v. Overbrook Dev. Corp., 724 N.E.2d 1251, 1253 (Ohio Ct. App. 1999) (per curiam); accord Med. Billing. Inc. v. Med. Mgmt. Scis., Inc., 212 F.3d 332, 336-37 (6th Cir.) (interpreting Ohio law), cert. denied, 531 U.S. 1051 (2000); Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, 150 (Ohio 1978). In so doing, "[t]he intention of the parties must be derived . . . from the instrument as a whole, and not from detached or isolated parts thereof — "[o]ne may not regard only the right hand which giveth, if the left hand also taketh away." Gomolka, 436 N.E.2d at 1351. Accordingly, a court's "construction of the contract should attempt to harmonize all the provisions rather than produce conflict in them. To that end, no provision of the contract should be ignored as inconsistent if there exists a reasonable interpretation which gives effect to both."Otterv v. Bland, 536 N.E.2d 651, 654 (Ohio Ct.App. 1987) (citations omitted): accord Bleicher v. Univ. of Cincinnati Coll. of Med., 604 N.E.2d 783, 787 (Ohio Ct.App. 1992).
A court will resort to extrinsic or "parol" evidence "only where the language is unclear or ambiguous, or where the circumstances surrounding the agreement invest the language of the contract with a special meaning." Kelly v. Med. Life Ins. Co., 509 N.E.2d 411, 413 (Ohio 1987); accord Lincoln Elec. Co. v. St. Paul Fire Marine Ins. Co., 210 F.3d 672, 683-84 (6th Cir. 2000) (interpreting Ohio law). This is particularly true where, as here, the contract contains an integration clause. See, e.g., Winton Sav. Loan Co. v. Eastfork Trace. Inc., 2002 WL 1058146, at *2 (Ohio Ct.App. May 28, 2002); see also A/P Agreement § 13.3, at 71 (integration clause). Language is unclear or ambiguous when it is "reasonably susceptible of two or more constructions." McClorey v. Hamilton County Bd. of Elections, 720 N.E.2d 954, 957 (Ohio Ct.App. 1998);see also United Nat'l Ins. Co. v. Waterfront N.Y. Realty Corp., 994 F.2d 105, 107 (2d Cir. 1993) ("A word or phrase is ambiguous when it is capable of more than a single meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology . . . in the particular trade or business." (internal quotation marks and citation omitted)).
D. The A/P Agreement
This case represents the atypical situation in which two opposing parties have each argued that a contract unambiguously yields two contradictory interpretations. Permatex says the A/P Agreement requires that Loctite transfer the disputed technology/know-how to it. Loctite says the contract does not require that transfer.
Each side's position is examined separately.
1. Permatex's Argument
a. Section 1.1(i) and the "Acquired Assets." As noted, Section 1.1 of the A/P Agreement provides that Permatex would acquire "all" technology/know-how relating to the intangible assets of the Purchased Business, "except as set forth in Section . . . 1.2(g) hereof, as described on Schedule 1.1(i)." A/P Agreement § 1.1(i), at 6. Because the anaerobic technologies at issue relate to products sold in the Automotive Aftermarket Division, of which the "Purchased Business" is defined to include, see id., ¶ A, at 1-2, the technology/know-how for these technologies would appear to be included in the portion of Section 1.1(i) appearing prior to the "except" clause. This conclusion is supported by language contained in Schedule 1.1(i), which identifies the following as being transferred: "All production records, technical information[,] manufacturing know-how, processes, and trade secrets, relating or pertaining to the products of the Purchased Business wherever located." Id. sched. 1.1(i).
While the language of Section 1.1(i) covers the technology/know-how for the anaerobic technologies at issue, Loctite argues that the agreement should be read to cover only the "technical information and manufacturing know-how situated at the Kansas City and Solon facilities." Loctite Corporation's Reply Memorandum in Further Support of Its Motion for Judgment on the Pleadings and in Opposition to Plaintiffs Cross-Motion for Judgment on the Pleadings, filed August 15, 2003 (Docket #18) ("Def. Reply Mem."), at 6. There are three problems with this argument. First, Section 1.1 itself does not explicitly so state. Second, the "Purchased Business," defined in the A/P Agreement, was not limited to assets in Kansas City and Solon but included assets located "in the United States of America . . ., Canada, and Mexico." A/P Agreement ¶ A, at 1. Finally, Schedule 1.1(i) specifically provides the opposite inasmuch as it states that "[a]ll . . . technical information [and] manufacturing know-how . . . wherever located" would be transferred. Id. sched. 1.1(i) (emphasis added).
Loctite also argues that an additional clause in Schedule 1.1(i) shows that the technology/know-how could only have related to products manufactured at its plants in Kansas City and Solon. See Def. Reply Mem. at 6. This is the clause in Schedule 1.1(i) stating that the technology/know-how "will not be separately delivered." Loctite contends that this clause shows that the technology/know-how it was transferring must have related only to the products manufactured at the production facilities that were being transferred — that is, the Kansas City and Solon facilities. See A/P Agreement § 1.1(a)-(b), at 4. But the "separately delivered" clause in Schedule 1.1(i) does not alter or purport to alter Section 1.1(i)'s explicit statement that all the technology/know-how concerning products "relat[ing] or pertain[ing] to the Purchased Business" was being transferred. Id. § 1.1(i), at 6. In other words, read in conjunction with Section 1.1(i), the "separately delivered" clause merely addresses the manner by which the technology/know-how would be transferred — apparently excusing Loctite from physically delivering the technology/know-how to Permatex.
In sum, the text of Section 1.1(i) appears to transfer all technology/know-how relating to the anaerobic technologies at issue. If there were no other clauses or provisions relating to this technology/know-how, the contract would clearly transfer this technology/know-how to Permatex. But Section 1.1(i) itself comes with an important exception: the "except as set forth in Section . . . 1.2(g) hereof" clause. Thus, we turn next to Section 1.2(g).
b. Section 1.2(g) and the "Excluded Assets." As noted, Section 1.2 provides:
[T]here shall not be sold, assigned, transferred or delivered hereunder, and the term "Acquired Assets" shall not include, any of the following assets of [Loctite] (collectively, the "Excluded Assets") . . .:
. . . (g) for the duration of the [Permatex] Supply Agreement . . ., any rights to make, have made, use, or sell any product, product formulation or equivalent product substance derived from, identical, or substantially equivalent to the anaerobic, silicone or cyanoacrylate products or any chemically similar variation thereof manufactured by [Loctite] as of the Closing Date or thereafter, and including, without limitation, those described on Schedule 1.2(g) hereto. . . .Id. § 1.2(g), at 9-10. Section 1.2(g) serves two functions in the parties' arguments. First, it exists on its own as a provision defining one of the "Excluded Assets." Second — as just discussed — it is incorporated as an exception to Section 1.1(i)'s "Acquired Assets."
The first aspect of Section 1.2(g) can be disposed of quickly. Standing on its own, the provision deals only with Permatex's right to "make, have made, use, or sell" any of the products listed on Schedule 1.2(g) for a period coterminous with the Permatex Supply Agreement. It has nothing to do with the transfer of intellectual property, such as the technology/know-how. Loctite argues that Section 1.2(g) covers the technology/know-how based on its reference to "product formulation," which it views as equivalent to a "formula" or a "technology." But employing the doctrine of noscitur a sociis, it is obvious from the other words contained in Section 1.2(g) that "product formulation" refers only to aform of a product — not to a technology or formula used to make the product. See generally Ashland Chem. Co. v. Jones, 749 N.E.2d 744, 746 (Ohio 2001) ("Under [the doctrine of noscitur a sociis], where the meaning of a word is unclear, a court will look at the surrounding words to ascertain the doubtful word's meaning."). Loctite also makes much of the fact that the corresponding schedule, Schedule 1.2(g), lists anaerobic chemistries and is entitled, "Excluded Assets (Chemistries)." But this schedule merely serves to expand on the "chemical . . . variation[s]" of the products listed in Section 1.2(g). It does not purport to affirmatively exclude thetechnology/know-how related to these products and is in fact entirely consistent with Section 1.2(g) in that it sets forth theproducts that Permatex could not "make, have made, use, or sell" during the existence of the Permatex Supply Agreement.
Although the technology/know-how may not have been excluded by Section 1.2(g) standing on its own, if the technology/know-how were intended to be excluded by the "except" clause in Section 1.1(i), it would not have been transferred under the agreement. See A/P Agreement § 1.2, at 9 ("[Permatex] shall not be deemed by this Agreement to purchase . . . any tangible or intangible properties, assets or rights of [Loctite] not included in the Acquired Assets."). Thus, we now turn to the second aspect of Section 1.2(g): its function as an exception to Section 1.1(i)'s transfer of "all" the technology/know-how.
The use of Section 1.2(g) as an incorporated exception to Section 1.1 (i) presents a difficult question. Permatex argues that "[n]othing in Section 1.2(g) . . . addresses, much less excludes, the 'production records, technical information, manufacturing know-how, processes, [and] trade secrets' included in the Acquired Assets." PI. Mem. at 8-9 (second alteration in original) (quoting A/P Agreement § 1.1(i), at 6). In other words, Permatex argues that because Section 1.2(g) does not refer to the transfer of intellectual property (or, indeed, to the transfer of any property), its incorporation in Section 1.1(i) cannot be read to exclude the transfer of the technology/know-how.
The Court is loathe to reach this conclusion, however, since this interpretation would afford no function whatsoever to the "except" clause. See, e.g., Ottery, 536 N.E.2d at 654 ("[N]o provision of the contract should be ignored as inconsistent if there exists a reasonable interpretation which gives effect to both."). If the parties simply intended to prevent Permatex from "mak[ing], hav[ing] made, us[ing], or sell[ing]" the products, then Section 1.2(g) standing alone would have been sufficient. Section 1.2(g)'s incorporation as an "except" clause into Section 1.1(i) — a provision dealing with the technology/know-how for products and not the products themselves — would appear to demonstrate that the parties intended to excludesome transfer of technology/know-how otherwise transferred by Section 1.1(i). Thus, to give some meaning to the "except" clause, it must be interpreted to reflect the parties' effort to use Section 1.2(g) — albeit somewhat sloppily — to carve out from the transfer (otherwise effectuated by Section 1.1(i)) the technology/know-how for the anaerobic products described in Section 1.2(g) and incorporated by reference in Schedule 1.2(g). Under this interpretation, the technology/know-how was not part of the "Acquired Assets" and the matter would otherwise end in Loctite's favor.
However, Section 1.2(g) contains a caveat, stating that the exclusion reflected therein only applied "for the duration of the [Permatex] Supply Agreement" — three years — which has since expired.See Am. Compl. ¶ 13; Answer ¶ 13; Permatex Supply Agreement § 2, at 1. Thus, to give meaning both to the "except" clause in Section 1.1(i) and to the "for the duration of the [Permatex] Supply Agreement" clause in Section 1.2(g), the "except" clause in Section 1.1(i) must be interpreted to exclude the transfer of the technology/know-how for the anaerobic products listed in Section 1.2(g) and its accompanying Schedule 1.2(g), but only "for the duration of the [Permatex] Supply Agreement."
While this is the only interpretation of the A/P Agreement that gives effect to both the "except" clause and the "for the duration of the [Permatex] Supply Agreement" clause, it hardly can be said to be a clear statement of the intent of the parties. Nonetheless, if these were the only provisions of the agreement that dealt with the anaerobic technology/know-how, the Court might conclude that Permatex had the better argument and that it was entitled to receive this technology/know-how from Loctite.
2. Loctite's Argument
a. The Effect of the Recital Clauses. For its part, Loctite reads much into the recital clauses' providing that only "certain assets," A/P Agreement ¶ A, at 1, "certain . . . production know-how," id., and "certain products," id. ¶¶ C-D, at 2-3, would be transferred. See Def. Mem. at 3-5, 11-12; Def. Reply Mem. at 2, 4-6. Loctite argues that it necessarily follows that the A/P Agreement was not intended to cover "'all of the technologies used in manufacturing the Permatex business's products.'" Def. Mem. at 11 (quoting Am. Compl. ¶ 11). The term "certain," however, is far too vague to provide a description of what was included in the A/P Agreement. Additionally, the term is consistent with Loctite giving up "all" technology/know-how relating to the products that were the subject of the agreement. In any event, the recital clause relating to technology/know-how specifically states that the assets being transferred were "certain . . . production know-how, formulas, [and] formulation techniques . . . as further described herein." A/P Agreement Tf A, at 1-2 (emphasis added). Thus, the recital clause itself does not purport to identify what technology/know-how was being transferred.
Loctite made a separate argument regarding a proposed reading of the recital clauses for the first time at oral argument. Because of its untimeliness, that argument will not be considered here. See, e.g., Process Res. Corp. v. Delta Air Lines. Inc., 2000 WL 145114, at *7 (S.D.N.Y. Feb. 3, 2000). In any event, it would not have altered the Court's resolution of this matter.
A further problem with Loctite's reading of the recital clauses is Section 1.1(i) itself, which provides that Loctite was undertaking to transfer "all . . . technical information [and] manufacturing know-how . . . to the extent they relate or pertain to the Purchased Business." Id. § 1.1(i), at 6 (emphasis added). The more specific statement contained in Section 1.1 (i) must govern over any more general statements in the recital clauses, even if they might arguably favor Loctite's position. See, e.g., Ins. Co. of N. Am. v. Wells, 300 N.E.2d 460, 463 (Ohio Ct.App. 1973) (where general and specific contractual provisions conflict, "the specific article prevails over the general article"); see also Parkhurst v. Gibson, 573 A.2d 454, 458 (N.H. 1990) (applying the "generally accepted interpretive rule . . . that a general, preliminary clause should not ordinarily take precedence over specific provisions of a contract" and concluding that a clause, which "appear[ed] merely in a 'WHEREAS' paragraph," could not grant rights extending "beyond those particularly described in the agreement"). See generally Grynberg v. Fed. Energy Regulatory Comm'n, 71 F.3d 413, 416 (D.C. Cir. 1995) ("[I]t is standard contract law that a Whereas clause, while sometimes useful as an aid to interpretation, "'cannot create any right beyond those arising from the operative terms of the document.'"" (quoting Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2d Cir. 1985) (quotingGenovese Drug Stores. Inc. v. Conn. Packing Co., 732 F.2d 286, 291 (2d Cir. 1984)))).
Accordingly, any grant of "technical information" and "manufacturing know-how" to Permatex pursuant to Section 1.1(i) is not altered by the recital clauses.
b. Section 5.23. Loctite's best shot at a provision unambiguously cutting in its favor is Section 5.23, which is contained in the larger Article 5 of the A/P Agreement, entitled "Representations and Warranties of [Loctite]." A/P Agreement art. 5, at 16. In Section 5.23, Loctite "represents and warrants" to Permatex as follows:
Carve-Out Business. As set forth above in the Recitals to this Agreement, the Acquired Assets constitute a "carve-out" of the Purchased Business from [Loctite's] Consumer and Industrial Business. Consequently, and not by way of limitation, the Acquired Assets transferred do not include: (i) accounting systems and support; (ii) human resource systems; (iii) customer service; (iv) information and computer systems or technology; (v) any equipment know-how, or production rights to any chemical products associated with [Loctite's] anaerobic, cyanoacrylate. or silicone technologies; (vi) environmental health and safety services; or (vii) management personnel and, as constituted, do not comprise an entire business.Id. § 5.23, at 34 (emphasis added). Taken by itself, Section 5.23(v) is completely in accord with Loctite's position, as it states that Loctite was not transferring any "know-how" relating to the anaerobic technologies at issue. However, Section 5.23 is also not entirely free of ambiguity.
First, the representations and warranties in Article 5 last only for a period of two years. Id. art. 5, at 16; see Id. § 13.7, at 72. Seizing on this, Permatex argues that, regardless of the meaning of Section 5.23(v), it has already expired and thus is irrelevant to the contract analysis. See PI. Mem. at 21; PI. Reply Mem. at 9. The problem with Permatex's argument is that the two-year provision has no logical application to a representation such as Section 5.23, which purports to be a description of what actually was being transferred under the A/P Agreement. It cannot be that the parties' description of what was being transferred elsewhere in the A/P Agreement suddenly became meaningless and non-reflective of the parties' intent after a two-year period.
Permatex also notes that the reference in Section 5.23(v) is only to "know-how" and should not be deemed to be coterminous with the broader phrase contained in Section 1.1(i), which includes "technical information, manufacturing know-how, processes [and] trade secrets."See PI. Mem. at 19-21; Pl. Reply Mem. at 8-9. But "know-how" is a broad term and its common meaning could reasonably include the items listed in Section 1.1(i). See, e.g., Random House Webster's College Dictionary (2d ed. 1999), at 734 (defining "know-how" as "knowledge of how to do something; expertise").
Permatex's best argument on Section 5.23 is that it is not contained in an article that purports to grant or exclude assets. The A/P Agreement is structured by providing a list of "Acquired Assets" (Section 1.1) and a list of "Excluded Assets" (Section 1.2). There are no other provisions that purport to positively set forth the assets that were being transferred or excluded. Thus, it is somewhat awkward to examine a representations and warranties section at the very end of an agreement in order to determine what the parties intended to grant or exclude. Nonetheless, as already noted, the A/P Agreement is not entirely clear even when Permatex's strongest arguments are considered. It cannot be gainsaid that the description in Section 5.23 of what was purported to be excluded — even if not contained in the section that actually listed the excluded assets — might be reflective of the parties' intentions as to the assets being excluded from the sale.
E. Summary
The result of this analysis is that the A/P Agreement may be read in some parts to grant the disputed technology/know-how to Permatex and in other portions as excluding the disputed technology/know-how. Specifically, while Section 5.23 suggests that the parties did not intend that the disputed technology/know-how be included in the sale, Section 1.1(i), when read with Schedule 1.1(i) and Section 1.2(g), is open to the interpretation that the parties intended to include the disputed technology/know-how in the sale. In the end, this is a case where the agreement is "reasonably susceptible of two or more constructions,"McClorey, 720 N.E.2d at 957. Because the contract is "ambiguous," the Court must resort to extrinsic/parol evidence to determine the parties' intent. E.g., Kelly, 509 N.E.2d at 413. Such extrinsic evidence is not yet before the Court, however, as the parties have moved based solely on the terms of the A/P Agreement and the documents it incorporates.
Because determination of the meaning of the A/P Agreement must await the introduction of extrinsic evidence to reconcile its ambiguity, neither party is entitled to judgment on the pleadings.
Conclusion
For the foregoing reasons, Loctite's motion should be denied and Permatex's cross-motion should also be denied.
PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have ten (10) days from service of this Report and Recommendation to file any objections. See also Fed.R.Civ.P. 6. Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with extra copies sent to the Honorable Lewis A. Kaplan, 500 Pearl Street, New York, New York 10007, and to the undersigned at 40 Centre Street, New York, New York 10007. Any requests for an extension of time to file objections must be directed to Judge Kaplan. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See Thomas v. Am, 474 U.S. 140 (1985).