James Alford v. Kuhlman Corporation
716 F.3d 909
5th Cir.2013Background
- BorgWarner purchased Kuhlman and its subsidiaries, including KEC, in 1999 and the parties executed the Merger Agreement indemnifying KEC for pre-closing environmental liabilities.
- In 2005 the parties entered the Cooperation Agreement granting BorgWarner the right to settle Crystal Springs environmental cases on behalf of KEC, with BorgWarner indemnifying KEC for settlement and defense costs; Cooperation Agreement includes a waiver of recoupment.
- In 2010 the Master Settlement Agreement (MSA) set forth settlement payment terms to Lead Plaintiffs’ Counsel and stated settlements would release claims, and included a cross-reference to the Merger Agreement but stated it did not modify separate agreements.
- In August 2010 BorgWarner sued in Illinois to determine indemnity under the Merger Agreement; BorgWarner and Kuhlman sought a declaration that they had no obligation to defend or indemnify KEC.
- In February 2011 BorgWarner made the second and final MSA settlement payment; the district court denied KEC’s motion for declaration and specific performance and dismissed the case with prejudice; KEC appealed.
- The central issue is whether the Merger Agreement and Cooperation Agreement were incorporated into the MSA such that their terms govern the MSA’s enforcement and settlement obligations, or whether the MSA alone obligates BorgWarner to settle and release disputes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Merger Agreement is incorporated into the MSA | KEC argues the Merger Agreement’s terms are incorporated | BorgWarner argues no incorporation from the MSA | Not incorporated; MSA language insufficient to import Merger Agreement terms |
| Whether the Cooperation Agreement is incorporated into the MSA | KEC argues the Cooperation Agreement’s terms apply to MSA enforcement | BorgWarner argues no incorporation from the MSA | Not incorporated; Article 11.1 does not incorporate Cooperation Agreement terms into the MSA |
| Whether the MSA satisfied BorgWarner's obligations by the final settlement payment | KEA contends obligations extend beyond payment terms | BorgWarner contends the MSA requires only payment under Merger Agreement | MSA requires payment under Merger Agreement; after final payment, no further action under MSA needed |
| Whether the phrase ‘pursuant to’ suffices to incorporate extrinsic agreements | KEC argues it imports terms from Merger Agreement | BorgWarner argues not sufficient for incorporation | Phrase alone does not incorporate terms; no complete incorporation of Merger Agreement |
Key Cases Cited
- Guidry v. Halliburton Geophysical Servs., Inc., 976 F.2d 938 (5th Cir.1992) (contract interpretation governs; unambiguous terms reviewed de novo)
- In re Raymark Indus., Inc., 831 F.2d 550 (5th Cir.1987) (settlement contracts interpreted as contracts)
- LTV Educ. Sys., Inc. v. Bell, 862 F.2d 1168 (5th Cir.1989) (interpretation of contracts under Mississippi law)
- National Union Fire Ins. Co. v. Circle, Inc., 915 F.2d 986 (5th Cir.1990) (ambiguous vs. unambiguous contract interpretation)
- Wiley v. State Farm, Fire & Cas. Co., 585 F.3d 206 (5th Cir.2009) (four-corners approach; extrinsic evidence only for ambiguous contracts)
- One Beacon Ins. Co. v. Crowley Marine Servs., Inc., 648 F.3d 258 (5th Cir.2011) (incorporation by reference requires clear intent)
- Foster Wheeler Energy Corp. v. An Ning Jiang MV, 383 F.3d 349 (5th Cir.2004) (incorporation by reference limits to specified purpose)
- Galey v. World Mktg. Alliance, 510 F.3d 529 (5th Cir.2007) (incorporation by reference may import entire agreement if language explicit)
- Sorrells v. Alexander Bros., 144 So. 560 (Miss.1932) (state contract interpretation principles referenced)