JLM v. US LLC (2011)

MEMORANDUM OF DECISION RE MOTION TO STRIKE # 128

INTRODUCTION

On or about November 20, 2008, the plaintiffs, JLM Industries, Inc. (JLM IND.) and JLM Marketing, Inc. (“JLM”) filed an action naming as defendants General Electric Company (“GE”), General Electric Plastics Mt. Vernon, Inc., (GE Mt. Vernon), Mt. Vernon Phenol Plant Partnership, Sabic Innovative Plastics U.S. LLC (“Sabic IP”), and Sabic Basic Industries Corporation (“Sabic”).   The original complaint contained seven counts including breach of agreement, breach of fiduciary duties, declaratory judgment and appointment of a receiver.   Thereafter, the plaintiffs amended the complaint on June 15, 2009 and again on February 22, 2010 (Second Amended Complaint).   The plaintiffs' Second Amended Complaint added the Eighth and Ninth Counts that are the subject of this Motion to Strike.   The plaintiffs' Third Amended Complaint with the same date as the Second Amended Complaint of February 22, 2010 was filed on June 14, 2010 in response to a Motion to Dismiss is the operative complaint.   On July 13, 2010, the Sabic defendants and GE filed a motion to strike the Eighth and Ninth Counts of the Third Amended Complaint.

The plaintiff submitted a memorandum in objection to the motion to strike dated February 11, 2011.   On March 18, 2011, the defendants submitted a reply memorandum in support of their motion to strike.

The court heard argument on April 27, 2011.

FACTUAL BACKGROUND

In November 1987, the plaintiff JLM IND and the defendants GE and the Texas Phenol Plant Limited Partnership entered into a Partnership Agreement.  (MVPPP Partnership Agreement).   In August of 2000 GE assigned its interest in the Partnership to its wholly owned subsidiary, GE Mt. Vernon.   In 2007 GE sold its equity interests in GE Mt. Vernon to an affiliate of the Sabic defendants.   The assignment of GE's partnership did not receive the consent of the plaintiffs.¹

After the filing of the present action, on November 11, 2009, the plaintiff gave notice of its demand for rights to have defendants purchase the plaintiff's partnership interest in accordance with § 11.04 of the MVPPP Partnership Agreement.   The plaintiffs contend that GE was required to purchase the plaintiff's interest within thirty days of the receipt of notice.   The defendants have refused to purchase the plaintiff's interest and the plaintiff contends that this is a breach of the Partnership agreement.

The plaintiff contends in the Eighth and Ninth Counts of the Third Amended Complaint that the defendant GE (Eighth Count) and Sabic Innovative Plastics Mt. Vernon (Ninth Count) are obligated to purchase its interest in the partnership because of the happening of an “event” pursuant to § 11.04(b) of the Partnership Agreement.

The defendants argue that the Third Amended Complaint alleges insufficient facts to demonstrate that the actions of the defendants triggered a purchase event pursuant to § 11.04 of the Partnership Agreement.   In particular, the defendants argue that the “event” relied upon by the plaintiff involves the claim that there has been pending more than 120 days a proceeding “against the Partnership seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any law” but that the plaintiff has not sufficiently plead an event pursuant to the provision.   In particular, the plaintiff has focused on the term “composition” of the partnership as the impetus for the § 11.04 event.   The plaintiff argues that the attempts to have the membership of the partnership recomposed satisfies the criteria to require a purchase of the plaintiff's interest.   Thus, the plaintiff alleges in the Eighth and Ninth Counts that the defendants are obligated to purchase their interest as established by the agreement.   The defendants allege that the agreement is not intended to apply to a situation involving the composition of the membership but instead is clearly intended to apply to a bankruptcy-type proceeding.   The defendants further allege that the pleadings do not contain fact but are simply legal conclusions.   Lastly, the defendants contend that the requirement that a proceeding be pending for more than 120 days cannot be satisfied by filing a civil action such as this case and then utilizing the action as the basis to satisfy the criteria in the provision.

DISCUSSION

“The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).  “[T]he moving party admits all facts well pleaded.”  RK Constructors, Inc. v. Fusco Corp. et al., 231 Conn. 381, 383 n.2, 650 A.2d 153 (1994).   It is fundamental that in determining the sufficiency of a [pleading] challenged by a [party's] motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted.”  (Internal quotation marks omitted.)   Gazo v. Stamford, 255 Conn. 245, 260, 765 A.2d 505 (2001).  “A motion to strike is the proper vehicle ․ to test whether Connecticut is ready to recognize some newly emerging ground of liability.”  (Internal quotation marks omitted.)   Ortiz v. Waterbury Hospital, judicial district of Waterbury, Docket No. CV 99 154112 (March 9, 2000, Pellegrino, J.) (26 Conn. L. Rptr. 547).   “If facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Internal quotation marks omitted.)  Batte–Holmgren v. Commissioner of Public Health, 281 Conn. 277, 294, 914 A.2d 996 (2007).  “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, supra, 498.   The court should “construe the complaint in the manner most favorable to sustaining its legal sufficiency.”  (Internal quotation marks omitted.)   Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117, 889 A.2d 810 (2006).   Further, our Supreme Court “will not uphold the granting of [a] motion to strike on a ground not alleged in the motion.”  Blancato v. Feldspar Corp., 203 Conn. 34, 44, 522 A.2d 1235 (1987).

“In ruling on a motion to strike, the court is limited to the facts alleged in the [challenged pleading].”  (Internal quotation marks omitted.)  Faulkner v. United Technologies Corp., supra, 240 Conn. 580.  “Where the legal grounds for such a motion [to strike] are dependent upon underlying facts not alleged in the ․ pleadings, the [party that filed the motion] must await the evidence which may be adduced at trial, and the motion should be denied.”  (Citations omitted;  internal quotation marks omitted.)  Liljedahl Bros., Inc. v. Grigsby, 215 Conn. 345, 348, 576 A.2d 149 (1990).  “It is of no moment that the defendants might prove facts which operate to bar the plaintiff's claim, the sole inquiry at this stage of the pleadings is whether the plaintiff's allegations, if proved, would state a basis for standing ․ [An] argument [that] would require the court to consider facts outside the face of the pleadings ․ would be improper on a motion to strike ․” (Citations omitted.)   Miller v. Insilco Corp., Superior Court, judicial district of New Haven, Docket No. 27 92 67 (May 22, 1990, Schimelman, J.) (1 Conn. L. Rptr. 651).

The motion to strike requires that the court review and interpret the provision in the Mt. Vernon Phenol Plant Partnership Agreement, § 11.04(b).  This provision provides:  ․ (b) [J]LM may, upon the happening of any 11.04(b) Event, require General Electric to purchase all of (but not less than all of) its interest in the partnership as provided in this Section 11.04(b) ․ (iii) As used herein, the term “11.04(b) Event” shall mean and refer to any one or more of the following:  ․ (D) The partnership makes a general assignment for the benefit of creditors, files a voluntary bankruptcy petition, becomes a subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceedings, files a petition or answer seeking for itself a reorganization, rearrangement, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any law, files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partnership in a proceeding of the type described above, or seeks, consents or acquiesces in the appointment of a trustee, receiver or liquidator of the Partnership or of all or any substantial part of the Partnership's property;  or one hundred twenty (120) days expire after the date of such commencement of a proceeding against the Partnership seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any law ․”

The defendants contend that the plaintiff has failed to allege sufficient facts to demonstrate that there is a breach of contract pursuant to § 11.04 of the MVPPP.   The impetus of this section is the pleading of an “Event” that would trigger the requirement of the purchase.   The plaintiff has utilized the filing of this complaint and the request for the declaratory judgment as to the composition as the triggering event.   The defendants argue that the language in § 11.04(b)(iii)(D) is related to an action such as bankruptcy and the present action does not provide facts to support an event that would support an action for a breach of contract pursuant to this provision.   For purposes of this motion, the § 11.04 event is defined by the agreement as “․ a general assignment for the benefit of creditors, files a voluntary bankruptcy petition, becomes a subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceedings, files a petition or answer seeking for itself a reorganization, rearrangement, arrangement, composition, readjustment, liquidation or dissolution or similar relief under any law ․” The interpretation of this language is crucial to whether the plaintiff has pled an “event” which would subject the defendants to liability for an alleged breach of the agreement.   The defendants adamantly argue that the provision applies only to bankruptcy type proceedings and that the court can clearly interpret the language in this manner.   The defendants also argue that the plaintiff's attempt to utilize the filing of this very action as required notice to file such a claim is improper and never intended by the agreement.   Lastly, the defendants contend that the plaintiffs have simply stated within Counts Eight and Nine legal conclusions with no facts to support a breach of contract.

The plaintiff argues that the language is not restricted to bankruptcy type actions and in the alternative the language is at least ambiguous which would be a basis to deny the motion to strike.   The plaintiff counters that the actions of the defendant in improperly assigning an interest and the actions thereafter have triggered the event language in § 11.04(b)(iii)(D).  The plaintiff contends that the provision for a proceeding for “composition” noted in § 11.04(iii)(D) would include an action requesting the change in the composition of the partnership as they allege in the present case.   The plaintiff relies upon the filing of the instant legal action in which Count Three seeks a declaratory judgment for the “composition” of the Partnership to satisfy the event language that includes “composition.”

The Partnership Agreement at issue is very detailed and precise with a number of varied provisions that controlled among many concerns, the operation, conduct and possible dissolution of the partnership.   Where there is definitive contract language, the determination of what the parties intended by their contractual commitment is a question of law.”  Thompson & Peck, Inc. v. Harbor Marine Const.   Corp., 203 Conn. 123, 131, 523 A.2d 1266 (1987).  “[A] contract must be construed to effectuate the intent of the parties, which is determined from the language used, interpreted in the light of the situation of the parties and the circumstances connected with the transaction ․ [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and ․ the language must be afforded its common, natural and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract.   Where the language of the contract is clear and unambiguous, the contract is clear and unambiguous, the contract is to be given effect according to its terms.”  (Internal quotation marks omitted).  PSE Consulting Inc. v. Frank Mercede & Sons, Inc., 267 Conn. 279, 90, 838 A.2d 135 (2004).

The court has reviewed the language of the agreement in § 11.04(b)(iii)(D) as well as the context in which the language in question is used.   Additionally, the court has viewed the agreement as a whole to ascertain the applicability of the various provisions and their interaction, if any.   The court agrees with the arguments of the defendants.   The defendants' claim that accepting the plaintiff's position would institute a procedure of permitting the plaintiff to initiate a legal action to create an “Event” as a means of obtaining a default is certainly a policy argument that has merit.   However, it is not solely this argument that has controlled the decision of this court.   The defendants' position that the composition referred to in the agreement is related to the litany of bankruptcy type “events” is consistent with the language of the agreement as a whole, the law defining composition which would be applicable in a provision as pronounced in this section and also the inclusion of the allegations of the Third Count.   The definition of composition cannot be taken out of context of its use with the terms bankruptcy, reorganization, benefit of creditors or the like to define its parameters.   The plaintiff encourages the court to define this term without considering the context but to do so would only misinterpret the meaning.   The term “composition” is defined in Black's Law Dictionary as “An agreement, made upon a sufficient consideration, between an insolvent or embarrassed debtor and his creditors, whereby the latter, for the sake of immediate or sooner payment, agree to accept a dividend less than the whole amount of their claims, to be distributed pro rata, in discharge and satisfaction of the whole.”   Black's Law Dictionary 357–58 (4th ed.1968).   It is also defined as “[a] n agreement between debtor and two or more creditors for the adjustment or discharge of an obligation for some lesser amount.”   Black's Law Dictionary 304 (8th ed.2004).   Connecticut case law defines composition in accord with the arrangement of creditors and debtors.   Ravitch v. Stollman Country Farms, 165 Conn. 135, 143, 328 A.2d 711 (1978), In Re Merriman Estate, 44 Conn. 587, 590 (1878).   Indiana law which plaintiff contends governs this action also defines composition in relation to a bankruptcy type of action.  Lutz v. Frick Co., 181 N.E.2d 14 (Ind.1962), Henry B. Gilpin Co. v. Moxley, 434 N.E.2d 14, 918–19 (Ind.Ct.App.1982).

The defendants also argue that the court ruling in CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F.Sup.2d 450, 468 (S.D.N.Y.2010), supports the interpretation of the agreement by the defendants that would restrict the event of default as a legal action in bankruptcy.   The CFIP court addressed several of the same issues in the instant action and noted particularly that allowing the plaintiff to file a lawsuit for a determination of the partners' members and calling it an action for “composition” would have the untenable result of turning any action by the Plaintiff into an Event of Default.  Id. at 470.   The court agrees with the reasoning in CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F.Sup.2d 450 (S.D.N.Y.2010).   The Third Amended Complaint has only one reference to the term “composition.”   This reference is contained in the declaratory judgment relief requested in the Third Count.   The use of this term in describing the basis of a declaratory judgment clearly is not a reference to any type of bankruptcy proceeding.   In paragraphs 12 thru 17 of the Third Count the plaintiff describes the transfer of an interest in the Partnership which it contends is the basis of the request for a declaratory judgment.   Paragraphs 15 and 16 establish the plaintiff's interpretation of composition when it states:  “Plaintiff has a legal interest by reason of uncertainty as to whether defendant Sabic (or Sabic Mt. Vernon or another of Sabic's affiliates) is a lawful partner of MVPPP.”   Paragraph 16 alleges that there is a question as to whether defendant Sabic (or others) “is a lawful partner of MVPPP.”   Thereafter, the plaintiff states that it “seeks a declaratory judgment determining the lawful composition of MVPPP ․” and that “defendant MVPPP shall not permit defendant Sabic, defendant Sabic Mt. Vernon (or one of its or their other affiliates) to act as a partner of MVPPP and shall recompose the Partnership as if the purported sale by defendant GE of its affiliates, interest in MVPPP had not taken place.”   Lastly, the Claims for Relief paragraph 6 states:  “A declaratory judgment directing that the composition of the Partnership be adjusted to exclude defendant Sabic, defendant Sabic Mt. Vernon or any of their affiliates.”   This Third Count assists in the determination and interpretation of the Partnership agreement because of what is lacking.   The plaintiff has not included any reference to § 11.04 within the allegations of the Third Count.   Instead in the Third Count, the plaintiff refers to the Partnership Agreement Section X which is a transfer of partnership interests.   This section defines the method and consequences of the transfer of any part or all of the interest of a partner to the agreement.   This section provides as the consequences for an improper transfer, the determination that the transfer is “void and without force and effect.”   The Third Count, paragraph 13 alleges that the transfer to Sabic is “invalid and void.”   Additionally, the references in the plaintiff's opposition to the motion to the prayer for relief does not refer to relief that would be consistent with the terms of § 11.04. The Third Count follows the language of Section X. Although the plaintiff now argues that a reading of the term “composition” in § 11.04 is appropriately linked to the Third Count, neither the Partnership Agreement nor the Third Amended Complaint provide the factual basis to do so.  “The court will not torture words to impart ambiguity where ordinary meaning leaves no room for ambiguity.”  Downs v. National Casualty Co., 146 Conn. 490, 494, 152 A.2d 316 (1959).

In reading the partnership agreement, it is apparent that the language regarding a Composition in § 11.04 is utilized in the context of a specific provision addressing bankruptcy or similar concerns.   The parties inclusion of this term within the paragraph that utilizes all other forms of bankruptcy-type actions supports a conclusion that there was a clear intent to apply this provision as intended to provide for a specific payment in the event of a bankruptcy.   The plaintiff has focused on one term from the section but the provision must be read as a whole to give depth to its meaning.   Even a reading of the phrase “or similar relief under any law” refers back to the terms demonstrating the financial hardship and solutions in bankruptcy, insolvency or assignment for the benefit of creditors.   It is far reaching to interpret this section which is clearly distinct from Section X to relate to a composition of members rather than a bankruptcy.

Given the allegations in the Eighth and Ninth Counts, there are no facts to support this claim.   The interpretation of the term composition is clearly intended to apply to a proceeding such as bankruptcy and not to a determination of the make-up of the partnership as is argued by the plaintiff.   Additionally, the notice provisions are not satisfied by the filing of the legal action which in itself alleges the violations of the very same provision.   Lastly, the facts pled regarding the “event” are strictly legal conclusions without a basis.   Therefore, the motion to strike the Eighth and Ninth Counts is granted.

THE COURT

Brazzel–Massaro, J.

FOOTNOTES

FN1. Section X of the MVPPP recites the terms for assignment, transfer or change in ownership..  FN1. Section X of the MVPPP recites the terms for assignment, transfer or change in ownership.

Brazzel–Massaro, Barbara, J.