     Case: 11-60728   Document: 00512253627     Page: 1   Date Filed: 05/24/2013




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                                                 FILED
                                                                May 24, 2013

                                 No. 11-60728                   Lyle W. Cayce
                                                                     Clerk

JAMES ALFORD; ALL PLAINTIFFS; RUTHIE ALLEN; WILLIE ALLEN;
REUBEN ANDERSON; ET AL,

             Plaintiffs - Appellees

v.

KUHLMAN ELECTRIC CORPORATION,

             Defendant - Appellant

v.

KUHLMAN CORPORATION; BORGWARNER, INCORPORATED,

             Defendants - Appellees




                 Appeal from the United States District Court
                   for the Southern District of Mississippi


Before STEWART, Chief Judge, GARZA, and ELROD, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
      Appellant Kuhlman Electric Corporation (“KEC”) appeals from the district
court’s order denying KEC’s motion for a declaration and specific performance
of the obligations of Appellee BorgWarner Inc. (“BorgWarner”) under the Master
Settlement Agreement, the Merger Agreement, and the Cooperation Agreement.
    Case: 11-60728    Document: 00512253627     Page: 2   Date Filed: 05/24/2013



                                 No. 11-60728

Because the terms of the Merger Agreement and Cooperation Agreement are not
incorporated into the Master Settlement Agreement, and BorgWarner fulfilled
its obligations under the Master Settlement Agreement, we AFFIRM.
                                       I
      In 1999, BorgWarner purchased Kuhlman Corporation (“Kuhlman”) and
all of its subsidiaries, including KEC. BorgWarner, Kuhlman, and KEC then
entered into an Agreement and Plan of Merger (“Merger Agreement”) whereby
BorgWarner sold KEC to KEC Acquisition Corporation (“KAC”). In the Merger
Agreement, Kuhlman and BorgWarner agreed to indemnify KEC and hold KEC
harmless with respect to any damages, expenses or obligations incurred related
to all liabilities for pre-closing environmental matters. The Merger Agreement
is governed by Illinois law. Prior to, and at the time of BorgWarner’s purchase,
KEC owned a facility in Crystal Springs, Mississippi where it manufactured
transformers. Shortly after KEC’s sale to KAC, environmental contamination
was discovered at Crystal Springs, and groups of plaintiffs began filing suit.
      In 2005, BorgWarner, KEC, and Kuhlman also entered into a Joint
Defense and Confidentiality Agreement (“Cooperation Agreement”).             The
Cooperation Agreement provides that KEC will allow BorgWarner to settle the
Crystal Springs chemical exposure cases on its behalf and will cooperate with
BorgWarner’s settlement efforts, and in exchange BorgWarner will indemnify
KEC and its affiliates with respect to settlement amounts and defense costs and
expenses. The Cooperation Agreement states BorgWarner “shall waive any and
all claims it may have against” KEC “to recoup or otherwise recover or be
reimbursed for amounts paid in connection with such settlements.”            The
Cooperation Agreement is governed by Illinois law.
      In 2007 the plaintiffs filed the instant action in this court alleging that
Kuhlman, KEC and BorgWarner improperly and negligently disposed of
substances containing toxic chemicals at the Crystal Springs site, such

                                       2
    Case: 11-60728    Document: 00512253627      Page: 3   Date Filed: 05/24/2013



                                 No. 11-60728

negligence resulting in injuries to the plaintiffs. The defendants have not filed
any cross or counterclaims against each other.
      In July 2010 the parties entered into a Master Settlement Agreement
(“MSA”). Article 5.1 states in relevant part,
      BorgWarner will cause the settlement funds to be paid to Lead
      Plaintiffs’ Counsel, in trust and for the use and benefit of the
      Crystal Springs Claimants. BorgWarner shall make payments of
      the Settlement Funds on behalf of [KEC] pursuant to the
      Agreement and Plan of Merger [Merger Agreement] (dated as of
      August 30, 1999) among BorgWarner, [KEC] and other entities.
Upon BorgWarner’s payment of two settlement installments to plaintiffs’ counsel
in the amount agreed upon by the parties, the MSA requires the plaintiffs’
claims to be dismissed with prejudice. The MSA also states nothing in its
contents “should be construed to impair, change, or modify any separate
agreement among BorgWarner and Kuhlman Corporation . . . on the one hand,
and [KEC] and its affiliates on the other hand.” The MSA is governed by
Mississippi law.
      In August 2010, BorgWarner filed a lawsuit in Illinois state court
concerning the obligation of BorgWarner and Kuhlman to indemnify KEC under
the Merger Agreement. BorgWarner and Kuhlman allege that KEC violated
provisions of the Merger Agreement and thereby relieved BorgWarner and
Kuhlman of their obligations under the Merger Agreement to defend and
indemnify defendants for any of the pending defense and indemnification claims.
BorgWarner and Kuhlman requested, inter alia, that the Illinois court declare
they do not have any obligation under the Merger Agreement to defend or
indemnify KEC with respect to the pending defense and indemnification claims.
      KEC filed in this court a motion for declaration and specific performance
of, BorgWarner’s obligations under the MSA, the Merger Agreement, and the
Cooperation Agreement. In February 2011, BorgWarner made its second and


                                       3
    Case: 11-60728      Document: 00512253627      Page: 4    Date Filed: 05/24/2013



                                   No. 11-60728

final settlement payment required by the MSA. BorgWarner and the plaintiffs
opposed KEC’s motion. Having made all required settlement payments under
the MSA, BorgWarner filed a motion, joined by the plaintiffs, to dismiss the
plaintiffs’ claims with prejudice. The district court denied KEC’s motion and
granted Borg Warner’s motion to dismiss with prejudice. KEC appealed.
                                         II
      “A settlement agreement is a contract.” Guidry v. Halliburton Geophysical
Servs., Inc., 976 F.2d 938, 940 (5th Cir. 1992) (citing In re Raymark Indus., Inc.,
831 F.2d 550, 553 (5th Cir. 1987)). The interpretation of an unambiguous
contract is a question of law, subject to de novo review. Id. (citing LTV Educ.
Sys., Inc. v. Bell, 862 F.2d 1168, 1172 (5th Cir. 1989)). Only where an agreement
is ambiguous, such that its construction turns on a consideration of extrinsic
evidence, do we review the district court’s interpretation for clear error. Id.
(citing Nat’l Union Fire Ins. Co. v. Circle, Inc., 915 F.2d 986, 989 (5th Cir. 1990)).
                                         III
      The case sub judice is between the Crystal Springs plaintiffs on one hand
and BorgWarner, Kuhlman, and KEC on the other hand.                    Because the
defendants have filed no counterclaim or cross-claim among themselves, the
terms of the defendants’ Merger Agreement and the Cooperation Agreement are
not relevant unless their terms are incorporated into the MSA.
      The district court held neither the Cooperation Agreement nor the Merger
Agreement is expressly incorporated into the MSA and neither agreement
modifies the settlement payment provision of the MSA. Because the MSA does
not mention the Cooperation Agreement in relation to settlement payments or
in any provision relevant to settlement payments, the district court held the
Cooperation Agreement was inapplicable to its determination of whether the
MSA had been satisfied. The district court further held the single reference to
the Merger Agreement in the payment provision of the MSA was not sufficient

                                          4
    Case: 11-60728    Document: 00512253627     Page: 5   Date Filed: 05/24/2013



                                 No. 11-60728

to incorporate additional terms from the Merger Agreement into the MSA. The
district court held the requirement that BorgWarner pay “pursuant to the
Merger Agreement,” simply referred to the Merger Agreement as the basis for
the general obligation of BorgWarner to indemnify KEC. Because the district
court did not find any ambiguity in the MSA, the district court did not look
outside the four corners of the agreement in determining neither the
Cooperation Agreement nor the Merger Agreement added terms to the MSA.
       KEC asserts the Merger Agreement and Cooperation Agreement add
terms, most significantly a waiver of recoupment of settlement payments, to
those expressly provided in the payment provisions of the MSA. Because the
MSA states BorgWarner must make settlement payments “pursuant to” the
Merger Agreement, KEC contends the terms of the Merger Agreement are
applicable to the enforcement of the MSA. KEC alleges the Merger Agreement’s
requirement that BorgWarner hold KEC harmless for all costs and liabilities
relating to the settlement is incorporated into the MSA. KEC asserts the
Cooperation Agreement is also relevant to the enforcement of the MSA. KEC
admits the MSA’s payment provisions contain no reference to the Cooperation
Agreement.    KEC contends (1) the Cooperation Agreement “reinforces” or
“reaffirms” the fact the MSA requires BorgWarner to hold KEC harmless; (2) the
Cooperation Agreement is included in the MSA’s four corners through a
reference in Article 11.1 of the MSA to “separate agreements among” the parties;
or (3) the MSA should be interpreted “with” the Cooperation Agreement. In any
event, KEC alleges the terms of the Cooperation Agreement are relevant to
determining BorgWarner’s obligations under the MSA.          KEC requests we
reverse and remand mandating the district court enforce the MSA with an order
stating Borg Warner is barred from seeking to recover the settlement funds from
KEC.



                                       5
    Case: 11-60728     Document: 00512253627      Page: 6    Date Filed: 05/24/2013



                                  No. 11-60728

      “Under Mississippi law, if a contract incorporates another document by
reference, both documents must be read together to give full effect to the intent
of the parties.” Galey v. World Mktg. Alliance, 510 F.3d 529, 532 (5th Cir. 2007)
(citing United Miss. Bank v. GMAC Mortg. Co., 615 So.2d 1174, 1176 (Miss.
1993)). Because settlement agreements are contracts, they are subject to general
rules of contract interpretation. See West v. West, 891 So. 2d 203, 210 (Miss.
2004). Mississippi’s three-tiered approach to contract interpretation requires
courts to first apply the four corners test, focusing exclusively on the objective
reading of the words employed in the contract, to the exclusion of parol and
extrinsic evidence. Wiley v. State Farm Fire & Cas. Co., 585 F.3d 206, 211 (5th
Cir. 2009). Only if the language of the contract is unclear can courts employ
canons of construction or parol evidence. Id.; One S., Inc. v. Hollowell, 963 So.2d
1156, 1163–64 (Miss. 2007) (holding consideration of parol or extrinsic evidence
is impermissible where contract is unambiguous).            The mere fact parties
disagree about the meaning of the contract does not render the contract
ambiguous as a matter of law. Wiley, 585 F.3d at 212.
      The MSA’s statement in Article 5.1 that “BorgWarner shall make payments
of the Settlement Funds on behalf of [KEC] pursuant to the [Merger Agreement]”
is insufficient to incorporate the terms of the Merger Agreement into the MSA.
There is no authority under Mississippi law for the proposition that this reference
could suffice to incorporate the Merger Agreement’s requirement that
BorgWarner hold KEC harmless. Courts applying Mississippi law have found a
contract incorporates terms from another agreement where the contract explicitly
adopts the entire agreement or explicitly references particular terms in the
agreement. See, e.g., Galey, 510 F.3d at 532; Perry v. U.S., 146 F.2d 398, 400 (5th
Cir. 1945) (“[A] reference in subcontract to the provisions, plans and
specifications of a general contract imports them into the subcontract where not
inconsistent with its terms . . . .”). In Galey we held an arbitration agreement

                                         6
    Case: 11-60728     Document: 00512253627       Page: 7    Date Filed: 05/24/2013



                                   No. 11-60728

incorporated the entirety of the National Association of Securities Dealers rules
by reference where agreement provided for “arbitration in accordance with the
rules then in effect of the National Association of Securities Dealers, Inc. (NASD).
Such arbitration shall follow the procedures as set forth by a national arbitration
committee of the NASD.” Id. The language in the MSA referencing the Merger
Agreement is far more limited in scope than the language we held sufficient to
incorporate the NASD rules in Galey.           The MSA does not reference the
“provisions, plans and specifications of” the Merger Agreement. See Perry, 146
F.2d at 400. The MSA merely states BorgWarner shall make the settlement
payments “pursuant to the Merger Agreement.” See One Beacon Ins. Co. v.
Crowley Marine Servs., Inc., 648 F.3d 258, 267 (5th Cir. 2011) (holding that
where a contract shows a “clear intent” to incorporate an extrinsic agreement
both instruments will be read together). Therefore, the disputed phrase did not
suffice to incorporate the Merger Agreement into the MSA.
      The term “pursuant to” has multiple meanings and its use does not
automatically trigger incorporation of the referenced agreement or statute. “The
term ‘pursuant to’ is generally defined as ‘in compliance with; in accordance with;
under [or] . . . as authorized by . . . [or] in carrying out.” United States v. DeCay,
620 F.3d 534, 544 (5th Cir. 2010) (quoting Black’s Law Dictionary (8th ed. 2004)).
The context of the sentence determines whether the phrase merely references the
source of an obligation or actively incorporates an extrinsic agreement. See, e.g.,
In re Phar-Mor, Inc., 172 F.3d 270, 274 (3d Cir. 1999) (holding where court
dismissed an action “pursuant to the terms of the Settlement,” phrase did not
suffice to incorporate terms of the settlement agreement into the dismissal order).
Here, in the context of the MSA, the phrase “pursuant to” refers to the Merger
Agreement only as the basis for BorgWarner’s payment obligation.
      At the very least the MSA’s mere reference to BorgWarner’s obligation to
make settlement payments “pursuant to” the Merger Agreement does not,

                                          7
    Case: 11-60728     Document: 00512253627       Page: 8    Date Filed: 05/24/2013



                                   No. 11-60728

without more, incorporate the Merger Agreement’s requirement that BorgWarner
hold KEC harmless. See Foster Wheeler Energy Corp. v. An Ning Jiang MV, 383
F.3d 349, 358 (5th Cir. 2004) (“It is well settled that a reference by contracting
parties to an extraneous writing for a particular purpose makes it a part of their
agreement only for the purpose specified.”). “While discussion of incorporation
by reference is often framed in terms which suggest the complete absorption of
one document into another, it is important to note that when incorporated matter
is referred to for a specific purpose only, it becomes a part of the contract for that
purpose only, and should be treated as irrelevant for all other purposes.” 11
Williston on Contracts § 30:25 (4th ed.); see also Sorrells v. Alexander Bros., 144
So. 560, 560 (Miss. 1932) (“Fact that log sawing contract referred to cutting and
hauling contract for description of timber and land did not make cutting and
hauling contract, which provided for cutting and hauling of all merchantable
timber, govern as to quantity of timber to be sawed . . . .”); Guerini Stone Co. v.
P.J. Carlin Const. Co., 240 U.S. 264, 278 (1916) (holding statement in subcontract
that work would be done in accordance with drawings and specifications
delivered by general contractor merely specified what work was to be done and
in what manner but did not incorporate terms from the general contract to
subcontract). Therefore, while the MSA arguably incorporated the Merger
Agreement’s requirement that BorgWarner make the settlement payments, the
language in Article 5.1 does not suffice to incorporate the Merger Agreement’s
requirement that BorgWarner hold KEC harmless.
      KEC’s contention that the MSA incorporated the Cooperation Agreement’s
terms through MSA Article 11.1 strains credulity. Article 11.1 states that
nothing in the MSA’s contents “should be construed to impair, change, or modify
any separate agreement among BorgWarner and Kuhlman Corporation . . . on
the one hand, and [KEC] and its affiliates on the other hand.” Merely because
the MSA does not change the terms of the separate agreements between the

                                          8
    Case: 11-60728    Document: 00512253627     Page: 9   Date Filed: 05/24/2013



                                 No. 11-60728
parties provides no basis for incorporating the terms of those separate
agreements into the MSA. KEC has provided no authority for its position that
this language suffices to incorporate the terms of the Cooperation Agreement into
the MSA. As such, the terms of the Cooperation Agreement are not incorporated
into the MSA.
      The MSA has only one condition for release: payment of the settlement
funds pursuant to the Merger Agreement.          As such, BorgWarner’s final
settlement payment to the plaintiffs fulfilled BorgWarner’s obligations under the
MSA. No further action is necessary to enforce the MSA. Our holding does not,
of course, prevent KEC from litigating its claims of breach of the Merger
Agreement or the Cooperation Agreement in the Illinois proceeding.
                                       IV
      KEC filed a motion to supplement the record, or alternatively, to take
judicial notice of relevant admissions by BorgWarner and Kuhlman Corporation
in a separate suit. We denied KEC’s motion to supplement the record on appeal
and carried the motion to take judicial notice of relevant admissions with the
case. Because we hold the language in the MSA is unambiguous, see Wiley, 585
F.3d at 210 (holding where contracts are unambiguous extrinsic evidence is
inadmissible), we DENY KEC’s motion to take judicial notice of admissions by
BorgWarner and Kuhlman Corporation.
                                       V
      For these reasons, we AFFIRM.




                                       9
   Case: 11-60728     Document: 00512253627     Page: 10      Date Filed: 05/24/2013



                                 No. 11-60728
JENNIFER WALKER ELROD, Circuit Judge, dissenting:
      I respectfully dissent. I disagree with the majority opinion’s conclusion
that the Master Settlement Agreement (“MSA”) does not incorporate the terms
of the Agreement and Plan of Merger. Moreover, even if the majority opinion’s
interpretation of the MSA were correct, Texas Employers Association v. Jackson,
862 F.2d 491 (5th Cir. 1988), and its progeny would bar the declaratory relief
Kuhlman Electric Corporation seeks; therefore, the district court should not have
considered the merits of the motion for declaratory relief.




                                       10
