                                                     EFiled: Dec 03 2015 01:58PM EST
                                                     Transaction ID 58243571
                                                     Case No. 10596-VCN
                           COURT OF CHANCERY
                                 OF THE
                           STATE OF DELAWARE
 JOHN W. NOBLE                                            417 SOUTH STATE STREET
VICE CHANCELLOR                                           DOVER, DELAWARE 19901
                                                         TELEPHONE: (302) 739-4397
                                                         F ACSIMILE: (302) 739-6179


                                December 3, 2015



Bradley R. Aronstam, Esquire                C. Malcolm Cochran, IV, Esquire
Ross Aronstam & Moritz LLP                  Richards, Layton & Finger, P.A.
100 S. West Street, Suite 400               920 N. King Street
Wilmington, DE 19801                        Wilmington, DE 19801

      Re:   Rexam Incorporated v. Berry Plastics Corporation
            C.A. No. 10596-VCN
            Date Submitted: July 24, 2015

Dear Counsel:

      Plaintiffs Rexam Incorporated, Rexam PLC, and Rexam Overseas Holdings

Limited (“Rexam”) and Defendant Berry Plastics Corporation (“Berry”) have a

dispute about the risks of potential pension liability. In March 2014, Berry agreed

to purchase Rexam’s Healthcare Containers and Closures business (the

“Transaction”) in accordance with the Equity Purchase Agreement.1            Berry

accepted responsibility for the pensions of certain employees at one of Rexam’s

facilities that it was acquiring (the “Rexam Pension Plan”).2 In May 2014, just

1
  The Equity Purchase Agreement, as amended, appears as Exhibits A & B to the
Verified Complaint (the “Compl.”).
2
  For convenience, Berry’s anticipated assumption of the Rexam Pension Plan is
referred to as the “Pension Plan Transfer.” Berry agreed to establish a new pension
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 2


before the anticipated closing, the Pension Benefit Guaranty Corporation (the

“PBGC”) notified Rexam that it had initiated an inquiry into the Pension Plan

Transfer (the “PBGC Inquiry”).3 The PBGC was concerned about the adequacy of

the funding for the pension plan that would become Berry’s obligation and Berry’s

ability to support the plan. More specifically, the inquiry was targeted at the

calculation of the assets and liabilities to be transferred to the new Berry plan.4

      The parties addressed the uncertainty introduced by the PBGC Inquiry in

advance of closing, which occurred on June 2, 2014. As part of the closing, they

executed the “Side Letter” in which they agreed to defer the Pension Plan Transfer

“until the earlier of (i) the date the PBGC issues written notification that the PBGC

Inquiry is closed (the ‘Resolution Date’) or (ii) one hundred and eighty (180) days

after the Rexam Closing Date [December 2, 2014] (the ‘Outside Date’) (such

period from the date of this letter until the earlier of the Resolution Date or the


program under the Employment Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 18, which would receive the assets and liabilities of the
Rexam Pension Plan.
3
  The PBGC had received notice of the Pension Plan Transfer in April 2014.
4
  The PBGC letter, dated May 6, 2014, requested information “[t]o assist the
PBGC in understanding the impact, if any, of the [Transaction] on the Rexam
Pension Plan.” Compl. Ex. C.
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 3


Outside Date, the ‘Standstill Period’).”5

      The parties then addressed how they would proceed upon expiration of the

Standstill Period:

      If the Standstill Period ends on . . . (ii) the Outside Date and there is
      no pending or threatened legal or administrative action by the PBGC
      with respect to the PBGC Inquiry, then . . . the parties shall complete
      the Rexam Pension Plan transfer as provided in the [Equity Purchase
      Agreement]. If the Standstill Period ends on the Outside Date and
      there is pending or threatened legal or administrative action by the
      PBGC with respect to the PBGC Inquiry, Berry may elect to
      (i) complete the Rexam Pension Pan transfer as provided in the
      [Equity Purchase Agreement] or (ii) cause the provisions of . . . the
      [Equity Purchase Agreement requiring Berry to accept the Pension
      Plan Transfer] to be void and of no effect. In the event Berry elects
      option (ii) in the immediately preceding sentence, [Rexam] shall
      retain all the pension assets and liabilities in the Rexam Pension Plan;
      and Berry will have no obligations or liabilities whatsoever with
      respect to the Rexam Pension Plan under the [Equity Purchase
      Agreement].6




5
  Compl. Ex. D (Consent to Defer Pension Plan Transfer (the “Side Letter”)). The
PBGC did not issue any written notification that it had closed the PBGC Inquiry.
Thus, the Resolution Date did not occur.
6
  Id.
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 4


      Information regarding the Rexam Pension Plan’s assets and liabilities, and

the underlying actuarial assumptions, had been provided to the PBGC 7 which on

June 9, 2014, one week after closing, responded with an email which advised:

      We received your letter dated June 4. Unfortunately, we disagree
      with your conclusions. While there may be assumptions other than
      PBGC’s that could be considered reasonable, we think the
      assumptions Rexam and its actuaries used (with the exception of the
      interest rate assumptions) to determine the asset transfer fall short of
      the reasonable standard. Furthermore, we are not convinced that this
      transfer satisfies the requirements for a de minimis spinoff under
      §1.414(1)-1(n)(2), or that the amount of assets being transferred meets
      the requirements of §1.414(1)-(1)(n)(1).

      We note that Rexam has chosen to transfer an underfunded plan . . . to
      a plan sponsor that is less likely to be able to support it, and are
      extremely disappointed that Rexam is not reconsidering its §414(1)
      spinoff assumptions. While PBGC does not plan to initiate legal
      action against Rexam at this time, we have not yet decided whether
      we will pursue this matter through the IRS and/or professional
      actuarial organizations.8

No other communications from the PBGC (or related governmental entities) have

been received about the Pension Plan Transfer since then.


7
  See, e.g., Compl. Ex. E (Rexam’s June 4, 2014 letter). Rexam advised the PBGC
that “the parties intend to move forward with the transfer of assets from the Rexam
Plan to the Berry Plan based on the actuarial assumptions negotiated by the parties
and specified in the Purchase Agreement.” Id.
8
  Compl. Ex. F (the June 9 email).
Rexam Incorporated v. Berry Plastics Corporation
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      The parties continued to work through various issues regarding the Pension

Plan Transfer, but, on December 2, 2014, the “Outside Date” established by the

Side Letter, Berry informed Rexam that it would not complete the Pension Plan

Transfer because it considered the June 9 email from the PBGC “evidence of a

pending or threatened legal or administrative action by the PBGC, which ha[d] not

been resolved as of December 2, 2014.”9

      According to Rexam, this action violated Berry’s duties under the Equity

Purchase Agreement and the Side Letter.        As a result, Rexam sent Berry an

indemnification notice advising Berry that it would seek to recover losses that it

would suffer if the Pension Plan Transfer did not occur.10

      In brief, this is a contract dispute. Berry contends that its performance—

acceptance of the Pension Plan Transfer—has been excused by the Side Letter

because of the PBGC Inquiry and, in particular, the PBGC’s email of June 9 which

constitutes evidence of a pending or threatened legal or administrative action by


9
 Compl. Ex. G.
10
  Section 11.2 of the Equity Purchase Agreement identified specific performance
as a remedy for the irreparable harm that Rexam would suffer in the event of a
breach of the Equity Purchase Agreement, including a breach of the Pension Plan
Transfer obligation.
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 6


the PBGC. Rexam, on the other hand, asserts that the June 9 email, and the

passage of almost six months without other PBGC action, demonstrates that there

was no “threatened PBGC action” as of the Outside Date and, thus, there is no

reason for Berry not to complete the Pension Plan Transfer.

      Rexam and Berry have both moved, under Court of Chancery Rule 12(c), for

judgment on the pleadings.11 A motion for judgment on the pleadings requires the

Court to “accept[] the non-moving party’s well-plead allegations as true and view[]

all reasonable inferences in the non-moving party’s favor.”12 “If a contract’s

meaning is unambiguous and the underlying facts necessary to its application are

not in dispute, judgment on the pleadings is an appropriate procedural device for

resolving the dispute.”13




11
   Berry has also moved for summary judgment in accordance with Court of
Chancery Rule 56.
12
   MPT of Hoboken TRS, LLC v. HUMC Holdco, LLC, 2014 WL 3611674 at *5
(Del. Ch. July 22, 2014).
13
   CorVel Enter. Comp., Inc. v. Schaffer, 2010 WL 2091212, at *1 (Del. Ch.
May 19, 2010).
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 7


      The parties do not disagree about the proper approach to interpretation of a

contract.14 Delaware law, with its objective theory of contracts, teaches that “a

contract’s construction should be that which would be understood by an

objective, reasonable third party.” 15 The Court strives to “give effect to the

parties’ intent based on the parties’ words and the plain meaning of those

words.” 16 When the parties debate the meaning of a contractual term, the Court

will, as a matter of law, select the interpretation that “better comports with the

remaining contents of the document or gives effect to all the words in dispute.” 17

      The question for the Court is deceptively easy to frame: as of December 2,

2014, was there a “threatened legal or administrative action by the PBGC with

respect to the PBGC Inquiry”?18 The focus of the Court’s efforts will be on how

to interpret “threatened,” but before reaching that issue, the Court must first

address a diversion created by Rexam regarding the import of “by the PBGC.”
14
   The Equity Purchase Agreement, at Section 11.9, provides that Delaware law
governs. By Section 11.10, the parties chose this Court for venue purposes. This
Court has subject matter jurisdiction under 10 Del. C. § 341 and 6 Del. C. § 2708.
15
   NBC Universal, Inc. v. Paxson Commc’ns Corp., 2005 WL 1038997, at *5 (Del.
Ch. Apr. 29, 2005).
16
   i/mx Info. Mgmt. Solutions, Inc. v. Multiplan, Inc., 2014 WL 1255944, at *5 (Del.
Ch. Mar. 27, 2014).
17
   Wills v. Morris James Hitchens & Williams, 1998 WL 842325, at *2 (Del. Ch.
Nov. 6, 1998).
18
    Compl. Ex. D. No such action was pending at the time, and Berry does not
contend otherwise.
Rexam Incorporated v. Berry Plastics Corporation
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Page 8


      Rexam argues that the “threatened” action must be one by and of the

PBGC and not by or of any other organization. 19 Berry suggests that its rights

would be triggered as long as the PBGC threatened action, whether the action

would be taken by the PBGC or by some other entity. Thus, according to Berry,

“by the PBGC” links to “threatened” and not to “action.” Whether (1) a threat

by the PBGC that the PBGC or some other entity would take action or (2) a

threat of action only to be taken by the PBGC was the intended meaning is less

than clear; both readings are semantically plausible.

      That, however, does not preclude an answer to the question because the

PBGC does not work in a vacuum. Its work, as prescribed by statute and as

demonstrated by undisputed facts, is intertwined with the special relationships

among various administrative agencies of the federal government with

overlapping or adjacent areas of direct responsibility. For example, the PBGC,

the Internal Revenue Service, and the Department of Labor are all charged with

administering ERISA. 20 The PBGC’s role in any decision to pursue pension plan

issues, such as the funding associated with the Pension Plan Transfer, is critical

and, even if it turned out to be, for example, that the IRS would be the

19
   In essence, Rexam argues that the contractual threshold question is whether the
PBGC threatened that the action would be undertaken and pursued by the PBGC.
20
   See, e.g., Blessitt v. Ret. Plan for Empls. of Dixie Engine Co., 848 F.2d 1164,
1167 (11th Cir. 1988).
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 9


governmental agency bringing the action, it would not only be an action by the

IRS, but also by the PBGC because their functions cannot be so conveniently

segregated. 21

      With that conclusion, the Court turns to the question of whether the PBGC

“threatened” action. The PBGC announced that it had no then-current plans to

bring any action. It did not use the word “threatened.” It did not say that if

something specific occurred, it would take action. Yet, it kept the possibility that it

would take action very much alive—a viable option.22

      What does the dictionary teach about the meaning of “threatened”? 23 One

dictionary, chosen because of proximity, offers the following definition of

“threatened”:
21
   As the June 9 email related, “we have not yet decided whether we will pursue
this matter through the IRS and/or [others].”
22
   Rexam emphasizes that for months after the PBGC’s email, the parties continued
as if the Pension Plan Transfer would be completed. It reasonably asks: “If Berry
knew of the PBGC’s concerns [and it did even before closing] and it had the
benefit of the PBGC email [which it did shortly after the Side Letter], then why did
it not raise objections before the very last day to do so?” That is a fair question,
but there is at least one simple and obvious answer: Berry had no duty under the
Side Letter to exercise its rights under the Side Letter until December 2, 2014.
23
   Drawing upon the dictionary is one method for ascertaining a word’s meaning.
Seaford Golf & Country Club v. E.I. duPont de Nemours & Co., 925 A.2d 1255,
1261 (Del. 2007). Nonetheless, the question is what did the parties intend, not
what some lexicologist thought.
Rexam Incorporated v. Berry Plastics Corporation
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December 3, 2015
Page 10


      1. To utter threats against; promise punishment, reprisal, or the like.

      2. To give forewarning of, as by a threat, sign, etc.; hence, to hang
      over as a threat; as famine threatens the city.24

Did the PBGC “utter a threat”?25 Probably not, because it did not state a present

intention to do anything.       Did it give warning that it might take action?

Undoubtedly, it reserved the option to take action. That leaves open the question

of whether advising that it “might” take action amounts to “threatened” action

(perhaps in the sense of “to hang over as a threat”) or whether the likelihood of any

action must drift closer to “would.”

      Fortunately, this is not a novel question. This Court has recently reflected

on the notion of “threatened.”26 It also started with the dictionary and framed the

“relevant inquiry” as “whether QMC ‘gave signs or warnings’ to Multiplan that it

was going to commence an Action regarding the Kaiser issue or announced to

Multiplan that it intended to, or that it was possible that it would, commence an

Action regarding the Kaiser issue.” Its analysis continued:

24
    Webster’s New Collegiate Dictionary 885 (1961) (italics omitted) (“Threaten
implies warning in words . . . .”).
25
   “Threat” is defined as “[t]he expression of an intention to inflict evil or injury to
another; menace; threatening; denunciation.” Id.
26
   i/mx, 2014 WL 1255944, at *6-7.
Rexam Incorporated v. Berry Plastics Corporation
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Page 11


      It appears that regardless of which definition is used, for QMC to have
      threatened to commence an Action against Multiplan, QMC would
      have to do more than simply notify Multiplan of a problem. Rather,
      QMC also must have expressed that it was going to do something
      about that problem, in such a way that a reasonable person would
      understand that QMC was intending to press the issue through a
      proceeding before a third party. In other words, . . . that “something”
      must be commencing an Action.27

      The PBGC brought uncertainty and risk to the Transaction. The Side Letter

was an effort to allocate (or to assuage concerns about) that risk. That the PBGC

(or one of its allied agencies) would take action did not have to be a certainty

before Berry could avoid responsibility for the Rexam Pension Plan. Yet, merely

because the PBGC had a problem with the Transaction would not have allowed

Berry a path to avoidance.28

      Whether action was “threatened” should not, in this instance, be determined

merely by focusing on a few isolated words in an email. Instead, the overall

substance of the PBGC Inquiry must be considered. In sum, on the one hand, the

PBGC identified concerns about the actuarial assumptions underlying the Pension


27
  Id. at *6.
28
   The drafters of the Side Letter chose a reasonable word: “threatened.” What
they apparently did not anticipate was the tepid, perhaps hesitant or equivocal,
PBGC response.
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 12


Plan Transfer; indeed, in the June 9 email, it reported that it believed that the

assumptions “[fell] short of the reasonable standard.” It observed that Rexam

“[had] chosen to transfer an underfunded plan.” Berry was viewed as “a plan

sponsor that is less likely to be able to support it.” The PBGC was “disappointed”

that Rexam was not reassessing its “spinoff assumptions.” There is little room for

doubt that the PBGC was quite unhappy with the Pension Plan Transfer.

        On the other hand, despite all its reservations about the transfer, the PBGC

gave no indication that it would do anything about the Pension Plan Transfer. It

simply stated that it “[did] not plan to initiate legal action . . . at this time,” and it

expressly (even if unnecessarily) noted that it had “not yet decided whether . . . [to]

pursue this matter.”29 Those ultimately are words of a frustrated governmental

agency that, at least as of the time of the email, did not anticipate or suggest that it

would likely pursue the matter. That is not a threat. It is merely an identification

or a reservation of options, but it certainly does not amount to a no action letter.

Nonetheless, the Side Letter allowed the Pension Plan Transfer to proceed with

less certainty than a no action letter would have provided. Berry thus accepted a


29
     Compl. Ex. F.
Rexam Incorporated v. Berry Plastics Corporation
C.A. No. 10596-VCN
December 3, 2015
Page 13


degree of uncertainty, and the status of the PBGC Inquiry, based on the record

before the Court, falls within that area of uncertainty that Berry accepted.

        On these facts, Berry is not without risk that the PBGC might act, but there

is nothing tilting in that direction. Ultimately, the PBGC has concerns and some

disagreement with the actuarial approach of the parties, but it had no present

intention to take any action and, at most, merely did what it had every right to do:

preserve its options. Nothing suggests that the PBGC was “intending to press the

issue . . . before a third party.”30 In this context and with the background of the

dispute, that position is not one of threat. As noted, that Berry agreed to accept

some risk is confirmed by its failure to require a “no further action” letter as a

condition precedent to its assumption of responsibility for the Rexam Pension Plan.

        The standard to which Berry and Rexam agreed is not whether it is possible

that the PBGC will elect to enforce. The parties seemingly sought to avoid such

speculation.     Instead, they agreed upon “threatened” and, while Berry’s

apprehension is certainly understandable, the PBGC did not threaten to take action.

It is a fine line, but sometimes fine lines must be drawn.


30
     See supra note 27 and accompanying text.
Rexam Incorporated v. Berry Plastics Corporation
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December 3, 2015
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         Accordingly, judgment on the pleadings will be entered in favor of Rexam

and against Berry.31

         Counsel are requested to confer and to submit an implementing form of

order.

                                      Very truly yours,

                                      /s/John W. Noble

JWN/cap
cc: Register in Chancery-K




31
   Berry suggests that Rexam cannot be entitled to judgment on the pleadings
because there are facts that need to be developed. If the question were simply:
what is the PBGC going to do?—then discovery might be necessary. The focus,
however, as framed by the Side Letter, is on whether the PBGC “threatened” to
take action, and that is to be determined by the communications from the PBGC
and actions of the PBGC. The Side Letter is not ambiguous, and the issue is
dependent upon an objective assessment of the PBGC’s conduct, not a subjective
evaluation of what it might be thinking. Thus, judgment on the pleadings is
appropriate, and Berry’s motion for summary judgment must be denied. In short,
there are no disputed material facts that obstruct the grant of judgment in this
instance.
