         09-3854-cv, 09-4026-cv
         INEOS Americas LLC v. The Dow Chemical Company



 1                             UNITED STATES COURT OF APPEALS
 2                                 FOR THE SECOND CIRCUIT
 3
 4                                          SUMMARY ORDER
 5
 6   RULINGS BY SUM M ARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUM M ARY ORDER
 7   FILED ON OR AFTER JANUARY 1, 2007, IS PERM ITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
 8   PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. W HEN CITING A SUM M ARY ORDER IN A DOCUM ENT
 9   FILED W ITH THIS COURT, A PARTY M UST CITE EITHER TH E FEDERAL APPENDIX OR AN ELECTRONIC
10   DATABASE (W ITH THE NOTATION “SUM M ARY ORDER”). A PARTY CITING A SUM M ARY ORDER M UST SERVE
11   A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
12
13              At a stated term of the United States Court of Appeals for the Second Circuit, held at
14       the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New
15       York, on the 24th day of May, two thousand ten.
16
17       PRESENT:
18                   JOHN M. WALKER, JR.,
19                   CHESTER J. STRAUB,
20                   DEBRA ANN LIVINGSTON,
21                               Circuit Judges.
22       __________________________________________
23
24       INEOS Americas LLC and INEOS Oxide Limited,
25
26                       Plaintiffs-Appellants-Cross-Appellee,
27
28                       v.                                              09-3854-cv, 09-4026-cv
29
30       The Dow Chemical Company,
31
32                   Defendant-Appellee-Cross-Appellant.
33       __________________________________________
34
35       FOR APPELLANTS:                 RICHARD W. CLARY (RACHEL G. SKAISTIS, on the brief),
36                                       Cravath, Swaine & Moore, LLP, New York, NY
37
38       FOR APPELLEE:                   THOMAS J. MOLONEY (LEWIS J. LIMAN, on the brief), Cleary
39                                       Gottlieb Steen & Hamilton LLP, New York, NY
40
41
42
 1          UPON DUE CONSIDERATION IT IS HEREBY ORDERED, ADJUDGED, AND

 2   DECREED that the judgment of the district court be AFFIRMED.

 3          Plaintiffs-Appellants-Cross-Appellees INEOS Americas LLC and INEOS Oxide Limited

 4   (“INEOS”) appeal a December 9, 2008 order of the United States District Court for the Southern

 5   District of New York (Hellerstein, J.) granting Defendant-Appellee-Cross-Appellant The Dow

 6   Chemical Company’s (“Dow”) motion for summary judgment with regard to INEOS’s claims for

 7   equitable relief, including specific performance, and dismissing these claims. INEOS also appeals

 8   the district court’s August 12, 2009 award of nominal damages of $100 plus costs for Dow’s breach

 9   of contract. Dow is in agreement with the district court’s decisions regarding specific performance

10   and damages but, on cross-appeal, argues that the district court erred in determining that Dow

11   breached the contract. We assume the parties’ familiarity with the underlying facts, procedural

12   history, and the issues on appeal.

13   A.     Background

14          The relationship between INEOS and Dow began in 2000 following Dow’s proposed merger

15   with Union Carbide Corporation. The Federal Trade Commission (“FTC”), concerned about certain

16   anticompetitive aspects of the merger, insisted that Dow divest itself of its ethanolamines (“EOA”)

17   business as a condition for approval of the merger. Dow agreed to sell to INEOS its EOA plant in

18   Plaquemine, Louisiana. In connection with the sale of the EOA plant, Dow agreed to supply

19   ethylene oxide (“EO”), the primary feedstock for the production of EOA, to INEOS from Dow’s

20   contiguous EO plant. The terms for Dow’s ongoing sale of EO to INEOS are memorialized in the

21   contract at issue in the instant litigation, a Supply Agreement pursuant to which Dow is to supply

22   EO to INEOS over the 35-year term of the agreement.


                                                     2
 1           The Supply Agreement, in substance, states that INEOS must obtain from Dow and Dow is

 2   to supply to INEOS such quantities of EO as are necessary to satisfy INEOS’s requirements up to

 3   250 million pounds per year. The agreement also gives INEOS the option to purchase, in accordance

 4   with its requirements, up to 27 million additional pounds per year for use at the Plaquemine EOA

 5   plant, for a total of 277 million pounds per year. Critical to the instant dispute, Article 5.1(e) of the

 6   Supply Agreement provides:

 7               Expansion of EO Plant Capacity. If at any time after the eighteenth month
 8               after the Effective Date [Dow] proposes any expansion of the capacity of the
 9               EO Plant, it shall inform [INEOS] before implementing such proposal and
10               shall offer [INEOS] the opportunity to participate in the cost of financing
11               such expansion. If [INEOS] accepts such opportunity and participates in the
12               financing, the additional EO capacity which represents [INEOS’s] pro rata
13               share (based upon its share of the financing cost) of such expansion shall be
14               reserved for supply to [INEOS] at a price which represents the Cash Cost of
15               such EO. For these purposes “Cash Costs” means [Dow’s] actual cash costs
16               per lb. to produce such EO, which the Parties expressly agree excludes any
17               depreciation or amortization cost or financing costs or charges, but on the
18               basis that the cost of the ethylene used in such production shall be deemed to
19               be the price at which such ethylene could be acquired by [INEOS] taking into
20               account the then conditions of the ethylene market, but applying the same
21               assumptions as have been applied by the Parties in agreeing to the definition
22               of Ethylene Price based on market conditions at the date of this Agreement.
23
24           In 2003, Dow experienced fires at its EO plant and, as a result, decided to replace the oxygen

25   mixer in the plant. Dow named this project, which was completed during a May 2004 plant

26   shutdown, the Glycol II Capacity Increase Project (“Glycol II Project”). INEOS filed suit on

27   September 18, 2006, alleging breach of Article 5.1(e) of the Supply Agreement and seeking money

28   damages and specific performance. INEOS alleged that even though Dow anticipated a daily

29   capacity increase in EO production as a result of the Glycol II Project, Dow never advised INEOS

30   of this projected increase nor did Dow give INEOS an opportunity to share in the financing costs

31   under Article 5.1(e).

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 1          On December 9, 2008, ruling from the bench, the district court granted summary judgment

 2   in favor of Dow as to INEOS’s claim for specific performance, holding that “[a]ny breach of this

 3   contract is remediable by money damages and there has been no showing of irreparable damage or

 4   inability to recover money damages.” A ten-day bench trial on the remainder of INEOS’s claims

 5   began on June 1, 2009, and on June 18, 2009, the district court issued oral findings of fact and

 6   conclusions of law. The court determined that Article 5.1(e) is a valid and enforceable part of the

 7   Supply Agreement and that it was triggered by Dow’s expansion during the Glycol II Project,

 8   creating an obligation on Dow’s part to give notice to INEOS of the projected costs of the project

 9   and to invite INEOS to participate in the financing. Because Dow did not provide this notice to

10   INEOS, the court found, Dow breached Article 5.1(e). Nevertheless, the court determined that

11   because INEOS was aware that Dow was considering an expansion of plant capacity and because

12   INEOS did not “have the requirements level to ask for more [EO] and increase its obligation to

13   Dow,” INEOS was entitled to only nominal damages of $100 for Dow’s breach.

14          On appeal, INEOS contends that the district court erred in denying specific performance and,

15   alternatively, that the district court erred by awarding only nominal damages for Dow’s breach. In

16   reply, Dow urges us to affirm the district court’s determination of damages and its ruling on specific

17   performance. On cross-appeal, Dow argues that the district court erred in finding that Dow breached

18   Article 5.1(e). For the reasons that follow, we affirm the judgment of the district court.

19   B.     Specific Performance

20          We review a district court’s grant of summary judgment de novo. McBride v. BIC Consumer

21   Prods. Mfg. Co., 583 F.3d 92, 96 (2d Cir. 2009). Summary judgment is proper only when,

22   construing the evidence in the light most favorable to the non-movant, “there is no genuine issue as


                                                       4
 1   to any material fact and . . . the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

 2   56(c); McBride, 583 F.3d at 96. We review a district court’s decision to grant or deny the equitable

 3   remedy of specific performance for abuse of discretion. See Abrahamson v. Bd. of Educ. of

 4   Wappingers Falls Cent. Sch. Dist., 374 F.3d 66, 76 (2d Cir. 2004); Leasco Corp. v. Taussig, 473

 5   F.2d 777, 786 (2d Cir. 1973); see also Sheet Metal Workers’ Int’l Ass’n Local 19 v. Herre Bros.,

 6   Inc., 201 F.3d 231, 249 (3d Cir. 1999). “A district court abuses its discretion when it rests its

 7   decision on a clearly erroneous finding of fact or makes an error of law.” Citigroup Global Mkts.,

 8   Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 34 (2d Cir. 2010).

 9          The New York Uniform Commercial Code (“U.C.C.”), which both parties agree applies in

10   this case, provides that specific performance “may be decreed where the goods are unique or in other

11   proper circumstances.” N.Y. U.C.C. § 2-716(1). The comments to this section explain that

12   emphasis is placed on “the commercial feasibility of replacement” and that “inability to cover is

13   strong evidence of ‘other proper circumstances.’” Id. cmt. 2. “Specific performance is a proper

14   remedy . . . where the subject matter of the particular contract is unique and has no established

15   market value.” Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 415 (2001) (internal

16   quotation marks omitted). Finally, “[a]lthough the Code has liberalized the right to specific

17   performance, that remedy still remains extraordinary in character and is generally available only

18   when other remedies are in some way inadequate.” 4A Anderson on the Uniform Commercial Code

19   § 2-716:13 (3d ed. 2009).

20          The district court did not err in granting summary judgment to Dow on the issue of specific

21   performance and, to the extent the district court permitted INEOS to renew arguments related to its

22   request for specific performance at trial, the district court did not abuse its discretion in declining


                                                       5
 1   to award the requested relief. At the summary judgment stage, and also at trial, the undisputed

 2   evidence before the district court was that INEOS, at all times relevant to this dispute, was able to

 3   enter into short-term “tolling” agreements with alternative suppliers of EO in order to cover its

 4   current EO requirements. The district court did not err in concluding before trial that if INEOS’s

 5   costs under these tolling agreements proved to be higher than they would have been under the

 6   contract with Dow, the difference between INEOS’s cover price and the contract price would be

 7   easily computable and any harm flowing from the difference would be remediable with money

 8   damages. See N.Y. U.C.C. § 2-713(1). The trial evidence did not draw this conclusion into

 9   question. INEOS contends that specific performance was appropriate here because only long-term

10   contractual relationships position it to begin making plans to expand its EOA business. But this is,

11   in effect, an argument that INEOS should have been awarded specific performance based on the

12   possibility of an EOA plant expansion, not yet planned, to occur sometime in the indefinite future.

13   The district court did not err in declining to afford extraordinary relief based on a claim founded on

14   such “speculation [and] conjecture.” See Wolff & Munier, Inc. v. Whiting-Turner Contracting Co.,

15   946 F.2d 1003, 1010 (2d Cir. 1991).

16   C.     Breach

17          “In reviewing a district court’s decision in a bench trial, we review the district court’s

18   findings of fact for clear error and its conclusions of law de novo.” White v. White Rose Food, 237

19   F.3d 174, 178 (2d Cir. 2001). “Under the clearly erroneous standard, there is a strong presumption

20   in favor of a trial court’s findings of fact if supported by substantial evidence. We will not upset a

21   factual finding unless we are left with the definite and firm conviction that a mistake has been

22   committed.” Id. (internal quotation marks omitted). Although “[t]he matter of whether [a] contract


                                                       6
 1   is ambiguous is a question of law for the court,” Law Debenture Trust Co. of N.Y. v. Maverick Tube

 2   Corp., 595 F.3d 458, 465 (2d Cir. 2010), the interpretation of an ambiguous contract provision is a

 3   question for the factfinder that we review for clear error, see New Windsor Volunteer Ambulance

 4   Corps., Inc v. Meyers, 442 F.3d 101, 111-12 (2d Cir. 2006). “Where there are two permissible views

 5   of the evidence, the factfinder’s choice between them cannot be clearly erroneous.” Id.

 6           On cross-appeal, Dow argues that the district court erred when it determined that the Glycol

 7   II Project was a plant expansion triggering Article 5.1(e) and that Dow’s failure to notify INEOS of

 8   the proposed capacity increase and to offer INEOS a chance to participate was a breach of the Supply

 9   Agreement. We disagree. Central to its decision was the court’s finding that Dow projected an

10   increase in capacity as a result of the Glycol II Project from 1.7 million pounds of EO per day to 1.9

11   million pounds per day based on the plant’s “effective capacity.” Dow contends that this was error,

12   and that Article 5.1(e) contemplates not a measurement of the plant’s effective capacity, but rather

13   its maximum design capacity. We agree with the district court that, when viewed in the context of

14   the agreement as a whole, whether Article 5.1(e) refers to effective or design capacity is unclear from

15   the face of the agreement. Moreover, reviewing the evidence presented at trial, we cannot say that

16   the district court clearly erred in determining that “capacity” in Article 5.1(e) refers to a “practical”

17   measure of “what in practice [the EO plant] could reliably and safely produce over a consistent

18   period of time.” The district court’s choice between two permissible views of the evidence was not

19   clear error in this case. Similarly, the district court’s finding—after hearing testimony and viewing

20   evidence—that Dow projected an effective capacity increase in its EO plant from 1.7 million pounds

21   per day to 1.9 million pounds per day as a result of the Glycol II Project was not clearly erroneous

22   and we agree with the district court that this increase in capacity triggered Dow’s obligations under


                                                        7
 1   Article 5.1(e).

 2           Also on cross-appeal, Dow contends that even if the Glycol II Project resulted in a capacity

 3   increase triggering its notification obligations under Article 5.1(e), the district court erred in

 4   determining that the notice provided was inadequate to satisfy those obligations. We disagree. The

 5   district court determined that while INEOS was aware that the Glycol II Project was being

 6   undertaken by Dow, Dow told INEOS only that “this was a project to improve reliability” and that

 7   INEOS was not informed of the projected capacity increase. Given Article 5.1(e)’s requirement that

 8   if Dow “proposes any expansion of the capacity of the EO Plant, it shall inform [INEOS] before

 9   implementing such proposal and shall offer [INEOS] the opportunity to participate in the cost of

10   financing such expansion,” it was not error for the district court to find a breach in the circumstances

11   of this case. While Dow did inform INEOS that it was replacing the oxygen mixer at the plant,

12   Dow’s argument that it satisfied its Article 5.1(e) obligation because INEOS could have inferred how

13   much the project would cost and by how much the plant’s capacity would increase is unavailing.

14   The plain language of Article 5.1(e) provides that Dow’s notification obligation is more

15   specific—Dow was required to both inform INEOS before implementing a capacity increase

16   proposal and offer INEOS the opportunity to participate in financing. Since Dow indisputably did

17   not offer INEOS the opportunity to participate in financing the Glycol II Project, even if it notified

18   INEOS of aspects of its plans, it breached Article 5.1(e).

19   D.      Damages

20           “Although the amount of recoverable damages is a question of fact, the measure of damages

21   upon which [a] factual computation is based is a question of law.” Arch Ins. Co. v. Precision Stone,

22   Inc., 584 F.3d 33, 40 (2d Cir. 2009). We thus review de novo a district court’s calculation of


                                                        8
 1   damages. Id. Additionally, under New York law, “[i]t is fundamental to the law of damages that

 2   one complaining of injury has the burden of proving the extent of the harm suffered.” Berley Indus.,

 3   Inc. v. City of New York, 45 N.Y.2d 683, 686 (1978).

 4          Here, the district court determined that “[because] the Supply Agreement is a requirements

 5   contract, INEOS is entitled only to damages that correspond to its actual requirements.” Since

 6   INEOS, at the times relevant to Dow’s breach, was able to cover with tolling agreements its

 7   requirements beyond the 277 million pounds it could take from Dow under the Supply Agreement,

 8   and because INEOS’s costs under those tolling agreements were less than its costs would have been

 9   under the Supply Agreement, the district court found that INEOS was entitled to only nominal

10   damages.

11          INEOS now challenges this determination by contending that it was entitled to damages

12   under New York U.C.C. § 2-713 regardless of whether it required or could have accepted delivery

13   of the EO. That is, INEOS asserts entitlement to damages for all of the EO that Dow would have

14   been required to “reserve” for INEOS—without regard to its requirements—under Article 5.1(e) if

15   Dow had not breached and had INEOS accepted an offer to share in financing. We reject this

16   argument and agree with the district court that the purpose of the Supply Agreement, including

17   Article 5.1(e), is to provide INEOS with EO only up to its requirements. This purpose is reflected

18   in numerous provisions of the contract, including Article 2.1, which states that the “purpose of this

19   Agreement is for [INEOS] to obtain from [Dow] and [Dow] to supply [INEOS] such quantities of

20   EO as are necessary to satisfy [INEOS’s] requirements . . . for use in [INEOS’s] production of

21   products at the [Plaquemine Facility].” More specifically, various provisions of Article 5 refer to

22   INEOS’s requirements and there is nothing in the text of the Supply Agreement from which we


                                                      9
 1   could conclude that Article 5.1(e), unlike the rest of the Agreement, conveys upon INEOS an ability

 2   to demand from Dow EO in excess of its requirements.

 3           With this in mind, we affirm the district court’s award of nominal damages for Dow’s breach.

 4   Under New York U.C.C. § 2-306, governing requirements contracts, a contract term that measures

 5   quantity by the requirements of the buyer “means such actual . . . requirements as may occur in good

 6   faith.” N.Y. U.C.C. § 2-306(1). Here, since the Supply Agreement provides that INEOS is entitled

 7   to take from Dow only the EO it requires for production of EOA at its Plaquemine facility, INEOS’s

 8   good faith requirements cannot exceed the amount it is able to use at its Plaquemine facility. Given

 9   the testimony presented to the district court at trial, we find no clear error in the district court’s

10   conclusion that even had Dow performed under Article 5.1(e), INEOS “failed to prove that it would

11   have been able to take up additional capacity in any of the relevant years beginning in 2004” beyond

12   what it obtained from Dow under the Supply Agreement and what it was able to cover with lower-

13   cost tolling agreements. Therefore, because INEOS either obtained from Dow or obtained at a lower

14   cost from other sources all of the EO it required to produce EOA at the Plaquemine facility during

15   the period relevant to this action, INEOS has not met its burden of showing that it suffered

16   compensable damages as a result of Dow’s breach. See id. § 2-712(2) (explaining that a “buyer may

17   recover from the seller as damages the difference between the cost of cover and the contract price”);

18   id. § 2-713(1) (“[T]he measure of damages for non-delivery or repudiation by the seller is the

19   difference between the market price at the time when the buyer learned of the breach and the contract

20   price.”).

21           Because we affirm the district court for the reasons stated herein—including its determination

22   that the Glycol II Project was a capacity expansion under Article 5.1(e) and its award of nominal


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 1   damages—we need not reach the question briefed by INEOS whether the district court correctly

 2   calculated the extent of the EO plant expansion. We have considered the remainder of the arguments

 3   presented in this case and have determined that they do not affect our conclusions here.

 4          For the foregoing reasons, the judgment of the district court are hereby AFFIRMED.

 5
 6
 7
 8                                                FOR THE COURT:
 9                                                Catherine O’Hagan Wolfe, Clerk
10

11




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