Judge Carpenter Denies Motion to Dismiss Breach of Contract and Indemnification Claims

May 16, 2019

Publication

In Cooper Industries, LLC v. CBS Corporation, C.A. No. N18C-03-175 WCC CCLD, Judge Carpenter denied defendant CBS Corporation’s motion to dismiss, which sought dismissal of plaintiff Cooper Industries, LLC’s breach of contract and indemnification claims.

This action arose out of a 1982 agreement for the sale of the lighting products business of Westinghouse Electric Corporation to Cooper Industries, Inc. (“CII”). Under the agreement, CII received ownership of “all real estate owned or used in the business, including plants and buildings [such as the Vicksburg Facility, now known as Cooper Lighting – Vicksburg (“Vicksburg Facility”)].” The plaintiff and the defendant both inherited the agreement as respective successors-by-merger to CII and Westinghouse.

The instant litigation concerned the defendant’s indemnity obligations under the 1982 agreement for the disposal of hazardous waste at the Vicksburg Facility. In 2012, the plaintiff conducted an investigation of the environmental conditions at the Vicksburg Facility. Based on that investigation, the plaintiff discovered that the soil and groundwater in certain areas at the Vicksburg Facility were contaminated. The plaintiff estimated that the potential environmental liability for the identified contamination was roughly $4 million and anticipated another $2 million in costs for the remediation.

Thereafter, the plaintiff sent an indemnification request to the defendant. The defendant refused to indemnify the plaintiff, claiming that its indemnification obligations only extended to costs and liabilities associated with a certain underground disposal site (as opposed to the facility as a whole). As a result, the plaintiff filed suit for breach of contract and declaratory judgment.

The defendant, in turn, moved to dismiss both the breach of contract and declaratory judgment claims. Specifically, the defendant argued that the applicable three-year statute of limitations had expired at the latest in 2015, when the plaintiff had full knowledge of the alleged hazardous substance disposals. The plaintiff argued that the statute of limitations did not begin running until the defendant refused to indemnify the plaintiff. The Court agreed with the plaintiff, stating that “a breach of contact presumably occurs when [the defendant] denies a request for indemnification . . . since that is the moment ‘the contract is broken.’” The Court held that the declaratory judgment claim was not time-barred for the same reasons that the breach of contract claim was not time-barred.

The defendant also moved to dismiss the declaratory judgment claim on the basis that it was duplicative of the breach of contract claim. The Court also rejected this argument, finding that the declaratory judgment claim was not duplicative of the breach of contract claim because “[t]he contract interpretation issues raised in [the plaintiff’s] declaratory judgment claim are entirely different from the issues raised in the breach claim.”

Analysis: Delaware courts will dismiss declaratory judgment claims duplicative of breach of contract claims. See, e.g., Veloric v. J.G. Wentworth, Inc., 2014 WL 4639217, at *20 (Del. Ch. Sept. 18, 2014). In this case, however, Judge Carpenter refused to dismiss the plaintiff’s declaratory judgement claim, explaining that the claim was “entirely different” from its breach of contract claim. The Court further expressed concern that dismissal of the plaintiff’s declaratory judgment claim would “open the door to endless litigation between the parties.” Additionally, the Court refused to dismiss based on the statute of limitations because a claim for breach of contract arises when the contract is broken, not when the actual damage results or is ascertained. Smith v. Mattia, 2010 WL 412030 (Del. Ch. Feb. 1, 2010). Here, the breach occurred when the defendant refused the request for indemnification, so the statute of limitation did not apply.